SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A
(AMENDMENT NO. 1 TO FORM 8-K)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
APRIL 14, 1998
Date of Report
OCTOBER 5, 1998
Date of Amendment
(APRIL 3, 1998)
(Date of earliest event reported)
TATONKA ENERGY, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA, U.S.A. 73-1457920
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
000-10701
--------------------------
(Commission File Number)
9603 WHITE ROCK TRAIL, SUITE 100
DALLAS, TEXAS
(Address of principal executive offices)
75238
(ZIP Code)
(214) 340-9912
(Registrant's telephone number, including area code)
<PAGE>
FORM 8-K/A
(AMENDMENT NO. 1 TO FORM 8-K)
This is Amendment No. 1 to the Form 8-K filed April 20, 1998, by
Tatonka Energy, Inc. The Items set forth below are amended, and the audited
financial statements of Phy.Med., Inc. are filed, with this document.
Item 1. Change in Control of Registrant
On April 3, 1998, George C. Barker, ("Barker"), individually and as
Trustee for the Phy.Med., Inc. Employee Stock Ownership Plan (the "ESOP"),
acquired control of the Registrant. Prior to such date, such parties owned all
the outstanding shares of Phy.Med., Inc., a Texas corporation ("PhyMed"), and on
such date they acquired from the Registrant, in the aggregate, immediate
ownership of and the right to receive an aggregate of 68,915,409 authorized but
unissued shares of Common Stock, $.001 par value, of the Registrant, as
presently constituted, which, if all such shares were presently outstanding,
would constitute 87.9% of the Registrant's then outstanding 78,430,965 shares of
Common Stock (86.9% of the 79,331,896 shares which would be outstanding on a
fully diluted basis).
The terms of the acquisition contemplate a 1-for-10 reverse stock
split which will become effective shortly after the 1998 Annual Meeting of
Shareholders. Upon the effectiveness of such reverse split, Barker and the ESOP
will own 6,891,541 shares of 7,843,097 shares, $.01 par value, outstanding
(7,933,190 shares on a full diluted basis). (The Registrant will continue to
have 50,000,000 shares of Common Stock authorized.)
Barker is the sole trustee of the ESOP and as such has the power to
vote the shares owned by the ESOP. Barker and his wife, Judith F. Barker, own in
the aggregate approximately 70% of the vested interests of the participants in
the ESOP.
On March 6, 1998, certain parties entered into an Agreement and Plan
of Reorganization and Merger (the "Agreement"). The parties were Barker and the
ESOP, in their capacity as the shareholders of PhyMed, PhyMed itself, the
Registrant and Tatonka Subsidiary, Inc., a newly-formed and wholly-owned
subsidiary of the Registrant. The Agreement was consummated on April 3, 1998, by
means of a statutory merger of Tatonka Subsidiary, Inc. into PhyMed, with PhyMed
being the surviving corporation. As a result of the merger, PhyMed is now an 80%
owned subsidiary of the Registrant, and the ESOP owns the remaining 20% of
PhyMed.
Prior to the merger, there were 800 common shares of PhyMed
outstanding, of which 500 were owned by Barker, individually, and 300 were owned
by the ESOP.
In the merger, the 500 PhyMed common shares owned by Barker were
converted into
1
<PAGE>
immediate ownership of and the right to receive 53,840,163 shares of Common
Stock of the Registrant, and 140 of the 300 PhyMed common shares owned by the
ESOP were converted in like manner into 15,075,246 shares of Common Stock of the
Registrant. The remaining 160 PhyMed common shares held by the ESOP now
constitute the 20% of PhyMed common shares not owned by the Registrant.
The Registrant has 50,000,000 shares of Common Stock authorized for
issuance and, at the time of the merger, had 9,916,487 shares issued and
outstanding or reserved for issuance. To the extent that the terms of the merger
would have resulted in the issuance of more than 50,000,000 shares, the excess
over 50,000,000 shall not be issued until such time as the stockholders of the
Registrant have approved an appropriate amendment to the Registrant's
Certificate of Incorporation. Prior to such approval, Barker and the ESOP will
continue to have a contractual right, pursuant to the Agreement and the Articles
of Merger filed with the Secretary of State of Texas at the time of the merger,
to receive such excess shares, subject to such required stockholder approval.
In summary, Barker and the ESOP received an aggregate of 39,583,513
shares of the Registrant at the time of the merger, the same being 80.6% of the
49,099,069 shares then outstanding. Of such number, Barker, individually,
received 30,924,620 shares (approximately 63%) of the outstanding shares, and
the ESOP received 8,658,893 shares (approximately 17.6%), both percentages on a
fully-diluted basis.
Barker and the ESOP continue to have a contractual right to receive,
in the aggregate, an additional 29,331,896 shares, which will result in their
having, collectively, 86.9% of the then outstanding Common Stock of the
Registrant on a fully-diluted basis. Of such additional shares, 22,915,544 will
be received by Barker, individually, and 6,416,352 shares will be received by
the ESOP.
The parties to the Agreement contemplate that the Board of Directors
and stockholders of the Registrant will approve an amendment to the Registrant's
Certificate of Incorporation approving a 1-for-10 reverse stock split (including
an increase in the par value of the Common Stock from $.001 to $.01) and a
change of the Registrant's name to "PhyMed, Inc.". Upon the effectiveness of
such reverse stock split, all outstanding shares of common stock of the
Registrant, including the shares which were issued to Barker and the ESOP upon
the effectiveness of the merger, will represent one-tenth (1/10th) as many
shares. In addition, all shares reserved for issuance, including the shares
which the Registrant will still have a contractual obligation to issue to Barker
and the ESOP, will become rights to receive one-tenth (1/10th) as many shares.
The unissued shares due Barker and the ESOP from the merger will then be
immediately issued because the Registrant will then have a sufficient number of
authorized but unissued shares to issue for this purpose.
Possible Change of Control
The 800 shares of PhyMed owned by Barker and the ESOP at the time of
the merger were pledged to Patrick Alan Luckett ("Luckett") to secure the
payment of (a) two promissory notes
2
<PAGE>
payable to the order of Luckett, which were issued to him as partial payment for
shares of PhyMed purchased from him, and (b) a guaranty of such notes.
On September 21, 1993, Barker and Luckett owned all the then
outstanding common shares of PhyMed, Inc., each of them owning of 500 common
shares. On such date Luckett sold 200 of his shares to PhyMed and 300 shares to
the ESOP. The sales were for cash and promissory notes. One note was issued by
PhyMed in the original principal amount of $800,000 pursuant to the terms of a
Loan and Security Agreement dated September 21, 1993, and the second promissory
note was issued by the ESOP in the original principal amount of $800,000. Both
notes were guaranteed by Barker. The PhyMed note was secured by the 200 shares
repurchased from Luckett by PhyMed; the ESOP note was secured by the 300 shares
the ESOP purchased from Luckett; and the 500 shares already owned by Barker were
pledged to secure his guaranty of the two notes.
The aggregate of 68,915,409 shares of Common Stock of the Registrant
received and to be received by Barker and the ESOP as a result of the merger
have been and will be substituted in the pledge for the 640 PhyMed shares which
were released from the pledge and converted into such shares of Common Stock of
the Registrant. The 20% of PhyMed still owned by the ESOP remains pledged for
such purpose.
At November 24, 1998, a non-monetary event of default existed under
this financing. It was waived by Mr. Luckett on October 24, 1998, See the
Registrant's, Form 10-QSB for the quarter ended June 30, 1998, Item 2(b),
"Liquidity and Capital Resources."
As of April 1, 1998, the unpaid principal balance on the PhyMed note
was $186,008, and the ESOP note was $384,167.
Changes in Management
The Directors of the Registrant at the time of the merger were
Messrs. Joe Love and Joe Foor, who are continuing as Directors. In addition, at
the time of the merger, George C. Barker was elected to the Board of Directors
of the Registrant to fill a vacancy which existed on the Board of Directors.
At the 1998 annual meeting of stockholders (or consents in lieu of
such a meeting) to be held as soon as all necessary regulatory requirements have
been satisfied, Messrs. Barker, Love and Foor will be re-elected for the coming
year and two additional Directors will be elected: Marilyn Moss and Judith F.
Barker. George C. Barker and Judith F. Barker are married.
In addition, at the time of the merger, George C. Barker was also
elected Chairman of the Board, President and Chief Executive Officer, and Judith
F. Barker was elected Secretary and Treasurer of the Registrant. Joe Foor and
Joe Love resigned as President and Secretary of the Registrant so that Mr. and
Mrs. Barker could be elected to their present positions. In addition, Marilyn
Moss was elected Executive Vice President - Operations.
At the annual meeting of the Board of Directors to be held following
the annual meeting of stockholders (or consents in lieu of such meeting), the
following officers will be re-elected for the coming year:
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<PAGE>
George C. Barker Chairman of the Board, President
and Chief Executive Officer
Marilyn Moss Executive Vice President - Operations
Judith F. Barker Secretary and Treasurer
The corporate office of the Registrant has been moved to the
executive offices of PhyMed (which are located in the Center defined below) and
are now located at 9603 White Rock Trail, Suite 100, Dallas, Texas 75238. The
corporate office is in the process of being relocated to sub-leased office space
approximately two miles from the Center.
Assets Acquired and Contemplated Changes in PhyMed's Business
PhyMed is a seven-year-old company engaged in the operation and
management of medical diagnostic imaging centers, which provide a full scope of
medical diagnostic imaging services including magnetic resonance imaging (MRI),
computer axial tomography (CAT) scans, x- rays and other radiological services
to physicians. Currently, PhyMed owns and operates a diagnostic imaging center
(the "Center" or the "Dallas Center") in Dallas, Texas, which provides
diagnostic services to physicians in the greater Dallas area. PhyMed also
manages an imaging center in Plano, Texas for other owners.
PhyMed leases space for its operations. The Dallas Center occupies
approximately 13,000 feet and is deemed adequate for present and future needs of
that operation. This space is deemed adequate for the needs of PhyMed for the
next two to three years. PhyMed typically leases the medical equipment required
for its provision of services. The leases are typically for a period of five
years.
Prior to the acquisition, PhyMed was a privately-held company and
the transaction with PhyMed was undertaken as part of an overall plan for
expanding the business of PhyMed through, among other possible endeavors, the
development of new centers, acquisitions of existing centers and exclusive
capitated services contracts, with a view towards increasing the per-share value
of the Registrant for the benefit of the shareholders.
This expansion will require additional capital, and the managements
of the Registrant and PhyMed believe that raising additional capital can best be
achieved through PhyMed having access to the public shareholders and reporting
company status under the Securities Exchange Act of 1934, which the Registrant
affords. The principle followed in determining the amount of consideration to be
exchanged by the Registrant for PhyMed was the percentage of the equity of
PhyMed the owners of PhyMed would cede in order to gain such access and have the
opportunity to raise such capital.
In furtherance of this goal of raising additional capital for
expansion, the Registrant has
4
<PAGE>
recently commenced a private offering of securities to accredited investors
only. The offering seeks to raise a minimum of $200,000 and a maximum of
$3,000,000 from the sale of Units of a new series of Preferred Stock and
Warrants to purchase Common Stock.
Operation of Outpatient Radiological Diagnostic Centers. Currently,
PhyMed owns and operates a diagnostic imaging center in Dallas, Texas. The
Center provides diagnostic services to physicians in the greater Dallas area.
The Center is located at 9603 White Rock Trail, Suite 100 in Dallas. The
Center's services include magnetic resonance imaging (MRI), computerized axial
tomography (CAT), fluoroscopy, radiology, invasive procedures, pain management,
ultrasound and mammography. The Company believes that the Center is well known
in its market for its quality of service to patients and referring physicians.
PhyMed also manages an imaging center in Plano, Texas for other owners.
The Registrant has plans to expand PhyMed's operations in the
Dallas/Fort Worth market and other targeted markets in the immediate future.
Discussions are being held with other parties on the acquisition of existing
centers. Locations for new centers have been identified and negotiations on
leases have begun. There is no assurance that any of these expansion efforts
will come to fruition or will be profitable, if they do.
Capitated Radiological Services. PhyMed has recently completed a
letter of agreement with a national firm. Under the agreement, PhyMed will
provide radiological technical services on a capitated basis to approximately 40
physician offices in Texas. PhyMed will provide these services on an exclusive
basis. There is no assurance PhyMed's business operations in pursuance of the
opportunity provided by this letter of agreement will be profitable.
A second agreement is being negotiated with another large
independent physician's (IPA) association in the Dallas market. If such an
agreement is signed, PhyMed contemplates that it will provide all of the IPA's
radiological services on an exclusive basis. PhyMed contemplates the agreement
will also have a capitated element, as well as a traditional payment element.
There is no assurance PhyMed will enter into such an agreement, or that, if it
does, PhyMed's business operations in pursuance of the agreement will be
profitable.
PhyMed is preparing proposals for capitated agreements for large
payors in the Dallas marketplace. Each of these proposals contemplates that
PhyMed centers would be the exclusive provider of radiological services for the
payor's subscribers in the agreed market or markets. There is no assurance any
of such proposals will result in a signed agreement. In addition, in the event
of a signed agreement, there is no assurance as to what the terms of the
agreement would be, or that they would be favorable to PhyMed. Further, there is
no assurance that PhyMed's business operations in pursuance of such an agreement
would be profitable.
Radiological Professional Practices. PhyMed has relationships with
physicians specializing in radiology and is in the process of developing a
management practice division to provide these specialized services to its own
Centers as well as to other providers such as hospitals
5
<PAGE>
and clinics. There is no assurance this development process will result in any
specific business operations, or that any such operations would be conducted on
terms favorable to PhyMed or would be profitable.
Capitated Services Division. PhyMed has recently established a
Capitated Services Division to market its radiological services to self-insured
corporations, health maintenance organizations, preferred provider organizations
and insurance companies. PhyMed contemplates that under the Capitated Services
program, PhyMed would provide radiological services under a exclusive risk-based
system of reimbursement. In such a case, the payor the would pay PhyMed a
negotiated rate for each member per month. The intended benefits of such a
Capitated Services program would be to provide the payor with a known expense
per month for the services and provide PhyMed payments on a regular basis.
PhyMed also contemplates it would collaborate with any such payor to attempt to
develop a utilization management program to help manage the utilization of
radiological services by the payor's members.
Professional Management Services Division. PhyMed has plans to
develop a physician practice management and services division. This division
will concentrate in the radiologist specialty area. Management of PhyMed has
considerable experience in this area of health care and believes that, as a
medical imaging company, it can offer radiologists opportunities to expand their
medical practices and at the same time increase the revenues of PhyMed.
There is no assurance PhyMed will establish a physician practice
management and services division. If PhyMed commences the marketing of such
services, such marketing may be discontinued at any time. In addition, there is
no assurance such activities, if commenced, will result in any specific PhyMed
business operations, that any such operations would be conducted on terms
favorable to PhyMed or would be profitable.
Item 2. Acquisition or Disposition of Assets
See Item 1 above.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
6
<PAGE>
The following financial statements of Phy.Med., Inc. are filed as part
of this report:
Report of Independent Certified Public Accountants
Financial Statements:
Balance Sheets - December 31, 1997 and 1996
Statements of Operations -
Years ended December 31, 1997 and 1996
Statement of Changes in Shareholders'
Deficit - Years ended December 31, 1997 and 1998
Statements of Cash Flows -
Years ended December 31, 1997 and 1996
Notes to Financial Statements
(b) Proforma financial information
Not applicable. The merger has been accounted for as a
recapitalization of Phy.Med., Inc.
(c) Exhibits
1. Agreement and Plan of Reorganization and Merger dated as of March
6, 1998 by and among Tatonka Energy, Inc., Tatonka Energy
Subsidiary, Inc., Phy.Med., Inc. and the Stockholders of PhyMed,
Inc.*
2. Amendment dated as of March 6, 1998, to Agreement and Plan of
Reorganization and Merger dated as of March 6, 1998 by and among
Tatonka Energy, Inc. Tatonka Energy Subsidiary, Inc. Phy. Med.,
Inc. and the Stockholders of PhyMed, Inc.
- ------------------------------
* Previously filed with the original Form 8-K filed on April 20, 1998.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to the indicated report to be
signed on its behalf by the undersigned thereto duly authorized.
TATONKA ENERGY INC
(Registrant)
Date: December 4, 1998
/s/ George C. Barker
--------------------
George C. Barker
Chairman of the Board, President
and Chief Executive Officer
8
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Pages
-----
Report of Independent Certified Public Accountants 10
Financial Statements:
Balance Sheets - December 31, 1997 and 1996 11
Statements of Operations -
Years ended December 31, 1997 and 1996 13
Statement of Changes in Shareholders'
Deficit - Years ended December 31, 1997 and 1998 14
Statements of Cash Flows -
Years ended December 31, 1997 and 1996 15
Notes to Financial Statements 16
9
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders
Phy. Med., Inc.
We have audited the accompanying balance sheets of Phy. Med., Inc. as of
December 31, 1997 and 1996, and the related statements of operations, changes in
shareholders' 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 these financial statements 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 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 Phy. Med., Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note C to the financial
statements, the Company is in default on certain obligations, and a lender has
obtained an injunction that limits disbursement of funds by the Company and has
indicated it may seek the appointment of a receiver for the Company. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Dallas, Texas
August 21, 1998, except for Note D which
is as of November 30, 1998
10
<PAGE>
<TABLE>
<CAPTION>
Phy. Med., Inc.
BALANCE SHEETS
December 31,
--------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 37,233 $ 2,980
Accounts receivable - trade, less allowance for
doubtful accounts and contractual allowances
of $1,668,867 in 1997 and $1,898,035 in 1996 2,280,547 2,489,262
Receivable - related party 58,270 39,899
----------- -----------
Total current assets 2,376,050 2,532,141
PROPERTY AND EQUIPMENT
Clinic and medical equipment 3,561,415 3,561,415
Automobiles -- 51,885
Furniture and equipment 89,797 80,171
Computer hardware and software 54,616 54,616
Leasehold improvements 381,420 381,420
----------- -----------
4,087,248 4,129,507
Less accumulated depreciation and amortization (2,889,189) (2,287,336)
----------- -----------
1,198,059 1,842,171
OTHER ASSETS
Deferred income tax asset 354,000 355,000
Other 13,533 8,537
----------- -----------
367,533 363,537
----------- -----------
$ 3,941,642 $ 4,737,849
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
<TABLE>
<CAPTION>
Phy. Med., Inc.
BALANCE SHEETS - CONTINUED
December 31,
--------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT 1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,173,830 $ 1,469,840
Accounts payable - trade 192,407 398,430
Payable to factor 758,755 605,695
Accrued expenses 176,419 99,104
Deferred income tax liability 695,000 758,000
----------- -----------
Total current liabilities 2,996,411 3,331,069
LONG-TERM LIABILITIES
Long-term debt, less current maturities 1,646,254 2,133,383
Deferred rent 33,902 --
----------- -----------
Total liabilities 4,676,567 5,464,452
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' DEFICIT
Common stock - $1 par value per share; authorized,
issued and outstanding, 1,000 shares 1,000 1,000
Additional paid-in capital 22,254 --
Unearned ESOP compensation (333,532) (446,615)
Retained earnings 422,935 566,594
----------- -----------
112,657 120,979
Less treasury stock, at cost (226 shares) (847,582) (847,582)
----------- -----------
Total shareholders' deficit (734,925) (726,603)
----------- -----------
$ 3,941,642 $ 4,737,849
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
<TABLE>
<CAPTION>
Phy. Med., Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Patient revenue
Gross billings $ 5,889,315 $ 5,961,001
Less allowances (2,245,821) (1,988,414)
----------- -----------
Net patient revenue 3,643,494 3,972,587
Operating expenses (3,393,582) (3,957,424)
----------- -----------
Operating profit 249,912 15,163
Other income (expenses)
Interest expense (379,570) (446,223)
Factoring fees (100,041) (134,408)
Miscellaneous income 1,040 6,350
----------- -----------
(478,571) (574,281)
Net loss before income tax benefit (228,659) (559,118)
Deferred income tax benefit 85,000 205,000
----------- -----------
NET LOSS $ (143,659) $ (354,118)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
<TABLE>
<CAPTION>
Phy. Med., Inc.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
Additional Unearned
Common stock paid-in ESOP Retained Treasury stock
--------------------- ---------------------
Shares Amount capital compensation earnings Shares Amount
--------- --------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 1,000 $ 1,000 $ -- $(559,698) $ 925,091 200 $(800,000)
Purchase of treasury stock -- -- -- -- -- 26 (47,582)
Amortization of unearned ESOP compensation,
net of taxes of $2,000 -- -- -- 113,083 (4,379) -- --
Net loss -- -- -- -- (354,118) -- --
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 1,000 1,000 -- (446,615) 566,594 226 (847,582)
Amortization of unearned ESOP compensation,
net of taxes of $13,000 -- -- 22,254 113,083 -- -- --
Net loss -- -- -- -- (143,659) -- --
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 1,000 $ 1,000 $ 22,254 $(333,532) $ 422,935 226 $(847,582)
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE>
<TABLE>
<CAPTION>
Phy. Med., Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(143,659) $(354,118)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 623,055 937,501
Amortization of unearned ESOP compensation 148,337 106,704
Deferred income taxes (85,000) (205,000)
Changes in operating assets and liabilities
Receivables 208,715 (195,988)
Prepaid expenses and other current assets (18,371) 133,409
Other assets (4,996) 161,738
Accounts payable and other current liabilities (118,708) 159,572
Other noncurrent liabilities 33,902 89,104
--------- ---------
Net cash provided by operating activities 643,275 832,922
Cash flows from investing activities
Proceeds from sale of assets 21,057 --
Cash flows from financing activities
Proceeds from factoring company 153,060 171,724
Repayments of debt (783,139) (968,708)
Purchase of treasury stock -- (47,582)
--------- ---------
Net cash used in financing activities (630,079) (844,566)
--------- ---------
Net increase (decrease) in cash 34,253 (11,644)
Cash at beginning of year 2,980 14,624
--------- ---------
Cash at end of year $ 37,233 $ 2,980
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 393,771 $ 506,947
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
The Company is engaged in the business of operating a diagnostic imaging
center, located in Dallas, Texas.
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
Revenue Recognition and Receivables
-----------------------------------
Net patient revenue is recorded as services are rendered, at the estimated
realizable amounts from patients, third-party payers and others based upon
contractual arrangements. Provisions are made for estimated uncollectible
accounts and are reflected in the financial statements as bad debts, included
in operating expenses.
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives, which range from three to five years, by the
straight-line method. Leasehold improvements are amortized by the
straight-line method over the lives of the respective leases or the service
lives of the improvements, whichever is shorter.
Deferred Rent
-------------
The cost of the Company's lease for office space is accounted for by the
straight-line method. The difference between the net cash requirements of the
lease and straight-line method is reflected on the balance sheet as deferred
rent.
Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that effect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
16
<PAGE>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts for cash, accounts receivable and accounts payable
approximate fair value because of the short-term nature of these financial
instruments. The carrying amount reported for long-term debt approximates
fair value, as interest rates are tied to market.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment accounts include $878,784 of assets which have been
financed under leases classified as capital leases. The amounts capitalized
are the lesser of the fair market values or the present values of the
minimum lease payments of the leased property.
NOTE C - GOING CONCERN MATTERS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. As more fully described in Note D, the
Company is in default on an equipment lease obligation and a note with
outstanding balances of aggregating approximately $1,850,000 at November 30,
1998. The note holder has filed a lawsuit, obtained an injunction that limits
disbursement of funds by the Company, and has indicated it may seek the
appointment of a receiver for the Company.
Management is developing a refinancing plan that it believes will allow the
Company to cure the aforementioned defaults and will provide sufficient
liquidity. However, there is no assurance the Company will be able to
accomplish this.
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
1997 1996
--------- ---------
<S> <C> <C>
Notes payable to DVI Finance Company, payable in monthly
installments through 1999, at interest rates ranging from 9.1%
to 12.5%, collateralized by the equipment acquired $ 386,268 $ 739,277
Promissory notes, payable in monthly installments through 2000,
at interest rates ranging from 9.9% to 10.0% 103,187 167,118
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE D - LONG-TERM DEBT - Continued
1997 1996
----------- -----------
<S> <C> <C>
Note payable for the purchase of treasury shares, payable in monthly
installments through 1998, at an interest rate of 10.0%,
collateralized by the treasury shares acquired $ 244,828 $ 486,291
Note payable by the Company's Employee Stock Ownership Plan for the
purchase of common shares, payable in monthly installments through
2000, at an interest rate of 10.0%,
collateralized by the common shares acquired 404,228 535,198
Capitalized lease obligations net of, payable in monthly installments
through 2001, collateralized by the related equipment 1,879,552 1,854,509
Other 63,988 -
---------- ----------
3,082,051 3,782,393
Less amount representing interest on capital lease obligations
imputed at rates ranging from 7.5% to 9.3% (261,967) (179,170)
---------- ----------
2,820,084 3,603,223
Less current maturities 1,173,830 1,469,840
---------- ----------
$1,646,254 $2,133,383
========== ==========
All debt is guaranteed by the Company's principal shareholder.
Aggregate maturities of long-term debt at December 31, 1997 are as follows:
Year ending
December 31,
1998 $1,173,830
1999 626,034
2000 642,964
2001 377,256
----------
$2,820,084
==========
In August 1998, DVI Finance Company (DVI) filed a lawsuit against the
Company for failure to make the required payments on a note with a principal
balance at December 31, 1997 of $333,608 and $264,338 at November 30, 1998.
DVI also obtained an injunction against the Company that prohibits
disbursement of funds without the consent of DVI.
18
<PAGE>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE D - LONG-TERM DEBT - Continued
Also, at November 30, 1998, the Company was in arrears on an equipment
lease, which has been accounted for as a capital lease. The lease had a
principal balance of $1,603,286 at December 31, 1997.
DVI has indicated it may apply to the court for the appointment of a
receiver for the Company. If DVI were to file such an application, the
equipment lessor could be expected to join in the application.
As a result of the aforementioned lease default, the outstanding balance of
approximately $1,590,000 at November 30, 1998, is subject to being called by
the lessor, although no such demand has been made.
NOTE E - COMMITMENTS AND CONTINGENCIES
The Company conducts a substantial portion of its operations utilizing
leased facilities and equipment, under noncancellable operating leases
consisting of the facility, medical equipment, and office equipment. At the
end of the lease terms, all of the leases are renewable at the then fair
rental value.
Future minimum rental commitments under the noncancellable operating leases
are as follows:
Year ended December 31,
1998 $164,633
1999 169,046
2000 173,591
2001 171,035
2002 168,800
2003 and thereafter 27,727
--------
Total minimum payments required $874,832
========
</TABLE>
Rental expense totaled approximately $134,000 and $128,000 for the years
ended December 31, 1997 and 1996, respectively.
Several legal actions arising in the ordinary course of business are pending
or in process against the Company. In the opinion of management, the
eventual disposition of these actions will not have a materially adverse
effect on the financial position, results of operations or liquidity of the
Company. See Note D regarding a lawsuit filed by one of the Company's
lenders.
19
<PAGE>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE F - INCOME TAXES
Following is a reconciliation of the Company's income tax benefit with the
amount of tax computed at the statutory rate:
<TABLE>
Years ended December 31,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Tax benefit at statutory rate $(78,000) $(190,000)
State taxes, net of Federal effect (7,000) (16,000)
Other - 1,000
------- -------
$(85,000) $(205,000)
======= =======
The components of the deferred tax asset and liability are as follows:
December 31,
---------------------------
1997 1996
--------- ---------
Deferred tax assets
Property and equipment $ 120,000 $ 134,000
Deferred rent 12,000 -
Accounts payable and accrued expenses 136,000 163,000
Net operating loss carryforward 234,000 221,000
------- --------
502,000 518,000
Deferred tax liabilities
Accounts receivable (843,000) (921,000)
------- --------
Net deferred tax liability $(341,000) $(403,000)
======= =======
Balance sheet classifications:
Noncurrent deferred tax asset $ 354,000 $ 355,000
Current deferred tax liability (695,000) (758,000)
------- -------
$(341,000) $(403,000)
======= =======
</TABLE>
The Company has net operating loss carryovers of approximately $640,000 at
December 31, 1997. The net operating loss carryover is available to offset
future taxable income through 2012.
20
<PAGE>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - PAYABLE TO FACTORING COMPANY
The Company assigns substantially all of its accounts receivable invoices to
a factoring company. Under the terms of the factoring agreement, the Company
receives advances up to 54% of the invoice amount. A factoring fee of 4.4%
is charged for all receivables assigned. The Company's obligations to the
factoring company are collateralized by a security interest in all present
and future accounts receivable.
NOTE H - EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a leveraged employee stock ownership plan (ESOP) that
covers all employees who have completed one year of service and who are at
least 18 years of age. The Company accounts for its ESOP in accordance with
Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans". Accordingly, the Company reports in its balance sheet the
debt of the ESOP and Unearned ESOP Compensation. The Company allocates the
shares purchased by the ESOP to qualifying employees as payments are made on
the debt of the ESOP. As shares are allocated to employees the Company
records compensation expense equal to the fair value of the shares, as
determined by an annual independent valuation. The difference in the fair
value of shares allocated to employees and the cost of the shares is charged
or credited to equity, net of related income taxes. All ESOP shares are
pledged as collateral for the ESOP debt.
The status of ESOP shares as of December 31, was as follows:
<TABLE>
1997 1996
------- -------
<S> <C> <C>
Allocated shares 191 162
Unallocated shares 83 112
------- -------
Total ESOP shares 274 274
------- -------
Fair value of unallocated shares at December 31: $435,501 $422,729
======= =======
</TABLE>
The Company recognized expense under the plan of $148,337 in 1997 and
$106,704 in 1996.
NOTE I - RELATED PARTY TRANSACTIONS
The Company generated approximately $179,000 and $20,000 of net revenues in
1997 and 1996, respectively, from American Medical Imaging Corporation
(AMIC), an entity in which the Company's principal shareholder owns a 50%
interest. At December 31, 1997, the Company had a receivable from AMIC
amounting to $12,900. No balances were outstanding at December 31, 1996.
21
<PAGE>
Phy. Med., Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE J - OWNERSHIP CHANGE
In April 1998, 640 shares of common stock of the Company was acquired by
Tatonka Energy Subsidiary, Inc., a wholly-owned subsidiary of Tatonka
Energy, Inc. a publicly-held Oklahoma corporation (Tatonka) in exchange for
Tatonka common stock. Each of the acquired shares of the Company's common
stock was converted into approximately 107,680 shares of Tatonka common
stock, resulting in the Company's shareholders owning approximately 87% of
Tatonka's outstanding common stock.
22
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
1. Agreement and Plan of Reorganization and Merger dated as of March
6, 1998 by and among Tatonka Energy, Inc., Tatonka Energy
Subsidiary, Inc., Phy.Med., Inc. and the Stockholders of PhyMed,
Inc.*
2. Amendment to Agreement and Plan of Reorganization and Merger
dated as of March 6, 1998, by and among Tatonka Energy, Inc.
Tatonka Energy Subsidiary, Inc. Phy. Med., Inc. and the
Stockholders of PhyMed, Inc.
- ------------------------------
* Previously filed with the original Form 8-K filed on April 20, 1998.
23
<PAGE>
EXHIBIT 2 TO FORM 8-K
AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Amendment to Agreement and Plan of Reorganization and Merger
(this "Amendment"), is dated as of March 6, 1998, by and among TATONKA ENERGY,
INC., an Oklahoma corporation ("Tatonka"), TATONKA ENERGY SUBSIDIARY, INC., a
Texas corporation and a wholly-owned subsidiary of Tatonka ("Tatonka Sub"), PHY.
MED., INC., a Texas corporation (the "Company") and GEORGE C. BARKER, a Texas
resident ("Barker") and the EMPLOYEE STOCK OWNERSHIP PLAN OF PHY. MED., INC.
(the "ESOP")(Barker and the ESOP are collectively the "Stockholders").
Recitals
A. The parties have entered into an Agreement and Plan of
Reorganization and Merger dated as of March 6, 1998 (the "Agreement"), pursuant
to which Tatonka, Tatonka Sub, and the Company intend that Tatonka Sub be merged
with and into the Company, and that the Company be the sole surviving
corporation (sometimes called the "Surviving Corporation"), and Tatonka Sub be
the disappearing corporation (sometimes called the "Disappearing Corporation").
B. Tatonka, Tatonka Sub and the Company have each determined to
engage in the transactions contemplated hereby, pursuant to which (i) Tatonka
Sub will merge with and into the Company upon the terms and conditions set forth
in this Agreement and in accordance with the laws of the State of Texas, (ii)
80% of the outstanding shares of the Company Common Stock shall be converted at
such time into shares of common stock, par value $.001 per share, of Tatonka
(the "Tatonka Common Stock") as set forth in this Agreement, and (iii) the
Company shall become an 80% owned subsidiary of Tatonka.
C. Recital F of the Agreement incorrectly states that Tatonka has
9,916,487 shares of Common Stock issued and outstanding or reserved for
issuance, when the correct number is 10,416,487 shares issued and outstanding or
reserved for issuance.
D. Section 2.11 contains several erroneous numbers of shares and
percentages.
E. "Exhibit A-Merger Consideration" to Exhibit "A" to the Articles
of Merger erroneously states:
"The Stockholders shall receive the following Tatonka Common Stock
as their Merger
24
<PAGE>
Consideration:
George C. Barker...................................54,230,788 shares
The ESOP............................................5,184,621 shares
Total Merger Consideration........................69,415,409 shares"
NOW, THEREFORE, in consideration of the preceding recitals and their
mutual desire that the Agreement read correctly, the parties mutually agree to
correct said errors, as follows:
1. Recital F correctly reads as follows:
"F. Tatonka has 50,000,000 shares of Common Stock
authorized for issuance and 10,416,487 shares issued and outstanding
or reserved for issuance. Issuance at the effective Time of all the
shares representing the Merger Consideration would result in the
issuance of more than such 50,000,000 authorized shares."
2. Section 2.11 of Exhibit "A" attached to the Articles of Merger
correctly reads as follows:
"Section 2.11 Percentage Protection Provision. The
parties to this Agreement agree that they are entering into this
Agreement with the intention that Barker and the ESOP will have at
least 86.87% of the shares of Tatonka Common Stock outstanding after
(a) the Effective Time and (b) the conversion of all the Tatonka
Preferred Stock, but before the exercise of any of the three stock
options contemplated to be issued by Tatonka (after the Effective
Time) and referred to in Section 4.4 of this Agreement. The numbers
of shares of Tatonka Common Stock set forth on Exhibit A as being
issued to Barker and the ESOP at the Effective Time are based on the
assumptions that (a) no more than 9,515,556 shares of Tatonka Common
Stock, as presently constituted, will be outstanding at the
Effective Time (exclusive of any shares that may be issued upon
conversion of Tatonka Preferred Stock prior to the Effective Time),
(b) no more than 900,931 shares will be issued upon conversion of
all the Tatonka Preferred Stock, (c) no other shares of Tatonka
Common Stock will be issued by virtue of any rights to receive any
shares of Tatonka Common Stock or other securities of Tatonka that
exist at the date of this Agreement or will exist at the Effective
Time, and (d) the aggregate of 10,416,487 shares enumerated in (a)
and (b) above will constitute no more than 13.13% of the shares of
Tatonka Common Stock outstanding after the events described above.
The parties to this Agreement covenant and agree that if
more than the 10,416,487 shares of Tatonka Common Stock referred to
in the foregoing paragraph are ultimately issued by Tatonka as a
consequence of the matters referred to in such paragraph, Tatonka
shall issue to Barker and the ESOP, pro rata, such additional number
of shares
25
<PAGE>
of Tatonka Common Stock as shall be necessary to increase their
collective ownership percentage of all shares of Tatonka Common
Stock outstanding after the events described above to 86.87%."
3. (2) "Exhibit A-Merger Consideration," which is attached to
Exhibit "A" to the Articles of Merger, correctly reads as set forth below:
"Exhibit A - Merger Consideration
(As Corrected)
The Stockholders shall receive the following Tatonka Common Stock as
their Merger Consideration:
George C. Barker...................................53,840,164 shares
The ESOP...........................................15,075,245 shares
Total Merger Consideration........................68,915,409 shares"
IN WITNESS WHEREOF, the parties have duly executed this Amendment to
Agreement and Plan of Reorganization and Merger as of the date first written
above.
TATONKA: TATONKA ENERGY, INC.
By: /s/ Joe Foor
----------------
Joe Foor
President
TATONKA SUB: TATONKA ENERGY SUBSIDIARY, INC.,
By: /s/ Joe Foor
----------------
Joe Foor
President
THE COMPANY: PHY. MED., INC.
26
<PAGE>
By: /s/ George C. Barker
--------------------------------
George C. Barker
President
BARKER:
/s/ George C. Barker
--------------------------------
George C. Barker
ESOP: EMPLOYEE STOCK OWNERSHIP
PLAN OF PHY. MED, INC.
By: /s/ George C. Barker, Trustee
--------------------------------
George C. Barker, Trustee
27
