SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Tatonka Energy, Inc.
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REVISED PRELIMINARY COPY
TATONKA ENERGY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 5, 1999
To the Shareholders of Tatonka Energy, Inc.:
The Annual Meeting of the Shareholders of Tatonka Energy, Inc., an
Oklahoma corporation ("the Company"), will be held on Monday, February 5, 1999,
at 10:00 A.M. at 9603 White Rock Trail, Suite 100, Dallas, Texas 75238, for the
following purposes:
1. To increase the number of directors from three to five and
elect five Directors for the coming year.
2. To approve an amendment to the Certificate of Incorporation
to change the Company's name to "PHYMED, Inc."
3. To approve an amendment to the Certificate of Incorporation
to approve a 1-for-10 reverse stock split of the Common Stock.
4. To establish a new Series B 12% Convertible Preferred
Stock, to change all shares of Preferred Stock which may be
undesignated at any time to simply "Preferred Stock," and to
authorize the Board of Directors to determine the preferences,
limitations and relative rights of all shares of Preferred
Stock which may be undesignated at any time, or one or more
series of Preferred Stock, and to issue such shares from time
to time on terms and conditions approved by the Board of
Directors.
5. To ratify the selection of Grant Thornton LLP as the
independent public accountants for the Company for the fiscal
year ending December 31, 1998.
6. To act upon such other matters as may properly come before
the meeting or any adjournments thereof.
The shareholders list will be available for inspection at least ten
days before the Annual Meeting at the executive offices of the Company, 9603
White Rock Trail, Suite 100, Dallas, Texas 75238.
Shareholders of record of the Company's Common Stock, $.001 par value,
at the close of business on January 21, 1999, will be entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
Judith F. Barker
Dallas, Texas Secretary
January 25, 1999
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REVISED PRELIMINARY COPY
TATONKA ENERGY, INC.
9603 WHITE ROCK TRAIL, SUITE 100
DALLAS, TEXAS 75238
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON FEBRUARY 5, 1999
This Proxy Statement and the enclosed form of Proxy are being furnished
to shareholders of Tatonka Energy, Inc. (the "Company" or "Tatonka Energy").
Only those shareholders of record at the close of business on February 5, 1999,
are entitled to notice of and to vote at the Annual Meeting. The Annual Meeting
will be held at 9603 White Rock Trail, Suite 100, Dallas, Texas 75238.
This Proxy Statement and the accompanying proxy are solicited on behalf
of the Board of Directors of the Company and are first being mailed to
shareholders on or about January 25, 1999. The Company's Form 10-KSB for the
fiscal year ending December 31, 1997, as filed with the Securities and Exchange
Commission, is also being mailed to shareholders with this Proxy Statement.
GENERAL
Outstanding Shares and Voting Rights
On the record date, January 21 1999, the Company had outstanding
49,099,069 shares of common stock, par value $.001 (the "Common Stock"), all of
which shares were voting shares. The presence, in person or by proxy, of the
holders of at least one third of the outstanding shares of Common Stock is
necessary to constitute a quorum of such class at the Annual Meeting.
Shareholders have no cumulative voting rights.
Any person signing and mailing the enclosed proxy may vote in person if
in attendance at the Annual Meeting. Proxies may be revoked at any time before
they are voted by notifying the Secretary of such revocation, in writing, at the
Annual Meeting, or by submitting a later dated proxy. The persons named as
proxies in the enclosed form were selected by the Board of Directors of the
Company.
Shareholders are encouraged to vote on the matters to come before the
Annual Meeting by marking their preferences on the enclosed proxy and by dating,
signing, and returning the proxy in the enclosed envelope. Shares represented by
properly executed proxies received by the Company will be voted at the Annual
Meeting in the manner specified therein or, if no specification is made, will be
voted (1) "FOR" the proposal to increase the number of Directors from three to
five and elect all five nominees for director named herein; (2) "FOR" the
proposal to approve the amendment to the Company's Certificate of Incorporation
to change the name of the Company to "PHYMED, Inc.;" (3) "FOR" the proposal to
approve the amendment to the Company's Certificate of Incorporation to effect a
1-for-10 reverse stock split; (4) "FOR" the proposal to approve the amendment to
the Company's Certificate of Incorporation to establish a new Series B 12%
Cumulative Convertible Preferred Stock and to grant the Board of Directors
"blank check" authority to establish additional series of Preferred Stock; and
(5) "FOR" the proposal to ratify the selection of auditors for fiscal 1998.
The Board of Directors knows of no matters other than those reported
herein that are to be brought before the Annual Meeting. However, in the event
that any other matters are properly presented at the Annual Meeting for action,
the persons named in the proxy will vote the proxies (which confer authority
upon them to vote on any such matters) in accordance with their judgment.
Abstentions and shares of record held by a broker or nominee ("Broker
Shares") that are voted on any matter will be included in determining the
existence of a quorum. With respect to the tabulation of votes on any matter,
Broker Shares that are not voted are treated as shares as to which voting power
has been withheld by the beneficial owners of such shares and, therefore, as
shares not entitled to vote on the proposal, and will not be included in
determining the existence of a quorum. Since the vote required to approve
Proposal 1 is a plurality of the shares present at the Annual Meeting, and the
vote required to approve Proposal 5 is an affirmative majority of the shares
present in person or represented by proxy at the Annual Meeting, non-voted
Broker Shares will not have an effect on Proposals 1 or 5.
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HOWEVER, SINCE THE VOTE REQUIRED TO APPROVE EACH PROPOSALS 2, 3 AND 4
IS A MAJORITY OF THE COMPANY'S OUTSTANDING COMMON SHARES, NON-VOTED BROKER
SHARES WILL HAVE THE SAME EFFECT AS A VOTE AGAINST PROPOSALS 2, 3 AND 4.
George C. Barker owns of record or beneficially 39,583,513 (80.6%) of
the 49,099,069 shares of Common Stock outstanding on the record date, January
21, 1999, and has informed the Company he intends to vote all such shares in
favor of all seven proposals.
Record Date
The close of business on January 21, 1999, has been fixed as the record
date for the determination of shareholders entitled to receive notice of and to
vote at the Annual Meeting. Each outstanding share of Common Stock is entitled
to one vote on all matters herein.
Expenses of Solicitation
The expenses of solicitation of proxies will be borne by the Company,
including expenses in connection with the preparation and mailing of this Proxy
Statement and all documents which now accompany or may hereafter supplement it.
Solicitations will be made only by the use of the mails, except that, if deemed
desirable, Directors, officers and regular employees of the Company may solicit
proxies by telephone, telegraph, fax or personal calls. It is contemplated that
brokerage houses, custodians, nominees and fiduciaries will be requested to
forward the proxy soliciting material to the beneficial owners of the Common
Stock held of record by such persons and that the Company will reimburse them
for their reasonable expenses incurred in connection therewith.
The shareholders list will be available for inspection at least ten
days before the Annual Meeting at the executive offices of the Company, 9603
White Rock Trail, Suite 100, Dallas, Texas 75238.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS, IF PROPERLY SIGNED AND
RETURNED, WILL BE VOTED "FOR" ALL SIX PROPOSALS, INCLUDING THE ELECTION OF THE
FIVE NOMINEES LISTED BELOW AS DIRECTORS OF THE COMPANY, UNLESS OTHERWISE
DIRECTED THEREIN.
RECENT DEVELOPMENTS
Recent Acquisition
At December 31, 1997, the Company had only nominal assets and no
operations, having disposed of its remaining assets during 1997 to entities that
are now former affiliates. See "Certain Transactions."
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 Company. 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 Company, in the aggregate, immediate ownership
of and the right to receive an aggregate of 68,915,409 treasury shares and
authorized but unissued shares of Common Stock, $.001 par value, of the Company,
as presently constituted, which, if all such shares were presently outstanding,
would constitute 87.9% of the Company's then outstanding 78,430,965 shares of
Common Stock (86.9% of the 79,331,896 shares on a fully diluted basis).
The terms of the acquisition contemplate a change of the Company's name
to PHYMED, Inc. and a 1-for-10 reverse stock split, both of which will become
effective shortly after the Annual Meeting. 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, then outstanding (7,933,190 shares on a fully diluted
basis). The Company will continue to have 50,000,000 shares of Common Stock
authorized.
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PHYMED's Present Business and Contemplated Growth
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. The Dallas Center occupies
approximately 13,000 square feet in leased premises. PHYMED also manages an
imaging center in Plano, Texas for other owners.
PHYMED has recently established a Capitated Services Division to market
its services to self-insured corporations, health maintenance organizations,
preferred provider organizations and insurance companies. Under the Capitated
Services program, PHYMED will provide radiological services under an exclusive
risk-based system of reimbursement. The payor will pay a negotiated rate per
each member per month. The aim of the capitated Services program is to provide a
purchaser a known expense per month for the services and the Company receives
payment on a regular basis. In August the first Capitated Services contract
began.
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 commencing and expanding
the use of exclusive capitated services contracts, with a view towards
increasing the per-share value of the Company for the benefit of the
shareholders. There is no assurance any of these expansion efforts will take
place or that, if undertaken, they will be undertaken on terms favorable to the
Company, will be continued, or will be profitable.
This expansion will require additional capital, and the managements of
the Company 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 Company
affords.
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1. ELECTION OF DIRECTORS
Changes in Management on April 3, 1998
The shareholders elected three Directors at the last Annual Meeting
of Shareholders on July 15, 1997. The three Directors were Messrs. Joe R. Love,
Joe P. Foor and Richard A. Green, Sr. Mr. Green resigned as a Director and
officer of the Company on July 21, 1997, in connection with the sale of a
controlling interest in the Company beneficially owned by him. George C. Barker
was elected as a director on April 3, 1998, in connection with the Merger, to
fill the existing vacancy.
Management proposes that Messrs. Barker, Love and Foor be re-elected
as Directors for the coming year and that two additional Directors be elected;
namely, Marilyn Moss and Judith F. Barker. George C. Barker and Judith F. Barker
are married.
The Company's Certificate of Incorporation provides that the number of
Directors shall be as specified in the Bylaws, and the Bylaws provide that the
number of Directors shall be not less than one nor more than seven. The Bylaws
further provide that the shareholders may at any annual meeting determine the
number of Directors, and the number so determined shall remain fixed until
changed at a subsequent annual meeting. The present number of authorized
Directors is three, and management proposes to enlarge the Board of Directors to
five members. Therefore, Proposal No. 1 includes the shareholders taking action
to increase the number of Directors from three to five, as well as to elect the
five nominees selected by Management.
The Board of Directors has no reason to believe that any nominee will
become unavailable. However, in the event that any of the nominees should become
unavailable, shareholders proxies will be voted for substitute nominees or
additional nominees designated by the Board of Directors.
Each Director elected at the Annual Meeting will serve until the next
Annual Meeting and until his or her successor has been duly elected and
qualified.
Information Concerning Nominees
Management's five nominees for Director are listed below with brief
statements setting forth their principal occupations and other biographical
information. Certain information concerning the five nominees to the Board of
Directors is set forth in "Security Ownership of Certain Beneficial Owners and
Management."
George C. Barker
Joe R. Love
Joe P. Foor
Marilyn Moss
Judith F. Barker
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George C. Barker has a background in management and healthcare of more
than twenty-five years. He was appointed to the Board of Directors of the
Company in April 1998 after the acquisition of Phy.Med., Inc. At the same time,
he was also elected Chairman of the Board, President and Chief Executive
Officer. He co-founded Phy.Med., Inc. in 1990 and has been the President, Chief
Executive Officer and the Chairman of the Board of Directors of that company
since 1993. Mr. Barker's background includes financial and administrative
positions with large hospitals, division level management with national hospital
management companies and radiology center operations. His management duties have
included responsibilities for annual budgets exceeding $45 million and 1,100
employees. He earned his MBA at Suffolk University and his undergraduate degree
at New Hampshire College and is 54 years old.
Joe R. Love has been a Director since the Company's inception in the
early 1980's. In addition to being co-founder and Chairman of CCDC, Inc., he is
on the Board of Directors of First Cash, Inc., a public company which operates a
chain of pawn shops, for which Mr. Love has served as a Board member since 1991.
He is also a director of Western Country Clubs, Inc., a public company which
operates country and western night clubs. He has been instrumental in arranging
public offerings totaling approximately $52 million for a number of his
portfolio companies. Over the last ten years, Mr. Love has been involved in
several other public companies as well as being active in real estate and
restaurant ventures. His real estate activities include acting as general
partner of a $94 million joint venture with Metropolitan Life Insurance Company.
He has also been involved as a partner in several Hilton Hotels. Mr. Love is a
graduate of the University of Oklahoma with a BBA and is 59 years old.
Joe P. Foor has been a Director of the Company since 1996. He is the
Chief Executive Officer of Featherstone Financial Services, representing such
clients as Greenbriar Corporation (a publicly-held company based in Dallas,
Texas), Qual-Med, Inc., Catalyst Energy Systems, and other businesses. Mr. Foor
holds a BA from The University of Oklahoma and a Masters Degree from Southern
Methodist University and is 59 years old.
Marilyn Moss is a nominee for Director and has been Executive Vice
President - Operations since April 1998. She has over twenty years experience in
the radiology services business. She joined PHYMED in February 1998 as Executive
Vice President - Operations. Previously, she had been, since 1994, the Vice
President-Diagnostic Imaging for Physicians Resource Network, Inc., a publicly
traded company in the Dallas area and had responsibility for six outpatient
imaging centers, twenty cancer centers and 32 radiologists. From March 1993 to
December 1994, she was the administrator for Southwest Diagnostic Imaging
Center. It was a joint venture between a large urban hospital and physician
limited partners. Ms. Moss is a registered radiology technologist and a
certified nuclear medicine technologist. She earned her BBA at Dallas Baptist
College and her MBA from East Texas State University and is 49 years old.
Judith F. Barker is a nominee for Director and has been Secretary and
Treasurer of the Company since April 1998. She has been the Secretary of PHYMED
and the Business Office Manager of PHYMED Diagnostic Imaging Center Dallas for
more than the last five years. She has been involved in office management,
health facility billing and collections for over twenty years. Her experience
has been gained at individual physician and large group practice offices,
hospitals and credit companies. Since 1992, she has played a key role in the
management of PHYMED's accounts receivable. Mrs. Barker is 57 years old.
Board of Directors-Meetings and Committees
The Board of Directors held three meetings during calendar year 1997.
The Board of Directors had no Audit Committee, Compensation or Nomination
Committees during 1997 and does not currently have an Audit, Compensation, or
Nomination Committee.
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Names of Officers
At the time of the Merger on April 3, 1998, the officers of the Company
were Joe P. Foor and Joe R. Love who were President and Secretary of the
Company. In connection with the Merger, they resigned their offices so that new
officers could be elected. George C. Barker was elected Chairman of the Board,
President and Chief Executive Officer, Marilyn Moss was elected Executive Vice
President - Operations, and Judith F. Barker was elected Secretary and Treasurer
of the Company. Mr. and Mrs. Barker are married.
After the Annual Meeting, the newly elected Directors will hold a
regular annual meeting of the Board of Directors (or sign a unanimous consent of
directors in lieu of holding the meeting) and re-elect the following officers
for the coming year:
George C. Barker Chairman of the Board, President
and Chief Executive Officer
Marilyn Moss Executive Vice President - Operations
Judith F. Barker Secretary and Treasurer
Executive Compensation
During calendar 1997, Richard A. Green, Sr. served as President and
Chief Executive Officer of the Company from January 1 to July 21. He resigned on
July 21 in connection with his sale of his control of the Company. From that
date until October 9, 1997, the office of President was vacant. On October 9,
Joe P. Foor was elected President and Chief Executive Officer. He held such
position until April 3, 1998.
During the last three fiscal years, neither the Chief Executive Officer
of the Company, nor any executive officer, received any cash or noncash
compensation for serving in such capacity. During fiscal 1997, no options were
granted to the Company's officers; no outstanding options were exercised; and no
options were terminated. However, compensation was paid directly or to
affiliates for serving as a consultant or proving management services.
See"Certain Transactions." No stock appreciation rights have been awarded to any
executive officer of the Company in the last three fiscal years.
Compensation to Mr. Barker
In 1993, PHYMED and Mr. Barker entered into a ten-year employment
Merger pursuant to which PHYMED pays Mr. Barker $240,000 per annum. In
connection with the Merger, on April 3, 1998 Mr. Barker became an employee of
the Company and the Company assumed the obligations of PHYMED under the
employment Merger.
During the fiscal year ended December 31, 1997, George C. Barker was
the Chief Executive Officer of PHYMED and the only executive officer of PHYMED
whose total compensation exceeded $100,000. PHYMED paid or accrued $240,000 of
salary to Mr. Barker during such period.
On May 4, 1998, the Board of Directors of the Company granted Mr.
Barker an option to purchase 5,000,000 shares of Common Stock, as presently
constituted (500,000 shares after the effectiveness of the 1-for-10 reverse
stock split), with vesting to be contingent upon the attainment by the Company
of certain financial objectives.
The option was amended on January 7, 1999.
PHYMED Employee Stock Ownership Plan
In 1993, PHYMED established an employee stock ownership plan ("ESOP")
for its employees. Such plan is qualified under the provisions of the Internal
Revenue Code of 1986 as a defined contribution retirement plan designed to
invest primarily in qualifying employer securities. This provides a means for
employees to have an ownership interest in their employer. Upon establishment,
the ESOP purchased certain shares of PHYMED from a shareholder for a cash down
payment and a promissory note payable in installments. PHYMED makes
contributions to the ESOP which enable it to make timely payments of principal
and interest on its note to the former shareholder. Mr. and Mrs. Barker own in
the aggregate approximately 70% of the vested interests of participants in the
ESOP. See "Security Ownership of Certain Beneficial Owners and
Management-Possible Change of Control."
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Compensation of Directors
On May 4, 1998, the Board of Directors granted to each Mr. Love and Mr.
Foor an option to purchase 2,500,000 shares of Common Stock, as presently
constituted (250,000 shares after the effectiveness of the 1-for-10 reverse
stock split).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder require that directors and executive officers of the
Company and beneficial owners of greater than 10% of the Company's Common Stock
file various reports with the Securities and Exchange Commission (the "SEC").
The Company has reviewed its files and does not find that any Forms 3, 4 or 5
were furnished to the Company during or with respect to 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On or about July 21, 1997, Richard A. Green, Sr., controlled the
Company through Verde, Inc. It owned 2,051,136 shares of Common Stock, and Mr.
Green was a Director and President of the Company. On or about July 21, 1997,
Verde, Inc. sold its holdings to Richard Bowes and Joe R. Love for $50,000 cash,
and Mr. Green resigned all positions with the Company.
In connection with the sale of control, the Company sold its wholly
owned subsidiary, Crescent Contractors, Inc., to Rustown Homes, Inc. on June 11,
1997, for $414.00. Also, on the same date, the Company sold its wholly owned
subsidiary Cresthaven, Inc. to Crestmont International, Inc. for $414.00. In
each case, the amount of the consideration constituted full reimbursement to the
Company of all expenditures paid on behalf of the subsidiary. In addition, in
each case the buyer was owned or partly owned by Richard A. Green, Sr. No gain
or loss was realized by the Company on these sales.
In March 1997, the Company sold all remaining items of restaurant
equipment it owned to Food Franchises, Inc. for an extension of credit of
$37,448.00 Food Franchises, Inc. was an affiliate Mr. Green. On July 7, 1997, in
connection with the sale of Mr. Green's control, the Company sold the $37,448.00
receivable to Verde, Inc., in exchange for the assumption of liabilities of the
Company in the amount of $25,636.00. The Company recognized a loss on the
transaction of $11,812.00.
During the first six months of the year ending December 31, 1997,
International Green Team, Inc. ("IGT") managed the Company under a monthly fee
arrangement. IGT was an affiliate of Mr. Green and provided the Company with
office space and managerial, accounting and clerical services. The Company paid
IGT total fees of $15,600 and $24,000 for the years ended December 31, 1997 and
1996.
During 1997, Messrs. Joe R. Love, Joe P. Foor and an outside
consultant, Richard Bowes, rendered services to the Company, partly for services
rendered in connection with Board meetings and partly for consulting services
consisting of due diligence efforts regarding merger candidates. In
consideration of such services, on October 16, 1997, the Board of Directors
authorized the issuance of an aggregate of 3,000,000 shares, as presently
constituted, to such persons (1,000,000 shares to each of such persons). The
Company treated the shares as having been earned in full and issued at the end
of the year, December 31, 1997. The Company valued such services at $60,000 and
recorded that amount as an expense for 1997. The Common Stock was trading at
approximately $0.06 per share on December 31, 1997. The shares were valued at
$0.02 per share, on the basis of the market value of the stock, discounted for
being "restricted securities" and lack of liquidity, as well as the Company's
lack of earnings and book value.
Effective December 31, 1997, the Board of Directors authorized the
Company to issue to Joe P. Foor 1,000,000 shares of Common Stock, as presently
constituted (which will be 100,000, after giving effect to a proposed 1-for-10
reverse stock split), as a finder's fee for his services in introducing the
Company and Phy.Med., Inc., and assisting in the consummation of an acquisition
of PHYMED, such shares to be issuable only in the event of the consummation of a
business combination transaction whereby the Company acquires Phy.Med., Inc. On
such date, the Common Stock was trading at about $0.06 per share (or $20,000).
The 1,000,000 shares were valued at $0.02 per share, on the basis of the market
value of the stock, discounted for being "restricted securities" and lack of
liquidity, as well as the Company's lack of earnings and book value. The Company
became obligated to issue such 1,000,000 shares of Common Stock to Joe Foor for
his services when the merger transaction which became effective on April 3,
1998, and the shares are deemed to have been issued on such date.
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On March 31, 1998, the Company entered into a letter agreement with Joe
P. Foor and CCDC, Inc., a company controlled by Joe R. Love. Mr. Foor and CCDC,
Inc. (the "consultants") have agreed to provide certain specified consulting and
advisory services of a corporate development nature as the Company may need.
These include the identification, evaluation and negotiation of acquisitions,
strategic planning, optimization of capital structure, access to capital
markets, and similar services. The agreement is for a term of one year and will
continue after one year until terminated by either party upon 30 days' notice.
The Company will pay the consultants a $36,000 annual retainer, plus
out-of-pocket expenses. The consultants will also earn a transaction fee for
each acquisition or capital placement completed the Company completes. The
amount of the retainer will be credited against any transaction fees earned by
the consultants. The transaction fee will be based on the total amount paid by
the acquiring party or the total capital raised and will be a minimum of 3% of
such transaction amount. If greater than 3%, the transaction fee will be
determined by what is generally referred to as the "Lehman Formula," which is an
amount equal to the sum of:
5% of the first $1,000,000 of transaction amount; 4% of the second
$1,000,000; 3% of the third $1,000,000; 2% of the fourth $1,000,000;
and 1% of the remainder of the transaction amount.
George C. Barker owns a 50% interest in and is President of American
Medical Imaging Corporation ("AMIC"), which operated a mobile magnetic resonance
imaging ("MRI") machine in west Dallas. PHYMED and AMIC have a business
relationship which is embodied in a Radiology Services Provider Agreement -
Contracted Services dated February 1, 1996. This agreement has a one year term
which renews automatically each year for one additional year unless terminated
by one of the parties. AMIC refers patients to PHYMED for MRI procedures AMIC is
unable to perform on its own MRI machine. PHYMED invoices AMIC directly for such
procedures at a discounted fee of $300.00 per procedure plus administrative
costs of approximately $41.00 per procedure. AMIC pays the invoices directly to
PHYMED upon receipt. PHYMED received $176,000 in revenues in 1997 for services
render under this agreement in 1996 and 1997. PHYMED has received $136,900
through September 30, 1998.
Through PHYMED, the Company owns and operates PHYMED Diagnostic Imaging
Center in Dallas, Texas. PHYMED entered into a 10-year Management/Licensing
Agreement with Medical Imaging of Plano, Inc. ("MIPI") effective January 14,
1998 with respect to the operation of a new full service radiology center in
Plano, Texas, a suburb of Dallas, under the name of "PHYMED Diagnostic Imaging
Center Plano." The Company manages the new center, and licenses MIPI to use the
"PHYMED Diagnostic Imaging Center" name, in exchange for a monthly management
fee of 3% of net sales. Mr. Barker owns 12.5% and is President of MIPI. Mr.
Barker has personally guaranteed for three years $200,000 of MIPI's obligations
under equipment leases for equipment used at the new center. The Company is
negotiating to acquire MIPI or the center. However, there is no assurance that
such acquisition will take place or, if it does, on terms that will be favorable
to the Company.
George C. Barker d/b/a "A/G Partners" manages several physician
practices for a monthly fee. PHYMED does not have a direct relationship with A/G
Partners. One of the managed practices is The PRS Group, P.A., and Philip R.
Shalen, M.D. is the sole radiologist employed by it.
On January 1, 1996, PHYMED and The PRS Group, P.A. entered into a
10-year Radiology Services Agreement which provided that The PRS Group, P.A.
would provide the professional service component and PHYMED would provide the
technical component of the diagnostic radiological services rendered by PHYMED
at its Center. PHYMED and The PRS Group, P.A. each bill patients separately for
their components of the diagnostic services.
The 1996 Radiology Services Agreement also provided that The PRS Group,
P.A. would provide PHYMED with a Medical Director who would perform certain
enumerated services for a fee of $6,500 per month. Dr. Shalen served as the
Medical Director from January 1, 1996, until August 31, 1996, when the parties
terminated the position by mutual agreement.
On September 1, 1997, the parties entered into a new 10-year Radiology
Services Agreement which contains substantially the same provisions as the 1996
agreement except that it omits the provisions providing for a Medical Director
and the remuneration associated with it. This Radiology Services Agreement was
terminated by mutual agreement effective November 30, 1998.
11
<PAGE>
On September 1, 1998 PHYMED and Harry Feuerberg, P.A. entered into a
five year Radiology Services Agreement which provided that effective December
1,998 the P.A. would provide the professional services component and PHYMED
would provide the technical component of the radiological services rendered by
PHYMED at its Center. PHYMED will combine bill patients for professional and
technical components of the radiology services and the P.A. will receive a
percentage of the combined collections.
PHYMED paid the PRS Group, P.A. $58,500 in 1997 and $78,000 in 1996 for
the services of the Medical Director. The parties do not pay each other anything
under any of the provisions of the new 1997 agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of December 31,
1998, concerning the beneficial ownership of Common Stock by all Directors and
nominees, certain executive officers, all Directors and executive officers of
the Company, as a group, and each person who beneficially owns more than 5% of
the 49,099,069 outstanding shares of Common Stock, $.001 par value. Unless
otherwise indicated, each person named has sole voting and investment power over
the shares indicated.
<TABLE>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class (1)
------------------- ------------------------ ------------
<S> <C>
George C. Barker 68,915,409 (2)(3)(4) 87.9%
9603 White Rock Trail, Suite 100
Dallas, Texas 75238
Joe R. Love 5,117,143 (5) 9.9%
1601 N.W. Expressway, Suite 2101
Oklahoma City, Oklahoma
Joe P. Foor 4,554,080 (6) 8.8%
3535 NW Parkway
Dallas, Texas 75225
Judith F. Barker 68,915,409 (2)(3)(4) 87.9%
9603 White Rock Trail, Suite 100
Dallas, Texas 75238
Marilyn Moss 10,000(7)
9603 White Rock Trail, Suite 100
Dallas, Texas 75238
All directors and officers 78,596,632 94.1%
as a group (5 persons)
</TABLE>
(1) In April 1998, the Board of Directors authorized, subject to
shareholder approval, a 1-for-10 reverse stock split, which includes
increasing the par value of the Common Stock from $.001 to $.01.
(2) Includes 30,924,620 outstanding shares owned directly by Mr. Barker and
8,658,893 outstanding shares owned by the Phy.Med., Inc. Employee Stock
Option Plan, as to which Mr. Barker is the sole trustee and has sole
voting power. Also includes shares the Company is still obligated to
issue to Mr. Barker (22,915,544 shares) and the ESOP (6,416,352 shares)
in connection with the Merger. Such shares would have been issued at
the time of the Merger but the Company did not have the necessary
authorized but unissued shares. See "3. 1-for-10 Reverse Stock Split."
Mr. and Mrs. Barker own in the aggregate approximately 70% of the
vested interests of participants in the ESOP.
12
<PAGE>
(3) Does not include shares which can be purchased upon the exercise of a
recently granted stock option. On May 4, 1998, the Board of Directors
granted Mr. Barker an option to purchase 5,000,000 shares of Common
Stock, as presently constituted (500,000 shares after the effectiveness
of the 1-for-10 reverse stock split). The option was amended on January
7, 1999. Vesting is to take place on the earlier of the attainment by
the Company of certain financial objectives, or May 4, 2006. Therefore,
it is not presently exercisable and will not be exercisable within the
next 60 days.
(4) George C. Barker and Judith F. Barker are married. Mr. Barker is the
owner of record or has the power to vote all the outstanding shares
beneficially owned by him. Mrs. Barker is also deemed to be the
beneficial owner of the same shares. Mrs. Barker disclaims any
beneficial ownership of shares held by Mr. Barker as sole trustee of
the ESOP but allocated to the accounts of ESOP participants other than
Mr. or Mrs. Barker.
(5) Includes (a) holdings of family members of Mr. Love, (b) 68,280 shares
issuable upon conversion of Series A Preferred Stock held by a
corporation controlled by Mr. Love, and (c) 2,500,000 shares which can
be purchased upon the exercise of a recently granted stock option.
(6) Includes (a) 26,667 shares issuable upon conversion of Series A
Preferred Stock held by Mr. Foor's wife, Anne Foor, and (b) 2,500,000
shares which can be purchased upon the exercise of a recently granted
stock option.
(7) Less than 1%.
By virtue of his beneficial ownership of Common Stock, Mr. Barker may
be deemed to be a "parent" of the Company as such term is defined in the rules
and regulations of the Securities and Exchange Commission.
Possible Change of Control
Prior to the Merger on April 3, 1998, there were 800 common shares of
PHYMED outstanding, of which 500 were owned by Mr. Barker, individually, and 300
were owned by the ESOP.
In the Merger, the 500 PHYMED common shares owned by Barker were
converted into immediate ownership of and the right to receive 53,840,163 shares
of Common Stock of the Company, 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 Company. The remaining 160 PHYMED common shares held by the ESOP now
constitute the 20% of PHYMED common shares not owned by the Company.
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 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 Merger 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.
13
<PAGE>
The aggregate of 68,915,409 shares of Common Stock of the Company
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 Company. 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. As of December
31, 1998, the PHYMED note had been paid in full, and the balance on the ESOP
note was $272,566.
2. CHANGE OF THE COMPANY'S NAME TO "PHYMED, INC."
The Company acquired its 80% ownership of PHYMED in a reverse
triangular merger (the "Merger"). This was the consummation of the transaction
contracted for in an Agreement and Plan of Reorganization and Merger dated March
6, 1998 (the "Merger Agreement"), between the Company, PHYMED, Mr. Barker, the
ESOP and a transitory subsidiary of the Company.
The parties to the Merger Agreement agreed that the Company will change
its name to "PHYMED, Inc." The Company had only nominal assets and liabilities
and no business operations prior to the Merger, so the Company's business is now
PHYMED's business. Therefore, the Board of Directors believes the name "PHYMED,
Inc." is more appropriate because it reflects the name used in the Company's
post-Merger business operations. Therefore, on April 3, 1998, in connection with
the Merger, the Board of Directors approved a resolution, subject to shareholder
approval, amending Article 5 of the Company's Certificate of Incorporation to
change its name to "PHYMED, Inc."
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required to adopt the proposed amendment to change the
name of the Company. Mr. Barker owns of record or beneficially 39,583,513
(80.6%) of the 49,099,069 outstanding Common Shares of the Company and has
informed the Company that he intends to vote all such shares in favor of the
proposed amendment. If approved by the shareholders, the amendment will take
effect upon filing with the Secretary of State of Oklahoma, which is expected to
occur shortly after the Annual Meeting.
3. 1-FOR-10 REVERSE STOCK SPLIT
General
The Company presently is authorized to issue 50,000,000 shares of
Common Stock having a par value of $.001 per share. After giving effect to the
Merger on April 3, 1998, 49,099,069 shares of Common Stock were issued and
outstanding. The remaining 900,931 authorized but unissued shares, were reserved
for issuance upon conversion of the Company's outstanding Series A Preferred
Stock. Therefore, the Company has no shares remaining for other purposes.
Number of Shares of Authorized Common Stock Needed
As described below, the Company is still obligated to issue 29,331,896
shares to Mr. Barker and the ESOP to fulfill the Company's obligations under the
Merger. In addition, an aggregate of 10,000,000 shares, as presently
constituted, will be issuable upon the exercise of the stock options the Board
of Directors has granted to Messrs. Barker, Love and Foor.
Further, the Company is presently planning a private placement of
securities to accredited investors. The offering seeks to raise a minimum of
$200,000 and a maximum of $5,000,000 from the sale of a new Series B 12%
Cumulative Convertible Preferred Stock. Each share of Series B Preferred Stock
is priced at $10 and is convertible to 100 shares of Common Stock, as presently
constituted (10 shares, after the effectiveness of the reverse stock split). If
the Company were to sell the maximum in this private offering, as to which there
can be no assurance, the Company would need to reserve for issuance an
additional 50,000,000 authorized shares of Common Stock, as presently
constituted (5,000,000 shares, after the effectiveness of the reverse stock
split). These shares would be issuable upon conversion of the Series B Preferred
Stock.
14
<PAGE>
The terms of the Series B Preferred authorize the Board of Directors
not to pay dividends on the Series B Preferred Stock until the end of the first
full fiscal year ending on or after December 31, 1998, during which the
Corporation reports net income after taxes of at least $1,200,000. After such
point in time, the Board of Directors may choose to pay the 12% cumulative
annual dividends on the Series B Preferred Stock in shares of Common Stock. In
such event, the number of shares of Common Stock to be issued will depend on the
then current market value of the Common Stock at the time the dividend is paid.
If the Company were to sell the maximum of $5,000,000 in this private offering,
then, at the present bid price of $0.05 per share of Common stock, the Company
would need an additional 12,000,000 authorized but unissued shares of Common
Stock each year to pay dividends on the Series B Preferred Stock, should the
Board of Directors determine to pay such dividends in shares of Common Stock.
In connection with the Merger on April 3, 1998, George C. Barker,
individually, the Phy.Med., Inc. Employee Stock Ownership Plan (the "ESOP"),
acquired from the Company, 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 Company, as presently constituted, which,
if all such shares were presently outstanding, would constitute 87.9% of the
Company'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 parties to the Merger Agreement contemplate a 1-for-10 reverse
stock split which will become effective shortly after the annual meeting of
shareholders. Upon the effectiveness of such reverse split, Mr. Barker and the
ESOP will own 6,891,541 shares of the 7,843,097 shares, $.01 par value,
outstanding (7,933,190 shares on a fully diluted basis). The Company will
continue to have 50,000,000 shares of Common Stock authorized.
The Company 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 shareholders of the
Company have approved an appropriate amendment to the Company's Certificate of
Incorporation. Prior to such approval, Barker and the ESOP will continue to have
a contractual right, pursuant to the Merger 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 shareholder approval.
In summary, Mr. Barker and the ESOP received an aggregate of 39,583,513
shares of the Company at the time of the Merger, the same being 80. 6% of the
49,099,069 shares outstanding on the record date. 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%).
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, 87.9% of the then-outstanding Common Stock of the Company
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 Merger Agreement contemplate that the shareholders
of the Company will approve an amendment to the Company'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). Upon the effectiveness of
such reverse stock split, all outstanding shares of common stock of the Company,
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
Company 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 Company will then have a sufficient number of authorized but
unissued shares to issue for this purpose.
15
<PAGE>
Proposed Charter Amendment Regarding the 1-For-10 Reverse Stock Split
In connection with the Merger, the Board of Directors has approved a
resolution, subject to shareholder approval, amending Article 5 of the Company's
Certificate of Incorporation to multiply the par value of the Common Stock by a
factor of 10, thereby increasing the par value from $.001 to $.01, and, at the
same time, divide the number of outstanding and reserved shares by 10. The text
of Article 5, as proposed to be amended (including the authorizations regarding
Preferred Stock described in Proposal 4 below), is attached to this Proxy
Statement as Exhibit "A."
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required to adopt the proposed amendment in order to
effect the 1-for-10 reverse stock split. Mr. Barker owns of record or
beneficially 39,583,513 (80.6%) of the 49,099,069 outstanding Common Shares of
the Company and has informed the Company that he intends to vote all such shares
in favor of the proposed amendment. If approved by the shareholders, the
amendment will take effect upon filing with the Secretary of State of Oklahoma,
which is expected to occur shortly after the Annual Meeting.
4. AUTHORIZATIONS REGARDING PREFERRED STOCK
General
The authorized capital stock of the Company consists of fifty million
(50,000,000) shares of Common Stock, par value $.001 per share, of which
49,099,069 are issued and outstanding, an additional 900,931 are reserved for
issuance. In addition, the Company is obligated, subject to shareholder
approval, to issue an additional 29,331,896 shares to Mr. Barker and the ESOP in
connection with the Merger. The authorized capital stock of the Company also
includes one million (1,000,000) shares of Series "A" Preferred Stock, par value
$1.00 per share, of which 135,139 shares are issued outstanding.
The Certificate of Incorporation does not grant the Board of Directors
"blank check" authority to establish new series of Preferred Stock and fix the
terms of new series of Preferred Stock and determine the number of shares of
authorized Preferred Stock to be designated to each series. The Board of
Directors proposes that the shareholders approve an amendment to the Certificate
of Incorporation which will establish a new Series B 12% Convertible Preferred
Stock, change all shares of Preferred Stock which may be undesignated at any
time from "Series `A' Preferred Stock" to simply "Preferred Stock," and
authorize the Board of Directors to determine the preferences, limitations and
relative rights of all shares of Preferred Stock which may be undesignated at
any time, or one or more series of Preferred Stock, and to issue such shares
from time to time on terms and conditions approved by the Board of Directors.
"Blank Check" Authority Regarding Preferred Stock
As part of this proposed amendment, the Board of Directors desires to
have general authority to issue shares of Preferred Stock in one or more series
and to establish by resolution or resolutions, the designation, number, full or
limited voting powers, or the denial of voting powers, preferences and relative,
participating, optional, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics of each
series to be issued. This is commonly referred to as authorizing "blank check"
Preferred Stock. No further authorization by the shareholders for the issuance
of any shares of Preferred Stock is to be obtained.
The Certificate of Incorporation presently provides that all 1,000,000
shares of authorized Preferred Stock shall be designated as Series "A" Preferred
Stock (Non-Voting). The proposed amendment would also change this to designate
135,139 shares of Preferred Stock as Series "A" Preferred Stock (Non-Voting) and
500,000 shares as Series B 12% Cumulative Convertible Preferred Stock, as
described below. The amendment would otherwise refer to the remaining shares of
Preferred Stock as simply "Preferred Stock." These shares would be undesignated
Preferred Stock, and the Board of Directors could exercise its "blank check"
authority over such shares.
The only offering of Preferred Stock contemplated at the present time
is the proposed Series B Preferred Stock., which is discussed below. As part of
the amendment, the Board of Directors will be authorized to determine the terms
of any other series of Preferred Stock to be issued, including dividend rates,
conversion prices, voting rights, redemption prices and similar matters.
However, the Board of Directors will not have the authority to change the rights
or preferences of shares of Series "A" Preferred Stock or Series B Preferred
Stock which are outstanding at the time any authorized change is to take effect.
16
<PAGE>
The Board of Directors believes that the proposed authorization of
"blank check" authority over Preferred Stock is desirable to enhance the
Company's flexibility in connection with possible future actions, such as
financings, corporate mergers, acquisitions of businesses or other assets, or
other corporate purposes. Having such authorized shares available for issuance
in the future would allow shares of Preferred Stock to be issued without the
expense and delay of a special shareholders' meeting. The shares of Preferred
Stock would be available for issuance from time to time for any proper corporate
purposes in one or more series (which may be "customized" by the Board for the
particular purpose) without further action by the holders of shares of Common
Stock or any then-outstanding shares of Preferred Stock, except as may be
required by applicable law. In this respect, the situation will be similar to
the issue of additional shares of authorized but unissued Common Stock, which
can now be issued and sold by the Board of Directors for any proper corporate
purpose without further action by shareholders, except as may be required by
applicable law.
It is not possible to state the precise effects of the authorization of
"blank check" authority over Preferred Stock upon the rights of holders of
Common Stock until the Board of Directors determines the respective preferences,
limitations and relative rights of the holders of one or more series of new
Preferred Stock that are actually issued in the future. However, such effects
might include (a) a reduction of the amount otherwise available for payment of
any dividends on Common Stock, to the extent dividends are payable on any issued
shares of a new series of Preferred Stock, and restrictions on dividends on
Common Stock if dividends on then outstanding shares of any new series of
Preferred Stock are in arrears; (b) dilution of the voting power of the Common
Stock to the extent that any issued series of any new series of Preferred Stock
has voting rights as may be determined by the Board; and (c) the holders of
Common Stock not being entitled to share in the Company's assets upon
liquidation until satisfaction of any liquidation preference granted to then
outstanding shares of any new series of Preferred Stock.
The Series B Preferred Stock
General. In connection with the private offering of securities
described in "Recent Developments" above, the Board of Directors has authorized,
subject to approval of shareholders, the creation and issuance of up to five
hundred thousand (500,000) shares of Series B 12% Cumulative Convertible
Preferred Stock , par value $1.00 per share, ("Series B Preferred Stock") Such
series will have the rights, preferences, and privileges described below. The
Board of Directors proposes that the shareholders approve an amendment to the
Company's Certificate of Incorporation that will create the Series B Preferred
Stock.
The general effect of the authorization or issuance of the Series B
Preferred Stock will be to create additional rights that are senior and prior to
those of the holders of Common Stock, particularly, dividend, redemption and
liquidation rights.
Dividend Rights. The holders of Series B Preferred Stock will be
entitled to receive dividends out of any funds legally available for that
purpose at the annual rate of 12% of the amount of the liquidation preference
and no more, payable annually, or at such shorter intervals as the Board of
Directors may from time to time determine. These dividend rights are subject to
certain conditions described below and also to the senior and prior dividend
rights of the holders of the Series "A" Preferred Stock.
Subject to the limitation described in the next succeeding paragraph,
dividends will accrue on all shares of Series B Preferred Stock from the date
they are issued and will accrue from day to day, whether or not earned or
declared. Dividends will be payable when, as and if declared by the Board of
Directors. The Board of Directors will not be obligated to declare any dividends
to the holders of Series B Preferred Stock, and such holders will have no right
to receive any dividends unless and until declared by the Board of directors in
its sole and absolute discretion. Dividends are payable once a year within
forty-five (45) days after completion of the audit of the Corporation's
financial statements for the fiscal year just ended.
17
<PAGE>
Accrued but unpaid dividends on the Series B Preferred Stock will be
payable before any dividends are paid, declared, or set apart for holders of any
other series of Preferred Stock junior to the Series B Preferred Stock or for
holders of Common Stock. In addition, dividends are cumulative so that if, for
any dividend period, the preferential dividends on Series B Preferred Stock are
not paid, or declared, or set apart, the deficiency must be fully paid or
declared and set apart, without interest, before any distribution (by dividend
or otherwise) is paid on, declared, or set apart for any other series of
Preferred Stock junior to the Series B Preferred Stock or for Common Stock.
The Board of Directors may determine that dividends will not accrue and
will not be paid on the Series B Preferred Stock for all or any part of the
period prior to the end of the first full fiscal year ending on or after
December 31, 1998, during which the Corporation shall have reported net income
after taxes of at least $1,200,000, as reflected on the Corporation's audited
financial statements for such year. In such event, the holders of Series B
Preferred Stock will not be entitled to receive dividends during such period of
time.
Separate and apart from the limitation on the payment of dividends
described in the preceding paragraph, the Board of Directors may determine to
pay dividends on the Series B Preferred Stock either in shares of Common Stock
or in cash for any period or periods of time, whether consecutive or not. In
such event, the value of a share of Common Stock will be determined by averaging
the daily high bid and low asked prices for a share for the 10 consecutive
trading days on which such shares are actually traded preceding the end of the
period, if the Common Stock is traded at the time other than on the NASDAQ
National Market System. The high bid and low asked prices used shall be those
reported in the Wall Street Journal, or if not so reported, as furnished by a
professional market maker making a market in the Common Stock and selected by
the Board of Directors. If the Common Stock is traded on NASDAQ at the time, the
value of a share of Common Stock will be determined by averaging the daily
closing prices (i.e., last sale price, regular way) for a share for the 10
consecutive trading days on which such shares are actually traded on the NASDAQ
National Market System preceding the end of the period.
Conversion and Redemption. Beginning August 31, 1999,each share of
Series B Preferred Stock is convertible at the option of the holder 100 shares
of Company's Common Stock, as presently constituted (10 shares after the
effectiveness of the 1-for-10 reverse stock split), but unless previously
converted, is subject to call and redemption by the Company at $10.00 per share
at any time after 5:00 p.m. Dallas, Texas time, on July 31, 2000.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Series B Preferred Stock are entitled
to receive, out of legally available funds, a liquidation preference of $10.00
per share, plus an amount equal to any unpaid dividends to the payment date,
before any payment or distribution is made to the holders of the Company's
Common Stock or any other class of the Company's stock that ranks junior to the
Series B Preferred Stock. These liquidation rights are subject to the senior and
prior rights of the holders of the Series "A" Preferred Stock.
Other Rights. The holders of Series B Preferred Stock will have no
voting, preemptive, sinking fund or other rights as shareholders of the Company,
other than the rights described above.
The Private Offering
General. As discussed above, the Company is conducting a private
offering of securities to accredited investors, and shares of Series B Preferred
Stock will be issued to investors who purchase securities in this offering, if
the Company sells at least the $200,000 minimum offering. See "Recent
Developments-PHYMED's Present Business and Contemplated Growth" and "3. 1-For-3
Reverse Stock Split."
Use of Proceeds. The net proceeds of the offering are expected to be
$170,000, if the minimum offering is sold, and $4,250,000, if the maximum
offering is sold. The Company presently intends that the net proceeds of this
offering will be used primarily to expand PHYMED's business through the
development of new medical diagnostic imaging (radiological) centers, the
acquisition of existing centers and commencing and expanding the use of
capitated services agreements.
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<PAGE>
The offering is in effect a "blind pool" offering. Management is
investigating and exploring a number of possible expansion projects. Specific
proposed undertakings have not yet been selected to be financed with the
proceeds of the offering, in part because such decisions will depend on how much
capital is raised in the offering. The specific projects which are ultimately
selected will depend on several factors, such as the terms, if any, that can be
negotiated, the availability and timing of various items, and the amount of
financing needed and available. Management will use its best judgment in
negotiating and selecting projects, but there is no assurance that any of such
projects will produce a return on investment. Investors must, of necessity, rely
on the ability and judgment of Management in selecting, negotiating and managing
projects.
Within this framework, the following table sets forth the Company's
best estimate of the uses that will be made of the offering proceeds, assuming
in the alternative that either only the minimum or only the maximum is sold:
Minimum Maximum
Acquisition and Development of Centers $100,000 $3,700,000
Development of Capitated Contracts 60,000 400,000
General, Administrative & Working Capital 10,000 150,000
-------- ----------
Total $170,000 $4,250,000
Series A Preferred Stock
General. The Company's Certificate of Incorporation authorizes one
million (1,000,000) shares of Series "A" Preferred Stock, par value $1.00 per
share, of which 135,139 shares are issued outstanding. However, the Certificate
of Incorporation does not set forth the rights and preferences of the Company's
Series A Preferred Stock other than to provide that they have no voting rights.
Therefore, the rights and preferences of the outstanding 135,139 shares of
Series A Preferred Stock cannot be determined conclusively.
Such 135,139 shares were issued by the Company's predecessor, Sooner
Energy Corp. ("Sooner-British Columbia"), when such company was domiciled in
British Columbia, Canada. In 1988, Sooner-British Columbia filed resolutions
with the Registrar of Companies in British Columbia authorizing certain Series
"A" Preferred Shares, Can. $1.00 par value, and designating certain of such
authorized shares as Series "A-1," Series "A-2" and Series "A-3" Preferred
Shares. The resolutions fixed the rights and designations of each of the three
series of preferred shares, which rights included non-cumulative dividend
rights, a preference upon liquidation, rights to convert such shares into common
shares of Sooner, and no voting rights. The Company's present management
believes without assurance the outstanding 135,139 shares of the Company's
Series A Preferred Stock were originally issued by Sooner-British Columbia as
Series "A-1" Preferred Shares for an amount equal to their par value.
In 1994, Sooner-British Columbia was "continued" as a Wyoming
corporation with the same name ("Sooner-Wyoming") and was immediately merged
into the Company, which was a wholly-owned subsidiary of Sooner-Wyoming. The
effect of the continuation documents filed in Wyoming was to preserve any rights
or privileges which had accrued in favor of the holders of the Sooner-British
Columbia Series A Preferred Shares prior to the continuation and to deem that
such shares had been issued in compliance with Wyoming law. The documents on
file with Wyoming and Oklahoma public officials provide that each share of
Series "A" Preferred Stock of Sooner-Wyoming outstanding at the time of the
merger was converted into one share of Series A Preferred Stock of the Company.
However, none of such documents sets forth the rights and preferences of either
Sooner-Wyoming's or the Company's Series A Preferred Stock, other than to
provide that they have no voting rights.
Thus, the rights and preferences of the Series A Preferred Stock cannot
be determined conclusively. The Company believes without assurance that an
Oklahoma court having jurisdiction over the matter would determine that the best
evidence of those rights and preferences is the resolutions fixing the rights
and preferences of the original Series "A-1" Preferred Shares filed by
Sooner-British Columbia with the Registrar of Companies in 1988.
Based on the foregoing, the Company believes that the 135,139 shares of
Series A Preferred Stock currently outstanding have the following rights,
preferences and privileges:
Dividend Rights. The holders of Series A Preferred Stock are entitled
to receive dividends out of any funds legally available for that purpose at the
rate of 5% per annum of the amount paid in with respect to such shares (which
the Company believes was Can. $1.00 per share), before any dividends are paid to
the holders of any other class of the Company's stock that ranks junior to the
Series A Preferred Stock, such as the Company's Series B Preferred Stock or the
Common Stock.
19
<PAGE>
Conversion Rights. Each of the 135,139 shares of Series A Preferred
Stock currently outstanding is convertible at the option of the holder into
6.6667 shares of the Company's Common Stock, as the same is presently
constituted (0.66667, after the effectiveness of the 1-for-10 reverse stock
split). Accordingly, the 135,139 shares of Series A Preferred Stock are
convertible into an aggregate of 900,931 shares of such Common Stock.
The Company's position is that the 1-for-10 reverse stock split will
decrease the conversion rate from 6.6667 to 0.66667 and thereby reduce the
number of shares issuable upon conversion after the reverse split to 1/10th of
the number of shares issuable before the split. Accordingly, if the 135,139
shares of Series A Preferred Stock continue to be outstanding on the date the
reverse split becomes effective, they will convertible after the reverse split
into 90,093 shares of Common Stock instead of 900,931 shares.
However, the charter of Sooner-British Columbia is not clear on this
point and is susceptible of a contrary interpretation. Article 24.3.F(v)B of the
charter provides for the Company's position of a proportionate reduction "[i]n
the event of any consolidation . . . . of the common shares at any time on or
before the 1st day of May, 1989, while any of the Series "A-1" Preferred Shares
are outstanding into a lesser number . . . of shares." The Series "A-1"
Preferred Shares first became convertible on such date and the conversion rate
was determined on such date by reference to a formula in the applicable
subsection of Article 24.3, but there is no indication as to why the
anti-dilution provisions should terminate on such date. It is the Company's
position that the insertion of this date was the result of a drafting error and
that the proportionate reduction will occur, as described above.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Series A Preferred Stock are entitled
to receive, out of legally available funds, a liquidation preference equal to
the amount paid in with respect to such shares (which the Company believes was
Can. $1.00 per share), plus an amount equal to any unpaid dividends to the
payment date, before any payment or distribution is made to the holders of any
other class of the Company's stock that ranks junior to the Series A Preferred
Stock, such as the Company's Series B Preferred Stock or the Common Stock.
Other Rights. The holders of Series A Preferred Stock have no voting,
redemption, or sinking fund rights, and the Company believes without assurance
that they have no preemptive rights.
Common Stock
The par value of the 50,000,000 shares of Common Stock is $.001 per
share. Of such number, 49,099,069 shares are issued and outstanding and 900,931
are reserved for issuance upon the conversion of the Series "A" Preferred Stock.
In addition, the Company is obligated, subject to shareholder approval, to issue
an additional 29,331,896 shares to Mr. Barker and the ESOP in connection with
the Merger. After the effectiveness of the proposed 1-for-10 reverse stock
split, the par value of the Common Stock will be $.01 per share.
Holders of the Common Stock are entitled to one vote per share on all
matters voted on by stockholders. There are no cumulative voting rights, which
means that the holders of a majority of the outstanding Common Stock are able to
elect all of the Directors and that the holders of the remaining Common Stock
are not able to elect any Director. Holders of the Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds lawfully available for the payment of dividends, and upon any liquidation,
dissolution or winding up of the affairs of the Company, to receive, pro rata,
all of the assets of the Company available for distribution to stockholders
after payment of debt and any liquidation preferences to the holders of any
Series "A" referred Stock or Series B Preferred Stock that may be outstanding at
the time.
Holders of the Common Stock have no preemptive, redemption, sinking
fund or conversion rights.
The transfer agent for the Company's Common Stock is Securities
Transfer Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.
Proposed Charter Amendment Regarding Preferred Stock
In connection with the Merger, the Board of Directors has approved a
resolution, subject to shareholder approval, amending Article 5 of the Company's
Certificate of Incorporation by establishing the Series B Preferred Stock and
authorizing the Board of Directors to exercise "blank check" authority in regard
to the Preferred Stock. The text of Article 5, as proposed to be amended
(including the authorizations regarding the 1-for-10 reverse stock split
described in Proposal 3 above), is attached to this Proxy Statement as Exhibit
"A."
20
<PAGE>
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required to adopt the proposed amendment. Mr. Barker
owns of record or beneficially 39,583,513 (80.6%) of the 49,099,069 outstanding
Common Shares of the Company and has informed the Company that he intends to
vote all such shares in favor of the proposed amendment. If approved by the
shareholders, the amendment will take effect upon filing with the Secretary of
State of Oklahoma, which is expected to occur shortly after the Annual Meeting.
5. INDEPENDENT AUDITORS
The shareholders are being asked to ratify the selection by the Board
of Directors of Grant Thornton LLP as the independent public accountants for the
Company for the fiscal year ending December 31, 1998.
The firm of Grant Thornton LLP has served as the independent public
accountants for the Company for the fiscal year ending December 31, 1997, and
the Board of Directors has selected Grant Thornton LLP to serve as the Company's
independent public accountant for the current fiscal year.
Representatives of Grant Thornton LLP are expected to be present at the
Annual Meeting, to have the opportunity to make a statement, if they so desire,
and to be available to respond to appropriate questions from shareholders.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company for the nine
months ended September 30, 1998 (unaudited) and the years ended December 31,
1997 and 1996, are included in this Proxy Statement. See "Index to Financial
Statements."
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the Company's Proxy
Statement for the Annual Meeting to be held in 2000, all shareholder proposals
must be received by the Company on or prior to January 1, 2000. Any proposal
should be sent to the attention of the Company.
By the Order of the Board of Directors
Judith F. Barker
January 25, 1999 Secretary
21
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Pages
-----
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements:
Consolidated Balance Sheets at September 30, 1998 (unaudited) and F-2
December 31, 1997 and 1996
Consolidated Statements of Operations for the nine months ended F-4
September 30, 1998 (unaudited) and the years ended December
31, 1997 and 1996
Consolidated Statement of Changes in Shareholders' Deficit for F-5
the nine months ended September 30, 1998 (unaudited) and the
years ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the nine months ended F-6
September 30, 1998 and 1997 (unaudited) and the years ended
December 31, 1997 and 1996
Notes to Financial Statements F-7
</TABLE>
22
<PAGE>
EXHIBIT "A"
TEXT OF AMENDED ARTICLE 5 OF CERTIFICATE OF INCORPORATION
If Proposals 3 and 4 are both approved by the shareholders, the present
Article 5 of the Certificate of Incorporation of Tatonka Energy, Inc. will be
deleted in its entirety and replaced with the following Article 5:
"5. The shares to be issued by the Corporation shall be of two classes,
namely, Voting Common Stock, of a par value of One Cent ($0.01) per
share, and Preferred Stock, of a par value of One Dollar ($1.00) per
share. The Corporation shall have the authority to allot an aggregate
number of fifty million (50,000,000) shares of the Voting Common Stock
and an aggregate number of one million (1,000,000) shares of Preferred
Stock.
A. Authority of the Board of Directors. Regarding Preferred Stock,
135,139 shares are designated as Series "A" Preferred Stock
(Non-Voting) and 500,000 shares are designated as Series B 12%
Cumulative Convertible Preferred Stock. The Board of Directors shall be
vested with and shall have the authority to issue any or all shares of
Preferred Stock in one or more series and by resolution or resolutions,
to establish the designation, number, full or limited voting powers, or
the denial of voting powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics of each series
to be issued; provided, however, that the Board of Directors may not
change the rights and preferences of shares of Series "A" Preferred
Stock (Non-Voting) or Series B 12% Cumulative Convertible Preferred
Stock, which are outstanding at the time any authorized change is to
take effect.
B. Series B 12% Cumulative Convertible Preferred Stock. The "Series B
12% Cumulative Convertible Preferred Stock" (the "Series B Preferred
Stock") shall have the powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics set forth below.
(a) Voting Rights. The Series B Preferred Stock shall
be nonvoting stock, and the holders (hereinafter
called "Holders") of Series B Preferred Stock shall
have no voting rights except where required by law.
(b) Dividend Rights. Subject to the restrictions and
limitations of subparagraphs (ii) and (iii) below,
the Holders of Series B Preferred Stock shall be
entitled to receive dividends as provided in
subparagraph (i) below:
(i) The Holders of Series B Preferred Stock
shall be entitled to receive dividends out of any
funds legally available for that purpose at the
annual rate of 12% of the amount of the liquidation
preference and no more, payable annually, or at such
shorter intervals as the Board of Directors may from
time to time determine. Dividends shall accrue on all
shares of Series B Preferred Stock from the date they
are issued and shall accrue from day to day, whether
or not earned or declared. Such dividends shall be
payable when, as and if declared by the Board of
Directors. Nothing contained herein shall obligate
the Board of Directors to declare any dividends to
the Holders of Series B Preferred Stock, and such
Holders shall have no right to receive any dividends
unless and until declared by the Board of directors
in its sole and absolute discretion. Dividends shall
be paid once a year within forty-five (45) days after
completion of the audit of the Corporation's
financial statements for each fiscal year. Accrued
but unpaid dividends on the Series B Preferred Stock
will be payable before any dividends are paid,
declared, or set apart for holders of any other
series of Preferred Stock junior to the Series B
Preferred Stock or for holders of Common Stock. In
addition, dividends are cumulative so that if, for
any dividend period, the preferential dividends on
Series B Preferred Stock are not paid, or declared,
or set apart, the deficiency must be fully paid or
declared and set apart, without interest, before any
distribution (by dividend or otherwise) is paid on,
declared, or set apart for any other series of
Preferred Stock junior to the Series B Preferred
Stock or for Common Stock
23
<PAGE>
(ii) Prior to the end of the first full
fiscal year ending on or after December 31, 1998,
during which the Corporation shall have reported net
income after taxes of at least $1,200,000, as
reflected on the Corporation's audited financial
statements for such year, the Board of Directors
shall have the right and option, in its sole and
absolute discretion, at any time or times, or
intermittently from time to time, to determine or
declare that dividends shall not accrue from day to
day and, accordingly, shall not be paid, on the
Series B Preferred Stock. In the event of such
determination or determinations by the Board of
directors, the Holders of Series B Preferred Stock
shall not be entitled to receive dividends during
such period of time or times as the Board of
Directors may determine.
(iii) Notwithstanding any other term or
provision contained herein, and as a completely
separate and independent matter from the provisions
of subparagraph (ii) above, the Board of Directors
shall, in its sole and absolute discretion, have the
right and option, but not the obligation, to pay
dividends on the Series B Preferred Stock either in
shares of Common Stock or in cash for any period or
periods of time, whether consecutive or not, such as,
for example, for an entire year, for a portion or
portions of a year, for multiple years, or for
portions of multiple years. If the Board of Directors
determines to pay dividends for any period in shares
of Common Stock, the value of a share shall be
determined by averaging the daily closing prices
(i.e., last sale price, regular way) for a share of
Common Stock for the 10 consecutive trading days on
which such shares are actually traded on the NASDAQ
National Market System preceding the end of the
period, if the Common Stock is so traded at the time.
If not, the average of the high bid and low asked
prices as reported in the Wall Street Journal, or if
not so reported, as furnished by a professional
market maker making a market in the Common Stock and
selected by the Board of Directors of, shall be used.
(c) Liquidation Preference. On any voluntary or
involuntary liquidation of the Corporation, the
Holders of Series B Preferred Stock shall receive a
liquidation preference equal to $10.00 per share,
plus any declared and unpaid dividends on Series B
Preferred Stock, and no more, before any amount is
paid to the holders of the Common Stock. or any other
series of Preferred Stock junior to the Series B
Preferred Stock. Each certificate representing shares
of Series B Preferred Stock shall show on its face
the amount of the liquidation preference per share.
If the assets of the Corporation should be
insufficient to permit payment to the Holders of
Series B Preferred Stock of their full liquidation
preference amounts as herein provided, then such
assets will be distributed ratably among the holders
of outstanding shares of Series B Preferred Stock. If
the assets of the Corporation are sufficient to
permit payment to the Holders of Series B Preferred
Stock of their liquidation preference in full, the
holders of any other series of Preferred Stock junior
to the Series B Preferred Stock and/or the holders of
Common Stock shall receive ratably all the remaining
assets of the Corporation. A merger or consolidation
of the Corporation with or into any other
corporation, or a sale of all or substantially all of
the assets of the Corporation will be deemed a
liquidation of the Corporation within the meaning of
this paragraph, thereby entitling Holders to the
liquidation preference.
24
<PAGE>
(d) Conversion Rights of Holders. The Holder of any
shares of Series B Preferred Stock shall have the
right and option to convert any of such shares of
Series B Preferred Stock into shares of Common Stock
on the following terms:
(i) Conversion Rate. Commencing August 31,
1999, each outstanding hare of Series B Preferred
Stock shall be convertible at any time and from time
to time, at the option of the Holder, into ten (10)
shares of Common Stock (as constituted after the
effectiveness of a 1-for-10 reverse stock split).
(ii) Procedure. Any Holder may convert by
delivering to the office of the Corporation or its
transfer agent a written notice electing to convert
and surrendering the Holder's certificate(s)
evidencing the shares of Series B Preferred Stock
being converted, duly endorsed for transfer.
(e)General Conversion Provisions. The following
provisions apply to conversion:
(i)Anti-dilution Rights. While the Series B
Preferred Stock is outstanding, if the Corporation:
(w) divides its outstanding shares of
Common Stock into a greater number of shares;
(x) combines its outstanding shares of
Common Stock into a small number of shares;
(y) pays a dividend or makes a distribution
on its Common Stock in shares of its capital
stock or other property; or
(z) issues by reclassification of its
Common Stock any shares of its capital stock or
other property;
then the conversion privilege in effect mmediately
before such action will be adjusted so that the each
Holder of the Series B Preferred Stock thereafter
converted may receive the number of shares of Common
Stock, capital stock or other property that he would
have owned immediately following such action if he had
converted the shares of Series B Preferred Stock
immediately before the record date (or, if no record
date, the effective date) for such action.
The adjustmen will become effective immediately after
the record date in the case of a dividend or
distribution and immediately after the effective date
in the case of a subdivision, combination or
reclassification.
(ii) No Fractional Shares. Neither fractional
shares, nor scrip or other certificates evidencing such
fractional shares, will be issued by the Corporation on
conversion of Series B Preferred Stock, but the
Corporation will pay in lieu thereof the Determined
Value (defined below) in cash to the holders who would
be entitled to receive such fractional shares. The
"Determined Value" means the otherwise-issuable
fraction of a share of Common Stock multiplied by the
average of the daily closing prices (i.e., last sale
price, regular way) for a share of Common Stock for
the 10 consecutive trading days on which such shares
are actually traded on the NASDAQ National Market
System (if the Common Stock is so traded at the time)
preceding the date the Holder delivered to the office
of the Corporation or its transfer agent a written
notice electing to convert and surrendering the
Holder's certificate(s) evidencing the shares of
Series B Preferred Stock being converted, duly
endorsed for transfer. If the Common Stock is not so
traded at the time, the average of the high bid and low
asked prices as reported in the Wall Street Journal, or
if not so reported, as furnished by a professional
market maker making a market in the Common Stock and
selected by the Board of Directors of, shall be used.
25
<PAGE>
(iii) Status of Converted Shares. Shares of
Series B Preferred Stock that are converted will be
restored to the status of authorized but unissued
shares of Preferred Stock, and will no longer be
authorized but unissued shares of Series B Preferred
Stock.
(iv)Reservation of Shares. The Corporation
will at all times reserve and keep available out of its
authorized but unissued shares of Common Stock such
number of shares of Common Stock as may be necessary
for the purpose of converting all outstanding shares
of Series B Preferred Stock into the full number of
shares of Common Stock issuable upon conversion of all
such Series B Preferred Stock.
(f)Redemption. The Corporation may redeem Series B
Preferred Stock under the following terms and
conditions:
(i) Terms of Redemption. On or after 5:00
p.m. Dallas, Texas time, July 31, 2000, the Corporation,
may, at the option of the Board of Directors, redeem the
whole, or from time to time any part, of the outstanding
Series B Preferred Stock by paying in cash $10.00 per share,
plus all dividends accrued, unpaid, and accumulated thereon,
as provided in this paragraph through and including the
redemption date (the "Redemption Price") and by giving to
each record Holder of Series B Preferred Stock at his or her
last known address as shown on the Corporation's records, at
least thirty (30) but not more than sixty (60)days' notice.
This "Redemption Notice" may be either in person or in
writing, by mail, postage prepaid and must state the class
or series or part of any class or series of shares to be
redeemed, along with the date and plan of redemption, the
Redemption Price, and the place where the shareholders may
obtain payment of the Redemption Price on surrendering their
share certificates. If only a part of the outstanding Series
B Preferred Stock is redeemed, redemption will be by lot or
pro rata, as the Board of Directors prescribes. But no
Series B Preferred Stock may be redeemed unless all accrued
and accumulated dividends on all outstanding Series B
Preferred Stock have been paid for all past dividend periods
and full dividends for the current period through and
including the redemption date have been paid or declared and
set apart for payment. On or after the date fixed for
redemption, each Holder of shares called for redemption may,
unless the Holder has previously exercised the option to
convert the Holder's Series B Preferred Stock as provided
elsewhere herein, surrender to the Corporation the
certificate for the shares at the place designated in the
Redemption Notice and will then be entitled to receive
payment of the Redemption Price. If fewer than all the
shares represented by any surrendered certificate are
redeemed, a new certificate for the unredeemed shares will
be issued. If the Redemption Notice is duly given and
sufficient funds are available on the date fixed for
redemption, then, whether or not the certificates
representing the shares to be redeemed are surrendered, all
the Holders' rights with respect to the shares called for
redemption will terminate on the date fixed for redemption,
except for the Holders' right to receive the Redemption
Price, without interest, on surrendering their certificates.
(ii) Deposit of Funds. Shares are considered
redeemed, and dividends on them cease to accrue after the
date fixed for redemption, if, on or before any date fixed
for redeeming the Series B Preferred Stock as provided in
this paragraph, the Corporation deposits as a trust fund
with any bank or trust company in Oklahoma or Texas (or any
bank or trust company in the United States duly appointed
and acting as the Corporation's transfer agent) a sum
sufficient to redeem, on the date fixed for redemption, the
shares called for redemption, with irrevocable instructions
and authority to the bank or trust company (a) to publish
the Redemption Notice (or to complete publication already
begun), and (b) to pay, on and after the date fixed for
redemption or before that date, the Redemption Price of the
shares to their holders when they surrender their
certificates. The deposit is considered to constitute full
payment of the shares to their holders, and from the date of
the deposit the shares will no longer be considered
outstanding. Moreover, the Holders of the shares will cease
to be shareholders with respect to the shares, except to
receive from the bank or trust company payment of the
Redemption Price of the shares (without interest) on
surrendering of the certificates and to convert the shares
to Common Stock as provided elsewhere herein. Any money so
deposited on account of the Redemption Price of Series B
Preferred Stock shares converted after the deposit is made
must be repaid immediately to the corporation on conversion
of those shares of Series B Preferred Stock.
26
<PAGE>
(iii) Status of Redeemed Shares. Shares of
Series B Preferred Stock redeemed by the Corporation
shall be restored to the status of authorized but unissued
shares.
(i)No Preemptive Rights. Holders of Series B Preferred Stock
will not have any preemptive rights to subscribe for or
purchase any additional shares of Preferred Stock of any
series or any shares of the Corporation's Common Stock.
(j) Restriction of Surplus. The liquidation preference of
the
Series B Preferred Stock exceeds the par value thereof by
$9.99 per share. As long as any shares of Series B Preferred
Stock are outstanding, surplus shall be restricted on any
specific date by an amount equal to the product of (i) $9.99
multiplied by (ii) the number of shares of Series B
Preferred Stock then outstanding. In furtherance of this
restriction of surplus, the Corporation covenants and agrees
that, so long as any shares of Series B Preferred Stock are
issued and outstanding, the Corporation shall not pay any
dividend, make any other distribution, or enter into or
consummate any transaction which would have the effect of
reducing the combined (i) par value of all shares of Series
B Preferred Stock then outstanding and (ii) surplus of the
Corporation to an amount less than the aggregate liquidation
preference of all the then-outstanding shares of Series B
Preferred Stock.
LIST OF APPENDICES
1. Form of Proxy
27
<PAGE>
REVISED PRELIMINARY COPY
Tatonka Energy, Inc. PROXY/VOTING INSTRUCTION CARD
Dallas, Texas
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting on February 5, 1999.
The undersigned hereby appoints George C. Barker, Joe R. Love and Joe P. Foor
and each of them the proxy for the undersigned with full powers of substitution
to vote all shares of Common Stock of TATONKA ENERGY., INC., that the
undersigned is entitled to vote, at the annual meeting of shareholders of
TATONKA ENERGY, INC., at Dallas, Texas, at 10:00 A.M. on Friday, February 5,
1999, and any adjournment thereof in the manner indicated on the reverse side of
this proxy, and upon such other business as may lawfully come before the
meeting. IF NO DIRECTION AS TO THE MANNER OF VOTING THE PROXY IS MADE, THE PROXY
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 THROUGH 5, AS
INDICATED ON THE REVERSE SIDE HEREOF.
You are encouraged to specify your choices by marking the appropriate boxes
(SEE REVERSE SIDE) but you need not mark any boxes if you wish to vote in
accordance with the Board of Director's recommendations.
You acknowledge receipt of the Company's Form 10-KSB for the fiscal year
ended December 31, 1997, as filed with the Securities and Exchange Commission,
the Notice of Meeting of Shareholders and the Proxy Statement by signing on the
reverse side.
28
<PAGE>
Please mark your vote as in this example.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this proxy
will be voted FOR all proposals.
The Board of Directors recommends a vote FOR Proposals 1 through 7.
-------------------------------------------------------------------
FOR WITHHOLD AGAINST
1. To increase the number of Directors from three
to five and elect five directors:
George C. Barker
Joe R. Love
Joe P. Foor
Judith F. Barker
Marilyn Moss
2. To change the Company's name to "PhyMed, Inc."
3. To effect a 1-for-10 reverse stock split.
4. To establish a new Series B 12% Convertible Preferred
Stock and authorize the Board of Directors to exercise "blank check"
authority regarding Preferred Stock.
5. To ratify the selection of auditors
for fiscal 1998.
6. In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before
the meeting.
Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such.
SIGNATURE(S)
DATE
29
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders
New Tatonka Energy, Inc.
We have audited the accompanying consolidated balance sheets of New Tatonka
Energy, Inc. and Subsidiary as of December 31, 1996 and 1997, and the related
consolidated 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 consolidated financial position of New Tatonka
Energy, Inc. and Subsidiary as of December 31, 1996 and 1997, and the
consolidated results of their operations and their consolidated 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 E which
is as of November 30, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
New Tatonka Energy, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
--------------------------
ASSETS 1996 1997 1998
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 2,980 $ 37,233 $ 14,254
Accounts receivable - trade, less allowance for
doubtful accounts and contractual allowances
of $1,898,035, $1,668,867 and $1,328,678,
respectively 2,489,262 2,280,547 2,356,405
Receivable - related party 39,899 58,270 95,811
----------- ----------- -----------
Total current assets 2,532,141 2,376,050 2,466,470
PROPERTY AND EQUIPMENT
Clinic and medical equipment 3,561,415 3,561,415 3,566,690
Automobiles 51,885 -- --
Furniture and equipment 80,171 89,797 95,042
Computer hardware and software 54,616 54,616 403,450
Leasehold improvements 381,420 381,420 381,420
----------- ----------- -----------
4,129,507 4,087,248 4,446,602
Less accumulated depreciation and amortization (2,287,336) (2,889,189) (3,319,562)
----------- ----------- -----------
1,842,171 1,198,059 1,127,040
----------- ----------- -----------
OTHER ASSETS
Deferred income tax asset 355,000 354,000 354,000
Other 8,537 13,533 16,321
----------- ----------- -----------
363,537 367,533 370,321
----------- ----------- -----------
$ 4,737,849 $ 3,941,642 $ 3,963,831
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
New Tatonka Energy, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS - CONTINUED
Pro forma
shareholders'
LIABILITIES AND SHAREHOLDERS' deficit at
DEFICIT December 31, September 30, September 30,
1996 1997 1998 1998
----------- ----------- ------------- --------------
(Unaudited) (Note A)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,469,840 $ 1,173,830 $ 2,274,331
Accounts payable - trade 398,430 192,407 643,460
Payable to factor 605,695 758,755 408,434
Accrued expenses 99,104 176,419 305,238
Deferred income tax liability 758,000 695,000 646,389
----------- ----------- -----------
Total current liabilities 3,331,069 2,996,411 4,277,852
LONG-TERM LIABILITIES
Long-term debt, less current maturities 2,133,383 1,646,254 356,567
Deferred rent -- 33,902 33,902
----------- ----------- -----------
Total liabilities 5,464,452 4,676,567 4,668,321
COMMITMENTS AND CONTINGENCIES -- -- -- --
SHAREHOLDERS' DEFICIT
Common stock - $1 par value per share;
authorized, issued and outstanding,
1,000 shares 1,000 1,000 -- --
Common stock - $.001 par value per share;
authorized, 50,000,000 shares; issued
and outstanding, 49,099,069 shares -- -- 49,099 78,431
Series "A" nonvoting convertible preferred
stock, $1 par value per share; issued
and outstanding, 135,139 shares -- -- 135,139 135,139
Additional paid-in capital -- 22,254 16,691 --
Unearned ESOP compensation (446,615) (333,532) (248,720) (248,720)
Retained earnings (accumulated deficit) 566,594 422,935 (656,699) (669,340)
----------- ----------- ----------- -----------
120,979 112,657 (704,490) (704,490)
Less treasury stock, at cost (226 shares) (847,582) (847,582) -- --
----------- ----------- ----------- -----------
Total shareholders' deficit (726,603) (734,925) (704,490) (704,490)
----------- ----------- ----------- ===========
$ 4,737,849 $ 3,941,642 $ 3,963,831
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
New Tatonka Energy, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months
Years ended December 31, ended September 30,
---------------------------- ----------------------------
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Patient revenue
Gross billings $ 5,961,001 $ 5,889,315 $ 4,538,405 $ 3,793,723
Less allowances (1,988,414) (2,245,821) (1,826,101) (1,298,248)
------------ ------------ ------------ ------------
Net patient revenue 3,972,587 3,643,494 2,712,304 2,495,475
Contracted services -- -- -- 374,391
Other -- -- -- 11,845
------------ ------------ ------------ ------------
Total revenues 3,972,587 3,643,494 2,712,304 2,881,711
Operating expenses (3,957,424) (3,393,582) (2,354,856) (2,767,936)
------------ ------------ ------------ ------------
Operating profit 15,163 249,912 357,448 113,775
Other income (expenses)
Interest expense (446,223) (379,570) (303,276) (171,744)
Factoring fees (134,408) (100,041) (80,976) (49,733)
Miscellaneous income (expense) 6,350 1,040 249 (4,343)
------------ ------------ ------------ ------------
(574,281) (478,571) (384,003) (225,820)
------------ ------------ ------------ ------------
Net loss before income
tax benefit (559,118) (228,659) (26,555) (112,045)
Deferred income tax benefit 205,000 85,000 9,880 40,861
------------ ------------ ------------ ------------
NET LOSS $ (354,118) $ (143,659) $ (16,675) $ (71,184)
============ ============ ============ ============
Loss per share - basic and diluted $(.01) -- -- --
Weighted average shares 39,583,513 39,583,513 39,583,513 45,927,217
Pro forma loss per share - basic and diluted $(.01) -- -- --
Weighted average shares 68,915,409 68,915,409 69,415,409 75,759,113
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
New Tatonka Energy, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
Retained
Common stock Additional Unearned earnings
-------------------- Preferred paid-in ESOP (accumulated
Shares Amount stock capital compensation deficit)
--------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 1,000 $ 1,000 $ -- $ -- $ (559,698) $ 925,091
Purchase of treasury stock -- -- -- -- -- --
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
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
Merger of Tatonka Energy, Inc.
and Phy. Med., Inc. and
recapitalization 49,098,069 48,099 135,139 (22,254) -- (1,008,450)
Amortization of unearned ESOP
compensation, net of taxes
of $4,000 -- -- -- 16,691 84,812 --
Net loss -- -- -- -- -- (71,184)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998
(unaudited) 49,099,069 $ 49,099 $ 135,139 $ 16,691 $ (248,720) $ (656,699)
=========== =========== =========== =========== =========== ===========
<PAGE>
Treasury stock
-------------------
Shares Amount Total
------- ------- -----------
Balance at January 1, 1996 200 $ (800,000) $ (433,607)
Purchase of treasury stock 26 (47,582) (47,582)
Amortization of unearned ESOP
compensation, net of taxes of
$2,000 -- -- 108,704
Net loss -- -- (354,118)
----------- ----------- -----------
Balance at December 31, 1996 226 (847,582) (726,603)
Amortization of unearned ESOP
compensation, net of taxes of
$13,000 -- -- 135,337
Net loss -- -- (143,659)
----------- ----------- -----------
Balance at December 31, 1997 226 (847,582) (734,925)
Merger of Tatonka Energy, Inc.
and Phy. Med., Inc. and
recapitalization (226) 847,582 116
Amortization of unearned ESOP
compensation, net of taxes
of $4,000 -- -- 101,503
Net loss -- -- (71,184)
----------- ----------- -----------
Balance at September 30, 1998
(unaudited) -- $ -- $ (704,490)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
New Tatonka Energy, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Nine months ended
December 31, September 30,
-------------- ----------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(354,118) $(143,659) $ (16,675) $ (71,184)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 937,501 623,055 467,290 430,373
Amortization of unearned ESOP compensation 106,704 148,337 111,253 101,503
Deferred income taxes (205,000) (85,000) (9,880) (48,611)
Changes in operating assets and liabilities
Receivables (195,988) 190,344 13,634 (75,858)
Prepaid expenses and other current assets 133,409 -- (3,297) (40,329)
Other assets 161,738 (4,996) -- --
Accounts payable and other current liabilities 159,572 (118,708) (24,055) 579,872
Other noncurrent liabilities 89,104 33,902 -- --
--------- --------- --------- ---------
Net cash provided by operating activities 832,922 643,275 538,270 875,766
Cash flows from investing activities
Purchase of property assets -- -- (6,649) (359,354)
Proceeds from sale of assets -- 21,057 -- --
Merger -- -- -- 116
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities -- 21,057 (6,649) (359,238)
Cash flows from financing activities
Proceeds from (payments to) factoring company - net 171,724 153,060 303,328 (350,321)
Repayments of debt (968,708) (783,139) (773,128) (189,186)
Purchase of treasury stock (47,582) -- -- --
--------- --------- --------- ---------
Net cash used in financing activities (844,566) (630,079) (469,800) (539,507)
--------- --------- --------- ---------
Net increase (decrease) in cash (11,644) 34,253 61,821 (22,979)
Cash at beginning of period 14,624 2,980 2,980 37,233
--------- --------- --------- ---------
Cash at end of period $ 2,980 $ 37,233 $ 64,801 $ 14,254
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 506,947 $ 393,771 $ 304,494 $ 141,240
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
Effective April 3, 1998, Tatonka Energy, Inc. ( "Tatonka") acquired 80% of
the outstanding capital stock of Phy Med Diagnostic Imaging Center Dallas,
Inc. ("Phy Med"), pursuant to an agreement and plan of reorganization and
merger (the Agreement). The Agreement provides that consideration given by
Tatonka consists of the issuance of 68,915,409 Tatonka common shares.
However, pending shareholder approval of an increase in the authorized common
shares of Tatonka, only 39,583,513 shares have been issued. Shareholders'
deficit in the accompanying balance sheet reflects only the Tatonka shares
actually issued. Pro forma shareholders' deficit and pro forma loss per share
reflect the additional 29,331,896 shares that are required to be issued upon
shareholder approval.
At the date of the merger, Tatonka had nominal assets, consisting only of
$116 in cash and no liabilities. The terms of the merger result in the former
Phy Med shareholders owning approximately 87% of the outstanding Tatonka
common stock. Therefore, the merger has been accounted for as a
recapitalization of Phy Med. The accompanying financial statements which have
been captioned "New Tatonka Energy, Inc.", pending shareholder approval to
change the name to Phy Med, Inc., are those of Phy Med for all periods
presented. Phy Med is referred to herein as "the Company".
NOTE B - 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.
F-7
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
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.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net loss by the
weighted average number of common shares outstanding. Diluted earnings (loss)
per share gives effect to the assumed conversion of preferred stock, when
dilutive. See Note H.
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.
Interim Period Financial Statements
The consolidated financial statements contained herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments necessary
for a fair presentation of the consolidated financial position as of
September 30, 1997 and 1998, and the consolidated results of operations and
cash flows for the six-month periods then ended have been made. In addition,
all such adjustments made, in the opinion of management, are of a normal
recurring nature. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the full
fiscal year. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted for the interim periods
pursuant to the interim reporting rules of the Securities and Exchange
Commission.
F-8
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 E, 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 - 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 E - LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
1996 1997
--------- ---------
<S> <C> <C>
Notes payable to finance companies payable in monthly installments
through 1999, at interest rates ranging from 9.1% to 12.5%,
collateralized by the equipment acquired $ 739,277 $ 386,268
Promissory notes, payable in monthly installments through 2000, at
interest rates ranging from 9.9% to 10.0% 167,118 103,187
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 486,291 244,828
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 535,198 404,228
F-9
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - LONG-TERM DEBT - Continued
1996 1997
---------- ----------
Capitalized lease obligations, payable in monthly installments
through 2001, collateralized by the related equipment $1,854,509 $1,879,552
Other -- 63,988
---------- ----------
3,782,393 3,082,051
Less amount representing interest on capital lease obligations
imputed at rates ranging from 7.5% to 9.3% (179,170) (261,967)
---------- ----------
3,603,223 2,820,084
Less current maturities 1,469,840 1,173,830
---------- ----------
$2,133,383 $1,646,254
========== ==========
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.
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.
The defaults on the lease agreement and the note existed at September 30,
1998. Accordingly, these obligations have been classified as current
liabilities on the September 30, 1998 balance sheet.
F-10
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - COMMITMENTS AND CONTINGENCIES
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
========
Rental expense totaled approximately $128,000 and $134,000 for the years
ended December 31, 1996 and 1997, 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 also Note E regarding a lawsuit filed by one of the Company's
lenders.
NOTE G - INCOME TAXES
Following is a reconciliation of the Company's income tax benefit with the
amount of tax computed at the statutory rate:
Years ended December 31,
---------------------------
1996 1997
Tax benefit at statutory rate $(190,000) $(78,000)
State taxes, net of Federal effect (16,000) (7,000)
Other 1,000 --
---------- ---------
$(205,000) $(85,000)
</TABLE>
F-11
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES - Continued
The components of the deferred tax asset and liability are as follows:
<TABLE>
December 31,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets
Property and equipment $ 134,000 $ 120,000
Deferred rent -- 12,000
Accounts payable and accrued expenses 163,000 136,000
Net operating loss carryforward 221,000 234,000
-------- --------
518,000 502,000
Deferred tax liabilities
Accounts receivable (921,000) (843,000)
-------- --------
Net deferred tax liability $(403,000) $(341,000)
======== ========
Balance sheet classifications:
Noncurrent deferred tax asset $ 355,000 $ 354,000
Current deferred tax liability (758,000) (695,000)
-------- --------
$(403,000) $(341,000)
======== ========
</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.
NOTE H - 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.
F-12
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - LOSS PER SHARE
Loss per share has been calculated based upon the number of shares
(39,583,513) issued by Tatonka on April 3, 1998, for the acquisition of Phy
Med, with retroactive application to all periods presented. For the period
subsequent to April 3, 1998, weighted average shares outstanding include
also the outstanding shares of Tatonka (9,515,556) held by the pre-merger
Tatonka shareholders.
No effect has been given in the calculation of loss per share to the effect
of the Series A convertible preferred stock, because the result of assumed
conversion is antidilutive.
NOTE J - 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>
1996 1997
---------------------------- ----------------------------
New Tatonka Phy Med New Tatonka Phy Med
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Allocated shares 15,075,246 22 15,075,246 51
Unallocated shares -- 112 -- 83
---------- --- ---------- ---
Total ESOP shares 15,075,246 134 15,075,246 134
========== === ========== ===
Fair value of unallocated shares at
December 31: $422,729 $435,501
======= =======
</TABLE>
The Company recognized expense under the plan of $148,337 in 1997 and
$106,704 in 1996.
F-13
<PAGE>
New Tatonka Energy, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - RELATED PARTY TRANSACTIONS
The Company generated approximately $20,000 and $176,000 of net revenues in
1996 and 1997, 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.
F-14
