U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission file number
2-87738
T.H. LEHMAN & CO., INCORPORATED
(Name of small business issuer in its charter)
Delaware 22-2442356
(state or other jurisdiction (I.R.S./Employer
of incorporation or organization Identification Number)
4900 Woodway, Suite 650, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 621-8404
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, $.01 Par.
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act: None.
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X
No .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $1,203,794.
The aggregate market value of the voting stock held by nonaffiliates
of the registrant is approximately $581,462 as of July 1, 1996.
3,230,342
(Number of shares of common stock outstanding as of March 31, 1996)
PART I
BUSINESS
ITEM 1.
DESCRIPTION OF BUSINESS
Introduction:
T.H. Lehman & Co., Incorporated (referred to as the "Company or Registrant"),
was organized in March, 1983 as a Small Business Development Company ("SBDC")
and was an SBDC until April, 1988. From April, 1988 to August, 1990 it
operated through subsidiaries as a broker/dealer and investment advisor.
Effective October 27, 1989, the Company acquired all of the outstanding stock
of Self Powered Lighting, Inc. a New York corporation with offices in Elmsford,
New York ("SPL") from an entity affiliated with two of the Company's directors.
Effective July 1, 1993 the Company sold all of the outstanding stock of SPL to
Helionetics, Inc. See Item 12. "Certain Relationships and Related
Transactions" for a description of SPL's business and the acquisition
transaction. Although it is no longer an SBDC and has sold its broker/dealer
and investment advisory business, the Company continues to maintain certain of
its investments. During 1992 the Company entered the business of medical
accounts receivable financing and furnishing medical providers with non-medical
management services.
Medical Financial Services:
The Company in August 1992 began operations in the area of medical financial
services, such services being provided through specific subsidiaries. The
primary focus of these operations is the financing and collection of accounts
receivable generated by medical practitioners through their provision of
diagnostic services and patient treatment. However, some of these subsidiaries
offer substantial additional services to medical practitioners. The services
are marketed both on an integrated and on an unbundled basis to doctors,
depending upon their individual needs. Initially, this is being accomplished
through the following operating entities:
MedFin Management Corp. was created to provide medical practitioners with non-
medical general and administrative functions such as accounting, marketing,
management, non-medical staffing, facilities, equipment, and billing and
collection of receivables. Revenues are derived from fees charged for these
services. Presently, the company has one client, which operates a multi-
specialty clinic in the Los Angeles, California area. This client has, to
date, concentrated its practice on workers' compensation medicine and treatment
for personal injury victims, providing services primarily on a lien basis. The
client is currently seeking to diversify its patient mix by focusing more
toward private pay and HMO/insurance clients.
MedFin Capital Resources, Inc. and HLT Holding Corporation are both engaged in
the purchase of medical accounts receivable as well as the secured lending of
funds to doctors against their receivables. This is accomplished via bulk
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purchases of accounts receivable, often in conjunction with commitments for
purchases of future receivables generated or advances against such future
receivables. The initial venture has involved a highly specialized niche
within this market, i.e. industrial medicine, an area which, due to its
complexity and overall nature typically precludes doctors from obtaining
funding through conventional financing sources. Specifically, this area
pertains to liens for medical services (evaluations and treatment) provided to
applicants in the California workers' compensation system (typically self-
procured). Fees for such services are regulated with schedules set by the
state workers' compensation authority. Collection of such liens, if for
eligible medical-legal services and/or treatment, may not be finally resolved
for a period of two to three years, the forum for such resolution generally
being an involved settlement process or adjudication by judgments in a court
approved procedural process involving the state workers' compensation board.
Typically significant discounts from the face amount of liens will be
experienced. Payment is made by third party insurance carriers or self-insured
employers or state workers' compensation programs. Specialized legal counsel
is retained by the Company to aid in the overall collection of disputed claims
and the evaluation of purchased portfolios. Presently the Company has under
evaluation a number of portfolios which it could purchase at significant
discounts to the face amount should any such transaction be consummated.
Additionally, the company also purchases and finances liens generated through
self-procured treatment by plaintiffs in personal injury lawsuits and will
provide financing for such receivables to specialized medical practitioners.
This category of receivable has an expected duration of over two years until
the case is settled or resolved in court and the lien extinguished. Such
resolution will typically be at a significant discount to the face amount
outstanding.
HLT Holding Corporation has, to date, purchased one accounts receivable
portfolio that was derived from services provided to plaintiffs, an August,
1992 transaction consisting of gross accounts of $2,639,010. Consideration
given amounted to $250,000 cash and $500,000 in notes payable. Gross
collections through March, 1996 amounted to $733,465 and write-offs totaled
$1,035,564, leaving a balance of $869,981 face value. This overall experience
is below expectations. Collection efforts have been hampered by an overall
policy of outright denial by insurers to pay claims or resolve them in a timely
manner without the necessity of court proceedings. This is occurring in an
atmosphere of alleged abuses in the California workers' compensation industry
involving fraud, overutilization, and overcharging by medical practitioners.
Legislative reform, most notably a California workers' compensation bill passed
in July, 1993, has narrowed allowable services eligible for payment and reduced
amounts allowable per procedure on a going forward basis, as well as providing
for criminal sanctions for abuse overall. These reforms are expected to
resolve most of these issues. Given the current climate however, there can be
no assurance that the Company will realize a profit on this investment or even
a return of its invested principal to date. In the interim, industry volume
has contracted with the weak California economy, payments have diminished, the
courts have become tougher on claims allowed, and as a result a number of the
major specialty multi-clinic practices have ceased operations. This has
severely impacted the cash flows of medical practitioners engaged in this area
Page 4
such that numerous opportunities for the purchase of additional outstanding
receivables have occurred. The risk-reward scenario created by this
environment and the timing of collections, the Company believes, has resulted
in a very high return on investment situation; thus, a funding program to
obtain necessary investment capital is being explored to capitalize on this
opportunity.
MedFin Management Corporation receives, as a fee for its clinic management
services, revenues that are indirectly related to the overall collections of
its client practitioners' receivables. MedFin Management Corporation also
provides working capital on an as-needed basis to those clients with
receivables as collateral for such advances and UCC filings made thereon.
However, the Company is not engaged in the practice of medicine which, for non-
doctor controlled entities, is not legally allowed in California.
As a further adjunct to the financing/management services provided through
subsidiaries to medical practitioners, effective February 1, 1993, the Company
purchased Healthcare Professional Billing Corp. (HPB), in Broomfield, Colorado
a billing and collection service that is utilized by both its captive clients
and doctors in the metropolitan Denver and surrounding areas. The purchase
price was $354,080, consisting of $140,000 in cash and the balance of $214,080
in notes payable. Healthcare Professional Billing Corp. provides billing and
collection services with the aid of a computerized system to medical
practitioners who have either individual or group outpatient practices.
Revenues for these services are derived from a fee based upon a percentage of
collected billings. This company has been in business for eleven years under
the previous owner and is currently undertaking efforts to further expand its
customer base. Competition is keen within the industry, coming both from the
numerous entities providing similar services and the many firms that sell
turnkey systems or software packages designed to enable medical practitioners
to handle billing and collection functions internally with their staff. The
Company believes, however, that the overall quality of its collection results
and its timely service distinguish it from its competitors and it does not
intend to use pricing as a determinant in obtaining new business. The
collection business is subject to various state and Federal regulations, all of
which, to the best of its knowledge, the Company is in compliance with and
there are no outstanding claims against the Company with respect to these
regulations.
Environmental Matters:
The company is subject to various laws and regulations with respect to
employee health and safety and the protection of the environment. The Company
believes that it is in substantial compliance with such laws and regulations.
See Footnote 12: Allowance for Environmental Liability, page F-17 Consolidated
Financial Statements.
Employees:
The Company directly employs one person on a full-time basis. MedFin
Management Corporation employs 15 persons who are engaged in executive,
Page 5
administrative and clerical positions. HPB employs 8 people who are engaged in
executive, administrative and clerical positions.
The Company believes that its employee relations are satisfactory. Employees
are not subject to any collective bargaining agreement and work stoppages have
not yet materially affected the Company's business.
ITEM 2.
DESCRIPTION OF PROPERTY
The Company presently has an administrative sharing arrangement which, among
other things, provides use of other office facilities in Houston, Texas. In
addition, HPB leases office space in Colorado under an operating lease that
expires on December 31, 1996. Monthly rental payments are $1,194 plus certain
utility costs. MedFin Management Corporation leases office space in Burbank,
California under an operating lease that expires on October 31, 1997. Monthly
rental payments are $6,583, including all utilities.
ITEM 3.
LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries is currently party to any material
legal proceeding.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has not been an annual meeting held since November 1991.
Page 6
PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
a) Market Information
The Company's Common Stock (symbol THLM) is traded in the Over-The-Counter
Market, on the Electronic Bulletin Board. The range of high and low bid
quotations as reported by the NASDAQ Inter-Dealer Quotation System for the two
year period ended March 31, 1996 are as follows:
For the Quarter Ended High Low
June 30, 1994 1 1/4 1 1/4
September 30, 1994 1 1
December 31, 1994 1 1
March 31, 1995 1 1
June 30, 1995 1/2 1/2
September 30, 1995 1/2 1/2
December 31, 1995 1/2 1/2
March 31, 1996 1/2 1/2
The above quotations do not include commissions, markups, or markdowns and may
not represent actual transactions.
On August 15, 1994, the Company was delisted from the NASDAQ Small Cap Market
as a result of failing to timely file the annual report.
b) Number of Holders of Common Stock
As of June 30, 1996 the Company had approximately 142 shareholders of record.
Philadep & Co. was the registered holder of 141,960 shares and Cede & Co. was
the registered holder of 524,113 shares. Because many of the shares are
registered in street name, the Company believes that there are a substantially
greater number of beneficial owners.
c) Dividends on Common Stock
The Company's Board of Directors does not currently intend to pay cash
dividends and has not paid any in the two year period ended March 31, 1996.
Page 7
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Statements of Operations:
Fiscal Year Ended March 31, 1996 Compared to
Fiscal Year Ended March 31, 1995
Revenues for the fiscal year ended March 31, 1996 were $1,203,794, up from the
prior year's revenues of $1,078,987. The increase in revenues is largely due
to the $61,927 gain realized on the renegotiation of a note payable. In
addition, realized and unrealized gain on investments was $28,564, a $54,134
increase over the $25,570 loss on investments recognized during the previous
year. Billing and management fees were $1,028,495, substantially the same as
last year's fees of $1,025,092. The current year's fees, however, would have
been generated with 10% less in general and administrative costs, had it not
been for the creation of a $222,643 increase in the reserve for uncollectible
receivables. The actual general and administrative costs were $1,644,286, a
$60,379 increase over last year's $1,583,907, but totaled $1,421,643 before
this reserve charge in the fiscal year ended March 31, 1996, a $162,264
decrease from the prior year. This decrease is primarily attributable to lower
depreciation and amortization charges, as well as reduced travel and automobile
expense. Interest expense for the year increased from $45,394 in fiscal 1995 to
$97,371 in fiscal 1996 due to increased use of loans and lines of credit during
the year, which funded both investments and operations. Overall, net loss for
the current year totaled $537,863, similar to last year's loss of $550,314.
Fiscal Year Ended March 31, 1995 Compared to
Fiscal Year Ended March 31, 1994
Revenues for the fiscal year ended March 31, 1995 were $1,078,987, down from
the prior year's continuing operations revenues of $1,200,667. While billing
and management fees for the fiscal year ended March 31, 1995 were $368,358
higher at $1,025,092 than the previous year's billing and management fees of
$656,734, there was a net loss on investments and asset disposal of $25,570, a
significant decrease from the $438,628 in net gains realized in the fiscal year
ended March 31, 1994. This net loss included investment basis write-downs of
$124,000. Consolidated net loss for the 1995 fiscal year was $550,314, while
consolidated net loss on continuing operations for the previous year amounted
to $369,370. This decrease is a result of both the investment losses and
slightly higher general and administrative costs. Interest expense was $45,394
for the fiscal year ended March 31, 1995, down from the previous year's
$78,697. This decrease is primarily due to the early payoff of the note
payable associated with the acquisition of the medical billing business.
Liquidity, Capital Resources and Income Taxes
At March 31, 1996 working capital amounted to $47,879, substantially unchanged
from the working capital balance of $46,438 at March 31, 1995.
Page 8
MedFin Management, Corp. will continue to require working capital infusions
over the next few months, as the outstanding receivable collections mature to
cover current cash operating requirements; in the interim the Company believes
that it has adequate resources to meet such working capital needs.
The Company's primary source of liquidity has been the cash it has obtained
from the liquidation of its investment portfolio and collection of medical
accounts receivable, as well as loans from financial institutions.
The Company anticipates that internally generated cash and its lines of credit
will be sufficient to finance overall operations.
The Company is continually seeking to acquire businesses and may be in various
stages of negotiations at any point in time which may or may not result in
consummation of a transaction. To provide funding for such acquisitions it may
take a number of actions including (i) selling of its existing investments (ii)
use of available working capital (iii) seeking short or long term loans (iv)
issuing stock. In addition, the Company may seek additional equity funds if
needed. These sources of capital may be both conventional and non-traditional.
The Company has no existing funding commitments and is presently under no
contractual obligation to make any investment or acquisition.
At March 31, 1996, the Company had an operating tax loss carryforward of
approximately $4,400,000. The Company's effective tax rate for financial
statement purposes for fiscal year 1996 is negligible based upon continuing
losses, the aforementioned net operating loss carry forwards and other factors.
Impact of Inflation and Other Business Conditions
Generally, increases in the Company's operating costs approximate the rate of
inflation. In the opinion of management, inflation has not had a material
effect on the operation of the Company. The Company has historically been able
to react effectively to increases in labor or other operating costs through a
combination of greater productivity and selective price increases where
allowable.
ITEM 7.
FINANCIAL STATEMENTS
The financial statements and supplementary data are listed at "ITEM 13:
EXHIBITS AND REPORTS ON FORM 10-KSB" in this document.
(See Index Exhibits Part IV Item 13 (a) Financial Statements: F1)
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in Company's Certifying Accountant - Not Applicable.
Page 9
PART III
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The Directors and Executive Officers of the Company are as follows:
Name Age Director Since Position
Dibo Attar 56 1988 Director
Elliot Gerstenhaber 50 1996 Director
Richard Farkas 70 1996 Director
Edmond Nagel 55 ----- President
Shannon C. Gries 29 ----- Secretary/Treasurer
The term of office of each director is until the next Annual Meeting of
Shareholders, or until such time as their successors shall have been duly
elected and qualified. Officers serve at the pleasure of the board. There are
no family relationships between any of the Company's directors or officers.
Background of Officers and Directors:
Dibo Attar's principal business is an investor and a consultant to domestic and
international companies. Mr. Attar is a director of Newpark Resources, Inc.,
which is engaged in providing oil field services. He is also a director of
KTI, Inc., a public company which is engaged in the sale of electric power from
incineration of municipal solid waste.
Richard P. Farkas is a graduate of Princeton and Yale Universities and attended
New Jersey Law School. He held corporate executive and operating positions
with major international companies prior to acquiring his own paper products
company, which was later sold to a major consumer products company. He then
founded IMC International Management Consultants, Inc., which operates out of
several domestic and European offices providing services to multi-national
corporations ranging in annual revenue size from $5 million to $4 billion.
Elliot Gerstenhaber is a 1968 graduate of the University of Pennsylvania. He
received a juris doctorate degree from South Texas College of Law in 1975. He
recently left the private practice of law to develop real estate throughout the
southeastern United States. He is President of Segue, Inc., a privately-held
company.
Edmond Nagel has been an officer of the Company since October, 1989 and
President since August, 1990. Prior to his appointment as Vice President, Mr.
Nagel had been employed by the company on a part-time basis since August, 1988.
Since January, 1985 Mr. Nagel has been an independent financial consultant.
Mr. Nagel graduated with honors in 1963 from the Wharton School of Finance at
the University of Pennsylvania with a BS degree in Economics and received a
Page 10
juris doctorate degree from the University of Miami Law School in 1968. In
January, 1993 Mr. Nagel entered into a consent to Entry of Final Judgment of
permanent injunction with the U.S. Securities and Exchange Commission (LA-586)
without admitting or denying any of the allegations in the complaint as set
forth in the consent.
Shannon Gries became an officer of the Company in December, 1993. She is an
employee of Woodco Fund Management, which provides management services to the
Company. Ms. Gries graduated with honors in December, 1992 from the University
of Houston - Clear Lake with a Bachelor of Science degree in Accounting and
became a licensed CPA in November, 1994.
ITEM 10.
EXECUTIVE COMPENSATION
Compensation of Officers and Directors:
Set forth below is the aggregate remuneration paid to the Company's officers
during the fiscal years ended March 31, 1996, 1995, and 1994.
Name and Restricted
Principal Stock
Position Year Salary Awards
Edmond C. Nagel, President 1996 $75,000 $ 0
1995 $75,000 $25,000
1994 $75,000 $ 0
Shannon C. Gries, Sec./Treas. 1994 $0 $12,500
Stock Options:
In November 1990 the Board of Directors adopted, and subsequently on November
8, 1991 shareholders approved, the adoption of the 1990 Stock Option Plan
("1990 Plan"), under which options will be granted for an aggregate of 500,000
shares of Common Stock prior to November 20, 2000. Such Plan resulted in the
termination of the 1988 Stock Option Plan. Certain options were granted to
officers and directors of the Company under the 1990 Stock Option Plan which
was approved by the shareholders. All employees of the Company and its
subsidiaries, as well as directors, officers and third parties providing
services to the Company or its subsidiaries are eligible to participate in the
1990 Plan.
All shares available under the 1990 Plan are subject to adjustments that may be
made for a merger, recapitalization, stock dividend, stock split or other
similar change affecting the number of outstanding shares of Common Stock.
Shares subject to an option that lapses, terminates or is forfeited will be
available for future options or awards.
Options granted may either be Incentive Stock Options ("ISO") pursuant to which
the recipient receives tax benefits or non-incentive stock options. The 1990
Plan provides, among other things, that options may be granted to purchase
Page 11
shares of Common Stock at a price per share fixed by the Board of Directors
and, in the case of an ISO, at not less than the fair market value of the
applicable class of the Company's Common Stock on the date of option grant
(110% of such fair market value in the case of optionee's holding 10% or more
of the combined voting rights of the Company's securities). The Board of
Directors or a committee appointed or elected by the Board of one or more Board
members (the "Committee") may determine the persons to whom options are to be
granted and the number of shares subject to each option. Options may be
exercised by the payment in full in cash or by, with approval of the Board of
Directors, payment of par value with a note for the balance.
The Board may at any time amend, suspend, or discontinue the Plan, provided
that certain amendments may not be made by the Board without approval of the
stockholders. Amendments may not alter an outstanding option without the
consent of the optionee.
At the time of adoption of the Plan the Company issued ten-year Stock Options
with an exercise price at $1.50 to purchase 350,000 shares of which 350,000
shares were issued to officers, a consultant and directors. At the date of the
award the high bid price of the Common Stock was $.75. All outstanding
employee options are exercisable at $1.50 per share and all are non-incentive
options. 105,000 options were granted during the fiscal year ended March 31,
1995 at exercise prices of both $1.50 per share and $2.00 per share. No
options were granted during the fiscal year ended March 31, 1996. Following is
a list of all stock options granted:
Number of When Exercise Current
Name Options Issued Price Status
Julio Henriquez 100,000 1990 $1.50 Canceled
Edmond Nagel 100,000 1990 $1.50 Outstanding
Charles Olson, Jr. 50,000 1990 $1.50 Canceled
Ivor Braka 25,000 1990 $1.50 Outstanding
Vincent Galano, Sr. 50,000 1990 $1.50 Outstanding
Rodolfo Oeschslin 25,000 1990 $1.50 Outstanding
Lee R. Mathis 5,000 1992 $1.90 Outstanding
Mark S. Cox 20,000 1992 $2.00 Canceled
Murray Husarsky 20,000 1992 $2.00 Outstanding
Brenda Heartfield 10,000 1992 $1.50 Outstanding
Julio Henriquez 5,000 1993 $2.00 Outstanding
Linda Carroll 10,000 1994 $1.50 Outstanding
Ramanathan Prakash 10,000 1994 $2.00 Outstanding
Russell Molina 5,000 1994 $2.00 Outstanding
Allen Goldstone 15,000 1994 $2.00 Outstanding
Sandy Schwartz 15,000 1994 $2.00 Outstanding
Brenda Heartfield 50,000 1994 $1.50 Outstanding
_________
Total Issued 515,000
Less Canceled Shares (170,000)
_________
Total Outstanding 345,000
=========
Page 12
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The following table lists, to the best of the Company's knowledge, the
beneficial stock ownership of those persons owning beneficially more than 5% of
the Company's outstanding common stock, as well as the stock ownership of
executive officers and each director as of June 30, 1996:
Name and Address Of Amount and Nature Of Percent of Class
Beneficial Owner Beneficial Owner
Title of Class
(a) Common Stock
Swifton, N.V. (4)
Landhuis Joonchi 301,237 9.3%
Kaya Richard J. Beaujon z/n
P.O. Box 837
Curacao, Netherlands Antilles
Burton, N.V. (4)
Landhuis Joonchi 281,383 8.7%
Kaya Richard J. Beaujon z/n
P.O. Box 837
Curacao, Netherlands Antilles
Greenwich Securities, Ltd. (1)
Via Nassa 31 985,800 30.5%
Lugano, Switzerland 6901
Millingway, Inc. (2)
c/o Capital Holdings, Inc. 598,164 18.5%
4900 Woodway, Suite 650
Houston, TX 77056
(b) Security Ownership of Management
Dibo Attar (1) (2) -0-
Elliot Gerstenhaber -0-
Richard Farkas -0-
Shannon C. Gries 10,000 .3%
Edmond Nagel (3) 215,601 6.7%
Page 13
Directors and Officers
as Group 5 persons 2,442,185 74.0%
(1) (2) (3) (4)
Notes to Table of Beneficial Owners and Management:
(1) The securities of Greenwich Securities, Ltd. are owned by the Ezra and
Linda Attar Family Foundation, which is a family trust organized under the laws
of Lichenstein. Mr. Dibo Attar, a director, has the sole voting and investment
power with respect to the common stock owned by Greenwich Securities Ltd.
(2) Dibo Attar is a consultant to Capital Holdings, Inc., parent to
Millingway, Inc.
(3) Does not include 100,000 stock options which are fully vested and held by
Edmond Nagel.
(4) Swifton, N.V. and Burton, N.V. are each Netherlands Antilles corporations
whose shareholders comprise groups of European investors, none of which are
otherwise affiliated with the Company. None of the individual shareholders
holds an effective ownership of the Company exceeding 4.9%.
Except as otherwise indicated, the address for each of the above persons is c/o
T.H. Lehman & Co., Incorporated, 4900 Woodway, Suite 650, Houston, Texas 77056.
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the years ended March 31, 1996 and March 31, 1995, the Company incurred
management fees for facilities and services provided by Capital Holdings, Inc.,
in the amount of $94,200 and $98,400 respectively. Such services are believed
to have been provided on terms no less favorable than available from a third
party.
Mr. Dibo Attar, a director and an indirect principal shareholder of the Company
is a consultant to Capital Holdings, Inc., the parent of Millingway, Inc.
During the year ended March 1992, the Company entered into a two year line of
credit for $450,000 with Sogevalor S.A. In exchange for the funding
commitment, the Company issued a Common Stock Purchase Warrant Certificate for
the purchase of 100,000 shares of common stock at $1.25 originally expiring
February 13, 1994. This Warrant Certificate has been extended to December 31,
1997 in conjunction with an extension of the note due date. As of March 31,
1996, $290,785 in principal and interest is outstanding under this credit line.
Stock Transaction Reports by Officers, Directors and 10% Stockholders:
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors, executive officers and holders of more than 10% of the
Company's common stock to file with the Commission initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
Page 14
of the Company. To the Company's knowledge, based solely on copies of reports
furnished to the Company and information furnished by the reporting persons,
each officer, director and 10% stockholder of the Company was in compliance
with all reporting requirements under Section 16(a) for the year ended March
31, 1996.
Page 15
PART IV
ITEM 13.
EXHIBITS AND REPORTS ON FORM 10-KSB
The following documents are filed as a part of this report:
Independent Auditors' Report
Consolidated Balance Sheets
As of March 31, 1996 and 1995
Consolidated Statements of Operations
Years Ended March 31, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity
Years Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows
Years Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
(a) Financial Statements - See Index to Financial Statements at Page F-1.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended March 31, 1996.
(c) Exhibits:
Exhibit No. Exhibit
3.1 Certificate of Incorporation of T.H. Lehman & Co., Incorporated
(the Company) as amended.*
3.2 By-laws of the Company. Incorporated by reference from the
Company's Form 8-A dated October 31, 1984 for Registration of
Certain Classes of Securities Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934.*
4.1 Stock Purchase Agreement, dated February 23, 1988, by and between
the Company and Greenwich Securities, Inc. incorporated by
reference from the Company's Current Report on Form 8-K dated May
10, 1988.*
10.1 Acquisition Agreement, dated December 28, 1988, by and between the
Company and Greenwich Securities, Inc. incorporated by reference
from the Company's Current Report on Form 8-K dated May 10, 1988.*
10.2 Letter Agreement, dated April 30, 1990, between the Company and
Millingway, Inc. amending the Acquisition Agreement, dated
December 28, 1989.*
10.4 Employment Agreement, dated as of January 2, 1990, between SPL and
Julio Henriquez.*
Page 16
10.6 Agreement, dated March 14, 1991, by Convergent Solutions, Inc.,
Vincent Galano, Ralph Reda, Thomas Borsanko, The Company, Dibo
Attar, and Attar ISERP (Profit Sharing Plan).*
10.7 Sales contract dated October 8, 1993 by and between the Company and
Helionetics, Inc. incorporated by reference from the Company's
current report on Form 8-K dated July 1, 1993.*
*These items have been previously submitted and are therefore incorporated only
by reference.
Individual financial statements of the Company are not furnished because
consolidated financial statements are furnished.
Page 17
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
T.H. Lehman & Co., Incorporated
Edmond Nagel, President
Date: July 12, 1996
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Capacities Date
Edmond Nagel President July 12, 1996
(Principal
Executive Officer)
Shannon C. Gries Secretary/Treasurer July 15, 1996
(Principal Accounting &
Financial Officer)
Dibo Attar Director July 12, 1996
Elliot Gerstenhaber Director July 12, 1996
Richard P. Farkas Director July 12, 1996
Page 18
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors F-2
Consolidated Balance Sheets
As of March 31, 1996 and 1995 F-3
Consolidated Statements of Operations
Years Ended March 31, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1996 and 1995 F-6
Consolidated Statements of Cash Flows
Years Ended March 31, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-9
Page F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
T.H. Lehman & Co., Incorporated
We have audited the consolidated balance sheets of T.H. Lehman & Co.,
Incorporated and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity 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 audit.
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 misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of T.H. Lehman & Co.,
Incorporated and subsidiaries as of March 31, 1996 and 1995, and the results of
their operations, stockholders' equity and cash flows for the years then ended,
in conformity with generally accepted accounting principles.
Hollander, Gilbert & Co.
Los Angeles, California
July 15, 1996
Page F-2
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND MARCH 31, 1995
ASSETS
1996 1995
CURRENT ASSETS __________ __________
Cash $ 47,879 $ 46,438
Trading securities (Note 3) 17,600 7,794
Accounts receivable 56,439 48,401
Non-interest bearing advances to related
parties (Note 11) 0 36
Prepaid expenses and other current assets 9,820 41,072
Current portion of non-current receivables
(Note 4) 446,535 228,314
__________ __________
TOTAL CURRENT ASSETS 578,273 372,055
PROPERTY AND EQUIPMENT AT COST,
less accumulated depreciation of $242,891 at
March 31, 1996 and $189,280 at March 31, 1995
(Note 5) 95,452 137,185
OTHER ASSETS
Securities available for sale (Note 3) 863,291 515,156
Investments in non-public companies, at cost 64,500 64,500
Non-current receivables (Note 4) 1,336,138 1,806,750
Deposits 7,429 9,735
Certificate of Deposit - Restricted (Note 12) 80,000
Patents, trademarks and tradenames-at cost
less accumulated amortization of $6,943 at
March 31, 1996 and $4,750 at March 31, 1995 4,020 6,213
Covenants not to compete, less
accumulated amortization of $358,875 at
March 31, 1996 and $324,493 at March 31, 1995 63,032 97,414
Excess of cost over net assets of acquired companies,
less accumulated amortization of $18,125 at
March 31, 1996 and $13,125 at March 31, 1995 31,875 36,875
__________ __________
TOTAL OTHER ASSETS 2,450,285 2,536,643
__________ __________
TOTAL ASSETS $3,124,010 $3,045,883
========== ==========
See accompanying Notes to Consolidated Financial Statements
Page F-3
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND MARCH 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
CURRENT LIABILITIES __________ __________
Loans payable - financial
institutions (Note 6) $ 202,392 $ 225,513
Accounts payable 389,119 285,477
Accrued liabilities 88,195 95,374
Current portion of long-term debt (Note 7) 430,147 304,077
Estimated environmental liability (Notes
2 and 12) 234,633 245,442
__________ __________
TOTAL CURRENT LIABILITIES 1,344,486 1,155,883
LONG-TERM DEBT, LESS CURRENT PORTION
(Note 7) 560,112 448,463
__________ __________
TOTAL LIABILITIES 1,904,598 1,604,346
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 8)
Common stock-par value $.01; authorized
5,000,000 shares, issued 3,230,342 shares
at March 31, 1996 and March 31, 1995 32,303 32,303
Additional paid-in capital 7,293,394 7,293,394
Unrealized gain on investments 315,738 0
Accumulated deficit (6,373,585) (5,835,722)
Treasury stock at cost - 25,000 shares (48,438) (48,438)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 1,219,412 1,441,537
__________ __________
$3,124,010 $3,045,883
========== ==========
See accompanying Notes to Consolidated Financial Statements
PageF-4
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
1996 1995
__________ __________
REVENUES
Management and billing fees, net of
allowances $1,028,495 $1,025,092
Interest and dividends 84,808 79,465
Net gain (loss) on investments 28,564 (25,570)
Net gain (loss) on debt settlement 61,927 0
__________ __________
TOTAL REVENUES 1,203,794 1,078,987
OPERATING EXPENSES
Selling, general and administrative 1,644,286 1,583,907
Interest expense 97,371 45,394
__________ __________
TOTAL OPERATING EXPENSES 1,741,657 1,629,301
__________ __________
LOSS BEFORE INCOME TAXES (537,863) (550,314)
PROVISION FOR INCOME TAXES (Note 9) 0 0
__________ __________
NET LOSS ($ 537,863) ($ 550,314)
========== ==========
PER SHARE DATA:
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,230,342 3,230,342
========== ==========
NET LOSS PER COMMON SHARE ($0.17) ($0.17)
========== ==========
See accompanying Notes to Consolidated Financial Statements
Page F-5
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
BALANCE March 31, 1994:
Common Stock Treasury Stock
________________ Additional Unreal. _______________
Shares Paid-in Accumulated Gain on Shares
Issued Amount Capital Deficit Invest. Held Amount Total
_________ _______ __________ ____________ _______ _______ _________ __________
3,205,342 $32,053 $7,268,644 ($5,285,408) 25,000 ($48,438) $1,966,851
Purchase of Treasury Stock (Note 8): 5,000 (10,000) (10,000)
Sale of Treasury Stock (5,000) 10,000 10,000
Shares Issued for Compensation:
25,000 250 24,750 25,000
Net Loss (550,314) (550,314)
_________ _______ __________ ____________ ________ _______ _________ __________
BALANCE, March 31, 1995:
3,230,342 32,303 7,293,394 (5,835,722) 25,000 (48,438) 1,441,537
_________ _______ __________ ____________ ________ ______ __________ __________
Unrealized Gain on Investments 315,738 315,738
Net Loss (537,863) (537,863)
_________ _______ __________ ____________ ________ _______ _________ __________
BALANCE, March 31, 1996:
3,230,342 $32,303 $7,293,394 ($6,373,585) 315,738 25,000 ($48,438) $1,219,412
========= ======= ========== ============ ======= ====== ========= ===========
See accompanying Notes to Consolidated Financial Statements
Page F-6
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
1996 1995
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($ 537,863) ($ 550,314)
Adjustments to reconcile net loss to
net cash required by operating activities:
Depreciation and amortization 95,185 158,493
Provision for bad debts 222,643 0
(Gain) loss on marketable securities and
other assets (90,491) 25,570
Deposits (paid) received 2,305 (2,866)
Shares issued for services 0 25,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (8,038) (7,026)
(Increase) decrease in prepaid expenses
and other current assets 31,252 1,015
(Increase) decrease in prepaid income taxes 0 0
Increase (decrease) in accounts payable 103,642 152,761
Increase (decrease) in accrued liabilities 104,600 19,341
_________ _________
NET CASH REQUIRED BY
OPERATING ACTIVITIES (76,765) (178,026)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Loans made evidenced by notes receivable (952,302) (1,100,695)
Collection of notes receivable 574,094 952,535
Collections from related parties 36 100,829
Acquisition of securities (149,985) (42,506)
Proceeds from sale of investments and
other assets 56,346 45,130
(Acquisition) of property and
equipment (11,878) (19,360)
Payment of estimated environmental liability (10,809) (29,558)
_________ _________
NET CASH REQUIRED BY
INVESTING ACTIVITIES (494,498) (93,625)
_________ _________
See accompanying Notes to Consolidated Financial Statements
Page F-7
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
1996 1995
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loans payable - financial
institution (23,121) 0
Repayment of loans payable - financial
institution 0 (41,418)
Proceeds of long-term debt 795,240 534,895
Repayment of long-term debt (199,415) (242,964)
_________ _________
NET CASH PROVIDED BY FINANCING ACTIVITIES 572,704 250,513
_________ _________
INCREASE (DECREASE)IN CASH 1,441 (21,138)
CASH - BEGINNING 46,438 67,576
_________ _________
CASH - END $ 47,879 $ 46,438
========= =========
CASH PAID DURING THE PERIODS FOR:
Interest $ 38,351 $ 33,093
========= =========
Income Taxes $ 0 $ 0
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Reduction in Notes Payable per Settlement
Agreement (Note 2) $ 61,927 $ 0
========= =========
Common stock issued for fees/compensation $ 0 $ 25,000
========= =========
Sale to certain of the Company's lenders of note
receivable issued by Helionetics by reducing
notes payable due those lenders $ 407,956 $ 0
========= =========
See accompanying Notes to Consolidated Financial Statements
Page F-8
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business - T.H. Lehman & Co., Incorporated, a Delaware
corporation, provides medical business management services including billing
and collection in California and Colorado through its wholly-owned
subsidiaries.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Securities - Marketable securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings. Marketable securities not classified as either
investment securities which are held to maturity or trading securities are
classified as securities available for sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate
component of stockholders' equity.
Receivables - Collections on receivables acquired in bulk are credited to the
outstanding balances (which reflects the amount paid for such receivables).
Excess amounts received, if any, will be credited to revenue only after the
Company has recouped its initial cost.
Assigned medical billings represent the contractual percentage of medical
provider receivables of medical practices to which the Company provides
management services. Revenues are recognized when the medical services are
provided, according to the contractual percentage after uncollectible
allowances.
Patents, Trademarks and Tradenames - Patents, trademarks and tradenames are
being amortized on a straight-line basis over 5 years.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets using
both the accelerated and straight-line methods. Expenditures for repairs and
maintenance are charged to expense as incurred, while expenditures for
betterments and renewals are capitalized.
Earnings (Loss) Per Share - Earnings (loss) per common share is based upon the
Page F-9
weighted average number of common shares outstanding during the period.
Common share equivalents are not included if anti-dilutive.
Excess of Cost Over Net Assets of Acquired Companies - Excess of cost over net
assets of companies acquired is being amortized on a straight-line basis over
periods not exceeding ten years.
Covenants Not to Compete - Expenditures made in conjunction with acquisitions
are being amortized over the lives of the specific agreements, which range
from 24 months to 60 months.
2. ACQUISITIONS AND DISPOSITIONS
On July 1, 1993, the Company sold its manufacturing subsidiary to Helionetics,
Inc. for a face amount convertible unsecured 6% promissory note of $400,000
payable on December 31, 1996. Interest is payable quarterly beginning March
31, 1994. The note is convertible into Helionetics, Inc. common stock at a
price of $40 per share (adjusted for 1 for 10 reverse stock split). This note
was sold for the face amount plus accrued interest on March 1, 1996 via a non-
cash transaction by which the note was transferred on a non-recourse basis to
certain non-related lenders in payment of notes payable and accrued interest
on those notes. The Company was also issued warrants to purchase Helionetics,
Inc. common stock at a price of $60 per share (adjusted for 1 for 10 reverse
stock split) through July 1, 1996. No value was ascribed to these warrants.
Under the agreement to sell the subsidiary, the Company assumed the
responsibility for any hazardous wastes and/or environmental clean up and
damage with respect to the leased facilities and has agreed to indemnify
Helionetics, Inc. for any and all damages or liabilities which were estimated
at $275,000. See Footnote 12: Allowance for Environmental Liability, Page F-17
for further information.
In August, 1992, the Company entered into various agreements, including both
consulting and covenant not to compete agreements, wherein it purchased
certain assets and assumed certain liabilities of a medical practice
management entity located in California whose primary business was to manage a
chiropractic facility. A portion of the purchase price was attributable to
the bulk purchase of outstanding personal injury and industrial medical
accounts receivable from the retired provider who owned the medical management
entity. The aggregate purchase price approximated $1,050,000, of which
$450,000 was payable under a note requiring payments of $8,771 per month for
30 months with interest of 4%, commencing November, 1993. The Company
successfully renegotiated this note in October, 1995, resulting in a gain of
$61,927. As of March 31, 1996, all remaining amounts due on this note have
been paid in full.
3. SECURITIES AVAILABLE FOR SALE
The Company has investments in marketable securities which are not expected
to be sold during the next fiscal year. These investments are carried at fair
Page F-10
value. Those values at March 31, 1996 and March 31, 1995 are as follows:
1996 1995
__________ __________
KTI, Inc. $730,084(a) $455,050
Other equity investments in public entities 133,207 60,106
__________ __________
$863,291 $515,156
========== ==========
(a) KTI, Inc. ("KTI") - As of March 31, 1994, the Company had 229,000 common
shares and warrants to acquire 250,000 common shares of Convergent Solutions,
Inc. ("CSI") at $2.00 per share.
On February 8, 1995, KTI, Inc. acquired CSI in a stock swap. CSI shareholders
received one KTI common share for each CSI common share. Subsequently, on
March 10, 1995, KTI approved a one-for-three reverse stock split effective
March 24, 1995.
During the fiscal year ended March 31, 1995, the Company acquired an
additional 10,000 shares of KTI in consideration for the extension of due
dates on notes receivable held by the Company.
As of March 31, 1996, the Company had 86,333 common shares of KTI with a fair
value of $625,917. The CSI warrants, which expired in March, 1995, were
renewed during fiscal 1996, adjusting for the KTI acquisition and the reverse
stock split; therefore, at March 31, 1996, the Company held warrants to
acquire 83,333 common shares of KTI at $6.00 per share, which expire in March,
2000. At March 31, 1996, the market price of KTI common stock was $7.25 per
share.
Unrealized gains and losses for marketable equity securities at March 31, 1996
and 1995 are as follows:
1996 1995
Current Non-Current Current Non-Current
Aggregate Cost $ 7,794 $547,553 $ 7,794 $515,156
Aggregate Market Value $ 17,600 $863,291 $ 7,794 $515,156
Gross Unrealized Gains $ 9,806 $358,244 $ 0 $ 0
Gross Unrealized Losses $ 0 $ 42,506 $ 0 $ 0
Page F-11
4. NON-CURRENT RECEIVABLES
Notes receivable at March 31, 1996 and March 31, 1995 consisted of the
following:
1996 1995
__________ __________
Purchased receivables of a medical provider
adjusted to estimated net realizable value (See Note
2). All of the remainder of the unpaid is expected
to be collected during the current fiscal year. $ 6,535 $ 52,396
Assigned medical billings net of allowances of
which $440,000 of the unpaid is expected to be
collected during the current fiscal year. 1,489,193 1,196,342
Working capital advances at 12% per annum interest
to a provider of medical services who has contracted
with the Company to provide management services.
None of these advances is expected to be collected
during the current fiscal year. 631,740 502,560
Convertible 6% unsecured promissory note issued
by Helionetics, Inc. in conjunction with its purchase
of the Company's former manufacturing subsidiary
due and payable December 31, 1996. Interest is
payable quarterly. This note was sold for face value
plus accrued interest due in March, 1996. 0 405,918
__________ __________
2,127,468 2,157,216
Less Allowance for Uncollectible (344,795) (122,152)
__________ __________
1,782,673 2,035,064
Less Current Portion (446,535) (228,314)
__________ __________
$1,336,138 $1,806,750
========== ==========
5. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1996 and March 31, 1995 consisted of the
following:
Life 1996 1995
__________ __________ __________
Machinery and Equipment 5-10 Years $ 4,484 $ 4,484
Leasehold Improvements 5-10 Years 500 500
Furniture and Fixtures 5-10 Years 333,359 321,481
Page F-12
__________ __________
338,343 326,465
Less Accumulated Depreciation (242,891) (189,280)
__________ __________
$ 95,452 $ 137,185
========== ==========
6. LOANS PAYABLE - FINANCIAL INSTITUTION
Pursuant to an agreement dated October 4, 1991 and modified March, 1993 and
March, 1994, the Company has received loans from a Netherlands corporation,
consisting of various advances from an available line of credit of $400,000.
As of March 31, 1996 and March 31, 1995, the outstanding balance against this
line of credit totaled $202,392 and $225,513, respectively. The loans bear
interest at the prime rate of a certain bank in Texas plus 2% per annum. The
weighted average interest rate for the years ended March 31, 1996 and 1995 was
10.5% and 10% respectively, which was computed based on month-end balance.
During the years ended March 31, 1996 and 1995, the maximum outstanding
balances totaled $202,392 and $286,349, respectively. The approximate average
outstanding monthly balance during the years ended March 31, 1996 and 1995
amounted to $90,500 and $264,000, respectively. This line of credit expires
on January 31, 1998.
7. LONG-TERM DEBT
Long-term debt at March 31, 1996 and March 31, 1995 consisted of the following:
1996 1995
__________ __________
Related Party:
Advances from an unsecured available line of credit of
$450,000. The loan bears interest at the prime
rate of a certain bank in Texas. Interest on
this loan is to be calculated and payable quarterly
as of the first day of each quarter (or at maturity).
The principal is due and payable on or before
December 31, 1997. The loan is secured by the
market value of publicly-held stock in the Company's
investment portfolio. As further consideration, 100,000
warrants expiring in December, 1997 to purchase
100,000 shares of the Company's common stock at
an exercise price of $1.25 per share were issued to
this creditor (See Note 8). $ 290,785 $ 139,503
Page F-13
Non-related Parties (all unsecured):
Debt incurred related to acquisition of California
medical management practice. (See Note 2). 0 159,087
Advances from an available line of credit of
$400,000. The loan bears interest at an annual
rate of 10%. All principal and interest is due
and payable on or before August 3, 1996. 341,635 291,869
Note payable of $22,500 principal plus accrued
interest at 6%, all due on February 28, 1997. 0 22,615
Advances from an available line of credit of
$100,000. The loan bears interest at an annual
rate of 10%. All principal and interest is due
and payable on or before August 3, 1996. 81,446 74,277
Two notes payable totaling $45,000 principal
plus accrued interest at 6%, all due on
January 27, 1997. 1,418 45,776
Advances from three available lines of credit
which total $200,000. The loans bear interest
at an annual rate of 10%. All principal and
interest is due and payable on or before
October 26, 1998. 52,151 0
Two notes payable totaling $10,000 principal
plus accrued interest at 10%, all due on December
28, 1998. 10,258 0
Note payable of $10,000 principal plus accrued
interest at 10%, all due on February 27, 1999. 10,090 0
Advances from an available line of credit of
$250,000. The loan bears interest at an annual
rate of 10%. All principal and interest is due
and payable on or before April 18, 1997. 102,929 0
Advances from an available line of credit of
$200,000. The loan bears interest at an annual
rate of 10%. All principal and interest is due
and payable on or before November 16, 1998. 75,278 0
Note payable of $10,000 principal plus accrued
interest at 10%, all due on November 17, 1998. 10,342 0
Equipment purchase contract with a monthly payment
of $330 and an effective interest rate of 11% payable
through January, 1999. 11,150 13,722
Page F-14
Equipment purchase contract with a monthly payment
of $315 and an effective interest rate of 20% payable
through October, 1996. 2,777 5,691
__________ __________
990,259 752,540
Less Current Portion (430,147) (304,077)
__________ __________
$ 560,112 $ 448,463
The amounts of long-term debt maturing in each of the years ending March 31
are as follows: 1997 - $430,147; 1998 - $396,919; 1999 - $163,193.
8. STOCKHOLDERS' EQUITY
During fiscal 1995, the Company issued 25,000 shares of its common stock to
its president in exchange for services performed in the amount of $25,000.
The Company has warrants outstanding for the purchase of 100,000 shares of the
Company's common stock at $1.25 per share exercisable through December, 1997
which were issued in conjunction with a line of credit made to the Company. In
addition, in 1993, the Company issued warrants for the purchase of 5,000 shares
of the Company's common stock exercisable at $2.00 per share through March,
1998 under a settlement agreement with a former employee.
In November, 1991, the Company adopted a new stock option plan (1990 Plan),
under which options will be granted for an aggregate of 500,000 shares of
common stock prior to November 20, 2000. Options granted may either be
incentive stock options, pursuant to which the recipient receives tax
benefits, or non-incentive stock options. At the time of the adoption of the
1990 Plan, the Company issued ten-year non-incentive stock options with an
exercise price of $1.50 to purchase 350,000 shares of which 250,000 shares
(100,000 shares canceled in 1993; 50,000 shares expired in 1994) were issued
to the officers of the Company, 50,000 shares were issued to the directors of
the Company, and 50,000 shares were issued to a consultant who was formerly an
officer of the Company.
During the year ended March 31, 1993, the Company issued options to purchase
60,000 shares of the Company's common stock at exercise prices ranging from
$1.50 to $2.00 per share expiring through 2000.
In June, 1994, the Company issued 105,000 additional options which are
exercisable at prices ranging from $1.50 to $2.00 per share for five years.
9. INCOME TAXES
At March 31, 1996, for income tax reporting purposes, the Company has a
consolidated net operating loss carryforward of approximately $4,400,000
available to reduce future taxable income, if any, expiring through 2010.
As a result of a51% change in ownership in a prior year, certain of the net
Page F-15
operating loss will be subject to an annual limitation and may not be fully
utilized in any one year. Because of histories of losses, the estimate for
future tax benefits has been offset by an equal asset valuation allowance.
10. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases medical provider facility and a billing facility
under noncancelable operating leases expiring through fiscal 1998.
Minimum annual future rental payments under the aforementioned leases as of
March 31, 1996 are as follows:
Years Ending March 31, Amount
________
1997 $ 89,740
1998 46,080
________
$135,820
========
Rent expense amounted to $118,833 and $131,742 for the years ended March 31,
1996 and 1995, respectively.
Medical Management Agreement - The Company has entered into an agreement with
a medical provider whereby the Company provides management and marketing
services and the leasing of facilities, furniture, fixtures and equipment for
a fee equal to 70% of the provider's medical fee revenues (net of allowance for
uncollectible accounts). The agreement is effective for one year after the
effective date of April 15, 1993 and shall automatically renew from year to year
unless either party gives 90 days notice of non-renewal prior to the renewal
term.
11. RELATED PARTY TRANSACTIONS
The Company has its corporate headquarters in Houston, Texas, where it shares
office space and personnel with an entity for which a principal stockholder
and director of the Company serves as a consultant. The Company has entered
into agreements with this entity whereby that entity will provide various
accounting, administrative and managerial services for the Company for
stipulated monthly fees. The agreements are for 12 months and they
automatically renew for an additional 12 month period if not terminated within
60 days of the end of the current term. The Company incurred fees
to this entity under the agreements totaling $94,200 and $98,400 for the years
ended March 31, 1996 and 1995, respectively. In addition, it incurred
consulting fees of $12,430 to one of its related lenders in 1994.
Certain of the Company's creditors (See Note 7) are related as a result of one
of the Company's directors and principal stockholders being a consultant to
these entities.
Page F-16
During the fiscal year 1994, the Company made non-interest bearing advances
aggregating $100,865 to one of the Company's directors and an entity
controlled by that director. During fiscal 1995, the Company collected
$100,829 of those advances, leaving a balance due to the Company of $36, which
was collected during fiscal 1996.
12. ALLOWANCE FOR ENVIRONMENTAL LIABILITY
The Company, in conjunction with the sale of its manufacturing subsidiary,
incurred an obligation to assume any and all historic environmental liabilities
that may have occurred, whether known or unknown. The Company does not have any
environmental liability insurance coverage. The Company has set up a
provision of $275,000 to cover possible environmental liabilities (a) arising
from the contamination of waste delivered to a disposal contractor of tritium
waste which was generated during the manufacture of luminescent signage and
(b) pursuant to recently implemented State of New York licensing regulations
requiring licenses that the former subsidiary establish a Decommissioning
Funding Plan and attendant Financial Assurance Requirements thereto which are
acceptable to the State of New York. Accordingly, the former subsidiary has
had an environmental audit performed which, on a preliminary basis, has called
for the establishment of an allowance to cover the estimated cost of
compliance with license renewal requirements of which there is no assurance
that final acceptance will be made by the regulatory authorities. During the
fiscal years ended March 31, 1996 and 1995 the Company charged $10,809 and
$29,558 respectively against this provision. Financial responsibility as to
the liability relating to (a) has been collateralized by an $80,000
certificate of deposit which will be released upon final disposition of the
tritium waste.
Page F-17
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