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, 1998.
[ ] 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 $1,057,377.
The aggregate market value of the voting stock held by nonaffiliates
of the registrant is approximately $1,418,734 as of June 15, 1998.
4,742,720
_________
(Number of shares of common stock outstanding as of June 15, 1998)
PART I
BUSINESSITEM 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.
Page 2
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 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.
In a transaction that was effective October 1, 1996, the Company transferred
50% of the outstanding stock and substantially all of the control of Healthcare
Professional Billing Corp. to certain key employees of that company. Until
that time, Healthcare Professional Billing Corp. was a wholly-owned subsidiary
of the Company. As a result of the transfer, the subsidiary's financial
position, results of operations and cash flows are not consolidated with that
of the Company's subsequent to the transfer date.
MedFin Capital Resources, Inc. and HLT Holding Corporation were established to
engage 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 purchases of accounts receivable, often in conjunction with
commitments for purchases of future receivables generated or advances against
such future receivables.
HLT Holding Corporation has, purchased one accounts receivable portfolio
that was derived from medical services provided to plaintiffs, an August
1992 transaction consisting of gross account balances of $2,639,010.
Consideration given amounted to $250,000 cash and $500,000 in notes payable.
Gross collections through March, 1998 amounted to $822,317 and write-offs
totaled $1,196,848, leaving a balance of $619,845 face value with an expected
nominal realization.
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.
Employees:
The Company employs 11 persons in the medical management field who are
engaged in executive, administrative and clerical positions.
Page 3
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.
MedFin Management Corporation leases office space in Burbank,California
under an operating lease that expires on October 31, 2000. Monthly
rental payments are $7,220, including all utilities.
ITEM 3.
LEGAL PROCEEDINGS
The company was involved in a lawsuit in respect to the ownership of a note
payable that originally expired on December 31, 1997. The note has been
extended to June 30, 1998 by what the Company considers to be the rightful
Owner of that note. The lawsuit was settled on June 8, 1998 for $10,000.
The note is still due to the rightful owner.
Medfin Management was involved in a lawsuit in respect to default of a
lease. The lawsuit was settled on March 24,1998 for $9,500. Payment was
made on April 14, 1998.
Neither the Company nor its subsidiaries is currently party to any other
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.
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, 1998 are as follows:
Page 4
For the Quarter Ended High Low
June 30, 1996 1/2 1/2
September 30, 1996 1/2 1/2
December 31, 1996 1/2 1/2
March 31, 1997 1/2 1/2
June 30, 1997 1/2 1/2
September 30, 1997 1/2 1/2
December 31, 1997 1/2 1/2
March 31, 1998 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, 1997 the Company had approximately 140 shareholders of record.
Cede & Co. was the registered holder of 665,423 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, 1998.
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Statements of Operations:
Fiscal Year Ended March 31, 1998 Compared to
Fiscal Year Ended March 31, 1997
Revenues totaled $1,057,377 during the fiscal year ended March 31, 1998, 3%
higher than the prior year's revenues of $1,023,101. The gain on investments
increased to $391,576 from the previous year's $168,250 however the majority
of the gain totaling $325,348 was realized when the Company transferred a
portion of its investment in KTI, Inc. to settle certain notes and accounts
payable in the aggregate amount of $536,547. Also, income from finance
receivables increased to $54,073 from the prior year's $28,243 due to
improved collection strategies. Although total revenue was slightly up due
to the gain on investments and income from finance receivables, other
revenues were down. Billing fees were $0 compared to $138,050 for the previous
year as a result of the Company's October 1, 1996 transfer of 50% of the stock
of its medical billing company to certain key employees. Management fees were
also lower, down 12% to $516,034 from the previous year.
Page 5
Lower expenses helped offset the decrease in management and billing fees.
Interest expense decreased to $84,736 from the prior years $102,358 due to
decrease in notes payable. General and Administrative expenses decreased
25% to $1,036,408. Lower employee expenses accounted for approximately
one-third of the decline from $558,204 in fiscal 1997 to $447,017 in
fiscal 1998. Delivery, postage, telephone and management fees experienced
significant reductions. A portion of these reductions can be attributed
to the transfer of 50% of the medical billing subsidiary's stock to the
employees of that subsidiary. Although the majority of expenses decreased,
legal fees increased to $39,929 from the prior year's $2,228 due to the
lawsuits mentioned under legal proceedings. Collection cost increased 48%
to $64,337 in 1998 from $30,879 in 1997 in an effort to boost collections
of the Company's and it's Clients receivables, which results in increased
collections of 54% as compared to last year.
Fiscal Year Ended March 31, 1997 Compared to
Fiscal Year Ended March 31, 1996
Revenues totaled $1,023,101 during the fiscal year ended March 31, 1997, 15%
lower than the prior year's revenues of $1,203,794. Although gain on investments
increased to $168,250 from the previous year's $28,564, revenues were down in
other areas. Billing fees decreased by 39% as a result of the Company's October
1, 1996 transfer of 50% of the stock in its medical billing company to certain
key employees. Management fees were also lower, down 26% from the previous
year.
Lower expenses helped offset some of the decrease in revenues, however. While
interest expense increased slightly to $102,358 from the prior year's $97,371,
general and administrative expenses decreased 15% to $1,387,746. Lower employee
expense accounted for the largest portion of the decline in expenses, from
$811,873 in fiscal 1996 to $558,024 in fiscal 1997. Rent expense decreased by
$24,172 from last year's $118,833 to $94,661, and telephone, insurance, travel,
postage, delivery and office supply expenses also experienced significant
reductions. A portion of these reductions can be attributed to the transfer
of 50% of the medical billing subsidiary's stock to the employees of that
subsidiary.
Liquidity, Capital Resources and Income Taxes
At March 31, 1998 cash amounted to $24,123, 28% less than the cash balance of
$33,422 at March 31, 1997.
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.
Page 6
On June 5, 1997, the Company settled certain notes and accounts payable in the
aggregate amount of $536,457 by transferring to the creditors a portion of the
Company's investment in KTI, Inc.
On February 20, 1998, the Company settled certain notes and accounts payable
in the aggregate amount of $468,839 by issuing to the creditors 1,512,378
shares of the Company's stock at $0.31 per share.
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, 1998, the Company had an operating tax loss carryforward of
approximately $4,747,000.
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
Not Applicable.
PART III
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
Page 7
The Directors and Executive Officers of the Company are as follows:
Name Age Director Since Position
Dibo Attar 58 1988 Director
Elliot Gerstenhaber 52 1996 Director/Secretary/Treasurer
Richard Farkas 72 1996 Director
Edmond Nagel 57 ----- President til 12/05/97
Shannon C. Gries 31 ----- Secretary/Treasurer 02/20/98
On December 5, 1997, Edmond Nagel resigned as President of the Company. As of
the date of filing this report, the Company is still searching for his re-
placement.
On February 20, 1998, Shannon C. Gries resigned as Secretary/Treasurer of the
Company. Elliot Gerstenhaber was appointed 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.
ITEM 10.
EXECUTIVE COMPENSATION
Compensation of Officers and Directors:
Page 8
Set forth below is the aggregate remuneration paid to the Company's officers
during the fiscal years ended March 31, 1998, 1997, and 1996.
Name and Restricted
Principal Stock
Position Year Salary Awards
Edmond C. Nagel, President 1998 $45,833 $ 0
1997 $72,917 $ 0
1996 $75,000 $ 0
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
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
Page 9
employee options are exercisable at $1.50 per share and all are non-incentive
options. 60,000 options were granted during the year ended March 31, 1993
at exercise prices ranging from $1.50 to $2.00 per share expiring through 2000.
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 which expires
in five years. No options were granted during the fiscal year ended March 31,
1996, 1997 and 1998.
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 Canceled
Vincent Galano, Sr. 50,000 1990 $1.50 Canceled
Rodolfo Oeschslin 25,000 1990 $1.50 Canceled
Lee R. Mathis 5,000 1992 $1.90 Expired
Mark S. Cox 20,000 1992 $2.00 Canceled
Murray Husarsky 20,000 1992 $2.00 Expired
Brenda Heartfield 10,000 1992 $1.50 Expired
Julio Henriquez 5,000 1993 $2.00 Expired
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 (270,000)
Less Expired ( 40,000)
________
Total Outstanding 205,000
=========
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 15, 1998:
Name and Address Of Amount and Nature Of Percent of Class
Beneficial Owner Beneficial Owner
Title of Class
(a) Common Stock
Page 10
Swifton, N.V. (4)
Landhuis Joonchi 301,237 6.4%
Kaya Richard J. Beaujon z/n
P.O. Box 837
Curacao, Netherlands Antilles
Burton, N.V. (4)
Landhuis Joonchi 281,383 5.9%
Kaya Richard J. Beaujon z/n
P.O. Box 837
Curacao, Netherlands Antilles
Greenwich Securities, Ltd. (1)
Via Canc. Molo II 985,800 20.8%
CH-6501
Bellinzona, Switzerland 6901
Millingway, Inc. (2)
c/o Capital Holdings, Inc. 598,164 12.6%
4900 Woodway, Suite 650
Houston, TX 77056
The Bridge Fund N.V. (4)
Landhuis Joonchi 519,893 11.0%
Kaya Richard J. Beaujon z/n
P.O. Box 837
Curacao, Netherlands, Antilles
Signal Hill N.V.
Landhuis Joonchi 916,840 19.3%
Kaya Richard J. Beaujon z/n
P.O. Box 837
Curacao, Netherlands, Antilles
(b) Security Ownership of Management
Dibo Attar (1) (2) -0-
Elliot Gerstenhaber -0-
Richard Farkas -0-
Shannon C. Gries 10,000 .2%
Edmond Nagel (3) 215,601 4.5%
Directors and Officers
as Group 5 persons 3,828,918 80.7%
(1) (2) (3) (4)
Notes to Table of Beneficial Owners and Management:
Page 11
(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., Burton, N.V., The Bridge Fund, N.V. and Signal Hill, 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, 1998 and March 31, 1997, the Company incurred
management fees for facilities and services provided by GTD Capital Holdings
Management Company in the amount of $79,800 and $86,700 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. and
GTD Capital Holding Management Company. During the year ended March 31, 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. The company was involved in a
dispute in respect to ownership of this note payable that originally expired on
December 31, 1997. The note and the warrant certificate has been extended to
June 30, 1998 by what the Company considers to be the rightful owner of that
note, however another party has filed a lawsuit demanding immediate payment
on the note. The lawsuit was settled on June 8, 1998. The note is still due
the rightful owner and as of March 31, 1998, $328,423 in principal and interest
is outstanding under this line of credit.
On June 5, 1997 the Company settled certain notes and accounts payable in the
aggregate amount of $536,457 by transferring to the creditors a portion of the
Company's investment in KTI, Inc. Mr. Dibo Attar is a consultant to these
creditor entities.
On February 20, 1998, the Company settled certain note and accounts payable in
the aggregate amount of $468,839 by issuing 1,512,378 shares of its common stock
at $.31 per share. Mr. Dibo Attar is a consultant to these creditor entities.
Page 12
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
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, 1998.
PART IV
ITEM 13.
EXHIBITS AND REPORTS ON FORM 10-KSB
The following documents are filed as a part of this report:
Independent Auditor's Report
Consolidated Balance Sheets
As of March 31, 1998 and 1997
Consolidated Statements of Operations
Years Ended March 31, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity
Years Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows
Years Ended March 31, 1998 and 1997
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, 1998.
(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.*
Page 13
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.*
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 14
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
Dibo Attar, Acting Principal Executive Officer
Date: June 26, 1998
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
Dibo Attar (Acting Principal June 26, 1998
Executive Officer)
Elliot Gerstenhaber Secretary/Treasurer June 26, 1998
(Principal Accounting &
Financial Officer)
Dibo Attar Director June 26, 1998
Elliot Gerstenhaber Director June 26, 1998
Richard P. Farkas Director June 26, 1998
Page 15
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditor F-2
Consolidated Balance Sheets
As of March 31, 1998 and 1997 F-3
Consolidated Statements of Operations
Years Ended March 31, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1998 and 1997 F-6
Consolidated Statements of Cash Flows
Years Ended March 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
Page 16
F-1
REPORT OF INDEPENDENT AUDITOR
To the Board of Directors
T.H. Lehman & Co., Incorporated
I have audited the consolidated balance sheets of T.H. Lehman & Co.,
Incorporated and subsidiaries as of March 31, 1998 and 1997, 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. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
T.H. Lehman & Co., Incorporated and subsidiaries as of March 31, 1998 and
1997, and the consolidated results of their operations, stockholders'equity
and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Jeffrey S. Gilbert, CPA
(Jeffrey S. Gilbert, CPA
is a successor to the
audit firm of Hollander,
Gilbert & Co., which
performed the 1997 audit)
Los Angeles, California
June 11, 1998
F-2
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND MARCH 31, 1997
ASSETS
1998 1997
CURRENT ASSETS __________ __________
Cash $ 24,123 $ 33,422
Trading securities (Note 3) 15,000
Accounts receivable 9,207 15,532
Prepaid expenses and other current assets 3,623 6,540
Current portion of non-current receivables
(Note 4) 416,659 440,000
__________ __________
TOTAL CURRENT ASSETS 453,612 510,494
PROPERTY AND EQUIPMENT AT COST,
less accumulated depreciation of $164,360 at
March 31, 1998 and $131,120 at March 31, 1997
(Note 5) 52,384 67,843
OTHER ASSETS
Securities available for sale (Note 3) 523,039 963,767
Investments in non-public companies, at cost 500 30,500
Non-current receivables (Note 4) 1,235,602 1,479,000
Deposits 1,514 4,900
Certificate of Deposit - Restricted 80,000 80,000
Excess of cost over net assets of acquired companies,
less accumulated amortization of $28,125 at
March 31, 1998 and $23,125 at March 31, 1997 21,875 26,875
__________ __________
TOTAL OTHER ASSETS 1,862,530 2,585,042
__________ __________
TOTAL ASSETS $2,368,526 $3,163,379
========== ==========
See accompanying Notes to Consolidated Financial Statements
F-3
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
CURRENT LIABILITIES __________ __________
Loans payable - financial
institution (Note 6) $ 40,000 $ 285,946
Accounts payable 402,930 462,463
Accrued liabilities 82,778 72,565
Current portion of long-term debt (Note 7) 547,999 316,776
Estimated environmental liability (Notes
2 and 12) 43,235 189,315
__________ __________
TOTAL CURRENT LIABILITIES 1,116,942 1,327,065
LONG-TERM LIABILITIES
Long-term debt, less current portion
(Note 7) 16,042 821,316
__________ __________
TOTAL LONG-TERM LIABILITIES 16,042 821,316
TOTAL LIABILITIES 1,132,984 2,148,381
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 8)
Common stock-par value $.01; authorized
5,000,000 shares, issued 4,742,720 shares
at March 31, 1998 and 3,230,342
March 31, 1997 47,427 32,303
Additional paid-in capital 7,764,014 7,310,299
Unrealized gain on investments 376,894 561,422
Accumulated deficit (6,904,355) (6,840,588)
Treasury stock at cost - 25,000 shares (48,438) (48,438)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 1,235,542 1,014,998
__________ __________
$2,368,526 $3,163,379
========== ==========
See accompanying Notes to Consolidated Financial Statements
F-4
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
1998 1997
__________ __________
REVENUES
Management and billing fees, net of
allowances $ 516,034 $ 724,678
Income from finance receivables 54,073 28,243
Interest and dividends 75,594 76,930
Net gain on trading securities 6,953 24,929
Realized gain from sales of securities
available for sale 384,623 63,742
Realized gain from sales of investment in
non-public companies 79,579
Miscellaneous Income 100
Profit participation fee 20,000 25,000
__________ __________
TOTAL REVENUES 1,057,377 1,023,101
OPERATING EXPENSES
Selling, general and administrative 1,036,408 1,387,746
Interest expense 84,736 102,358
__________ __________
TOTAL OPERATING EXPENSES 1,121,144 1,490,104
__________ __________
LOSS BEFORE INCOME TAXES ( 63,767) ( 467,003)
PROVISION FOR INCOME TAXES (Note 9) 0 0
__________ __________
NET LOSS ($ 63,767) ($ 467,003)
========== ==========
PER SHARE DATA:
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,356,374 3,230,342
========== ==========
BASIC LOSS PER COMMON SHARE ($0.02) ($0.14)
========== ==========
See accompanying Notes to Consolidated Financial Statements
F-5
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
BALANCE, March 31, 1996
Common Stock Unreal. Treasury Stock
________________ Additional Gain on ______________
Shares Paid-in Accumulated Sec Avail. for Shares
Issued Amount Capital Deficit for sale Held Amount Total
_________ _______ __________ ____________ _______ _______ _________ __________
3,230,342 $32,303 $7,293,394 ($6,373,585) 315,738 25,000 ($48,438) $1,219,412
Unrealized gain on securities
available for sale: 245,684 245,684
Paid-in capital from
distribution of 50%
interest in a sub-
sidiary to certain
employees 16,905 16,905
Net loss (467,003) (467,003)
_________ _______ __________ ____________ ________ _______ _________ __________
BALANCE, March 31, 1997:
3,230,342 32,303 7,310,299 (6,840,588) 561,422 25,000 (48,438) 1,014,998
_______________________________________________________________________________
Unrealized gain on securities
available for sale (184,528) (184,528)
Shares issued in settle-
ment of certain notes
and accounts payable
1,512,378 15,124 453,715 468,839
Net loss (63,767) (63,767)
_________ _______ __________ ____________ ________ _______ _________ __________
BALANCE, March 31, 1998:
4,742,720 47,427 7,764,014 ($6,904,355) 376,894 25,000 ($48,438) $1,235,542
========= ======= ========== ============ ======= ====== ========= ===========
See accompanying Notes to Consolidated Financial Statements
F-6
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
1998 1997
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($ 63,767) ($ 467,003)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 38,626 61,942
Provision for bad debts 222,643
Realized gain from sales of securities
available for sale partially exchanged
for debt relief (384,623) (63,742)
Realized gain from sale of investment in
non-public companies (79,579)
Loss on Disposition of Assets 38
Deposits (paid) received
Changes in operating assets and liabilities:
(Increase) decrease in:
Trading Securities 15,000 2,600
Accounts receivable 6,325 (29,235)
Prepaid expenses and other current assets 2,917 (6,088)
Increase (decrease) in:
Prepaid Income Taxes
Accounts payable 38,467 143,103
Accrued liabilities 91,165 66,192
Estimated environmental liability (146,081) (45,318)
__________ _________
NET CASH REQUIRED BY
OPERATING ACTIVITIES (401,933) (194,485)
__________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in 50% owned corporation 13,278
Loans made evidenced by notes receivable (517,475) (725,991)
Collection of notes receivable 784,215 367,021
Deposits and certificates of deposits 3,386 615
Proceeds from sale of securities
available for sale 208,950
Proceeds from sales of investments
in non-public companies 134,365 113,579
Acquisition of property and equipment (18,205) (54,036)
__________ _________
NET CASH USED IN
INVESTING ACTIVITIES 386,286 ( 76,584)
__________ _________
See accompanying Notes to Consolidated Financial Statements
F-7
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
YEARS ENDED MARCH 31, 1998 AND MARCH 31, 1997
1998 1997
_________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loans payable - financial
institution 14,278 63,000
Proceeds of long-term debt 395,067
Repayment of long-term debt ( 7,930) (201,455)
_________ _________
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,348 256,612
_________ _________
INCREASE (DECREASE)IN CASH ( 9,299) (14,457)
CASH - BEGINNING 33,422 47,879
_________ _________
CASH - END $ 24,123 $ 33,422
========= =========
CASH PAID DURING THE PERIODS FOR:
Interest $ 16,098 $ 10,331
========= =========
Income Taxes $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Non Cash Transaction:
Debt relieved in exchange for
investments available for sale $ 536,457 $ -
========= =========
Debt relieved in exchange for
common stock $ 468,839 $ -
========= =========
See accompanying Notes to Consolidated Financial Statements
F-8
T.H. LEHMAN & CO., INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
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 through one of 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. Average cost is used to determine cost
when calculating realized gains or losses from sales of securities
available for sale.
Investment in 50% owned Corporation - Investment in 50% owned corporation
is accounted for under the equity method.
Receivables - 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.
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.
Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows
are not sufficient to recover its carrying amount. The company measures
an impairment loss by comparing the fair value of the asset to its carrying
amount. Fair value of an asset is calculated as the present value of
expected future cash flows.
Stock-Based Compensation - The Company elected to account for employee
stock options based on the provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and adopted only the disclosure require-
ments of SFAS No. 123, "Accounting for Stock-Based Compensation".
Basic Loss Per Share - Basic loss per common share is calculated by
dividing earnings available to common stockholders by the weighted
average number of common shares outstanding during the period.
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.
Recent Accounting Pronouncements - The Company intends to adopt SFAS No. 130,
"Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", in fiscal year ended
March 31, 1999. Both will require additional disclosure but will not have
a material effect on the Company's financial position and results of
operations. SFAS No. 130 will first be reflected in the Company's first
quarter ended June 30, 1998 interim financial statements. Components of
comprehensive income for the Company include items such as net income and
changes in the value of available-for-sale securities. SFAS No. 131 requires
segments to be determined based on how management measures performance and
makes decisions about allocating resources. SFAS No. 131 will first be
reflected in the Company's March 31, 1999 annual financial statements.
2. ACQUISITIONS AND DISPOSITIONS
In a transaction that was effective October 1, 1996,
the Company transferred 50% of the outstanding stock and substantially
all of the control of Healthcare Professional Billing Corp.("HPB") to
certain key employees of HPB. Until that time, HPB was a wholly-owned
subsidiary the Company. As a result of the transfer, the subsidiary's
financial position, results of operations and cash flows are not
consolidated with that of the Company subsequent to the transfer date.
Effective October 1, 1996, the investment in HPB including advances to HPB
will be accounted for under the equity method. The summarized financial
information of HPB at March 31, 1998 and March 31, 1997 is as follows:
March 31, 1998 March 31,1997
______________ _____________
Financial Position:
Current Assets $ 31,417 $113,844
Property and equipment 26,335 31,222
________ ________
Total assets $ 57,752 $145,066
======== ========
Current liabilities(including
due to the Company of $255,067) $352,138 $315,383
Long-term obligations (a) 74,573 109,662
Stockholders' deficiency (368,959) (279,979)
________ ________
Total liabilities and stockholders'
deficiency $ 57,752 $145,066
========= =========
Twelve Months Six Months
Ended Ended
March 31, 1998 March 31, 1997
______________ ______________
Results of Operation:
Revenues $203,370 $149,792
Operating Expenses 292,352 157,779
_______ _______
Net loss $(88,982) $( 7,987)
======== =======
(a) Certain creditors of HPB are also creditors of the Company.
3. SECURITIES AVAILABLE FOR SALE
1998 1997
__________ __________
KTI, Inc. $496,448 $941,934
Other equity investments in public entities 26,591 21,833
__________ __________
$523,039 $963,767
========== ==========
F-9
Unrealized gains and losses for marketable equity securities at March 31, 1998
and 1997 are as follows:
1998 1997
______________________ ______________________
Current Non-Current Current Non-Current
Aggregate Cost $ 0 $146,145 $ 2,923 $402,345
Aggregate Market Value $ 0 $523,039 $ 15,000 $963,767
Gross Unrealized Gains $ 0 $376,894 $ 12,077 $561,422
Gross Unrealized Losses $ 0 $ 0 $ 0 $ 0
4. NON-CURRENT RECEIVABLES
Non-current receivables at March 31, 1998 and March 31, 1997 consisted of
the following:
1998 1997
__________ __________
Assigned medical billings net of allowances of
which $416,659 of the unpaid is expected to be
collected during the current fiscal year. 1,412,948 1,718,260
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. 852,379 769,593
__________ __________
2,265,327 2,487,853
Less Allowance for Uncollectible (613,066) (568,853)
__________ __________
1,652,261 1,919,000
Less Current Portion (416,659) (440,000)
__________ __________
$1,235,602 $1,479,000
========== ==========
5. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1998 and March 31, 1997 consisted of the
following:
Life 1998 1997
__________ __________ __________
Machinery and Equipment 5-10 Years $ 48,207 $ 30,426
Leasehold Improvements 5-10 Years 500 500
Furniture and Fixtures 5-10 Years 168,037 168,037
F-10
__________ __________
216,744 198,963
Less Accumulated Depreciation (164,360) (131,120)
__________ __________
$ 52,384 $ 67,843
========== ==========
6. LOANS PAYABLE - FINANCIAL INSTITUTION
Pursuant to an agreement dated October 4, 1991 and modified March, 1993,
March, 1994 and January 31, 1998 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, 1998 and March 31, 1997, the
outstanding balance against this line of credit totaled $40,000 and
$285,946, 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, 1998 and 1997 was 10.5% and 10.27%
respectively, which was computed based on month-end balance. The approximate
average outstanding monthly balance during the years ended March 31, 1998 and
1997 amounted to $215,686 and $201,806, respectively. This line of credit
expires on January 31, 2001.
During the fiscal year ended March 31, 1998 the Company reduced $260,223 of this
indebteness plus $145,000 of long term debt (see Note 7) and $63,615 in payable
and accrued liabilities thru the issuance of 1,513,378 of the Company common
stock valued at $.31 per share estimated fair value at the date of settlement.
7. LONG-TERM DEBT
Long-term debt including accrued interest at March 31, 1998 and March 31, 1997
consisted of the following:
1998 1997
__________ __________
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
June 30, 1998. 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 June, 1998 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). $ 328,423 $ 309,346
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, 1999. 0 159,284
Non-related Parties (all unsecured):
Advances from an available line of credit of
$20,000. The loan bears interest at an annual
rate of 10%. All principal and interest is due
and payable on or before July 1,1999. 0 9,673
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. 0 57,151
Two notes payable totaling $10,000 principal
plus accrued interest at 10%, all due on December
28, 1998. 11,645 11,258
Note payable of $10,000 principal plus accrued
interest at 10%, all due on February 27, 1999. 0 679
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, 2000. 0 166,023
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. 0 82,578
Note payable of $10,000 principal plus accrued
interest at 10%, all due on November 1, 1998. 11,411 10,411
Equipment purchase contract with a monthly payment
of $886 and an effective interest rate of 11% payable
through November, 2000. 24,352 31,784
Advances from an available line of credit of
$300,000. The loan bears interest at an annual
rate of 10%. All principal and interest is due
and payable on or before November 1, 1998. 188,210 171,716
Note payable of $60,000 principal plus accrued
interest at 10%, all due on March 12, 2000. 0 60,312
Advances from an available line of credit of
$100,000. the loan bears interest at annual
of 10%. All principal and interest is due
and payable on or before February 5, 2000. 0 67,877
__________ __________
564,041 1,138,092
Less Current Portion (547,999) (316,776)
__________ __________
$ 16,042 $ 821,316
========== ==========
The amounts of long-term debt maturing in each of the years ending March 31
are as follows: 1999 - $547,999; 2000 - $9,294; 2001 - $6,748.
During the fiscal year ended March 31, 1998 the Company reached agreements with
certain of the above creditors to accept 42,054 shares of common stock in KTI
and 87,499 warrants in KTI to reduce the outstanding debt of $362,000 plus
an additional $174,457 in accrued liabilities and payables.
8. STOCKHOLDERS' EQUITY
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 June, 1998 which
were issued in conjunction with a line of credit made to the Company.
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; 100,000 shares
cancelled in 1997) 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. At March 31, 1998,
100,000 of the options are still outstanding.
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.
At March 31, 1997, 105,000 of these options are still outstanding.
9. INCOME TAXES
At March 31, 1998, for income tax reporting purposes, the Company has a
consolidated net operating loss carryforward of approximately $5,179,000
available to reduce future taxable income, if any, expiring through 2013.
As a result of a 51% change in ownership in a prior year, certain of the net
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.
F-11
10. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases medical provider facility and a billing facility
under noncancelable operating leases expiring October 31, 2000. Minimum
annual future rentals on each of the years ending March 31 are as follows:
1999 - $86,640; 2000 - $72,200.
Rent expense amounted to $92,150 and $94,661 for the years ended March 31,
1998 and 1997, 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 $79,800and $86,700 for the years
ended March 31, 1998 and 1997, respectively.
Dibo Attar, a director of the Company, is also a director of KTI, Inc.
(see Note 3)
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.
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 initially 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, 1998 and 1997 the Company charged
F-12
$146,080 and $169,066, 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. During the year ended March 31, 1997, the Company
provided for additional estimated environmental liability of $123,748.
On June 26, 1997, the State of New York, Division of Safety and Health, issued
A letter to Self-Powered Lighting, Inc. (the Company's former subsidiary or
"SPL") stating that they concluded that residual radioactive contamination at
the subject facility is below the limits for free release, and that facility may
be released for unrestricted use. However, in a letter dated July 2, 1997, the
State deleted from SPL's license the authorization to possess and use
radioactive materials at that facility in the future.
F-13
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 24123
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