<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended May 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to __________________
Commission File No. 33-1534-D
-----------------------------
ASTHMA DISEASE MANAGEMENT, INC.
-------------------------------
(Name of Small Business Issuer)
DELAWARE 22-3253496
-------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
272 South White Horse Pike, Berlin, NJ 08009
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
800-448-8199
------------
(Issuer's Telephone Number, including Area Code)
------------------------------------------------
Section registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
----------------------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 filings 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-K contained in this form, and no disclosure will be contained to
the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part IV of this form 10-KSB or any
amendment to this form 10-KSB.
The issuer's revenues for the fiscal year ended May 31, 2000 were $279,754.
The Registrant's voting stock is traded over-the-counter and is quoted in the
National Quotation Bureau "pink sheets". As of May 31, 2000, there was no
significant market for the trading of the Registrant's voting stock.
On May 31, 2000, the Registrant had outstanding 93,503,508 shares of its common
stock. (See "Legal Proceedings")
Documents incorporated by reference. None.
-------------------------------------------
<PAGE>
ASTHMA DISEASE MANAGEMENT, INC.
Annual Report on Form 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I......................................................................................................1
ITEM 1 - DESCRIPTION OF BUSINESS.......................................................................1
ITEM 2 - DESCRIPTION OF PROPERTY.......................................................................2
ITEM 3 - LEGAL PROCEEDINGS.............................................................................2
PART II.....................................................................................................3
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................3
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................3
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................................3
ITEM 7 - FINANCIAL STATEMENTS..........................................................................6
ITEM 8 - CHANGES IN AND DISCUSSIONS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............7
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT..........................................................7
ITEM 10 - EXECUTIVE COMPENSATION.......................................................................8
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................8
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................9
ITEM 13 - EXHIBITS, LIST AND REPORTS ON FORM 8-K.......................................................9
FINANICAL STATEMENTS...................................................................................F-1
SIGNATURES.............................................................................................13
</TABLE>
-i-
<PAGE>
PART I
------
Item 1. Description of the Business
-----------------------------------
The Company
-----------
The Registrant, Asthma Disease Management, Inc. (the "Company") has developed
and presently markets an asthma disease management program and operates a
clinical testing laboratory. The Company's services are principally designed to
support primary care physicians providing care within either a health
maintenance organization or fee-for-service setting. The Company currently has a
contract with a primarily Medicaid HMO. In addition, the Company provides
allergy laboratory services to nearly one hundred physicians nationwide.
On May 18, 2000, the former management and majority of the Board of Directors of
the Company resigned and the sole remaining director elected the current
directors as the Board of the Company on May 19, 2000. The new management of the
Company has been evaluating the asthma disease programs and the opportunities
presented by such programs and is developing a strategic plan to take advantage
of the opportunities. See "Management's Discussion and Analysis or Plan of
Operation - Outlook: Issues and Risks." Also see "Risk Factors."
The Company markets its services to health maintenance organizations contracting
with state governments to provide health coverage to Medicaid patients.
Management believes its services will improve the delivery and reduce the cost
of medical care for asthma and other allergic diseases. The Company has
developed a unique approach for the delivery of medical services by combining
the training of primary care physicians and staff, critiquing their diagnostic
and treatment protocols and utilizing more effective, less costly technology.
Allergic disease refers to a group of diseases in which immunologically induced
inflammation is triggered by environmental antigens referred to as allergens.
Allergic diseases are common and can cause local or systemic effects. The most
common ones, allergic rhinitis, sinusitis, asthma and allergic contact
dermatitis are responsible for significant morbidity, and in asthma significant
mortality. Accurate diagnoses and appropriate treatment can curtail drastically
their associated clinical impairment and disability and cost.
The Company was incorporated in Delaware on May 3, 1985 and is a successor
by-merger with L'Autrec, Inc on April 2, 1992. It subsequently changed its name
to IRT Holding Corporation and then to Asthma Disease Management, Inc. on
December 3, 1998.
Governmental Regulation
-----------------------
Regulatory agencies are authorized by law to monitor and regulate the Company's
operation as a condition to license and renewal. We believe that we are licensed
to provide certain laboratory services in New Jersey, New York, Maryland and
California, and that we are licensed by Medicare to conduct interstate business,
and are approved in most states as a Medicaid provider, however, there is no
assurance as to our compliance with such requirements.
<PAGE>
Employees
---------
The Company has ten (10) full-time employees and utilizes the services of six
consulting physicians. No employee is covered by a collective bargaining
agreement. We consider our relations with our employees to be good.
Competition
-----------
Competition for the Company is laboratory testing services arising primarily
from allergist and commercial clinical laboratories. Clinical laboratories using
computer diagnostics in their recommendations of appropriate patient treatment
comprise the largest segment of our competition. The Company uses qualified
physicians diagnosis rather than computer diagnostics in their recommendation of
appropriate patient treatment.
Item 2. Description of Property.
--------------------------------
The Company's principal offices and facilities, comprising approximately 2,500
square feet, are located at 272 South White Horse Pike, Berlin, New Jersey, and
are pursuant to a month-to-month lease.
The Company has no policy regarding investments in real estate or interests in
real estate, real estate mortgages or securities of persons primarily engaged in
real estate activities. The Company currently holds no such investments.
Item 3. Legal Proceedings.
--------------------------
On May 5, 2000, the Securities and Exchange Commission commenced a formal
investigation looking into activities of the Company, certain former officers
and directors of the Company, and others, concerning, among other things,
possible unlawful issuances of the Company's common stock. Thereafter, the SEC
temporarily suspended the over-the-counter trading of the common stock of the
Company. The temporary suspension was effective on May 8, 2000 and terminated on
May 19, 2000. The suspension occurred according to the SEC, because questions
were raised about the accuracy and adequacy of the publicly disseminated
information concerning, among other things, the status and extent of the
Company's business operations. The temporary suspension ended on May 19, 2000,
but the SEC is continuing its investigation of the Company, certain of its
former officers and directors and others.
On August 29, 2000, the Company filed a complaint in the Delaware Chancery Court
against certain of our former officers, directors and employees, alleging, among
other things, that such former officers, directors and employees engaged in
unlawful issuances of stock and other breaches of fiduciary duties. The action
alleges, among other things, that the defendants caused the Company to
unlawfully issue up to 53 million unauthorized shares of our common stock. The
action seeks declaratory relief, injunctive relief and damages.
The Company is a defendant in two employment contract suits pending in the
Superior Court of New Jersey, Camden County. The plaintiffs are claiming damages
of approximately $291,000. Those amounts do not include stock issued to
plaintiffs that was cancelled. The case was originally scheduled for trial on
September 19, 2000, but was postponed. A new court date has been set for
January, 2001.
2
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------------
None.
Item 5. Market for Common Equity and Related Stockholder Matters.
----------------------------------------------------------------
(a) Market information. The Company's common stock is not listed on any
exchange, nor is it quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System. There is no established trading market for the
common stock, which is traded infrequently in the over-the-counter market under
the symbol "ADMI" on the "pink sheets" issued by the National Quotation Bureau,
Inc.
The following table sets forth, for the periods indicated, the high and low bid
prices per share of common stock as reflected in the pink sheets.
Low High
--- -----
June 1, 1999 through May 31, 2000 $0.08 $1.31
The above quotations reflect inter-dealer prices, and do not include retail
mark-ups, mark-downs and may not necessarily represent actual transactions,
(b) Holders. As of May 31, 2000, the Company had outstanding 93,503,508
shares of common stock, issued to approximately 750 holders of record. We
believe that approximately 53 million shares were issued above our authorized
limit. See "Legal Proceedings." Also see "Risk Factors."
(c) Dividends. The Company has not paid any dividends on its common
stock during the last three fiscal years and does not intend to do so in the
foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
------------------------------------------------------------------
The following discussion should be read in conjunction with, and is qualified in
its entirety by, Asthma Disease Management, Inc. (the "Company") Consolidated
Financial Statements and Notes thereto appearing elsewhere herein. Historical
results are not necessarily indicative of trends in operating results for any
future period.
3
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
-------------------------------
(Year ended May 31. In thousands except for per share data)
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations
-----------
Statement Data
---------------
Revenues $280 $206 $161 $361 $393
Net loss (2,364) (702) (668) (447) (528)
Net loss per share of (.03) (.01) (.01) (0.1) (.02)
common stock
Cash dividend per share 0 0 0 0 0
Balance Sheet Data
------------------
Total assets 147 597 717 723 590
Current liabilities 681 788 546 579 513
Long term debt 0 0 0 41 43
Stockholders' equity (deficit) $(534) $(191) $258 $103 $34
</TABLE>
RESULTS OF OPERATIONS
---------------------
Revenues and Expenses
---------------------
Revenue for the year ended May 31, 2000 was $279,754, an increase of $73,434 (or
36%) over revenue of $206,320 for the year ended May 31, 1999. Revenues in each
year consist of funds generated from laboratory testing and immunotherapy
support services for physicians and are net of contractual allowances.
Cost of revenues for the year ended May 31, 2000 was $294,835, an increase of
$47,532 (or 19%) over the comparable figure of $247,303 for the fiscal year
ended May 31, 1999. Costs of revenues include materials, salaries and other
conversion costs. The increase in cost of revenues is primarily the result of
increased sales.
Selling, general and administrative expenses for the year ended May 31, 2000
were $1,173,442, an increase of $516,629 (or 79%) over expenses of $656,813 for
the year ended May 31, 1999. The increase in expenses reflects the development
of the Company's services, laboratory equipment, operational expense, and
marketing and promotional expense.
After review by the new management team put in place on May 19, 2000, the
Company incurred special charges for the year ended May 31, 2000 of $1,164,621.
Special charges in fiscal 2000 primarily resulted from $385,627 in debt
conversion expense, $180,509 in accrued contractual settlements, $500,000 write
off of a receivable from litigation that was not even filed by the Company or
its attorney, $75,131 write off of aged accounts receivable and a $23,354 write
off of unidentifiable assets.
4
<PAGE>
Liquidity and Capital Resources
-------------------------------
At May 31, 2000, the Company had cash of $48,619. The Company's revenues for the
year then ended were $279,754, an increase of 36% over prior year revenues.
To fund working capital deficits, the Company in previous years had issued stock
and convertible notes. For the year ended May 31, 2000, the Company raised cash
of $1,395,295 from the questionable issue of 22,868,794 shares of stock. See
"Legal Proceedings." The Company also issued 3,016,277 shares of stock to
convert $234,600 of debt to equity with a debt conversion cost of $385,627.
Outlook: Issues and Risks
--------------------------
On May 18, 2000 the majority of the former Board of Directors of the Company
resigned and the sole remaining director elected the current directors as the
new Board of the Company. The Company and its Board of Directors are in the
process of developing a strategic plan for the Company to maximize shareholder
value, though no assurances can be given as to the ultimate implementation and
success of such plan. The Company is developing strategies to leverage off
certain core competencies developed in the immunotherapy support services arena
and to establish strategic alliances in this area. There can be no assurance
that the Company will be successful in developing strategic relationships for
its programs.
The Company has adopted the following operating and management plans:
o In the short term the Company intends to increase its laboratory
testing business through targeted marketing initiatives in several
already identified states in which the reimbursement is not only very
favorable to the Company but also, to the physicians managing allergic
and asthmatic patients through immunotherapy.
o Pursue the development of shared risk arrangements with clinics, HMOs
and the Company. By properly aligning incentives this strategic
initiative will provide increased revenues for the clinics, savings for
the HMO through increasingly effective asthma management and rising
revenues for the Company which will supply the expertise and the
infrastructure to the clinics.
o Develop a multifaceted, flexible asthma program for employers, unions
and their dependents to reduce lost work days which are very costly not
only to the employees but to the employers who must temporarily
backfill the position.
o Acquisition of a human allergen extract laboratory. A by-product of
increased laboratory use is a correlating increase in use of allergy
extracts. With a nominal capital investment the Company can capture one
of the few remaining FDA licensed laboratories and directly benefit
from the increased market for extracts that the Company expects to
build.
o Enter the canine allergy testing and treating market through the
allergen extract laboratory. With only a fledgling insurance industry
there is little downward pressure on fees.
5
<PAGE>
o Develop a strategic partnership with a major pharmaceutical company.
Some of the Company's programs offer it the ability to influence
physician-prescribing patterns and given sufficient reach, make the
Company an attractive alliance partner.
o Raise additional capital.
Forward-looking Information
---------------------------
Except for historical information contained herein, the matters discussed in
this ITEM 6 and elsewhere in this Annual Report on Form 10-KSB are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended) that are subject to certain risks and uncertainties that noted below
could cause actual results to differ materially from those set forth in such
forward-looking statements. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
expected to, or intended.
Risk Factors
------------
You should be aware of the following risk factors and should review carefully
the financial and other information about us provided in this Report.
We have issued approximately 53 million shares above its authorized limit.
--------------------------------------------------------------------------
As of May 31, 2000, the Company had approximately 93,503,508 shares of its
common stock issued and outstanding. Our certificate of incorporation presently
only allows us to issue up to 40,000,000 shares of our common stock. Prior
management was responsible for issuing approximately 93,503,508 shares of common
stock, or approximately 53 million shares more than our authorized limit.
Generally, issuances of shares beyond an authorized limit make such shares void.
On August 29, 2000, we filed a complaint in the Delaware Chancery Court against
certain members of former management, alleging, among other things, that they
engaged in unlawful issuances of stock and other breaches of fiduciary duties.
We are seeking, among other things, declaratory relief thereby attempting to
reconcile the valid ownership positions within the Company.
Our corporate books and records have been either grossly inaccurate or
non-existent.
----------------------------------------------------------------------
Our corporate books and records, which were the responsibility of former
management, are either grossly inaccurate or non-existent. Practically no
corporate formalities had been followed with respect to, among other things,
meetings of board of directors, meetings of stockholders, activities that
required formal board approval, activities that required formal stockholder
approval, documentation of dividends, issuances of shares of common stock, or
stock options. Present management has no confidence in the prior financial
records and reports of the Company. Present management has no confidence in
previous press releases and other communications issued by the Company's former
management.
6
<PAGE>
We have significant net losses.
-------------------------------
The Company reported net losses of $2,363,964, $702,076 and $667,708 for the
years ended May 31, 2000, 1999 and 1998, respectively.
We have very little cash and limited lawful means in which to generate cash.
----------------------------------------------------------------------------
Net cash used by the Company's operating activities was $1,312,609, $509,952 and
$674,951 for the years ended May 31, 2000, 1999 and 1998, respectively. Over the
years a significant portion of such cash was generated by what we believe to be
unlawful issuances of common stock. On May 5, 2000, the Securities and Exchange
Commission authorized its staff to commence a formal investigation, looking
into, among other things, the Company's common stock issuances. The
investigation is continuing. There is currently no viable method for the Company
to issue its common stock to fund its cash requirements. See "Legal
Proceedings."
The Company's core business has not been profitable.
----------------------------------------------------
To date the Company's core business has not been profitable. The Company has had
negative gross profit margins of $15,081, $40,993 and $91,019 for the years
ended May 31, 2000, 1999 and 1998, respectively. At May 31, 2000 stockholders
equity was $(534,100) and included an accumulated deficit of ($9,694,008). At
May 31, 2000 and May 31, 1999, there were working capital deficits of ($552,958)
and ($724,446), respectively.
The Company expects significant negative cash flow from operations in fiscal
2001 and will require additional funding to cover expected negative cash flows.
-------------------------------------------------------------------------------
We expect significant negative cash flow from operations in fiscal 2001. We will
need significant additional funding to cover these expected negative cash flows.
If we do not receive such funding, we may have to seek protection under the
United States Bankruptcy Code in order to continue as a going concern.
The Company owes the Internal Revenue Service and others for payroll taxes.
---------------------------------------------------------------------------
The Company is significantly in arrears in making federal and state payroll tax
payments. As of May 31, 2000 and 1999, the Company owed $343,540 and $459,614,
respectively, in payroll taxes.
We face general risks related to doing business that are beyond our control.
----------------------------------------------------------------------------
Our success will depend in part on certain factors that are beyond our control
and that cannot clearly be predicted at this time. These factors include general
economic conditions, changes in Medicaid reimbursement, fluctuating operating
expenses, changes in governmental regulations, break throughs in health care
treatment and changes in regulations pertaining to health maintenance
organizations.
7
<PAGE>
Public trading of the Company's shares of common stock is conducted in the
over-the-counter market and the Company has inappropriately acted as its own
transfer agent.
-----------------------------------------------------------------------------
Public trading, if any, of the Company's common stock is conducted in the
over-the-counter market in the so-called "pink sheets". It may be difficult to
dispose of, or even obtain quotations as to the price of our common stock and
the price, if any, may be di minimus. Also, see "Legal Proceedings." Former
management had caused the Company to act as its own transfer agent, which has
masked many of the problems associated with the issuances of the Company's
common stock. The Company has attempted to retain a real transfer agent, but may
not be in a position to do so until the matter involving the over issuance of
shares of common stock is resolved. See "Legal Proceedings."
Government Regulation and legal uncertainties could affect the Company.
-----------------------------------------------------------------------
We are subject, both directly and indirectly, to various laws and governmental
regulations relating to our business. We believe that we are in compliance with
these laws and regulations, but at times we may not be in compliance.
Item 7. Financial Statements.
-----------------------------
The audited consolidated financial statements of the Company for the fiscal year
ended May 31, 2000 are located beginning on Page F-1 of this Annual Report on
Form 10-KSB.
Item 8. Changes in and Discussions with Accountants on Accounting and Financial
Disclosure.
--------------------------------------------------------------------------------
New management did not engage Colleen Bishop, CPA, who had audited the Company's
consolidated final statements for the fiscal years 1998 and 1999, to do the
fiscal year 2000 audit. The Company engaged Ciro E. Adams, CPA to do the fiscal
2000 audit. Ms. Bishop's report did contain a "going concern" opinion. Mr.
Adams' report also contains a "going concern" opinion. See "Risk Factors" above.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
----------------------------------------------------------------------
The following table sets forth as of May 31, 2000 certain information regarding
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Title Director Since
---- --- ------ ---------------
<S> <C> <C> <C>
Richard Anderson 69 Chairman of the Board of Directors 1998
A.J. Henley 65 President, Chief Executive Officer and May 19, 2000
Director
Paul A. Dandridge 73 Director May 19, 2000
Raymond H. Miley, III 57 Director May 19, 2000
James O'Connor 44 Director May 19, 2000
Scott Foster 40 Secretary/Treasurer and --
Chief Financial Officer
James Hartwright 60 Medical Director --
</TABLE>
8
<PAGE>
Richard Anderson, D.B.A., Chairman of the Board of Directors. Dr. Anderson has
been active in corporate affairs for the Company since 1996, working in the area
of corporate finance. Dr. Anderson holds a MBA in Financial Management and a
Doctorate in Business Administration. Dr. Anderson assumed the Chairmanship of
the Board of Directors on May 19, 2000.
A.J. Henley, President, Chief Executive Officer and a Director. Mr. Henley
assumed the duties of President and Chief Executive Officer of the Company on
May 19, 2000. Prior to that time, he was President and Chief Executive Officer
of Americhoice, a Medical HMO.
Paul A. Dandridge, Director. Mr. Dandridge is a retired Judge of the Court of
Common Pleas in the City of Philadelphia. He is currently Chairman of the Board
of Directors of Philadelphia Health Management Corporation.
Raymond H. Miley, III, Director. Mr. Miley has been co-owner and president of
David/Randall Associates, Inc., a building and roofing contracting company,
since 1989.
James O'Connor, Director. Mr. O'Connor has been the president of Commonwealth
Health Associates, a healthcare consulting company, since 1995.
Scott Foster, Secretary/Treasurer. On May 19, 2000, Mr. Foster was appointed
Secretary/Treasurer and Chief Financial Officer of the Company. Prior to that
time, he was the Sales/Marketing Manager of the Company.
A. James Hartwright, MD, Medical Director. Dr. Hartwright graduated from
Southern Methodist University in 1959 with a BS degree in Biology and from the
University of Texas Southwestern Medical School in 1963. He interned in
pediatrics at the Medical College of Georgia and was a resident in pediatrics at
Columbia Hospital in South Carolina and at the University of Kansas. Dr.
Hartwright served in the United State Air Force as a clinical instructor of
pediatrics at Southwestern Medical School. He completed a Fellowship in Allergy
and Immunology at Children's Mercy Hospital University School of Medicine and
Kansas University Medical Center. He was also a clinical instructor at the
University of Michigan Medical Center. He is a member of the American Academy of
Allergy and Clinical Immunology, the College of Allergists and a Fellow of the
9
<PAGE>
American Society of In-Vitro Allergists. He was Chairman of the In-Vitro
Committee for the American College of Allergy from 1985 though 1987. Dr.
Hartwright has had a private practice as an allergist and clinical immunologist
in Newport News, Virginia, for the past 19 years.
There are no family relationships among any of our directors or executive
officers. Executive officers are elected annually at the meeting of the Board of
Directors and serve at the pleasure of the Board of Directors.
Meetings and Committees of the Board
------------------------------------
The new Board of Directors held one meeting in fiscal 2000. It is unclear how
many meetings the former board held. It appears that the old Board had no
nominating, audit, or compensation committees. The new Board established a
compensation committee consisting of Messrs. Dandridge, O'Connor and Anderson.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
The SEC has comprehensive rules relating to the reporting of securities
transactions by directors, officers and stockholders who beneficially own more
than 10% of the Company's common stock. These rules are complex and difficult to
interpret. Based solely on a review of the Company's records, we believe that no
officer, director or 10% owner has ever filed a Section 16 report with the SEC.
Also see "Legal Proceedings."
Class A Common Stock Issued to Directors
----------------------------------------
On August 29, 2000, the new Board of Directors issued to each Board member 2
million shares of the Company's Class A Common Stock. Each Class A Common Stock
share has a four to one voting right to each of the Company's Common Stock
share. There is no market for the Company's Class A Common Stock.
Item 10. Executive Compensation
-------------------------------
The following table sets forth the aggregate compensation paid or accrued by the
Company for this fiscal year ended May 31, 2000 and the preceding fiscal year
ended May 31, 1999 to the Company's chief executive officer. It is believed that
no other executive officer was paid in excess of $100,000 over the past two
fiscal years.
Name of Individual Capacities in which served Cash Compensation Accrual
------------------ -------------------------- ----------------- -------
George H. Young Former Chairman of the
Board of Directors, former $344,430* *
President and Chief
Executive Officer
Richard Manini Former Director $123,260**
*The Company is unable to determine at this time what the exact
compensation was to George H. Young. See "Legal Proceedings." Also see "Risk
Factors."
**The Company paid this amount in commissions to Mr. Manini for selling
shares of common stock.
10
<PAGE>
We can find no record of any employment agreement with the above named
executive officer. We can find no record of any lawful Company stock option
plan. See "Risk Factors."
Item 11. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of the Company's securities by (i) each person known to the
Company to own beneficially more than five percent of the Company's voting
securities (ii) each director of the Company, (iii) certain executive officers
and (iv) all executive officers and directors of the Company as a group, as of
May 31, 2000.
Amount and Notice of Shares of Percentage
Name Common Stock Beneficially Owned of Class
---- ------------------------------- ----------
George H. Young ** **
(Former officer and director)
Richard Anderson, DBA*** ** **
Richard Manini ** **
(Former director)
Lewis L. Perelmutter, Ph.D. ** **
(Former officer and director)
John C. David ** **
(Former officer)
A.J. Henley*** ** **
Paul A. Dandridge*** ** **
Raymond H. Miley, III*** ** **
James O'Connor*** ** **
Scott Foster ** **
Directors and Officers as a ** **
Group
11
<PAGE>
** Due to the over issuance of approximately 53 million shares and inaccurate or
non-existent books and records, the Company is not now in a position to
determine the amount and percentage of the beneficial ownership of its common
stock. See "Legal Proceedings." Also see "Risk Factors."
*** The Company Certificate of Incorporation provides for up to 10,000,000 of
Class A Common Stock. In light of the significant adverse circumstances
surrounding the Company, including, but not limited to, the Company's limited
financial prospects, the Company's inability to pay director's fees, the
litigation against certain former officers and directors of the company, and in
light of the fact that the Company has no directors' and officers' liability
insurance, the new Board issued to each new board member 2,000,000 shares of
Class A Common Stock on August 29, 2000.
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
We are unable to determine the nature of the transactions between the Company
and its former management.
Item 13. Exhibits, List and Reports on Form 8-K.
------------------------------------------------
(b) Reports on Form 8-K. None.
--------------------
12
<PAGE>
ASTHMA DISEASE MANAGEMENT INC.
AND SUBSIDIARIES
Index to Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Reports ..................................................F-2 and F-3
Balance Sheets as of May 31, 2000 and 1999............................................. F-4
Statements of Operations for the years ended May 31, 2000, 1999 and 1998.............. F-5
Statements of Cash Flows for the years ended May 31, 2000, 1999 and 1998............... F-6
Statement of Changes in Stockholders' Equity for the years ended May 31, 2000,
1999 and 1998........................................................................ F-7
Notes to Financial Statements.......................................................... F-8
</TABLE>
F-1
<PAGE>
Colleen Bishop
Certified Public Accountant Master of Business Administration
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
-------------------------------------------------
Board of Directors and Stockholders
ASTHMA DISEASE MANAGEMENT, INC. AND SUBSIDIARIES
Berlin, New Jersey
I have audited the consolidated balance sheets of Asthma Disease Management and
Subsidiaries (formerly IRT Holding Corporation) as of May 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the two years then ended. These financial
statements are the responsibility of the company I s management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audits in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
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 financial position of IRT Holding
Corporation and subsidiaries as of May 31, 1999 and 1998 and the results of
their operations and their cash flows for the two years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As shown in the financial
statements, IRT Holding Corporation and Subsidiaries incurred a consolidated net
operating losses of $702,076 and $667,708 for the years ended May 31, 1999 and
1998, respectively. Continued losses are anticipated until the Company reaches a
sales level which is sufficient to break-even. These factors, and the Company's
need to generate sufficient cash flows to meet its obligations and sustain its
operations as discussed in Note 2, raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Canyon Lake, California
October 18, 1999
31566 Railroad Canyon Road, Canyon Lake, California 92587 (909) 244-0026
F-2
<PAGE>
August 21, 2000
Independent Auditor's Report
----------------------------
To the Shareholders and Board of Directors
Asthma Disease Management, Inc.
272 S. White Horse Pike
Berlin, NJ 08009
I have audited the accompanying balance sheet of Asthma Disease Management, Inc.
as of May 31, 2000, and the related statements of operations, cash flows and
changes in stockholders' equity for the year then ended. These financial
statements are the responsibility of the Corporation's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
These standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Asthma Disease Management, Inc. as
of May 31, 2000, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Corporation will continue as a going concern. As discussed in "Notes to
Financial Statements - Basis of Presentation and Management's Plans", the
Corporation: had substantial losses and negative cash flow from operations in
2000, which significantly reduced stockholders' equity and resulted in a
substantial retained deficit and a working capital deficit at May 31, 2000; had
negative gross profit margin from its laboratory services for the year ended May
31, 2000; and will require additional funding to cover substantial expected
negative cash flows in 2001. If the Corporation is unable to obtain adequate
financing it may be required to seek protection under the United States
Bankruptcy Code in order to continue operating. These conditions raise
substantial doubt about the Corporation's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
"Notes to Financial Statements - Basis of Presentation and Management's Plans."
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Ciro E. Adams
Certified Public Accountant
F-3
<PAGE>
ASTHMA DISEASE MANAGEMENT, INC.
BALANCE SHEETS
MAY 31, 2000 and 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 48,619 $ (30,223)
Accounts receivable, net 77,076 80,283
Advances to officer - 2,209
Inventory 2,500 11,000
----------- ------------
TOTAL CURRENT ASSETS 128,195 63,269
DEFERRED INCOME TAXES - -
PROPERTY AND EQUIPMENT, net 18,852 10,820
RECEIVABLE FROM LITIGATION - 500,000
OTHER ASSETS - 22,954
----------- ------------
TOTAL ASSETS $ 147,047 $ 597,043
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 140,104 $ 122,908
Payroll taxes payable 343,540 459,614
Accrued contractual settlements 180,509 -
Convertible notes payable 17,000 205,193
----------- ------------
TOTAL CURRENT LIABILITIES 681,153 787,715
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock - Class A, $0.001 par value;
10,000,000 shares authorized, none
issued and outstanding - -
Common Stock, $0.001 par value; 40,000,000
shares authorized, 93,503,508 and
67,618,437 shares issued and
outstanding at May 31, 2000 and
1999, respectively 93,504 22,590
Additional paid-in capital 9,066,398 7,127,788
Accumulated deficit (9,694,008) (7,330,044)
Treasury stock at cost, 0 and 20,000
shares at May 31, 2000 and
1999, respectively - (10,000)
Stock subscription receivable - (1,006)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY (534,106) (190,672)
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 147,047 $ 597,043
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ASTHMA DISEASE MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 279,754 $ 206,320 $ 160,926
Cost of revenues 294,835 247,303 251,945
------------ ----------- -------------
GROSS PROFIT (15,081) (40,983) (91,019)
Selling, general and administrative expenses 1,173,442 656,813 623,795
Depreciation and amortization 10,820 5,250 10,500
Special charges 1,164,621 - -
------------ ----------- -------------
INCOME FROM OPERATIONS (2,363,964) (703,046) (725,314)
Other income - 970 904
Forgiveness of debt - - 78,877
Interest expense and factoring charges - - (22,175)
------------ ----------- -------------
INCOME BEFORE INCOME TAXES (2,363,964) (702,076) (667,708)
Income taxes - - -
------------ ----------- -------------
NET INCOME $ (2,363,964) $ (702,076) $ (667,708)
============ =========== =============
NET INCOME PER SHARE - Basic and Diluted $ (.03) $ (.01) $ (.01)
============ =========== =============
Weighted average common shares outstanding 82,785,327 63,876,076 60,133,715
============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ASTHMA DISEASE MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ (2,363,964) $ (702,076) $ (667,708)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 10,820 5,250 10,500
Provision for special charges 1,164,621 - -
Decrease (Increase) in accounts receivable, net (39,917) (19,821) 85,763
Decrease (Increase) in advances to officer 2,209 (2,209) -
Decrease (Increase) in inventory 12,500 4,400 15,000
(Decrease) Increase in accounts payable 17,196 (50) (200,205)
(Decrease) Increase in payroll taxes payable (116,074) 123,554 81,699
------------ ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES (1,312,609) (590,952) (674,951)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (3,844) - (16,665)
------------ ---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (3,844) - (16,665)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible notes payable - 205,193 -
Issuance of common stock 1,395,295 253,785 780,200
------------ ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,395,295 458,978 780,200
------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH 78,842 (131,974) 88,584
CASH AT BEGINNING OF YEAR (30,223) 101,751 13,167
------------ ---------- ----------
CASH AT END OF YEAR $ 48,619 $ (30,223) $ 101,751
============ ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest expense - - 22,175
DISCLOSURE OF NON-CASH FINANCING AND
INVESTING ACTIVITIES
Common stock issued on conversion of notes payable 610,227 - -
Common stock issued to acquire vehicle 15,008 - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ASTHMA DISEASE MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Additional Stock
Common Paid-In Accumulated Treasury Subscription
Stock Capital Deficit Stock Rec. Total
----- ------- ------- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE at June 1, 1997 $21,852 $6,052,287 $(5,960,260) $(10,000) $(1,006) $102,873
Comprehensive loss (667,708) (667,708)
Issuance of common stock 823 821,631 822,454
------- ---------- ---------
BALANCE AT May 31, 1998 22,675 6,873,918 (6,627,968) (10,000) (1,006) 257,619
Comprehensive loss (702,076) (702,076)
Issuance of common stock (85) 253,870 253,785
------- ---------- ---------
BALANCE at May 31, 1999 22,590 7,127,788 (7,330,044) (10,000) (1,006) (190,672)
Comprehensive loss (2,363,964) (2,363,964)
Reclassification of par
value of common stock 45,028 (45,028) -
Issuance of common stock 25,261 1,370,034 1,395,295
Common stock issued
on conversion of
notes payable 610 609,617 610,227
Common stock issued
to acquire vehicle 15 14,993 15,008
Retirement of treasury stock (10,000) 10,000 -
Write off of stock
subscription receivable (1,006) 1,006 -
---------- ------- ---------
BALANCE at May 31, 2000 $93,504 $9,066,398 $(9,694,008) - $(534,106)
======= ========== =========== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ASTHMA DISEASE MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000
Note 1 - Basis of Presentation and Management's Plans
The Corporation's financial statements have been prepared on the basis that it
will continue as a going concern, which contemplates the realization of asset
values and the satisfaction of liabilities in the normal course of business.
Certain conditions indicate that the Corporation may be unable to continue as a
going concern:
- The Corporation reported net losses of $2,363,964, $702,076 and $667,708
for the years ended May 31, 2000, 1999 and 1998 respectively.
- Net cash used by the Corporation's operating activities was $1,312,609,
$590,952 and $674,951 for the years ended May 31, 2000, 1999 and 1998
respectively.
- At May 31, 2000 stockholder's equity was $(534,106) and included a
accumulated deficit of $9,694,008.
- At May 31, 2000 and 1999 there were working capital deficits of $552,958
and $724,446, respectively.
- The Corporation had negative gross profits margins of $15,081, $40,983
and $91,019 for the years ended May 31, 2000, 1999 and 1998 respectively.
- The Corporation expects significant negative cash flow from operations in
2000 and will require additional funding to cover expected negative cash
flows.
- If the Corporation is unable to obtain adequate financing it may be
required to seek protection under the United States Bankruptcy Code in
order to continue as a going concern.
The Corporation's ability to continue as a going concern is dependent upon
increasing its revenues and gross profit margins to cover cost of revenues and
other operating expenses, generating positive cash flows from operations,
obtaining debt or equity capital to fund expected negative operating cash flows
and returning the Corporation to profitable operations. In this connection, the
Corporation has adopted the following operating and management plans to:
- Develop physician groups that provide services to large numbers of
asthmatic patients. Negotiate contracts with manage care companies to
lower the cost of serving these members.
- Acquire a human allergen extract laboratory and develop the immunology
section of the business. Recent trends indicate a tremendous interest on
the part of physicians in allergy vaccinations.
- Distribute completed business plan to introduce venture capital funds to
Asthma Disease Management, Inc., (ADM), in a effort to raise needed funds
estimated to be $10 Million.
- Develop sales force to pursue both human and canine immunology markets.
The extract laboratory under consideration has 50% of its sales derived
from the canine market.
- Pursue the development of asthma programs for industry. Significant
absenteeism occurs in most industries because of illness by employees or
by their children because of asthma.
- Develop a strategic partnership with a major pharmaceutical company
because drug therapy will continue to play a role in ADM's program.
Although the results of these actions cannot be predicted with certainty,
management believes that if the Corporation can continue to increase its
revenues and gross profit margins, and can obtain additional debt or equity
financing to fund the negative cash flow from operations in 2000, that the
Corporation has the ability ultimately to return to profitability.
F-8
<PAGE>
Note 2 - Summary of Significant Accounting Policies
The Corporation, Asthma Disease Management, Inc., (ADM), is a corporation formed
under the laws of the State of Delaware with its office and clinical laboratory
in Berlin, New Jersey. ADM offers a broad range of testing services used by
Primary Care Physicians in the diagnosis, monitoring and treatment of asthma and
allergy diseases throughout the United States.
Prior to December 3, 1998, the Corporation conducted its business under the
names of IRT Holding Corporation, IRT Laboratory, Inc. and IRT Diagnostic, Inc.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash. Holdings of highly liquid investments with maturities of three months or
less when purchased are considered to be cash equivalents.
Fair Value of Financial Instruments. The carrying amounts reported in the
balance sheet for cash, accounts receivable, accounts payable, payroll taxes
payable and convertible notes payable are considered to be representative of
their respective fair values due to their short-term nature.
Inventories. Inventories, consisting primarily of purchased laboratory supplies,
are stated at the lower of cost or market using the first-in, first out method.
Property and Equipment. Property and equipment are carried at cost. Depreciation
is provided principally on the straight-line method over the estimated useful
lives of the assets. Betterments and large renewals which extend the life of the
asset are capitalized whereas maintenance and repairs and small renewals are
expended as incurred.
Revenue Recognition. Revenues are recognized on the accrual basis at the time
test results are reported, which approximates when services are provided.
Services are provided to certain patients covered by various third-party payor
programs including the Medicare and Medicaid programs. Billings for services
under third-party payor programs are included in revenues net of allowances for
contractual discounts and allowances for differences between the amounts billed
and estimated program payment amounts. Adjustments to the estimated payment
amounts based on final settlement with the programs are recorded upon settlement
as an adjustment to revenue. In 2000, 1999, and 1998, approximately 11%, 10% and
10%, respectively, of the Corporation's revenues were derived from tests
performed for beneficiaries of Medicare and Medicaid programs.
Income Taxes. Income taxes are accounted for utilizing the asset and liability
method. Under this method, deferred income taxes are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using presently enacted tax rates and regulations. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits are more likely than not.
F-9
<PAGE>
Concentration of Credit Risk. Substantially all of the Corporation's accounts
receivable are with companies and physicians in the health care industry and
with individuals for whom tests were performed. However, concentrations of
credit risk are limited due to the number of the Corporation's clients as well
as their dispersion across many different geographical regions.
Net Income Per Share. Net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per share is computed by dividing net
income (loss) by the sum of weighted average number of common shares outstanding
during the period plus common stock equivalents. Common stock equivalents are
shares assumed to be issued if the Corporation's outstanding stock option was
exercised. However, the effect of the exercise of the Corporation's stock option
was not included in the computation of diluted net income (loss) per share as it
would have been anti-dilutive for all periods presented.
Comprehensive Income. Comprehensive income consists only of net income and is
presented in the statements of stockholders' equity.
Reclassifications. Certain reclassifications have been made to prior year
amounts to conform to the classifications used in the current year presentation.
Note 3 - Accounts Receivable, Net
May 31,
2000 1999
---- ----
Gross accounts receivable $ 97,497 $117,283
Less: Allowance for doubtful accounts (20,421) (37,000)
-------- --------
$ 77,076 $ 80,283
======== ========
Bad debt expense was $75,131, $0 and $0 in 2000, 1999 and 1998 respectively.
F-10
<PAGE>
Note 4 - Income Taxes
Income tax expense consists of the following:
May 31,
2000 1999
---- ----
Currently payable:
Federal $ - $ -
State - -
----------- -----------
- -
----------- -----------
Deferred:
Federal - -
State - -
----------- -----------
- -
----------- -----------
$ - $ -
=========== ===========
Deferred tax assets and liabilities consist
of the following:
Net operating losses 2,326,562 1,759,211
Valuation allowance (2,326,562) (1,759,211)
----------- -----------
$ 0 $ 0
=========== ===========
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The netting of deferred assets
and liabilities reflects management's estimate of the amount which will be
realized from future taxable income which can be predicted with reasonable
certainty.
The Corporation has net operating losses carryforward of $9,694,008 for Federal
and state tax purposes that begin to expire in 2003.
Note 5 - Property and Equipment
May 31,
2000 1999
---- ----
Laboratory equipment $236,175 $236,175
Office equipment 123,076 119,232
Furniture and fixtures 27,362 27,362
Vehicles 15,008 -
-------- --------
401,621 382,769
Accumulated depreciation (382,769) (371,949)
-------- --------
Property and equipment, net $ 18,852 $ 10,820
======== ========
The Corporation rents its office and clinical laboratory in Berlin, New Jersey,
on a month-to-month basis at a cost of $3,450 per month.
F-11
<PAGE>
Note 6 - Payroll Taxes Payable
May 31,
2000 1999
---- ----
Federal payroll taxes payable - prior year $368,893 $275,323
State payroll taxes payable - prior year 90,721 60,737
Federal payroll taxes payable - current year 127,583 93,570
State payroll taxes payable - current year 26,873 29,984
Federal payroll taxes payable - former subsidiary 40,000 -
-------- --------
654,070 459,614
Current year payments made (310,530) -
-------- --------
$343,540 $459,614
======== ========
The Corporation is significantly in the arrears in making Federal and
state payroll tax payments.
Note 7 - Accrued Contractual Settlements
May 31,
2000 1999
---- ----
Termination of employment contracts $150,000 $ -
Medicaid overpayments due to New Jersey 26,509 -
DMAHS Legal costs incurred with Medicaid suit 4,000 -
-------- -------
$180,509 $ -
======== =======
The Corporation is currently being sued in New Jersey Superior Court, Camden
County, for the termination of employment contracts of two former employees. The
Corporation's legal counsel has estimated the Corporation's probable liability
regarding these suits to be $150,000.
The Corporation has entered into a Stipulation of Dismissal with the New Jersey
Division of Medical Assistance and Health Services (Medicaid) to repay $26,509
in alleged over billing of laboratory tests in 1995. The legal costs incurred in
defense of these allegations were $4,000.
Note 8 - Convertible Notes Payable
May 31,
2000 1999
---- ----
One-year, 15%, convertible notes issued
August through November 1998 $ 17,000 $205,193
======== ========
Upon maturity of the notes, the Corporation issued stock with a fair market
value of $610,227 to note holders in lieu of cash redemptions. Total debt
converted to equity was $224,600 with a debt conversion cost of $385,627. The
$17,000 in notes not converted by holders will be redeemed in cash by the
Corporation.
F-12
<PAGE>
Note 9 - Shares Outstanding
Article IV of the Corporation's 1985 Certificate of Incorporation provides that
the Corporation has the authority to issue 50,000,000 shares, consisting of up
to 40,000,000 shares of common stock and 10,000,000 shares of Class A common
stock. Both classes of shares have a par value of one mill ($0.001).
On August 29, 2000, the Board of Directors elected on May 19, 2000 filed suit in
Delaware Chancery Court, New Castle County, seeking relief and damages from
former directors and officers, specifically including, the surrender and
cancellation of sufficient shares of common stock so that the number of the
Corporation's issued and outstanding shares are equal to or less than the number
of shares authorized under the Corporation's Certificate of Incorporation.
Note 10 - Related Party Transaction
On June 15, 1999, the Corporation granted a stock option to a member of the
Board of Directors to purchase ten million shares of common stock at a price of
$0.001 per share. This option can be exercised at any time and expires on June
15, 2009.
Note 11 - Special Charges
1. During the second quarter ending November 30, 1999, the Corporation
recognized special charges consisting of the following:
Debt conversion expense $385,627
This expense was incurred to have note holders convert to common stock upon
maturity of notes payable to note holders. (See Note 8)
2. At May 31, 2000, after review by the new management team put in place on May
19, 2000, the Corporation recognized special charges consisting of the
following:
Contractual settlements (See Note 7) 180,509
Write off of receivable from litigation 500,000
Write off of aged accounts receivable 75,131
Write off of unidentifiable assets 23,354
----------
$1,164,621
==========
New management, with the advice of legal counsel, has assessed these disputes
to be probable liabilities of the Corporation and has recorded these
estimates of liability on the books of the Corporation.
F-13
<PAGE>
The receivable from litigation was determined by new management to be a
remote possibility and thus should no longer be recognized as an asset of the
Corporation.
The write off of receivables was after evaluation of the possibility of
collection of old accounts by new management.
The write off of unidentifiable assets was after an assessment of all assets
by new management.
Note 12 - Commitments and Contingencies
The Corporation believes that it is in compliance in all material respects with
all statues, regulations and other requirements applicable to its clinical
laboratory operations. The clinical laboratory testing industry is, however,
subject to extensive regulation, and many of these statues and regulations have
not been interpreted by the courts. There can be no assurance therefore that
applicable statues and regulations might not be interpreted or applied by a
prosecutorial, regulatory or judicial authority in a manner that would adversely
affect the Corporation. Potential sanctions for violations of these statues and
regulations include significant fines and the loss of various licenses,
certificates and authorizations.
End of Financial Statements
F-14
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October 24, 2000 ASTHMA DISEASE MANAGEMENT, INC.
By: /s/ A.J. Henley
-----------------------------------
President & Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
duties indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ A.J. Henley
--------------------------------- President, Chief Executive Officer October 24, 2000
A.J. Henley and Director
/s/ Richard Anderson
--------------------------------- Chairman of the Board of Directors October 24, 2000
Richard Anderson
/s/ Paul A. Dandridge
--------------------------------- Director October 24, 2000
Paul A. Dandridge
/s/ Raymond H. Miley, III
--------------------------------- Director October 24, 2000
Raymond H. Miley, III
/s/ James O'Connor
--------------------------------- Director October 24, 2000
James O'Connor
/s/ Scott Foster
--------------------------------- Principal Financial Officer and October 24, 2000
Scott Foster Principal Accounting Officer
</TABLE>
13
