<PAGE>
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. For the fiscal year ended MAY 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the transition period from .............to.............
Commission File No. 0-16964
-------
CANCER TREATMENT HOLDINGS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 87-0410907
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
c/o Carol B. O'Donnell, Esq., 540 Joan Drive, Fairfield, CT 06430-2207
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 212-221-1340
------------
Securities registered pursuant to
Section 12(b) of the Exchange Act: Common Stock, $.003 Par Value
-----------------------------
(Title of Each Class)
-------------------------------------------
(Name of Each Exchange on which Registered)
Securities Registered pursuant to 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 is not 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. [ ]
Issuer's revenues for the fiscal year ended May 31, 1998 were $15,915,731.
Trading of the Issuer's stock was suspended by AMEX .ECM in the fourth quarter
of fiscal 1998 and the Issuer's stock was delisted in the first quarter of
fiscal 1999. The aggregate market value of the voting stock held by
non-affiliates computed by reference to the last quoted average high and low
sales price of such stock on May 31, 1998, was $2,709,219. As of such date, the
average high and low sales price was $.406.
The number of shares outstanding of the Issuer's common stock, par value $.003
per share, as of August 31, 1998, was 3,336,476.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Documents incorporated by reference:
Certain exhibits listed in Part III, Item 14 of this Annual Report on Form
10-KSB are incorporated by reference from the Registrant's Registration
Statement on Form S-18, its Annual Reports on Form 10-K or 10-KSB for the
1990, 1992, 1995, and 1997 fiscal years, and its Current Report on Form 8-K
dated May 29, 1998.
1
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CANCER TREATMENT HOLDINGS, INC.
Form 10-KSB ANNUAL REPORT - 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I
Item 1. Description of Business 3
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis of Plan of Operation 6
Item 7. Financial Statements 7
Item 8. Changes In and Disagreements 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 9
Item 11. Security Ownership of Certain Beneficial Owners and Management 11
Item 12. Certain Relationships and Related Transactions 12
Item 13. Exhibits and Reports on Form 8-K 12
SIGNATURES
</TABLE>
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Until May 31, 1998, Cancer Treatment Holdings, Inc. ("CTH"), a Nevada
corporation, through its subsidiaries (collectively, the "Company"), was
primarily engaged in (i) providing home health, home infusion and nursing
services, (ii) establishing and administering businesses for the ambulatory
treatment of cancer using a variety of modalities, including radiation therapy
and bone marrow transplantation, and (iii) providing management, consulting
and billing and collection services for free standing radiation therapy
centers (the "Centers").
On April 30, 1998, CTH sold all of its interest in Leader Health Care
Center, Inc. ("Leader") and Southern Cross Home Health, Inc. ("Southern
Cross"), providers of home health and nursing services in Southeastern
Florida. Leader also provided home infusion therapy and physical
rehabilitation services. Leader and Southern Cross (excluding their cash ,
accounts receivable and accounts payable) were sold to an unrelated third
party for a purchase price of $100,000.
On May 31, 1998, CTH sold most of its operating subsidiaries and
related assets, including cash, to Greenstar Holdings, Inc. ("Greenstar") and
Homecare Holdings, Inc. ("Homecare"). Homecare purchased the home health
operating companies, and Greenstar purchased most of the CTH operating
subsidiaries. CTH retained a small management-services subsidiary (CTI
Management Corporation) and an office condominium located in Hollywood,
Florida with an estimated fair market value of $190,000. The purchase price
paid to CTH was $2,810,000, of which $500,000 was placed in escrow and is to
be released to CTH upon consummation of the transfer of two subsidiaries that
are developing radiation therapy centers in Logan and Martinsburg, West
Virginia. Certain regulatory approvals are being sought for the transfer of
the West Virginia properties. CTH believes that the regulatory approvals
required for the transfers will be received on or about September 30, 1998.(1)
The Buyers also assumed certain liabilities and guarantees of CTH, including
the payment of $500,000 owed by CTH to its Chief Executive Officer.
The Board of Directors of CTH believes that the sale of the Company's
assets was in the best interests of, and was fair to, CTH stockholders. The
health care industry, including the segments of home health, home nursing and
cancer treatment, is very competitive. In home health, the Company was
competing against many other certified home health agencies offering the exact
same type of services as the Company's home health operation. In addition, the
Company competed against hospitals, national specialized home care providers
and other independent home care companies which have their own home health
operations. In cancer treatment, the Company faced substantial competition
from local hospitals, other free-standing treatment facilities, private
physicians and publicly and privately owned companies for patients.
During fiscal 1998, CTH was also subject to current regulatory
scrutiny of the home health industry and, in particular, the industry in South
Florida. The Company was randomly selected for an on-site review of its
Medicare policies, procedures and medical records related to its Medicare
certified home health agency in District 10, Broward County, Florida. The
review was being conducted by representatives of the Health Care Finance
Administration, the Office of Audit of the Office of the Inspector General for
the Department of Health and Human Services and the Florida Agency for Health
Care Administration. The preliminary results of the review were made available
in late May 1998 and resulted in an assessment for amounts allegedly overpaid
by the Medicare system which, if not successfully appealed, could have had a
material adverse impact upon the Company's financial condition and results of
operation.
- -----------------
(1) If such approvals are not received by September 30, 1998 or an extension
date to be agreed upon, then the escrowed funds will be returned to Greenstar
and CTH will retain ownership of the two subsidiaries.
3
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Effective June 1, 1998, the Company's home health operation was to be
subject to new reimbursement rates under a proposed "interim payment system."
The Company believed that this new system would have significantly decreased
its Medicare reimbursement rates.
Louis Boisvert, III, CTH's former Chief Financial Officer, resigned
from CTH in advance of the closing of the sale. Mr. Boisvert is the principal
shareholder and chief executive officer of Homecare.
Business of the Issuer
Subject to the transfer of the two West Virginia subsidiaries of CTH
upon receiving the required regulatory approvals on or about September 30,
1998, the business of CTH will be limited to maintaining its properties and to
considering proposals presented to CTH regarding the use of the funds for
items that may include future operations, liquidation and distribution of the
funds as available to be distributed consistent with CTH's obligations under
the Purchase Agreement, and other proposals that may come before it regarding
the use of the proceeds of the sale.
Under the Purchase Agreement, CTH's potential liability for breach of
covenants, representations and warranties to the Buyers will terminate on May
31, 1999. CTH's aggregate potential liability thereunder is limited to $1.5
million until November 30, 1998 and $750,000 thereafter until May 31, 1999,
after which there is no liability. CTH must retain assets of $1.5 million
($500,000 in cash) until November 30, 1998, and $750,000 ($375,000 in cash)
thereafter until May 31, 1999.
West Virginia Properties
CTH has been attempting to establish radiation therapy centers
through wholly-owned subsidiaries of the Company or through partnerships with
hospitals or unaffiliated investors. Radiation therapy is most often used in
the treatment of cancer. Traditionally, medical services such as radiation
therapy were provided by general acute care hospitals. There is a trend,
however, toward more specialized providers of medical services in
free-standing, non-hospital based facilities. To the extent that the centers
are not burdened with the overhead and expenses of a complete health care
facility, they may be able to offer their services at lower costs than those
incurred by hospitals.
Over the past several years, the Company had been developing
radiation therapy centers in Logan and Martinsburg, West Virginia. The Company
believes that the centers in each location may become operational during
fiscal 1999, subject to certain conditions.
The establishment and operation of the Company's businesses are
subject to federal and state laws. These laws may include statutes and
regulations governing state Certificate of Need ("CON") Programs, the
licensure of health care facilities, services and equipment, and physician
investments and compensation arrangements in health care entities to which
they refer patients.
Certificate-of-Need ("CON") programs most often control and regulate
the construction of health care facilities, the acquisition of health care
facilities and the purchasing of medical equipment. Although such programs
vary from state to state, generally an entity must obtain a CON before
constructing a health care facility, acquiring major medial equipment or
providing certain services. Normally, a grant of a CON is based on various
criteria relating to need, giving consideration to the extent to which
facilities, equipment or services are available to a specified geographical
area and the population of such area. The Company's present businesses are
either exempt from the requirement of obtaining a CON or have been granted a
CON in that particular state or location. The Company has been granted CONs
for the anticipated centers in Logan and Martinsburg. Approval of the transfer
of the CONs to the buyers of the West Virginia properties is required.
As stated above, the Buyers have placed $500,000 in escrow for the
purchase of the West Virginia properties. Monthly costs attributable to the
properties approximate $15,500, which is reimburseable (up to an aggregate of
$100,000) to CTH by the Buyers upon consummation of the sale. If the required
regulatory approvals for the transfer of the two West Virginia subsidiaries of
CTH to the Buyers is not obtainable, CTH believes that it will be able to sell
the subsidiaries to another buyer or buyers for the same consideration.
4
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Miscellaneous
CTH was below the American Stock Exchange's listing guidelines. As a
result, CTH was delisted from the American Stock Exchange and is prepared to
commence trading in the over the counter market published by the National
Quotation Bureau, LLC.
The only remaining employees of CTH include Ullrich Klamm, Ph.D. and
Carol O'Donnell, President and Secretary, respectively. CTH's principal office
is maintained at c/o Carol B. O'Donnell, Esq., 540 Joan Drive, Fairfield, CT
06320-2207, and the phone number of the Company is (212) 221-1340.
ITEM 2. DESCRIPTION OF PROPERTY.
CTH's property consists of cash, which is maintained on deposit or
invested at Nations Bank, and a 3,500 square foot commercial condominium unit
located in Hollywood, Florida. The commercial condominium is owned free and
clear of any mortgages and is leased to a third party on a month to month
basis.
ITEM 3. LEGAL PROCEEDINGS.
While the Company is named as a party to actions in several
proceedings, the Company does not consider any of the proceedings to be
material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal
year ended May 31, 1998 to a vote of security holders of the Company through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Common Stock
The Company's Common Stock commenced trading on the American Stock
Exchange Emerging Company Marketplace ("AMEX.ECM") on March 18, 1992, under
the symbol "CTH.EC," and ceased trading on the Exchange during the fourth
quarter of fiscal 1998. There is currently no public trading market for the
Company's Common Stock. The quotations set forth below do not necessarily
represent actual transactions and do not reflect retail mark ups, mark downs
or commissions.
The following table sets forth for the fiscal periods indicated the
high and low reported sales price for the Company's Common Stock on the
AMEX.ECM System.
Fiscal Years Ended May 31,
1998 1997
------------------- -------------------
- ---------------- -------------- -------------- --------------- --------------
Quarter High Low High Low
- ---------------- -------------- -------------- --------------- --------------
1st Quarter 1-9/16 1-9/16 3-3/16 1-13/16
- ---------------- -------------- -------------- --------------- --------------
2nd Quarter 1-1/4 1-1/8 2-1/2 1-5/8
- ---------------- -------------- -------------- --------------- --------------
3rd Quarter 15/16 13/16 2-1/16 1-1/4
- ---------------- -------------- -------------- --------------- --------------
4th Quarter 7/16 3/8 1-7/8 1-1/16
- ---------------- -------------- -------------- --------------- --------------
5
<PAGE>
As of August 31, 1998, the Company's Common Stock was held by 228
shareholders of record. In addition, the Company believes that there are an
additional 1,000 holders of its Common Stock who hold the shares in "street
name."
In fiscal 1998, the Company paid no dividends on its Common Stock nor
does it anticipate paying cash dividends on its Common Stock in the
foreseeable future. In the event that the Company changes this policy, future
payment of dividends on its Common Stock would depend, among other things,
upon the operations and financial condition of the Company.
The Company has not sold any of its securities within the past three
years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere herein.
On May 20, 1998, the Company entered into a purchase agreement (the
"Agreement") with Greenstar Holdings, Inc. (the "Buyer") to sell most of the
assets and liabilities of the Company to the Buyer or its assignee. The
Company agreed to sell most of the assets and liabilities of the Company to
the Buyer for a purchase price of $3,000,000, of which $2,810,000 was to be
paid by the Buyer in cash. The Company agreed to retain a commercial
condominium with an estimated value of $190,000 as payment for the balance of
the purchase price.
The sale was broken into two components due to the sale of certain
assets of the Company being subject to regulatory approval prior to closing.
Those assets include ownership interests in two radiation therapy centers
currently under development in Logan and Martinsburg, West Virginia (the
"Deferred Assets"). Of the $2,810,000 cash portion of the purchase price,
$500,000 was placed into escrow pending receipt of the required regulatory
approvals. The Company has applied for regulatory approval for the sale of the
Deferred Assets and anticipates that the closing of this portion of the
transaction will occur on or about September 30, 1998 or an extension date to
be agreed upon. If the regulatory approvals are not obtained on or about
September 30, 1998, the $500,000 will be returned to the Buyer, and the
Company will retain the Deferred Assets.
The Company closed on the sale of most of its assets and liabilities
which were not subject to regulatory approval on May 29, 1998. The home health
operations were sold to Homecare Holdings, Inc., an assignee of the Buyer, and
all other operations were sold to the Buyer. In connection with the
transaction, the Company recorded a receivable for a portion of the purchase
price in the amount of $2,160,000 as of May 31, 1998. Such amounts were
received by the Company on June 3, 1998.
The Company recorded a loss on the sale of its assets of
approximately $933,000. Included in this loss is a loss on the sale of Leader
and Southern Cross of approximately $100,000 and costs associated with the
transaction relating to the Agreement of $260,000. The loss does not reflect
the gain the Company expects to record in its second or third quarter of
fiscal 1999 of approximately $464,000 related to the sale of the Deferred
Assets.
The Company's Board of Directors intends to consider proposals
presented to the Company regarding the proceeds received pursuant to the
Agreement. Such proposals may include future operations, liquidation and
distribution of such amounts received, subject to the contingent liability
under the Agreement, described below, and other proposals that may come before
it regarding the use of proceeds of the sale.
The Company owns a 3,500 square foot commercial condominium in
Hollywood, Florida. The condominium is rented to a third party on a month to
month basis, and the Company currently generates net rental income in the
amount of $3,800 per month. The Company may sell the condominium, which it
values to be worth approximately $190,000.
6
<PAGE>
The Company, through a wholly-owned subsidiary, provides consulting
services rendered by its President for which it expects to receive $150,000
annually in fees over the subsequent seven years.
Liquidity and Capital Resources
The cash received by the Company associated with consummation of the
transaction contemplated by the Agreement and the Company's rental and
consulting fee income has been invested in the Nations Prime Money Market
maintained at Nations Bank.
Under the Agreement, the Company has a contingent liability to the
Buyer for a period of one year from the date of closing for certain
representations, warranties, indemnities and covenants, as defined in the
Agreement. The Company's aggregate liability for the period from the date of
closing to six months from the closing shall not exceed $1,500,000 and for the
period from six months from the closing to one year from the closing shall not
exceed $750,000. In connection with this contingent liability, the Company is
required, pursuant to the Agreement, to retain assets in the amount of
$1,500,000, of which $500,000 shall be in cash and cash equivalents, for the
period from the date of closing to six months from the closing, and assets in
the amount of $750,000, of which $375,000 shall be in cash and cash
equivalents, for the period from six months from the closing to one year from
the closing.
As a general partner, the Company is jointly and severally liable for
the liabilities concerning the actions of the Logan partnership and has
guaranteed certain liabilities of these partnerships amounting to $1,151,000
at May 31, 1998. In this connection, the Company could be held responsible for
any and all liabilities arising from the actions of such partnership.
Except for those items discussed above, there are no existing
material sources of liquidity available to the Company or material commitments
for capital expenditures. There are no material trends, favorable or
unfavorable, demands, commitments, events or uncertainties that will result in
or that are reasonably likely to result in the Company's liquidity increasing
or decreasing in any material way.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by Item 7 are included in this
report beginning on page F-1.
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
The names of the directors, their principal occupations, the years in
which they became directors and the years in which their terms expire are set
forth below.
7
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<TABLE>
<CAPTION>
Director Term
Name Age Principal Occupation Since Expires
- ---- --- -------------------- ----- -------
<S> <C> <C> <C> <C>
Jack W. Buechner 58 Attorney at the Washington, 1993 1998
D.C. law firm of Manatt Phelps
Phillips. Previously, general
counsel to the governmental
consulting firm of Linton,
Mields, Reisler and Cottone in
Washington, D.C., a partner in
The Hawthorn Group, L.L.C. in
Arlington, Virginia, and
President of the International
Republican Institute, a founda-
tion that promotes democracy
in foreign countries. From 1986
to 1990, a United States
Representative from the
State of Missouri.
Ullrich Klamm, Ph.D. 59 Chairman of the Board, Chief 1993 1999
Executive Officer, President and
a Director. Since 1987,
President and a Director of
Hospital Diagnostic Equipment
Corp. ("HDEC"), a private
company that owns and
operates high technology
medical diagnostic equipment,
primarily in rural areas.
John C. Mull, M.D. 64 Partner, Hutchinson Clinic, 1994 1999
P.A., a medical practice
since 1967. Director,
Central Bank & Trust Co.
from 1972 to present.
John P. Rosenthal 65 Senior Vice President of 1993 1998
Burnham Securities, Inc. since
February 1991. From 1972 to
1991, senior partner of
Silberberg, Rosenthal & Co., an
investment banking firm.
Director of the Neuberger &
Berman Equity Funds.
Salvatore P. Russo, 68 Health care consultant in 1994 1997
Ph.D. Boston, MA since 1993. From
1974 until 1993,
Administrator of the
Shriners Burns Institute
in Boston, MA,
specializing in children
with severe burns.
</TABLE>
8
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Executive Officers of the Company and Company Subsidiary
Who Are Not Directors
Carol B. O'Donnell 41 Secretary of the Company
since November 1994. For
more than five years prior
thereto, Ms. O'Donnell was
self-employed as an
attorney specializing in
the practice of corporate
and securities law.
During the fiscal year ended May 31, 1998, the Board of Directors
held nine formal Board meetings. Each Director of the Company attended more
than 75 percent of the meetings of the Board of Directors held during the
period when such individual was a Director.
The Company does not have any standing nominating committee of the
Board of Directors.
The Company has an audit committee of the Board of Directors of which
Mr. Buechner, Dr. Mull and Mr. Rosenthal are members. The audit committee
performs various functions involving the supervision of the Company's
financial affairs, including reviewing the Company's annual audits and
overseeing its internal control procedures. During the fiscal year ended May
31, 1998, four meetings of the audit committee were held and each member
attended at least 75 percent of said meetings.
The Company has a compensation committee of the Board of Directors of
which Dr. Mull, Mr. Rosenthal and Dr. Russo are members. During the fiscal
year ended May 31, 1998, one meeting of the compensation committee was held
and each member attended at least 75 percent of said meeting.
The Company also has an executive committee of the Board of Directors
of which Mr. Buechner, Dr. Klamm and Mr. Rosenthal are currently members. The
executive committee is empowered to act on behalf of the Board between Board
meetings as well as serve as the compensation committee. During the fiscal
year ended May 31, 1998, no meetings of the executive committee were held.
To the best of the Company's knowledge, during the fiscal year ended
May 31, 1998 or prior years, no person who was a director, officer, or
beneficial owner of more than 10% of any class of equity securities of the
registrant registered pursuant to Section 12, failed to file on a timely basis
reports required by Section 16(a) of the Securities Exchange Act of 1934, as
amended.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information about the compensation
paid or accrued by the Company during the fiscal years ended May 31, 1998,
1997, and 1996 to the Company's Chief Executive Officer and to each of the
other most highly compensated Executive Officers of the Company whose
aggregate compensation exceeded $100,000 in the fiscal year ended May 31,
1998.
9
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------- ------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name Year Salary Bonus Compensation Award(s) Option/SARs Payouts Comp.
($) ($) ($) (#) (#) ($) ($)
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ullrich Klamm, Ph.D. 1998 129,153 - 26,600 - 500,000 - -
Chairman of the Board, 1997 115,250 - 26,400 - 416,667 - -
Chief Executive Officer, 1996 108,848 30,000 25,400 - 333,334 - -
President
Louis W. Boisvert, III 1998 116,385 - - - 60,000 - -
Chief Financial Officer 1997 110,000 - - - 45,000 - -
and Vice President 1996 100,000 25,000 - - 35,000 - -
of Finance
Thomas F. Mazzei 1998 150,000 - 6,000 - 60,000 - -
President of Home Health 1997 150,000 - 6,000 - 60,000 - -
Division 1996 - - - - - - -
Tina M. Kovach 1998 150,000 - 6,000 - 60,000 - -
Director of Clinical 1997 150,000 - 6,000 - 60,000 - -
Services 1996 - - - - - - -
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values
The following table sets forth information concerning the value of
unexercised stock options at the end of the 1998 fiscal year for the persons
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexer- Value of Unexercised
Shares Value cised Options at In-The-Money Options at
Acquired Realized Fiscal Year End Fiscal Year End ($)
Name on Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------------- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ullrich
Klamm, Ph.D. 0 0 500,000/0 0/0
Louis W.
Boisvert, III 0 0 60,000/0 0/0
Thomas F. Mazzei 0 0 30,000/30,000 0/0
Tina M. Kovach 0 0 30,000/30,000 0/0
</TABLE>
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Pursuant to an employment contract with the Company, Dr. Klamm
receives base compensation of $129,153 and may be terminated "at will." Carol
B. O'Donnell also serves as secretary of the Company on an "at will" basis.
Compensation of Directors
All Directors, except Dr. Klamm, are paid directors' fees of $500 per
meeting attended and are reimbursed for all out-of-pocket expenses incurred in
connection with their duties as directors.
10
<PAGE>
On February 12, 1993, the Board of Directors approved the grant of
stock options to non-employee directors as follows: on June 1 of each year
commencing in 1993 each non-employee director will be granted fully-vested
options to purchase 2,500 shares of the Company's Common Stock at the closing
price on that date, exercisable for a period of five years. On August 31,
1994, the Board of Directors approved the grant of stock options to
non-employee directors elected at or after the Annual Meeting of Shareholders
held on November 14, 1994 to purchase 2,500 shares upon their election, and an
additional 2,500 shares on each anniversary thereafter while such director
continues to serve the Company as such, with a maximum of 10,000 shares to be
granted to any director during the term of his office. The exercise price of
each option is the fair market value of the Common Stock on the date the
options are granted, with an option expiration date of five years after the
date of grant or the date on which a director ceases to serve as such,
whichever is sooner.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of September 1, 1998, the number
of shares of the Company's Common Stock held of record or beneficially by (i)
each person who held of record or was known by the Company to be the
beneficial owner of more than 5 percent of the Company's outstanding Common
Stock; (ii) each of the Company's directors; (iii) each of the Company's named
executive officers, directors and nominees for director and (iv) all executive
officers and directors of the Company as a group.
Number of Shares Percent of
Name of of Common Stock Shares
Beneficial Owner Beneficially Owned(1) Outstanding (2)
- ---------------- --------------------- ---------------
Ullrich Klamm, Ph.D. 564,000 (3) 14.7%
Stanley L. Malkin, M.D. 278,000 (4) 7.8%
Jack W. Buechner 10,000 (5) *
John C. Mull, M.D. 117,500 (6) 3.5%
John P. Rosenthal 86,289 (7) 2.6%
Salvatore P. Russo, Ph.D. 8,500 (8) *
All officers and directors
as a group (7 persons) 786,289 (9) 22.2%
* Represents less than 1% of the outstanding Company Common Stock.
- -----------------
(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such persons within 60 days from September 1, 1998,
upon the exercise of options or warrants. Except as otherwise
indicated, the nature of the beneficial ownership is record and
direct.
(2) Each beneficial owner's percentage ownership is determined by
assuming that options or warrants held by such person (but not those
held by any other persons) and which may be exercised within 60 days
from September 1, 1998 have been exercised.
Footnotes continue on next page
11
<PAGE>
Footnotes continued from prior page:
(3) Consists of 500,000 shares subject to presently exercisable options,
50,000 shares owned individually and 14,000 shares owned by an
affiliated corporation.
(4) Consists of 250,000 shares subject to presently exercisable options,
14,000 shares owned individually and 14,000 shares owned through an
affiliated corporation.
(5) Includes 10,000 shares subject to presently exercisable options.
(6) Includes 7,500 shares subject to presently exercisable options.
(7) Includes 19,000 shares subject to presently exercisable warrants and
10,000 shares subject to presently exercisable options.
(8) Includes 7,500 shares subject to presently exercisable options.
(9) Includes shares issuable upon exercise of presently exercisable
warrants and options, as described in the Notes above. No securities
are beneficially owned by Carol Befanis O'Donnell.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Klamm's original employment contract was scheduled to expire on
February 1, 2001 and provided for a fee of $500,000 (the "Fee") if it were
terminated by the Company without cause prior to that date. As a result of the
transaction involving the sale of most of the Company's assets and liabilities
to Greenstar Holdings, Inc. ("Greenstar") and Homecare Holdings, Inc.
("Homecare"), as described in Part I, Item 1 hereof, Dr. Klamm was paid the
Fee by Greenstar in exchange for removing this clause from his contract and,
consequently, he serves on an "at will" basis.
Louis Boisvert, III, the Company's former Chief Financial Officer, is
the principal shareholder and chief executive officer of Homecare. As set
forth in Part I, Item 1 hereof, Homecare purchased the home health operating
companies from the Company as of May 31, 1998. Mr. Boisvert resigned from the
Company in advance of the closing of sale.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
Financial Statements
The consolidated financial statements of the Company and its
subsidiaries filed as a part of this Annual Report on Form
10-KSB are listed in Item 7 of this Annual Report on Form
10-KSB, which listing is hereby incorporated herein by
reference.
Exhibits
Exhibit No. Description of Items
----------- --------------------
3.1 Articles of Incorporation of the Company
(as amended) (1)
3.2 By-Laws (2)
10.1 Employment contract between CTH and
Ullrich Klamm, Ph.D (3)
12
<PAGE>
10.2 Consulting Agreement between Oncology
Services Corporation and its affiliates,
and Cancer Treatment Holding, Inc., dated
January 1, 1995 (4)
10.3 Loan and Security Agreement between Med
Tech Funding Corporation and
COPELCO/American Healthfund, Inc. (5)
10.4 Purchase Agreement among Greenstar
Holdings, Inc., Cancer Treatment Holdings,
Inc. and Advanced Oncology Services, Inc.
dated May 1998. (6)
21.1 Subsidiaries of the Registrant: CTI
Management Corp., a Delaware corporation.
(1) Incorporated by reference to Form S-18 as
filed with the Securities and Exchange
Commission on April 14, 1988, File No.
33-21269-A.
(2) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year
ended May 31, 1992, as filed with the
Securities and Exchange Commission on
August 28, 1992.
(3) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year
ended May 31, 1995, as filed with the
Securities and Exchange Commission on
August 25, 1995.
(4) Incorporated by reference to the
Registrant's Amendment No. 1 to Form S-3
as filed with the Securities and Exchange
Commission on February 13, 1995.
(5) 10-KSB - 1996.
(6) Incorporated by reference to the
Registrant's Form 8-K dated May 29, 1998,
as filed with the Securities and Exchange
Commission on June 11, 1998.
(b) Reports on Form 8-K filed during the three months ended
May 31, 1998.
There were no reports on Form 8-K filed during the three
months ended May 31, 1998.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: September 11, 1998 CANCER TREATMENT HOLDINGS, INC.
By: /s/ Ullrich Klamm, Ph.d
------------------------------------
Ullrich Klamm, Ph.D.
Chairman and Chief Executive Officer
14
<PAGE>
SIGNATURES
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:
Signatures Position Dated
- ---------- -------- -----
/s/ Ullrich Klamm, Ph.d Chairman of the Board September 11, 1998
- -------------------------- Chief Executive Officer
Ullrich Klamm, Ph.D
/s/ Carol O'Donnell Chief Financial Officer September 11, 1998
- -------------------------- and Secretary
Carol O'Donnell
/s/ Salvatore Russo, Ph.D. Director September 11, 1998
- --------------------------
Salvatore Russo, Ph.D.
/s/ Jack Mull, M.D. Director September 11, 1998
- --------------------------
Jack Mull, M.D.
/s/ Jack W. Buechner Director September 11, 1998
- --------------------------
Jack W. Buechner
/s/ John P. Rosenthal Director September 11, 1998
- --------------------------
John P. Rosenthal
15
<PAGE>
CANCER TREATMENT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
F-i
<PAGE>
Table of Contents
Pages
Report of Independent Accountants F-1
Consolidated Financial Statements:
Balance Sheets F-2
Statements of Discontinued Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5-6
Notes to Consolidated Financial Statements F-7-20
F-ii
<PAGE>
Report of Independent Accountants
September 4, 1998
To the Board of Directors and
Stockholders of Cancer Treatment Holdings, Inc.
Fairfield, Connecticut
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of discontinued operations and stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Cancer Treatment Holdings, Inc. and its subsidiaries at May 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
two years in the period ended May 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
On May 29, 1998, the Company sold most of its assets and liabilities. As a
result, the Board of Directors intends to consider proposals presented to the
Company with respect to future operations, liquidation and distribution of such
amounts received from the sale, subject to the contingent liabilities under the
Agreement, and other proposals that may come before it regarding the use of such
amounts.
/s/ PricewaterhouseCoopers LLP
F-1
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of May 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 150,516 $ 1,324,745
Receivable from Greenstar Holdings, Inc. (Note 2) 2,160,000 --
Accounts receivable, net of allowance for doubtful accounts
of approximately $101,000 in 1997 -- 3,076,429
Current portion of long-term notes receivable, net of a
discount of $27,357 in 1997 -- 466,217
Income taxes receivable -- 227,369
Assets held for sale, net (Note 7) 36,104 --
Other current assets -- 296,602
----------- -----------
Total current assets 2,346,620 5,391,362
Long-term notes receivable, net of current portion and a
discount of $33,415 in 1997 -- 1,123,378
Property and equipment, net 190,290 968,331
Investments in and advances to partnerships and ventures -- 1,072,944
Intangible assets, net -- 844,868
Other assets -- 133,148
----------- -----------
Total assets $ 2,536,910 $ 9,534,031
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current portion of long-term debt $ -- $ 207,309
Accounts payable and accrued expenses 260,000 387,251
Accrued payroll and related benefits -- 452,562
----------- -----------
Total current liabilities 260,000 1,047,122
Long-term debt, net of current portion -- 2,124,611
Deferred income taxes -- 107,400
----------- -----------
Total liabilities 260,000 3,279,133
----------- -----------
Commitments and contingencies (Notes 2 and 10)
Stockholders' equity:
Common stock; $.003 par value, 50,000,000 shares authorized,
3,495,760 shares issued 10,487 10,487
Capital in excess of par value 5,163,105 5,163,105
(Accumulated deficit) retained earnings (2,616,601) 1,361,387
----------- -----------
2,556,991 6,534,979
Treasury stock: 159,284 shares, at cost (280,081) (280,081)
----------- -----------
Total stockholders' equity 2,276,910 6,254,898
----------- -----------
Total liabilities and stockholders' equity $ 2,536,910 $ 9,534,031
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
for the years ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net patient service revenues $ 14,405,601 $ 15,543,649
Other revenues 1,510,130 1,408,387
------------ ------------
Total revenues 15,915,731 16,952,036
------------ ------------
Operating expenses:
Direct cost of patient services
(primarily payroll and contracted medical services) 6,848,633 9,241,194
General and administrative 10,073,350 7,456,988
Depreciation and amortization 1,325,980 418,911
------------ ------------
Total operating expenses 18,247,963 17,117,093
------------ ------------
Operating loss (2,332,232) (165,057)
Interest expense (518,597) (354,585)
Loss on sale of assets (932,972) 0
Equity in loss of partnerships (450,466) (67,458)
Minority interest 162,679 0
------------ ------------
Loss before income taxes (4,071,588) (587,100)
Income tax benefit 93,600 255,000
------------ ------------
Net loss $ (3,977,988) $ (332,100)
============ ============
Basic and diluted per share data:
Net loss per share $ (1.19) $ (0.10)
============ ============
Weighted average number of shares outstanding $ 3,336,476 $ 3,336,476
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
Retained
Common Stock Capital Earnings Total
------------------------- in Excess (Accumulated Treasury Stockholders'
Shares Amount of Par Deficit) Stock Equity
----------- ----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996 3,495,760 $ 10,487 $5,163,105 $ 1,693,487 $ (280,081) $ 6,586,998
Net loss -- -- -- (332,100) -- (332,100)
----------- ----------- ----------- -------------- ----------- -------------
Balance, May 31, 1997 3,495,760 10,487 5,163,105 1,361,387 (280,081) 6,254,898
Net loss -- -- -- (3,977,988) -- (3,977,988)
----------- ----------- ----------- -------------- ----------- -------------
Balance, May 31, 1998 3,495,760 $ 10,487 $5,163,105 $ (2,616,601) $ (280,081) $ 2,276,910
=========== =========== =========== ============== =========== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,977,988) $ (332,100)
------------ ------------
Adjustments to reconcile net loss to cash used in operating activities:
Accretion of discount on notes receivable (27,857) (89,918)
Depreciation and amortization 1,325,980 418,911
Unrecoverable capitalized costs and loss on sale of assets 932,972 37,292
Non cash charge related to partnership advances 200,000 --
Equity in loss of unconsolidated partnerships 450,466 67,458
Deferred tax expense (107,400) (33,000)
Change in operating assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable 25,360 35,085
Income taxes receivable 227,369 (227,369)
Assets held for sale (36,104) --
Other current and non-current assets 110,186 76,861
Accounts payable, accrued expenses, and accrued
payroll and related benefits 671,382 (281,426)
Income taxes payable -- (254,000)
------------ ------------
Net cash used in operating activities (205,634) (582,206)
------------ ------------
Cash flows from investing activities:
Collections of notes receivable 720,002 371,427
Payments from Partnerships on advances -- 203,491
Investments in Partnerships and ventures (159,395) (560,838)
Acquisition of property and equipment (45,757) (81,038)
Cash received from sale of business 170,000 --
------------ ------------
Net cash provided by (used in) investing activities 684,850 (66,958)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt, including revolving
credit agreements (11,125,263) (12,666,162)
Borrowings for long-term debt, including revolving
credit agreements 9,471,818 13,774,806
------------ ------------
Net cash (used in) provided by financing activities (1,653,445) 1,108,644
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,174,229) 459,480
Cash and cash equivalents at beginning of year 1,324,745 865,265
------------ ------------
Cash and cash equivalents at end of year $ 150,516 $ 1,324,745
============ ============
</TABLE>
F-5
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
for the years ended May 31, 1998 and 1997
1998 1997
-------- --------
Supplemental disclosures:
Interest paid $518,500 $351,000
Income taxes paid $ -- $259,000
Non-cash financing and investing activities:
In 1998, the Company sold substantially all of its assets and
liabilities. In connection with the transaction, the Company recorded a
receivable for a portion of the purchase price, in an amount of
$2,160,000 (see Note 2).
In 1998, the Company financed the acquisition of certain equipment
through a capital lease agreement, under which the Company recorded
capital lease obligations of $1,151,082 (see Note 7).
In 1997, the Company contributed a receivable of $130,000 due from its
50% owned partnership, as an additional investment in the partnership.
In 1997, the Company sold a note receivable installment obligation
obtained in prior years as a result of the sale of a radiation center
to a third party for $825,000. The installment obligation had a
carrying value of $838,463 at the date of sale.
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business:
Cancer Treatment Holdings, Inc. ("CTH"), a Nevada corporation, through
its subsidiaries (collectively, the "Company"), was, until May 31, 1998
(See Note 2), engaged in (i) providing home health, home infusion and
nursing services, (ii) establishing and administering businesses for
the ambulatory treatment of cancer using a variety of modalities,
including radiation therapy and bone marrow transplantation, and (iii)
providing management/consulting and billing and collection services for
free-standing radiation therapy centers.
In home health and nursing services, the Company owned and operated
Leader Health Care Center, Inc. ("Leader"). Leader owned 100% of the
equity interest of both Med Tech Services of South Florida, Inc. and
Med Tech Services of Palm Beach, Inc. (collectively, "Med Tech") and
Southern Cross Home Health, Inc. ("Southern Cross"). Leader, Med Tech
and Southern Cross are providers of home health and nursing services in
Southeastern Florida. Leader also provides home infusion therapy and
physical rehabilitation services (See Note 2).
In radiation therapy, the Company provided management/consulting as
well as billing and collection services for various facilities that
were either owned by the Company (one facility at May 31, 1997) or
previously owned by the Company (four facilities at May 31, 1997).
2. Sale of Operations and Future Plans:
On May 20, 1998, the Company entered into a purchase agreement (the
"Agreement") with Greenstar Holdings, Inc. (the "Buyer") to sell
substantially all of the assets and liabilities of the Company to the
Buyer or its assignee. The Company agreed to sell most of the assets,
including the agreements described in Note 4, and liabilities of the
Company to the Buyer for a purchase price of $3,000,000. The Company
and the Buyer subsequently negotiated a reduction in the purchase price
in the amount of $190,000 and in return, the Company retained ownership
of a commercial condominium. The sale was broken into two components
due to the sale of certain assets of the Company being subject to
regulatory approval prior to closing. The assets requiring regulatory
approval prior to sale include certain ownership interests in two
centers under development that, upon completion, will provide radiation
therapy services (collectively referred to as the "Deferred Assets").
The two centers are located in Martinsburg and Logan, West Virginia.
The Agreement provides that $500,000 of the $2,810,000 purchase price
would be placed in escrow by the Buyer. Such amount was placed in
escrow on June 3, 1998. If such regulatory approvals are not obtained
on or prior to September 30, 1998 or an agreed extension date, such
amount will be returned to the Buyer.
F-7
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Sale of Operations and Future Plans, Continued:
The Company closed on the sale of substantially all of the assets and
liabilities not subject to regulatory approval on May 29, 1998. The
Company sold the home health operations to Homecare Holdings, Inc., an
assignee of the Buyer, and all other operations were sold to the Buyer.
In connection with the transaction, the Company recorded a receivable
for a portion of the purchase price in the amount of $2,160,000 as of
May 31, 1998. Such amounts were received by the Company on June 3,
1998.
The Company has applied for regulatory approval for the sale of the
Deferred Assets and anticipates that the closing of this portion of the
transaction will occur on or about September 30, 1998. As a result, the
Company has classified the Deferred Assets as "Assets held for sale,
net" at May 31, 1998 (See Note 7). Had the sale of the Deferred Assets
been completed prior to May 31, 1998, the loss on the sale of assets
for the year ended May 31, 1998 would have been $469,000.
Under the Agreement, the Company has a contingent liability to the
Buyer for a period of one year from the date of closing for certain
representations, warranties, indemnities and covenants, as defined in
the Agreement. The Company's aggregate liability for the period from
the date of closing to six months from the closing shall not exceed
$1.5 million and for the period from six months from the closing to one
year from the closing the aggregate liability shall decrease to an
amount not to exceed $750,000. In connection with this contingent
liability, the Company is required, pursuant to the Agreement, to
retain assets in the amount of $1.5 million, of which $500,000 shall be
in cash and cash equivalents, for the period from the date of closing
to six months from the closing, and assets in the amount of $750,000,
of which $375,000 shall be in cash and cash equivalents, for the period
from six months from the closing to one year from the closing.
In April 1998, the Company sold all of its interest in Leader (except
its interest in Med Tech) and Southern Cross for an aggregate price of
$100,000 of which $20,000 was paid in cash at closing and the balance
was evidenced by promissory notes bearing interest at 10% annually. The
notes are due in 10 months from the closing. In connection with the
transaction, the Company retained the cash, and accounts receivable
and accounts payable of Leader and Southern Cross at the date of the
transaction. The notes were subsequently sold pursuant to the Agreement
described above.
The Company's Board of Directors intends to consider proposals
presented to the Company regarding the proceeds received pursuant to
the Agreement. Such proposals may include future operations,
liquidation and distribution of such amounts received, subject to the
contingent liability under the Agreement, described above, and other
proposals that may come before it regarding the use of proceeds of the
sale.
F-8
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Significant Accounting Policies:
As a result of the sale of operations described in Note 2, the Company
will no longer be operating in the health care business. Accordingly,
the statements of operations for the two years ending May 31, 1998
represent discontinued operations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of all subsidiaries and partnerships in which the Company owns more
than 50%. All significant intercompany investments, accounts and
transactions have been eliminated. Investments in partnerships in which
the ownership interest is 50% or less and the Company exercises
significant influence over operating and financial policies are
accounted for using the equity method.
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 Equivalents
The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Revenue Recognition
Net patient service revenues were derived from home health and nursing
services.
Home health care services were provided to primarily Medicare patients.
Approximately 92% and 93% of net patient service revenues for fiscal
1998 and fiscal 1997, respectively, were derived from services provided
to home healthcare patients who are Medicare beneficiaries. The Company
participated in the Medicare program under which services rendered to
Medicare program beneficiaries are reimbursed based on
cost-reimbursement principles and are subject to audit and retroactive
adjustment by the respective Medicare program fiscal intermediary.
Differences between the estimated settlements and final amounts are
recognized as increases or decreases in net patient service revenues in
the year of settlement.
F-9
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Significant Accounting Policies, Continued:
Revenue Recognition, Continued
Other revenues included billing/collection, management and consulting
services for various radiation therapy centers and management and/or
consulting fees from the centers which the Company managed or for which
the Company provided consulting services. Management fees were
principally based on a percentage of collections with annual maximum
fees. Consulting fees were recognized over the term of the consulting
agreement. The Company also provided centralized billing and collection
services for various centers. Billing and collection fees were
principally based on a percentage of collections with annual maximum
fees. Other revenues also included interest income of $187,488 and
$228,000 in 1998 and 1997, respectively (See Note 4).
Property and Equipment
Property and equipment is stated at cost and depreciated over its
estimated useful lives ranging from five to forty years using the
straight-line method. Leasehold improvements and assets held under
capital leases are amortized on a straight-line basis over the shorter
of the estimated useful life or the lease term. Upon disposition, the
cost and accumulated depreciation of property and equipment are removed
from the accounts and any gain or loss is reflected in the statement of
operations.
Capitalized Development Costs
The Company capitalizes costs including legal fees, architectural fees,
rent payments and lease deposits related to the development of new
radiation centers which are expected to benefit future periods. Costs
are capitalized until the center begins to generate revenues or when
the Company abandons its plans to establish the center or such
establishment is no longer possible.
Intangible Assets
Costs in excess of the estimated fair value of net identifiable assets
of acquired business ("goodwill") were amortized on a straight-line
basis over twenty years. Other intangible assets consisted of licenses
which were amortized over ten years and amounts attributable to certain
consulting agreements obtained in connection with the sale of two
centers which were amortized over the life of such agreements.
Intangible assets, net, at May 31, 1997, consisted of goodwill of
$319,108 and other intangible assets of $525,760. Such amounts were
shown net of accumulated amortization of $511,588 at May 31, 1997.
F-10
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Significant Accounting Policies, Continued:
Intangible Assets, Continued
At each balance sheet date or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable based on estimated future cash flows expected to result
from the use of the assets and its eventual disposition, the Company
reviews certain long-lived assets, such as property and equipment and
certain identifiable intangible assets (including goodwill) for
impairment. In fiscal year 1998, as a result of the Company
anticipating entering into the Agreement (See Note 2), the Company
recorded a charge to operations of $739,000, included in operating
expenses. Such amount represents the estimated impairment of property
and equipment principally related to an office condominium owned by the
Company and certain identifiable intangible assets described above.
Income Taxes
Deferred income taxes are provided based on the estimated future tax
effects of differences between financial statement carrying amounts and
the tax bases of existing assets and liabilities. A valuation allowance
is provided if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method. Accordingly, compensation expense for qualified and
non-qualified stock options granted under the Company's stock option
plan is generally measured as the difference between the quoted market
price of the Company's stock at the date of grant and the amount an
employee must pay to acquire the stock. No charge has been reflected in
the statement of discontinued operations as a result of the grant of
stock options, as the exercise price of the options equals or exceeds
the market value of the Company's stock on the date of options are
granted.
Per Share Data
The Company adopted the provisions of SFAS No. 128, "Earnings Per
Share", which requires the presentation of both basic and diluted
earnings per share. Basic earnings per share is calculated based on the
weighted average number of common shares outstanding during the year.
Diluted earnings per share is based on the sum of the weighted average
number of common shares outstanding plus common stock equivalents
arising out of stock options and warrants. The Company's outstanding
options were not assumed exercised for fiscal years 1997 or 1998
because such options were anti-dilutive for such periods. The impact of
the adoption of SFAS No. 128 was not significant to the Company's
financial statements.
F-11
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Significant Accounting Policies, Continued:
Fair Value of Financial Instruments
The carrying value of long-term notes receivable and debt, including
the current portion, approximated fair value as of May 31, 1997, based
on current rates for similar types of borrowing arrangements.
New Pronouncements
The FASB and other standard-setting bodies have issued the following
pronouncements:
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. This statement is effective for
fiscal years beginning after December 15, 1997.
Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities", which generally requires that the cost of
start-up activities be expensed as incurred. The SOP is effective for
fiscal years beginning after December 15, 1998 and requires that any
unamortized start-up costs be written-off and reported as the
cumulative effect of a change in accounting principle.
SFAS No. 133, "Accounting for Derivatives and Hedging Activities", is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. The new statement requires that all derivative
instruments be recorded on the balance sheet at their fair value and
the change in the fair value of the derivative be recorded each period.
The Company does not expect the effect of the implementation of these
pronouncements will have a material impact on the Company's financial
statements based on its current status of operations.
Reclassification
Certain 1997 amounts have been reclassified to conform to 1998
presentation.
F-12
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Consulting and Option Agreements:
In May 1996, the Company sold all of its interest in a radiation
therapy center under development in Yonkers, New York (the "Yonkers
Center"). As a result of the transaction, the Company entered into
various agreements including a non-competition agreement, consulting
agreement, turn-key license agreement and an option agreement allowing
the buyer participate as an equity owner in future transactions of a
similar nature. No amounts were recorded into income at the time of the
transaction due to the contingencies related to the collectibility of
such amounts. In fiscal year 1998, these agreements were restructured.
As a result, the Company received $300,000 in fiscal year 1998 as
reimbursement for expenses incurred in the development of the Yonkers
Center. The Company also renegotiated the payment terms of the
non-competition and consulting agreements, whereby the payments were no
longer contingent upon the percentage of fees collected by the Yonkers
Center. As a result of the renegotiated agreements, the Company would
receive $250,000 annually in fees over the next three years and
$100,000 annually in fees over the subsequent two years.
In addition, in fiscal year 1998, the Company sold an option to a third
party for $550,000. The option allowed the third party to acquire the
Company's 50% interest in one of the Company's radiation therapy
centers for $3,500,000 or eight times one half of the prior year's net
earnings, whichever is greater. The option expires on May 31,1999 and
is evidenced by a promissory note which bears interest at 13% and is
payable in monthly installments over three years. The Company recorded
income under such option of $219,997 including interest income of
$55,617 during fiscal year 1998 in connection with such option.
In fiscal year 1998, the Company also restructured other management,
consulting and billing, and collection agreements related to two
centers it sold in fiscal year 1995 and an interest in one center it
sold in fiscal year 1996. As a result of the restructuring of such
agreements, the Company was entitled to receive $172,800 annually in
consulting fees through September 2006.
The residual obligations and future interests in the agreements
described in the above three paragraphs were transferred in connection
with the sale of the Company's operations described in Note 2.
F-13
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Property and Equipment:
Property and equipment consists of the following at May 31, 1998 and
1997:
1998 1997
---------- ----------
Land $ 33,000 $ 33,000
Buildings and leasehold improvements 631,707 1,167,429
Office furniture and equipment -- 437,007
Medical equipment -- 169,852
---------- ----------
664,707 1,807,288
Less accumulated depreciation 474,417 838,957
---------- ----------
$ 190,290 $ 968,331
========== ==========
The Company owns an office condominium unit with a net book value of
$190,290 at May 31, 1998 which is leased under a month to month lease
agreement. Rental income for the fiscal years 1998 and 1997, amounted
to $93,083 and $95,555, respectively. The Company incurred rental
property expense of $40,148 and $37,342 during fiscal years 1998 and
1997, respectively, which includes annual depreciation expense of
$16,677.
6. Investments In and Advances to Partnerships and Ventures:
The Company's investments in and advances to partnerships and ventures
consisted of the following at May 31, 1998 and 1997:
1998 1997
---------- ----------
Investment in Palm Beach $ -- $ 248,639
Advances to Palm Beach -- 280,416
Development of new centers -- 543,889
---------- ----------
$ -- $1,072,944
========== ==========
F-14
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Investments In and Advances to Partnerships and Ventures, Continued:
The investment in Palm Beach at May 31, 1997, represents the Company's
50% investment in Palm Beach Radiotherapy Associates, Ltd. ("Palm
Beach"). The Company received a management fee equal to 8% of patient
revenues collected, not to exceed $116,400 annually, subject to
adjustments upward for increases in the consumer price index, not to
exceed 5% annually. The Company also provided billing and collection
services and received compensation equal to 5% of patient revenues
collected, not to exceed $87,300 annually. The maximum annual fee was
subject to adjustments upward for increases in the consumer price
index, not to exceed 5% annually.
At May 31, 1997, the difference between the Company's investment and
its equity in the net assets of Palm Beach was $140,000. Such amount
was being amortized to income over a period of twenty years.
Palm Beach had assets of $783,000, liabilities of $567,000 and
partners' capital of $216,000 at May 31, 1997. Palm Beach had a net
loss of $91,000 for the year ended May 31, 1997.
7. Assets Held for Sale, Net:
Assets held for sale, net, in the amount of $36,104 at May 31, 1998,
consist of the Company's interest in certain assets and liabilities
related to the Company's 25.75% general partnership interest in the
partnership developing the radiation center in Logan, West Virginia. At
May 31, 1998, the assets and liabilities of the partnership consist of
the following:
Cash $ 53,099
Other assets, including capitalized costs 165,344
Equipment subject to capital leases 1,072,847
Capital lease obligations (1,151,082)
-----------
Net equity in partnership $ 140,208
===========
In addition, the Company owns a 51% general partnership interest in a
partnership developing the radiation center in Martinsburg, West
Virginia. Except for a certificate of need, the partnership does not
own any significant assets and has not incurred any significant
liabilities as of May 31, 1998.
F-15
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Long-Term Debt:
Long-term debt at May 31, 1998 and 1997 consists of the following:
1998 1997
---------- ----------
$4,000,000 revolving credit
facility, interest at LIBOR plus 8%
(13.69% at May 31, 1997) due weekly,
maturing in March 2001,
collateralized by accounts
receivable $ -- $1,951,760
Mortgage payable, interest at 8.5%,
interest and principal due monthly -- 154,208
Capitalized lease obligations,
interest at 13.05%, interest and
principal due monthly, maturing in
March 2001 -- 212,029
Other -- 13,923
---------- ----------
-- 2,331,920
Less current portion -- 207,309
---------- ----------
$ -- $2,124,611
========== ==========
9. Income Taxes:
The income tax benefit for the years ended May 31, 1998 and 1997
consist of the following:
1998 1997
---------- ----------
Current:
Federal $ 13,800 $ (227,000)
State -- 5,000
---------- ----------
13,800 (222,000)
---------- ----------
Deferred:
Federal (83,400) (37,000)
State (24,000) 4,000
---------- ----------
(107,400) (33,000)
---------- ----------
Income tax benefit $ (93,600) $ (255,000)
========== ==========
F-16
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Income Taxes, Continued:
The reconciliation between the statutory charge (34%) for income taxes
and the actual income tax benefit for the years ended May 31, 1998 and
1997 is shown in the following table:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Computed expected tax expense: $(1,384,340) $ (199,600)
State income taxes (24,000) 8,800
Change in valuation allowance 1,267,600 106,000
Investment in subsidiary -- (172,600)
Goodwill and other nondeductible expenses 34,700 26,000
Other, net 12,440 (23,600)
----------- -----------
Effective income tax benefit $ (93,600) $ (255,000)
=========== ===========
</TABLE>
The significant components of the deferred tax assets and liabilities
as of May 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ -- $ 49,100
Property and equipment -- 65,800
NOL carryforward 1,450,000 182,400
Valuation allowance (1,450,000) (182,400)
----------- -----------
-- 114,900
----------- -----------
Deferred tax liabilities:
Deferred gains -- 84,800
Intangible assets -- 109,700
Investments -- 7,700
Other -- 20,100
----------- -----------
-- 222,300
----------- -----------
$ -- $ (107,400)
=========== ===========
</TABLE>
F-17
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Income Taxes, Continued:
As of May 31, 1998, the Company had federal and state net operating
loss carryforwards of $3,600,000 and $4,400,000, respectively, which
expire in 2013. The Company provides a valuation allowance, because in
the opinion of management it is more likely than not that some or all
of the deferred tax assets will not be realized. The Company has
established a valuation allowance against deferred tax assets of
$1,450,000 and $182,400 at May 31, 1998 and 1997, respectively. The
increase in the valuation allowance for the year ended May 31, 1998
results from the uncertainty of the realization of the operating loss
carryforwards which may expire unused.
10. Commitments and Contingencies:
As a general partner, the Company is jointly and severally liable for
the liabilities concerning the actions of the Logan partnership and has
guaranteed certain liabilities of this partnership amounting to
$1,151,000 at May 31, 1998. In this connection, the Company could be
held responsible for any and all liabilities arising from the actions
of such partnership.
The Company is involved in several legal proceedings that occurred in
normal course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially
affect the financial position, results of discontinued operations or
cash flows of the Company.
11. Employee Benefit Plan:
The Company established an Employee Benefit Plan (the "Plan") under
Section 401(k) of the Internal Revenue Code. The Plan allowed all full
time employees to defer up to 15% of their income on a pre-tax basis
through contributions to the Plan. Employer contributions were matched
by the Company as deemed advisable by the Executive Compensation
Committee. For fiscal years 1998 and 1997, the Company's expense
related to matching contributions amounted to approximately $112,000
and $40,000, respectively.
F-18
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Warrants, Stock Options and Treasury Stock:
The Company established an employee stock option plan which provides
for the issuance of up to 100,000 shares of common stock. The exercise
price is determined by a committee of the Board but may not be less
than 100% of the fair market value of the common stock on the date of
the grant of the option. The term of each option is also determined by
the committee, but in no event may the term of an option be longer than
ten years from the date of grant. Such options will expire upon
termination of employment with the Company.
The Company also granted stock options to officers and directors. All
options were granted at or above prevailing market prices and are
exercisable over terms of up to six years.
During fiscal year 1998, the Company granted an option to purchase
50,000 shares of common stock to an executive with an exercise price of
$3.50 per share. Such option vests over a five year period and expired
at the termination of the executive's employment with the Company in
fiscal year 1998.
A summary of the status of the Company's stock option plan as of May
31, 1998 and 1997 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,167,500 $ 4.25 1,197,500 $ 4.32
Granted 55,000 3.28 30,000 2.99
Expired (70,000) 3.50 (60,000) 5.00
---------- ---------- ---------- ----------
Outstanding at end of year 1,152,500 $ 4.25 1,167,500 $ 4.25
========== ========== ========== ==========
Options exercisable at year-end 935,167 $ 4.40 940,167 $ 4.39
========== ========== ========== ==========
Weighted-average fair value of options granted
during the year $ 1.14 $ 1.58
========== ==========
</TABLE>
At May 31, 1998, the Company had reserved 935,167 shares of its Common
Stock for issuance upon the exercise of all outstanding options.
Exercise prices range from $1.69 to $5.00 at May 31, 1998.
F-19
<PAGE>
CANCER TREATMENT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Warrants, Stock Options and Treasury Stock, Continued:
Had compensation cost for awards under the Company's stock option plan
been determined based on the fair value at the grant dates rather than
utilizing the intrinsic value method, the Company's net loss and loss
per share in fiscal years 1998 and 1997 would have been reduced to the
pro forma amounts indicated below:
1998 1997
------------- -------------
Pro forma net loss:
As reported $ (3,977,988) $ (332,100)
Pro forma (4,078,778) (620,993)
Pro forma net loss per share:
As reported $ (1.19) $ (0.10)
Pro forma (1.22) (0.19)
The fair value of each option granted under the Company's stock option
plan is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions
used for grants in fiscal years 1998 and 1997: no dividend yield based
on the Company's current dividend policy; expected volatility of the
underlying stock of 119% in 1998 and 89% in 1997; risk-free interest
rates of 5.8% in 1998 and ranging from 6.3% to 7.0% in 1997 and
expected lives of the options of 4.4 to 10 years based on the related
vesting periods.
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 150,516
<SECURITIES> 0
<RECEIVABLES> 2,160,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,346,620
<PP&E> 664,707
<DEPRECIATION> (474,417)
<TOTAL-ASSETS> 2,536,910
<CURRENT-LIABILITIES> 260,000
<BONDS> 0
0
0
<COMMON> 10,487
<OTHER-SE> 2,266,423
<TOTAL-LIABILITY-AND-EQUITY> 2,536,910
<SALES> 16,405,601
<TOTAL-REVENUES> 15,915,731
<CGS> 6,848,633
<TOTAL-COSTS> 18,247,963
<OTHER-EXPENSES> 1,220,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518,597
<INCOME-PRETAX> (4,071,588)
<INCOME-TAX> 93,600
<INCOME-CONTINUING> 0
<DISCONTINUED> (3,977,988)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,977,988)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
