SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-10966
HEALTH PROFESSIONALS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 11-3076108
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
515 East Las Olas Blvd. - Suite 1600, Fort Lauderdale, Florida 33301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 766-2552
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Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, AMERICAN STOCK EXCHANGE
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par value $.02 per share (Name of Each Exchange on
- ------------------------ which Registered)
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
CLASS B WARRANTS
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TO PURCHASE COMMON STOCK
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
AS OF JANUARY 9, 1997, the aggregate market value of voting stock held by
non-affiliates of Health Professionals Inc. (the "Company") was $5,902,500.
AS OF DECEMBER 31, 1996, the number of shares outstanding of the Company's
Common Stock, par value $.02 per share, was 4,722,000
DOCUMENTS INCRORPORATED BY REFERENCE
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None.
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PART I
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ITEM 1. BUSINESS
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General Business Description
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The Company was formed pursuant to the laws of the State of New York in
1975 under the name Health Extension Services, Inc. In fiscal 1986, following
the merger of its primary operating subsidiary into itself, the Company changed
its name to Professional Care, Inc. ("PCI"). On November 25, 1991, the share
holders of the Company approved a merger and restructuring whereby each share of
PCI common stock was exchanged for a share of common stock of Health
Professionals, Inc. ("HPI"), a Delaware corporation formed on August 12, 1991
for the purpose of the restructuring. PCI became a wholly-owned subsidiary of
HPI, and the existing subsidiaries of PCI also became subsidiaries of HPI. HPI
and its subsidiaries (and any subsidiaries of such subsidiaries) are sometimes
hereinafter collectively referred to as the "Company." The executive offices of
the Company are located at 515 East Las Olas Boulevard, Suite 1600, Fort
Lauderdale, Florida 33301. The Company's telephone number is (954) 766-2552.
In December, 1991, the Company acquired 100% of Center for Special
Immunology, Inc. ("CSI") and its subsidiaries which have since become the only
operating businesses of the Company. CSI, owns and operates an integrated health
care delivery and clinical research system that includes a multi-state network,
operating in 9 states, of primary care and clinical research facilities
specializing in immune system disorders, consisting primarily of HIV, AIDS and
Chronic Fatigue Immune Dysfunction Syndrome (CFIDS). The network also conducts
multi-center trials in cooperation with biotechnology and pharmaceutical
companies. CSI was founded in 1986 by William M. Reiter, M.D., FACP, and Paul J.
Cimoch, M.D., FACP, who are both internationally recognized research physicians.
Dr. Reiter is currently Chairman of the Board, President and Chief Executive
Officer of the Company and Dr. Cimoch, currently serves on the Board of
Directors of the Company and as an officer of CSI.
General
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CSI owns and operates an integrated health care delivery and clinical
research system that includes a multi-state network of primary care and clinical
research facilities specializing in immune system disorders consisting primarily
of HIV, AIDS and CFIDS. The network also conducts multi-center clinical trials
in cooperation with biotechnology and pharmaceutical companies. The Company
became engaged in this health care delivery and research business in December
1991, when it acquired all of the stock of CSI.
Historical outcomes analysis has demonstrated that the course of HIV
disease can be profoundly and positively altered by the use of early
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intervention strategies and by preventive treatment directed against
opportunistic infections. Through its efforts in research and practical
application, CSI has developed protocols for the treatment of HIV patients.
These protocols specify the treatments and therapies to be provided to HIV
patients, depending on the stage of the disease as determined by a
multi-parametric evaluation of clinical status, viral activity and immunologic
function. Treatment of HIV patients at CSI facilities by their affiliated
physicians is offered in accordance with these protocols. CSI has also developed
research protocols which govern the processes and record keeping practices to be
followed in specified studies performed by CSI. These studies may be undertaken
at CSI's initiative or in conjunction with a separate organization (e.g., a
pharmaceutical company), which would typically finance the study and pay certain
fees to CSI in return for conducting its portion of the clinical trial.
CFIDS is believed to result from a genetic failing occurring in the immune
response genes. This defect, when coupled with certain viral infections or other
activating factors, leads to a state of chronic immune activation, which causes
a variety of symptoms, including profound fatigue. CSI has developed treatment
protocols for chronic fatigue patients, the goal of which is to re- balance the
immune system or otherwise alleviate symptoms.
Services provided by CSI (including its CSI Clinical Laboratories, Inc.,
CSI Therapeutics, Inc., CSI Clinical Trials, Inc. and CSI Managed Care, Inc.
subsidiaries) have accounted for all of the Company's operating revenues from
continuing operations since the Company acquired CSI.
Organization and Operation
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The Company through CSI owns and operates 6 facilities located in Ft.
Lauderdale, Fla., Miami, Fla., Chicago, Ill., Irvine, CA, Los Angeles, CA and
San Diego, CA. CSI Clinical Laboratories, Inc. ("CSI Clinical Laboratories") is
a licensed clinical laboratory that currently provides services to CSI's network
of clinical facilities. CSI Therapeutics, Inc. ("CSI Therapeutics") provides
pharmaceutical distribution, home care and infusion care in connection with the
operation of CSI's facilities. CSI Clinical Trials, Inc. ("CSI Clinical Trials")
conducts multi-center clinical trials for biotechnology and pharmaceutical
companies as well as its own internally developed treatment protocols. CSI
Managed Care, Inc. ("CSI Managed Care") markets and administrates managed care
contracts with third party payors, including preferred provider organizations,
health maintenance organizations and self insured organizations.
Each of the six (6) Company owned facilities is owned by a wholly-owned
subsidiary of CSI. In states where the corporate practice of medicine is
permitted, CSI employs physicians to render medical services to its patients. In
states where the corporate practice is not permitted, a medical professional
association (the "PC") enters into an Independent Practice Affiliation Agreement
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(IPAA) with CSI to utilize the facility in order to provide care to its patients
with immunological and related diseases. The Company had an agreement for an
IPAA to utilize these facilities prior to January 1, 1996. On January 1, 1996,
the Company purchased the medical practices affiliated with the Fort Lauderdale
and Miami facilities. On April 1, 1996, the Company purchased the medical
practice affiliated with the Chicago facility. On September 30, 1996, the
Company created a Management Service Organization in California, which purchased
the medical practice affiliated with the Irvine, California facility. As of
September 30, 1996, the IPAA agreements still existed for the facility in San
Diego California.
Under the IPAA, CSI provides a non-exclusive license to utilize the
facility, cognitive services and practice management services to the PC,
including: (i) the use of the facility for treatment of its patient; (ii)
management, administration and support services, including but not limited to
case management, financial and business management, accounting, marketing and
bookkeeping; (iii) professional personnel for support services, including,
nurses, physicians assistants and other non-physician personnel; and (iv) access
to and the use of treatment protocols and research data developed by CSI. In
addition, CSI provides the PC with the opportunity to participate in
multi-center clinical trials through CSI Clinical Trials, Inc., which CSI
Clinical Trials, Inc. may have under contract from time to time or which CSI
maybe conducting as part of its own research efforts.
The PC is responsible for employing all professional personnel and
maintaining its own malpractice insurance as well as for maintaining the quality
of medical care offered at the facility.
Under the IPAA'S, (i) fees are charged to the PC's by CSI at cost plus 10%
on direct expenses; (ii) CSI was reimbursed for a portion of its corporate
overhead related to other services provided to the facilities through December
31, 1995;(iii)CSI received a network participation fee equal to 7 1/2% percent
of the total net revenues of the PC for provided medical and related sources,
including hospital procedure revenues, clinical practice revenues and in office
therapeutic revenues, through December 31, 1995; and (iv) On January 1, 1996,
CSI combined the corporate overhead and network participation fee into one
network participation fee, representing 10% percent of the total net revenues of
the PC. Revenues increased in fiscal year 1996 under the new form of contracts,
and in addition, as well as management believes the new contracts provided for
an improved business relationship with the PC's.
The purchases of the Fort Lauderdale, Miami and Chicago practices have
substituted the fees charged on direct expenses, and network participation fees
for patient revenues. Management believes that by owning these practices not
only will the Company increase its revenues, but the Company will be able to
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better control the operations of the medical practices. In April 1996, the Fort
Lauderdale clinic's independent contractor physician relocated to an
unaffiliated practice in Fort Lauderdale and took with him a majority of the
Fort Lauderdale facility's patients. The remaining patients were seen by both
the Company's Chairman and the Director of Clinical Trials, both physicians,
until a new physician was hired in August of 1996.
The Company expects that its marketing efforts will allow it to rebuild
the Ft. Lauderdale site's patient base. In addition, the Fort Lauderdale clinic
was awarded $696,000 in Ryan White Care funding by the Broward County Commission
in September of 1996 which is expected to be earned over a six month period
which commenced in October in order to provide primary care and support services
to medically indigent HIV patients. The first patients using the Ryan White
funding were seen in the Fort Lauderdale clinic in October of 1996. Management
believes that the Ryan White grant will bring new patients to the Fort
Lauderdale facility which will partially offset the loss of patients resulting
from the relocation of its primary physician.
The Ryan White Care Act was introduced in 1990 as a means of providing
primary care and support services to medically indigent HIV patients through
federal funding. Ryan White support accounts for over $205 million in annual
funding, which is apportioned to areas hardest hit by the epidemic. Broward
County's 1996 share of Ryan White funding is approximately $5.8 million. This
marks the first time that CSI has applied for government funding designated for
the treatment of HIV/AIDS patients. Following the success of its first
application, CSI intends to expand its participation in the Ryan White program
and apply for such grants for all of its sites nationally. Overall Ryan White
funding in 1997 is expected to surpass $990 million nationally. The Company can
give no assurances that additional grants will be awarded.
In applying for the Ryan White funding, CSI proposed providing
comprehensive ambulatory treatment services for the medically indigent HIV+
population in Broward County. Cost savings resulting from CSI's integrated care
model will allow it to care for a greater number of patients for the same total
dollars than could its competitors for the funding. CSI won the support of
government officials and local commissioners, who saw the need to expand
treatment options for this patient population in a fiscally prudent manner.
The Fort Lauderdale site will further benefit from its selection to
participate in four large clinical trials, the Immune Response Corporation's
HIV-1 Immunogen trial, Bristol-Myers Squibb's two lobucovair trials and Dupont
Merck's DMP-266 trial. Patient recruitment to these trials are is expected to
occur during the second and third quarters of fiscal 1997 and full enrollment
will have a material effect on revenues for those quarters. Although the Company
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has historically achieved full enrollment into its clinical trials, it can give
no assurances full enrollment will continue to be achieved.
In addition to the corporately owned medical practices and the IPAA's
which are in place in CSI's company owned facilities, CSI has developed a form
of Independent Practice Affiliate Agreement for its affiliations with medical
practices that own and operate their own facilities (hereinafter the "Privately
Owned Facility IPAA"). Under the Privately Owned Facility IPAA, CSI offers the
Independent Practice Affiliate a variety of services with the option of
utilizing some or all of the cognitive, research, and practice management
services which CSI makes available to its wholly owned facilities. The Privately
Owned Facility Independent Affiliate may contract to utilize any or all of the
following services:
i) An affiliation with CSI Managed Care, Inc. under which CSI will
market managed care services to national and regional payors, self insured
employers and HMO's and negotiate rates and contracts with said third party
payors;
ii) A research affiliation with CSI Clinical Trials, Inc. under which the
Independent Physician will participate with CSI Clinical Trials in clinical
studies conducted for independent third parties or for CSI own internally
developed protocols;
iii) Case management services and/or the implementation of in office
therapeutics;
iv) An affiliation with CSI Clinical Laboratories, Inc. under which CSI
Clinical Laboratory will act as the independent facilities primary laboratory;
and
v) A practice management affiliation under which CSI will bill and
collect for services rendered by the PC and make available to PC if requested,
the use of CSI's blanket factoring agreement with its factor.
CSI has entered into Privately Owned Facility IPAA's with established
medical practices in Philadelphia, New York City, Tampa, Tulsa, Los Angeles,
Denver, Chicago and Hampton, VA. The expansion of the IPAA network enables CSI
to conduct larger, multi- center clinical research trials and ultimately will
allow CSI to compete more effectively for national HIV disease-specific managed
care contracts and increases the information available for analysis under CSI's
Data Management Analysis and Royalty Agreement with the Center for Health
Outcomes and Economics, Inc., ("CHOE"), a wholly owned subsidiary of the
Bristol-Myers Squibb Company.
Support Services
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In addition to providing and updating treatment and research protocols,
CSI also offers other support services to its facilities. These currently
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include laboratory, pharmaceutical distribution, home care, out-patient infusion
services, clinical trial services and a managed care network.
1. LABORATORY SERVICES: CSI Clinical Laboratories is a licensed
clinical laboratory, operated to research standards. It currently
provides services to CSI's network of clinical facilities and CSI's
Privately Owned Facility Independent Practice Affiliates. The
laboratory specializes in hematology, immunogenetics and diagnostic
immunology; with particular expertise in flow cytometery and
immunoassay. General laboratory work is provided by a sub-contract
with a national reference laboratory. Laboratory result reporting
from all sources is through CSI's integrated information
technologies system. All information is archived in relational data
bases, enabling customized clinical presentation and post hoc
research analysis.
2. THERAPEUTIC SERVICES: CSI Therapeutics is the umbrella subsidiary
for pharmaceutical distribution, home care and infusion care.
Parenteral pharmaceutical distribution is made to PA's for in office
use of injectable medications by the PA. Oral pharmaceutical
distribution is made to PA's for dispensing by the PA in accordance
with applicable regulations. Home health care and out-patient
infusion care is available to patients of the PA through CSI,
primarily via a national sub-contract arrangements with an
unaffiliated home health care companies.
3. CSI CLINICAL TRIALS: CSI's Clinical Trials Division is responsible
for protocol review, budget development and presentation to the
clinical network of all Clinical Trials conducted for biotechnical
or pharmaceutical companies or CSI's internally developed protocols.
Research physicians and protocol specialists in the Clinical Trials
Division oversee study initiation, quality assurance, administrative
and regulatory matters. All source documentation from study sites
utilizing CSI's Affiliated Physicians Network will be captured on
CSI Information Technologies System clinical and research templates.
Data will be monitored centrally, automatically extracted to study
case report forms and transferred to sponsors for interim analysis.
Manual transcription of data from source documents to case report
forms and to the sponsor's computer data bases will be obviated. All
information will be transformed into electronic records, with
security standards making them acceptable for submission to
governmental regulatory agencies.
4. CSI Managed Care: CSI Managed Care, Inc. markets and administrates
discounted fee for service relationships with third party insurers,
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preferred provider organizations, health maintenance organizations
and self insured organizations. Once negotiated, the contracts are
made available to CSI's Independent Affiliated Physicians Network
whose physicians have the opportunity to accept or decline the
contract. Once it has accepted a contract, the Affiliate agrees to
honor the fee structure throughout its term.
CSI Managed Care, Inc. has entered into a Data Management Analysis
and Royalty Agreement with CHOE, a wholly owned subsidiary of the
Bristol-Myers Squibb Company underwhich CSI received $350,000 of
income in fiscal year 1995 for the sale of its historical data on
treatment outcomes for various treatment protocols. In addition, CSI
Managed Care will receive 50% of all net profits after expenses upon
CHOE's resale of all or portions of this data to third parties, if
any. CSI Managed Care intends to develop capitated care programs
which can be marketed independently or in conjunction with
pharmaceutical and other service providers.
In an April 1996 report by KPMG Peat Marwick LLP, CSI was cited as
providing an ideal model for HIV care. The report, "Integrated
Patient Care: Managing Health Care Costs, Maximizing Health Care
Value and Quality", stated that CSI's HIV disease management program
"works specifically because treatment of HIV involves a wide range
of medical, pharmaceutical, research and social services, which,
when integrated within a single facility, work together to help
prevent progression of the disease, lower treatment costs and permit
prospective cost management." The report continues to state that
"Results show that CSI patients continue working and experience
improved quality of life. Moreover, careful monitoring, preventive
care, aggressive prophylaxis combined with strong case management
reduces overall cost of care."
Marketing
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CSI targets its marketing efforts to a number of audiences, including
third party payors, prospective patients, physicians, and pharmaceutical and
biotechnology companies. Marketing to prospective patients is primarily in the
form of media advertising and seminars conducted for appropriate consumer
groups. CSI maintains its presence among physicians through articles in trade
journals written by CSI physicians as well as through presentations at domestic
and international conventions.
CSI continues to direct its marketing efforts to address third party
insurance companies, preferred provider organizations, health maintenance
organizations, and self-insured companies including the negotiation of managed
care contracts with some of these groups.
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In addition to the above, the Company also markets its services to
pharmaceutical and biotechnology companies in an effort to generate additional
revenues by performing research studies for those companies. Marketing efforts
in this area consist primarily of meetings with executives of such companies
where CSI marketing personnel can demonstrate that due to its large patient base
as well as the successful completion of similar studies in the past, CSI is well
suited to perform studies required by health care companies to obtain
governmental approval for new drugs or other therapies geared toward patients
with immunological and related diseases.
The Company's strategy is to expand its clinical network, to actively
pursue clinical research studies and to contract with managed care companies and
self-insured employers. The Company feels that this approach offers long term
strategic advantages to facilitate growth as the market for immunologic research
and treatment continues to rapidly expand.
Research
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The Company has 12 scientific and medical employees who spend a
significant portion of their time on research-related projects for the Company.
In June of 1996, the Company together with collaborators filed a patent
application for a method to isolate, culture and propagate the hepatitis E
virus(HEV). This method generally relates to the field of immunization against
viral diseases and the serological diagnosis of these diseases. In the event a
patent is granted, it would allow for the exclusive right to develop, market and
implement the invention for 18 years. HEV is one of the leading causes of acute
hepatitis in the developing world, especially in parts of Asia, Africa and South
America. An estimated 25% of cases of acute viral hepatitis in Egypt are due to
HEV infection. HEV can lead to death in up to 20% of infected pregnant women.
The ability to isolate, propagate and maintain disease-causing viruses for
experimentation has been an important first step in creating vaccines and
manufacturing kits for serological diagnosis of those diseases. The Company can
give no assurances that the patent will be approved.
In March 1996, the Company's Center for Special Immunology, Inc. (CSI)
subsidiary and ImmuCell Corporation (NASDAQ:ICCC) (BSE:IMU) agreed to initiate a
phase II efficacy study of ImmuCell's drug CryptoGAMTM bovine
anti-Cryptosporidium immunoglobulins for the treatment of cryptosporidiosis in
AIDS patients. Under the agreement, CSI will undertake the cost of conducting
the trial through its national clinical trials network in exchange for royalty
participation in future US and worldwide sales should the drug prove to be
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effective and marketing approval be obtained. The Company can give no assurances
that the marketing approval will be obtained.
The Company continues to be selected for participation in new clinical
trials. Most recently five of its sites have been included in large clinical
trials of the Immune Response Corporation's HIV-1 Immunogen trial, Bristol-Myers
Squibb's two lobucovair trials and Dupont Merck's DMP-266 trial. Patient
recruitment to these trials is expected to occur during the second and third
quarters of fiscal 1997 and full enrollment will have a material effect on
revenues for those quarters. Although the Company has historically achieved full
enrollment into its clinical trials, it can give no assurances full enrollment
will continue to be achieved.
Although advances have been made in the treatment of HIV disease,
relatively little research is being conducted toward benefiting those patients
who will continue to develop advanced AIDS. The Company's ongoing research
program in immune reconstitution, cooperatively supported by the CSI Foundation,
continue to place it in the forefront of developing research designed to treat
advanced AIDS.
Government Regulation
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The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which CSI operates will not change
significantly in the future. In general, regulation of health care companies is
increasing. The Company at certain times has been, currently is, or may in the
future become, subject to certain federal and state laws and regulations that
restrict physician self-referral, prohibit the payment or receipt (or offer or
solicitation) of any remuneration in exchange for or to induce the referral of
patients or the purchase of health care items or services, require laboratories
to accept Medicare or Medicaid reimbursement as payment in full, and impose
certain other requirements with respect to billing and collection. These laws
and regulations are complex and subject to continuous interpretation by the
federal and state agencies that administer them, and could be deemed to
encompass practices of the Company that previously may not have presented
compliance concerns. The Company has sought to conform its operations to the
requirements of these laws. In the event the Company were deemed not to have
complied with such laws, it could be subject to substantial penalties which, if
imposed, would have a material adverse effect on its results of operations and
financial condition.
1. Description of Certain Licensing, Certificate-of-Need, and Other Laws and
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Regulations.
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Every state imposes licensing requirements on individual physicians and on
many health care facilities and/or services to which physicians refer, including
certain facilities operated, and certain services offered, by the Company. In
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addition, many states require regulatory approval, including
certificates-of-need, before establishing certain types of health care
facilities, offering certain services, or making expenditures in excess of
statutory thresholds for health care equipment, facilities, or programs. Since
entering into service agreements with CSI, neither the PA's nor the CSI
facilities have been required to obtain certificates of need for their
operations. In connection with the expansion of existing operations and the
entry into new markets, the Company and its affiliated practice groups may
become subject to compliance with additional regulations. The Company believes
its operations are currently in material compliance with applicable licensing
laws. The ability of the Company to operate profitably will depend in part upon
the Company and its affiliated facilities obtaining and maintaining all
necessary licenses, certificates of need and other approvals and operating in
compliance with applicable health care regulations.
The laws and/or regulations of many states prohibit physicians from
splitting fees, or giving or receiving rebates or other forms of compensation
for services not actually rendered by the licensee. Additionally, a number of
states prohibit non-physician entities (such as the Company) from practicing
medicine and, in certain circumstances, from employing physicians. The Company
believes its current and planned activities do not constitute fee splitting or
the practice of medicine as contemplated by these statutes. There can be no
assurance, however, that future interpretations of such laws will not require
structural and organizational modifications of the Company's existing
relationships with its facilities.
2. Description of the Stark Law and Certain State Self-Referral Prohibitions.
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Certain prohibitions of federal law, commonly known as the "Stark Law,"
currently prohibit physicians from referring Medicare patients for clinical
laboratory and other designated health services including home infusion and
outpatient prescription drug services, if the referring physician (or a family
member) has a financial relationship (defined as an ownership or investment
interest or a compensation arrangement) with an entity, such as the Company,
that provides such services. The Stark Law contains numerous exceptions that
would permit otherwise prohibited referrals if all the requirements for the
exception are met. Among these are exceptions for certain qualifying
arrangements for space and equipment rental, provision of personal services, and
payment by physicians for items or services provided at fair market value.
The Stark Law also applies to the entities to which physicians refer
patients. Under the Stark Law, affected entities are prohibited from billing
Medicare, Medicaid, or any other party for services furnished pursuant to a
prohibited referral. At the present time the Company does not provide designated
health services or otherwise financially related referrals for Medicare or
Medicaid patients from physicians who are stockholders of the Company.
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The Stark Law also requires entities providing designated health services
to report to the Medicare authorities at the United States Department of Health
and Human Services ("DHHS") certain information concerning physicians (or their
family members) who may have ownership or compensation arrangements with
interest in such entities. In addition, regulations implementing the Stark Law
apply the statute to prohibit, among other things, the purchase of a
physician-owned laboratory from a referring physician unless, for a period of
six months after the transaction, the physician has no additional financial
relationship with the purchaser, except for relationships specifically excepted
under the statute. Violation of any of the Stark Law's provisions may result in
significant penalties, including denial of payment and civil money penalties of
up to $15,000 for each bill or claim improperly filed, up to $10,000 per day for
each day for which the required reporting has not been made, and possible
exclusion from the Medicare and Medicaid programs. The current prohibitions and
reporting requirements of the Stark Law, which have been applicable since
January 1, 1992 for clinical laboratory services and January 1, 1995 for all
other designated health services, do not apply to referrals for clinical
laboratory services furnished to a physician's non-Medicare or non-Medicaid
patients.
There are a number of federal legislative proposals that could further
restrict the ability of health care providers to refer patients to entities in
which the providers have a financial interest by, among other things, extending
Stark-like prohibitions to all referrals (not just referrals of Medicare or
Medicaid patients) made by financially interested physicians. There are also
proposals before Congress to narrow the scope of the current Stark Law,
including elimination of compensation arrangements from the definition of
financial relationships which trigger the referral prohibition. A number of
these proposals are tied to broaden federal budget congressional proposals. It
is not possible to predict the outcome of pending legislation and any impact on
the federal self-referral and regulations.
In addition to the federal Stark Law and federal "all payor" proposals,
Company operations are also subject to an increasing number of state
self-referral provisions that limit or ban referrals for some or all health care
items or services if the physician, or a family member, has an investment or
other financial relationship with the entity providing such items or services.
In states that have enacted such statutes, the provisions typically apply to all
payors. Florida, California, and Illinois, where the Company currently operates
clinic sites, all have enacted self- referral statutes, although the specific
prohibitions vary and are subject to numerous exceptions. For example, unless
one of the statutory exceptions is satisfied, the Florida statute prohibits
patient referrals for certain designated health services (including clinical
laboratory services), as well as referrals for other health care items or
services, if the referring physician or an immediate family member is an
investor in entities providing such items or services. Effective January 1,
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1995, California law prohibits licensed health professionals, including
physicians, from referring patients for clinical laboratory or home infusion
services (among other services) if the licensee or a family member has a direct
or indirect financial interest in the entity receiving the referral. Since
January 1, 1993, Illinois has prohibited health care workers from referring
patients for health services to entities outside the worker's office or group
practice in which the worker is an investor, unless the work is personally
involved in providing care to the referred patient. Violations of these state
laws can subject entities to significant penalties.
New York has enacted self-referral provisions. New York law forbids
practitioners authorized to order clinical laboratory services from making
referrals for such services if the practitioner or an immediate family member
has a financial relationship with a clinical laboratory or pharmacy services
provider to whom the referral is made.
The Company believes that its current operations are in compliance with
the Stark Law and state self-referral prohibitions within the states in which
the Company has operations.
3. Description of the Federal and State Anti-Kickback Statutes.
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The Medicare/Medicaid "anti-kickback" statute imposes significant civil
and criminal sanctions for, among other things, giving or receiving any payment
or remuneration, whether direct or indirect, in cash or in kind, in order to
induce the referral of patients for items or services for which payment may be
made by the Medicare or Medicaid (or certain other federally-funded state health
care) programs. The term "remuneration" is not directly defined in the law, but
has been interpreted in the safe harbor regulations issued by the DHHS Office of
the Inspector General ("OIG"), and understood by government officials and the
courts to include, in addition to any kickbacks, bribes, or rebates, other
payments of any kind, including fees paid for services and "return on
investment." Moreover, this statute has been broadly interpreted by the courts,
which have stated that the law is violated if even one purpose (as opposed to
the sole or the primary purpose) of the remuneration is to induce the referral.
While the item or service must be reimbursable in whole or in part by Medicare
or a state health care program in order to trigger the statute, it is also well
established that no actual financial harm need result to the program in order
for a violation to be found.
Because of the broad sweep of the statute, the OIG has adopted regulations
that create "safe harbors" for certain business practices or arrangements. Among
these are safe harbors for certain qualifying investment interests, space and
equipment leases, and personal services and management contracts. To benefit
from a safe harbor the practice or arrangement must meet all the regulatory
requirements. Failure to qualify for a safe harbor does not necessarily mean
that the practice is illegal; however, arrangements that are of the same general
13
<PAGE>
type as those for which a safe harbor is available may be subject to scrutiny if
they fail to satisfy all the criteria for the appropriate safe harbor.
An increasing number of states, including California, Florida and New
York, have enacted anti-kickback provisions. These statutes, which can carry
significant civil and/or criminal sanctions, generally prohibit the payment of
remuneration, rebates, refunds, or other consideration, whether directly or
indirectly, as an inducement for referrals for health care items or services.
Unlike the federal anti-kickback statute, which is largely limited to referrals
for items or services paid by Medicare or Medicaid, state anti-kickback
provisions typically, though not always, apply to all payors. In many cases
there is little if any formal guidance provided by the courts on the reach of
many of these statutes. Because they serve a function analogous to the federal
anti-kickback provision, however, it is possible that state courts could apply
the principles and broad interpretation given to the federal statute.
Even where no separate anti-kickback provision has been enacted, the
professional licensing laws for most states, including some in which the Company
currently operates or intends to commence operations, incorporate provisions
that declare fee-splitting or the paying or receiving of kickbacks, rebates, or
other remuneration in exchange for referrals to be unprofessional conduct and
grounds for state disciplinary action by the licensing board.
4. Description re: Medicare/Medicaid Reimbursement.
-------------------------------------------------
Laboratories are required to bill Medicare or Medicaid directly and to
accept Medicare or Medicaid reimbursement as payment in full. In 1984, Congress
established a reimbursement fee schedule for clinical laboratory testing
performed for Medicare beneficiaries (excluding hospital in-patients). State
Medicaid programs are prohibited from paying more than the Medicare fee schedule
stipulates for testing for Medicaid beneficiaries. When initially established,
the Medicare fee schedules were set at 60% of prevailing local charges. Medicare
reimbursement rates for clinical laboratory testing subsequently have been
reduced several times pursuant to congressional mandate. The reductions in
Medicare reimbursement rates have been offset to some extent by increases in
both the national cap and local fee schedules tied to the Consumer Price Index
("CPI"). The above changes have not had, and are not expected by the Company to
have, a material adverse effect on the Company's results of operations. Any
further significant decrease in such fee schedules, however, could have a
material adverse effect on the Company.
5. Description of Health Care Reform Efforts.
------------------------------------------
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental changes. The Clinton
Administration had proposed comprehensive programs to reform the health care
14
<PAGE>
system including: (i) increasing access to health care for the uninsured; (ii)
controlling the continued escalation of health care expenditures within the
economy, and (iii) using health care reimbursement policy to help control the
federal deficit. Some reforms which were under consideration included mandated
basis health care benefits, controls on health care spending through, among
other things, limitations on the growth of private health insurance premiums and
Medicare and Medicaid spending, the creation of large insurance purchasing
groups, and fundamental changes to the health care delivery system. While the
Clinton Administration's reform proposals were not enacted in comprehensive
form, Congress did enact legislation, signed by President Clinton requiring the
portablity of health care coverage and there are continuing efforts, both by
Congress and the private sector, to limit health care costs, the outcome of
which is unknown at this time.
Without waiting for national health care reform efforts, various states,
including several in which the Company currently operates, have enacted, or are
considering enacting, their own health reform laws. Florida, for example, has
enacted its own package of reform measures, which includes establishment of a
state agency responsible for developing practice guidelines for a range of
procedures and services (including clinical laboratory services); establishment
and oversight of community health purchasing alliances; development of a basic
benefit package for the small group insurance market; and implementation of
Medicaid reform. Task forces and commissions also have been organized in New
York and other states for the purpose of evaluating various reform proposals and
making recommendations for state action.
The Company anticipates that Congress and state legislatures will continue
to review and assess alternative health care delivery systems and payment
methodologies and public debate of these issues will likely continue in the
future. Due to uncertainties regarding the ultimate features of any reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the Company. The actual announcement of
reform proposals and the investment community's reaction to such proposals,
announcements by competitors and payors of their strategy to respond to reform
initiatives and general industry conditions could produce volatility in the
trading and market price of the Company's Common Stock.
FDA APPROVAL. Development and marketing of new biological and drug
products is subject to strict regulation through the FDA. Such regulations
relate primarily to safety and efficacy of pharmaceutical products, but also
govern manufacturing, labeling, advertising and marketing.
In order to initiate clinical trials on a product, extensive basic
research and development information must be submitted to the FDA in an IND
application. The IND application contains a general investigational plan, a copy
15
<PAGE>
of the investigator's brochure, copies of all the protocols for the planned
studies, a review of the chemistry, manufacturing and controls information for
the drug, pharmacology and toxicology information, any previous human experience
with the drug, results of preclinical studies and any other information
requested by the FDA.
If approval is obtained to proceed to clinical trials based on the IND
application, initial trials, categorized as Phase 1, are instituted. The initial
or Phase 1 trials are used to determine the general overall safety profile of
the drug. Once the safety of the drug has been established, Phase 2 and Phase 3
efficacy trials are conducted on expanded patient groups.
If Phases 1 through 3 are successfully completed, the data from these
trials are collected into an NDA, which is filed with the FDA in an effort to
obtain marketing approval.
Competition
-----------
With respect to its patient clientele, CSI competes with other physician
practices, independent physician associations (IPAs) and hospital-based or free
standing clinics, some of which are substantially larger than CSI's network. In
conducting clinical research, CSI competes with public and private medical
research companies and academic institutions, many of which have substantially
greater financial and technical resources than CSI and are solely focused on
clinical trial development.
Several major companies and organizations, both public and private, are
developing IPA networks solely to treat HIV disease. It is the intent of these
groups to then contract with managed care entities for the treatment of HIV. The
Company believes that it can compete favorably in this market since it has an
already established IPA model network upon which to expand and extensive
expertise in HIV treatment and research.
Significant Customers
---------------------
Three facilities had entered into a contract with entities controlled by
officers of CSI, until the sale of two of the entities to CSI on January 1, 1996
and the sale on September 30th to the Management Service Organization created by
CSI on September 30, 1996. These entities are William M. Reiter, M.D., PA, a
Professional Association, and Paul Cimoch, M.D., PC, a Professional Corporation.
Revenues derived directly or indirectly through these professional associations
amounted to $2,717,000, $4,379,000 and $3,342,000 or 37%, 47% and 43%,
respectively, of revenues from continuing operations for fiscal years 1996, 1995
and 1994, respectively.
Employees
---------
As of December 31, 1996, the Company had approximately 81 employees,
including 4 executive officers, 30 office and administrative personnel, and 47
field office personnel. The Company maintains personal liability and malpractice
insurance which covers all employees.
16
<PAGE>
The Company considers its employee relations to be good and is not a party
to any collective bargaining agreement.
Insurance
---------
The Company maintains malpractice insurance with coverage of up to
$1,000,000 (which is in addition to the medical malpractice insurance coverage
maintained by the physicians who practice at the Company's facilities).
Management of the Company believes such coverage is adequate.
17
<PAGE>
ITEM 2. PROPERTIES
- ------- ----------
The Company is obligated pursuant to lease agreements for the following
offices:
Annual
Square Lease Expiration
Feet Payment Date
------- ------------- ----------
Corporate Office- Ft. Lauderdale, FL 15,170 $204,792 (1) 2003
Fort Lauderdale - Medical Office 5,397 78,256 1998
Irvine, CA 3,988 107,756 1997
Miami, FL 4,255 83,769 2000
San Diego, CA 4,566 73,829 1997
Chicago, IL 3,787 107,886 (2) 2002
(1) For the lease years ending July 1, 1997 and July 1998, annual rental is
$204,792 increasing to $265,475 thereafter until the lease expires.
(2) Increases by approximately $4,000 per year.
In addition to the lease amounts, the Company pays additional amounts for
operating expenses, taxes and parking.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
On July 15, 1993, the Company and certain of its officers and directors
were served with three separate proposed class action complaints filed in the
United States District Court for the Southern District of Florida. In the first
action, Neil Abrams and Ida Proctor, on Behalf of Themselves and All Others
Similarly Situated v. Health Professionals, Inc., Martin Weissman, William
Reiter, M.D., David Kirchenbaum and Susanne Loarie, the plaintiffs (stockholders
of the Company) alleged that the defendants withheld material adverse
information and made material misrepresentations relating to the Company, its
finances and its business prospects, in various press releases and
publicly-filed documents in an effort to deceive plaintiffs and to maintain an
artificially inflated price of the Company's common stock, in violation of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, and the common law of fraud and deceit. The plaintiffs
alleged they purchased stock in the market in reliance upon the
misrepresentations and the integrity of the then market price of the stock, and
that they sustained damages when the price of the Company's stock declined
substantially in June 1993, subsequent to the publication of a number of
negative articles about the Company. In the second action, David G. Lancaster
and Nancy L. Lancaster, Trustees for the Lancaster Family Trust v. William M.
Reiter, David Kirchenbaum, Susanne Loarie and Health Professionals, Inc.,
generally made the same claims under the federal securities laws and the common
law of fraud, and also under common law negligent misrepresentation. In
addition, it was alleged that the individual defendants pursued such course of
conduct to protect their own positions with the Company and the value of their
respective securities holdings in the Company. In the third action, Andrew
Kiskell vs. Health Professionals, Inc., William M. Reiter, M.D., and David
Kirchenbaum, the plaintiff generally made the same claims as were asserted in
the two foregoing class actions.
18
<PAGE>
In each of the three foregoing cases, as originally filed, the plaintiffs
sought unspecified monetary damages and attorneys' fees, which the Company
believes are not quantifiable at this time. In December 1993 these three class
actions were consolidated in to a single proposed class action, During 1994, the
court certified the class of plaintiffs and set a tentative trial date for July
1996. In May, 1995, the class action plaintiffs agreed to a dismissal of the
suits in exchange for an extension of the statute of limitations until September
30, 1996. As of September 30, 1996, the statute of limitations expired without
any additional action being filed.
In early 1993, the Securities and Exchange Commission ("SEC") advised the
Company that it had commenced a formal investigation of potential securities law
violations in connection with certain trading activities in the Company's
securities and in April 1993 requested certain information from the Company in
connection with that investigation. The Company has complied with this request.
In December 1994, the SEC asked that William Reiter, MD, David Kirchenbaum and
Susanne Loarie produce certain information in connection with the investigation.
Dr. Reiter, Mr. Kirchenbaum and Ms. Loarie have complied with these requests.
In January, 1995, attorneys for the SEC took sworn statements from Dr. Reiter,
Mr. Kirchenbaum and Ms. Loarie. Since said statements were taken, the SEC has
not made any further requests for information.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
Price Range of Common Stock
- ---------------------------
The Company's common stock, par value $.02 per share common stock, is
traded on the American Stock Exchange ("AMEX") under the symbol "HPI" and the
Company's Class B Warrants trade on NASDAQ under the symbol "HELP2". The
Company's Common Stock was suspended from trading on the AMEX from February 17,
1995, to September 29, 1995 and during such period traded on the
over-the-counter market. The Company does not fully satisfy all of the financial
guidelines for listing on the AMEX and accordingly, there can be no assurance
that the AMEX listing will be continued. In connection with the Company's
agreement with AMEX to resume trading, the Company agreed, to a 1 for 10 reverse
stock split, which was approved at the Company's annual meeting of shareholders
on April 19, 1996 and became effective on April 26, 1996. All stock and warrant
prices have been adjusted to reflect the reverse stock split. The Company's B
Warrants which are exercisable until December 17, 1997 at $5.17 per share, were
deleted from NASDAQ as of March 15, 1995.
The following table sets forth the range of high and low closing sales or high
bid and high asked prices for the Company's common stock and B Warrants on the
respective Exchanges as reported for the periods indicated.
Common Stock B Warrants
Fiscal Year High Low High Low
- ----------- ---- --- ---- ---
1994
1st Quarter................. 15 5/8 5 5/8 3 3/4 1 1/4
2nd Quarter..................12 1/2 6 7/8 2 1/2 1 1/4
3rd Quarter..................10 5 1 1/4 5/8
4th Quarter..................12 1/2 5 5/8 1 1/4 5/8
1995
1st Quarter.................. 7 1/2 3 1/8 1 1/4 5/8
2nd Quarter.................. 4 3/8 5/8 1 1/4 1 5/16
3rd Quarter.................. 6 1/4 30/32
4th Quarter.................. 7 1/2 2 1/2
1996
1st Quarter.................. 5 1 7/8
2nd Quarter.................. 5 1 7/8
3rd Quarter.................. 5 1/4 1 14/16
4th Quarter.................. 4 1/4 2 9/16
1997
October 1-December 31, 1996 3 3/8 1 3/8
As of December 31, 1996 there were approximately 711 holders of record of
the Company's common stock.
The Company has not paid any cash dividends on its common stock. For the
foreseeable future, it is anticipated that any earnings that may be generated
from the Company's operations will be used to finance the growth of the Company
and that cash dividends will not be paid to holders of common stock.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
(dollars in thousands, except per share data)
Fiscal Year Ended
September 30,
---------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $7,339 $9,390 $7,802 $7,994 $4,585
Loss from continuing
operations (2,960) (1,097) (9,092) (2,571) (2,615)
(Loss) from
discontinued operations -- -- -- (1,093) (5,349)
Net (loss) (2,960) (1,097) (9,092) (3,664) (8,014)
Net (loss) per share (1):
From continuing
operations (.96) (.52) (4.86) (1.72) (1.96)
From discontinued
operations - - - (.73) (4.06)
Net (loss) per share (.96) (.52) (4.86) (2.45) (6.02)
As of September 30,
---------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Balance Data Sheet:
Working capital (deficit) $(1,673) $298 $ (921) $ (28) $1,800
Total assets 12,242 9,634 10,438 16,243 15,455
Long term debt, including
capitalized lease
obligations (less current portion) 1,519 4,365 4,119 1,489 2,378
Stockholders' equity 5,307 1,030 2,146 10,941 8,789
Book value per share 1.17 .47 1.16 7.31 6.60
</TABLE>
NOTE: Fiscal 1994 includes a $4,000,000 write down of the excess cost over the
net assets acquired and a $1,000,000 provision for a note discount.
(1) Based upon the weighted average number of shares of common stock
outstanding, including common equivalent shares (stock options and
warrants), if dilutive.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
BACKGROUND AND BUSINESS PLAN DEVELOPMENT
- ----------------------------------------
CSI currently owns and operates six medical clinic and research sites
located in Florida (Fort Lauderdale, Miami Beach), California (Irvine, Los
Angeles, San Diego) and Illinois (Chicago). The Company had IPA agreements with
physician's professional corporations to utilize these facilities prior to
January 1, 1996. On January 1, 1996, the Company purchased the medical practices
in Fort Lauderdale and Miami. On April 1, 1996, the Company purchased the
medical practice in Chicago. On September 30, 1996, the Company created a
Management Service Organization in California, which purchased the medical
practice in Irvine, California. As of September 30, 1996, the IPAA agreements
still existed at the other facility in San Diego, CA. The purchases of the Fort
Lauderdale, Miami and Chicago practices have substituted the fees charged on
direct expenses, and network participation fees for patient revenues. Management
believes that by owning these practices not only will the Company increase its
revenues, but the Company will be able to better control the operations of the
medical practices. Additional physician practices located in Florida, Illinois,
California, Kansas, Oklahoma, Virginia, Texas, Pennsylvania and New York are
affiliated with the CSI network and utilize CSI services to varying degrees.
The Company's principal business objective is to extend the full
capabilities of its Information Technologies system (ITS) to all its currently
affiliated sites and to expand the number of owned and affiliated sites.
Management believes that this will increase its revenue base to meet its central
operating and development expenses and will then generate substantial operating
profits. The extension of the ITS to all affiliated sites will allow the Company
to provide more comprehensive services to these sites, thereby increasing the
revenue earned from each. The expansion of owned and affiliated sites will
create further market outlets for the Company's services and allow greater
market capture of the underlying populations requiring those services. The
expanded network will be positioned to capture health services contracts as a
national managed care disease-specific provider, will provide larger economies
of scale, will provide more clinical data for medical and financial analysis and
will allow CSI to conduct larger clinical trials.
The Company continues to focus further on the implementation of its
business plan by, purchases of established practices, establishing new strategic
alliances, either by purchase or other affiliation, obtaining new clinical
trials contracts, contracting for the sale of its historical outcomes data while
also attempting to locate additional sources of cash. The infrastructure
continues to be developed to service a greater number of facilities. On December
31, 1995 and on February 13, 1996, the Company closed on two loans and
securities purchase agreements from which the Company received net proceeds of
$700,000 in loans. The Company used $100,000 of the proceeds from the loans to
acquire a non-exclusive seven year unlimited user license for Clinitec
International, Inc.'s NextGenTM electronic medical records software. The
remainder of the funds was used in operations. On April 30, 1996, the Company
executed a selling agreement for the sale of 500,000 shares of its stock from
which the Company received net proceeds of $2,000,000. The Company used the
proceeds to open a new affiliate center, reduce existing trade and vendor debt
and for working capital. The Company is still utilizing cash from operations and
will require additional sources of cash. These sources of cash include the cash
received from new clinical trials contracts, cash from anticipated increase in
operating activities and the additional cash to be received from certain
strategic alliance contracts. No assurance can be made that sufficient
additional sources of cash will be available on terms reasonably acceptable to
the Company, The Company can give no assurances that future revenues from the
operations discussed in Item 1, "organization and Operation" above will be
consistent with historical revenues or of the magnitude of additional revenues
to be expected from the implementation of the new CSI programs.
22
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The Company's facilities revenues are derived from rendition of medical
services (where allowed by State Law) practice management services provided
directly or from providing diagnostic laboratory, in-office infusion care and
oral pharmaceuticals to the patients of the medical professional associations
under contract with CSI. Home infusion revenues and out patient infusion care
results from services provided to patients of the professional medical
associations, primarily through sub-contracts with home infusion companies. In
addition, the Company earns revenues from performing research studies for
pharmaceutical and biotechnology companies and from the sale of its historical
outcomes data.
Year Ended September 30,
1996 1995 1994
----------- ---------- ----------
Total facilities revenues $ 5,974,000 $7,435,000 $4,532,000
Home health 935,000 1,209,000 3,032,000
Other revenue 430,000 746,000 238,000
----------- ---------- ----------
$ 7,339,000 $9,390,000 $7,802,000
=========== ========== ==========
Total facilities revenues decreased by $1,461,000, Home Health revenue
decreased by $274,000 and other revenues decreased by $316,000 in fiscal 1996 as
compared to fiscal 1995. Significant factors causing the decrease in total
facilities revenues was due in part to facilities whose contracts were not
renewed, which provided revenues of $1,928,000, a decrease in network
participation fees and facilities management revenue of $63,000 and $359,000
respectively, due to purchases of physician practices, offset by patient
revenues of $379,000, a decrease in research revenue and lab revenue of $105,000
and $34,000 respectively, a decrease in pharmaceutical revenue of $293,000, due
to facilities no longer dispensing oral pharmaceuticals and an increase in
infusion revenue of $942,000. The decrease in home health revenue of $274,000 is
primarily due to the cyclical nature of the services required to care for these
patients in an integrated health care setting and a shifting of service
locations to the physician's office. The decrease in other revenue of $316,000
is due the conclusion of certain contracts prior to the initiation of new
contracts. The increase in total facilities revenues of $2,903,000 in fiscal
1995 as compared to fiscal 1994, was due in part to certain additional
facilities which provided revenues of $499,000 during fiscal 1995. However,
these contracts were not renewed and did not produce revenues in the third and
fourth quarter of fiscal 1995. The remaining increase in total facilities
revenue of $2,404,000 relates to performing in office infusion care where
previously the services were performed at the patients' home and an increase in
patient flow at the remaining facilities. The decrease in home health revenue of
$1,823,000 in fiscal 1995 compared to fiscal 1994 was indicative of an
increasing number of cases which were not included in the Company's subcontract
relationships and a shifting of service locations to physician's office, the
effect of which was to reclassify the revenue to facilities revenue. The
increase in other revenue in fiscal 1995 compared to fiscal 1994 was principally
due to the procurement of certain new clinical trials and special projects
including the sale of outcomes data to CHOE all of which generated $571,000
during fiscal 1995.
The gain on the sale of securities in fiscal year 1996 is due to the
Company exercising warrants previously issued to the Company to purchase 22,191
shares of stock in a former subsidiary of the Company and the exchange of the
shares to 9,735 shares of unregistered stock in a publicly traded company. The
Company sold its interest in 8,705 shares of the publicly traded company to an
unrelated party for $145,000. The Company still holds 1,030 additional shares of
the publicly traded company, which it has valued at $19,000.
23
<PAGE>
Interest and other income decreased to $ 59,000 for fiscal 1996 as
compared to fiscal 1995 of $219,000, which decreased from fiscal 1994 of
$326,000, as a result of the decrease in the note receivable from the sale of
the discontinued operations.
Direct service expense as a percentage of operating revenues was 55% for
fiscal 1996 as compared to 44% for fiscal 1994. This increase is primarily due
to the purchase of physician practices which increased the Company's salary
cost, decreasing revenues, since the cost associated with those revenues are
relatively fixed. This was offset by facilities no longer dispensing oral
pharmaceuticals, as the expense was greater than the resulting revenues, and by
facilities in fiscal year 1995, whose contracts were not renewed, and a decrease
in Home Infusion. Direct expenses in 1994 were 67% of revenues. Direct expenses
as a percentage of revenues decreased in 1995 compared to 1994 and is
attributable to the increase in revenues. The costs associated with those
revenues are relatively fixed.
Selling, general and administrative expenses increased by $376,000 (6%) to
$6,240,000 for fiscal 1996 as compared to the previous fiscal year. This
increase relates primarily to an increase in the use of consulting and
professional fees offset primarily by a decrease in wages. Selling, general and
administrative expenses decreased by $316,000 (5%) to $5,864,000 for fiscal 1995
compared to 1994. This decrease primarily relates to a decrease in amortization
of goodwill and a decrease in professional fees.
Prior to its acquisition of certain physician practices, the Company has
entered into contractual relationships with professional medical associations
for utilization of its facilities and in connection therewith, made cash
advances for the professional association to meet their cash flow requirements.
The Company recorded reserves related to advances due from the professional
associations with which CSI has contracted, based upon the excess of the amounts
due from the professional associations above the collateral, primarily the
receivables of these professional associations and certain other collateral,
even though such advances are expected to be collected from future operations.
The recovery in PA physician association reserves of $765,000 in fiscal year
1996 principally resulted from an increase in collateralization of the
receivables provided by one of the former CSI shareholders who is now a director
of the Company and from the collection of the advance and upon the sale of the
Chicago practice to the Company. The remaining recovery was due to the
liquidation of the advance made by the Company to the Professional Association
owed by the Chairman of the Company, upon the sale of the Florida practice to
the Company. The reserve balance is reviewed by the Company on a quarterly
basis. Any increases or decrease to such balances by the Company could
materially impact reporting results. During the 1995 fiscal year, the Company
recorded a $20,000 reserve relating to these advances. During 1994, the Company
reversed $58,000 of the reserve recorded in 1993, since that amount was no
longer required.
Interest decreased to $518,000 in fiscal 1996, as compared to $575,000 in
fiscal 1995. Interest was $321,000 in fiscal 1993. The decrease was primarily
related to the termination on February 21, 1996 of the obligation due to the
former CSI shareholders, due to the conversion of the obligation due the former
CSI shareholders to stock. The increase in fiscal 1995 compared to fiscal 1994
was primarily due to increased factoring of medical billings, vendor late
charges related to past due amounts and the interest related to the obligation
due the former CSI shareholders.
Certain litigation matters, including an FDA inquiry and an SEC
investigation required the Company to incur litigation costs of $379,000 in 1994
in connection with these matters. The Company was not required to incur
additional expenses in connection with these matters during fiscal 1996 and
fiscal 1995, and litigation cost decreased to $75,000 and $62,000, respectively.
24
<PAGE>
The Company incurred research and development expenses of $403,000 in 1996
$20,000 in 1995 and $200,000 in 1994, primarily in connection with its Immune
Reconstitution Cell-Transfer Therapy for late stage AIDS patients. The decrease
in 1995 relates to the former CSI shareholders contributing funds to the
Foundation sponsoring the research, which reduced the Company's funding
contribution.
In 1994, the Company recorded a $4,000,000 write down of goodwill and a
provision of $1,000,000 to write notes receivable down to its estimated cash
value. The write down of the goodwill was made based upon management's belief
that without an infusion of cash, impairment to the asset may be other than
temporary. The $1,000,000 write down to the note was made as a result of
reflecting the note at its estimated current cash value. As a result of the
foregoing, the Company reported losses from continuing operations for fiscal
1996, 1995, and 1994 of $2,960,000, $1,097,000 and $9,092,000, respectively.
$624,000 of the fiscal year 1996 loss is attributable to non-recurring
consulting expenses in connection with the consulting agreements entered into in
April 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1996, the Company had stockholders' equity of
$5,307,000 and a working capital deficit of $1,673,000 as compared to
stockholders' equity of $1,030,000 and working capital of $298,000 at September
30, 1995.
The Company used cash in its operating activities of approximately
($2,315,000),($1,262,000) and ($2,585,000), respectively, for fiscal years 1996,
1995 and 1994. The increase was primarily a result of an increase in the net
loss, an increase in previously established bad debt recoveries and the net
effect of acquisitions during the year. This was offset by a decrease in
accounts receivable and an increase in accounts payable and accrued expenses as
a result of the Company being unable to pay for goods and services in the normal
course of operations, and securities issued for services. Investing activities
provided cash in 1996 and 1995 as a result of payments of notes receivable,
including $369,000 and $830,000 from a discounting of the note receivable with
Premier in 1996 and 1995, respectively. Financing activities provided cash from
the sale of common stock, and the proceeds of two loans discussed below, offset
by the payment of a loan to the New York Attorney General. CSI and certain
medical professional associations under contract with subsidiaries of CSI are a
party to a $2,500,000 factoring agreement. The agreement provides for factoring
of eligible receivables, of which approximately $22,000 was available for
borrowing at December 31, 1996, and $999,000 has been drawn at December 31,
1996. Fees charged by the factor for factoring was amended in June, 1996 from an
initial 1% of all eligible receivables to an initial 1% of eligible receivables
up to $5,000,000 a year. The fee then progressively decreases to .75% for
eligible receivables in excess of $10,000,000 a year. Funds are then advanced by
the factor at 2% over prime. In fiscal years 1996 the Company sold 500,000
shares of its post-split stock and received $2,000,000 in proceeds under
Regulation S to a group of foreign investors. In fiscal year 1995, the Company
did not sell any common stock or receive any funds related to the exercise of
common stock equivalents. The present market price of the Company's common stock
is at or below the conversion price of many of its existing common stock
equivalents and accordingly, unless the Company's market price per share
materially increases, future conversions are not anticipated. The improvement in
1995 principally resulted from the decreased net loss. In 1995 the increase in
accounts receivable was primarily due to slower collections on increased
billings and amounts due from clinical trials and other revenues. Accounts
payable and accrued expenses increased as a result of the Company being unable
to pay for goods and services in the normal course of operations offset by the
Company repaying vendors out of the funds received from discounting the note
receivable due from Premier Medical Services. Investing activities provided cash
in 1995 and 1994 principally as a result of payments of notes receivable,
including $830,000 from a discounting of the note receivable with Premier in
25
<PAGE>
1995. In 1994, the Company also renegotiated the note receivable with Premier
which resulted in the Company receiving an accelerated cash payment of
$1,000,000, Premier releasing its set-off rights and Premier becoming the prime
lessee of certain office space.
The Company is continuing its efforts to expand its network of company-owned
facilities and is acquiring established physician practices despite its deficit
in working capital. Certain start-up and acquisition costs increase the Company
deficit in working capital which deficits should ultimately be offset by
increased revenues which include several research studies that the Company has
recently received. The research studies include the Immune Response
Corporation's HIV-1 Immunogen trial, Bristol-Myers Squibb's two Lobucovair
trials and Dupont Merck's DMP-266.
The Company has gone through a corporate restructure over the last several
months in order to reduce its salary and other related expenses. At the present
rate for the year ending September 30, 1997, the Company would experience a net
reduction in salaries and other related expenses of approximately $311,000, with
an annualized savings of approximately $396,000. The Company anticipates that
cash will continue to be used in its operating activities during fiscal 1997, a
portion of which will be funded by the factoring arrangement. Unless additional
sources of cash are located and operating activities begin producing a positive
cash flow, the Company may be unable to continue as a going concern. In their
opinion relating to the Company's financial statements for the year ended
September 30, 1996, the Company's independent certified public accountants state
that, the Company has suffered recurring losses form operations, has a net
working capital deficiency and is experiencing ongoing operating losses that
raise substantial doubt about the Company's ability to continue as a going
concern.
On December 28, 1995 and February 13, 1996, the Company closed on two
loans and securities purchase agreements with SunDance Venture Partners, Ltd.
(SunDance), from which the Company received net proceeds of $700,000 in loans.
Both notes provided for payments of interest at 12% per annum for the first
twenty-four months followed by payment of interest at 13% for the next twelve
months. Commencing April, 1999 and May, 1999 respectively, the principal will be
paid in eight (8) equal quarterly payments which will include interest at the
rate of 15% per annum, with payment in full made on or before December, 2000. In
connection with the loans, the Company issued SunDance Common Stock Purchase
Warrant for the purchase of 280,000 shares of the Company's common stock at an
exercise price of $2.50 per share, HPI common stock was trading at $2.00 when
the first loan term was concluded and at $2.80 when the second loan terms were
concluded. The warrants will expire if not exercised on or before January 1,
2001 and are callable by the Company after thirty (30) months if HPI's common
stock trades above $10.00 for twenty consecutive trading days. If exercised, the
consideration paid to the company for the shares will in itself repay the entire
principal amount of the loan. The funds were utilized for working capital.
On December 29, 1995, The Company closed on the acquisition of a
non-exclusive seven (7) year unlimited user license for Clinitec International,
Inc.'s NextGenTM electronic medical records software. This software was selected
as the clinical user interface for the Company's integrated health care delivery
system and will facilitate the expansion of the Company's Center for Special
Immunology, Inc. (CSI) clinical network. The consideration paid for the license
was $250,000, of which $100,000 was paid at closing with the balance to be paid
over the next three years.
In February 1996, the Company's Board of Directors approved an agreement
to immediately convert, $3,000,000 of the $3,193,000 convertible debt owed to
the former CSI shareholders into 1,200,000 (post-split) shares of the Company's
common stock valued at $2.50 a share (post-split).
On April 26, 1996, the Company entered into a selling agreement with
Societe Financiere du Seujet, Ltd., a foreign investment banking concern, from
26
<PAGE>
which the Company received $2,000,000 on May 3, 1996 from the sale of 500,000
shares of its post-split stock at $4.00 per share. The funds were utilized in
part for working capital.
Due to the proceeds from the sale of 500,000 share of the Company's post-
split stock and from the conversion of $3,000,000 of convertible debt into
$1,200,000 (post-split) share of the Company's common stock, the Company has
been able to improve its debt to equity ratio on the consolidated balance sheet
to 58% at September 30, 1996 compared to 835% at September 30, 1995.
In order to continue as a going concern in 1997, the Company must generate
cash flow from operations, continue the informal arrangement with the Company's
factor which in connection therewith the Company's Chairman has provided the
Factor with his personal guarantee; produce additional revenues from completed
contracts with certain strategic partners, purchases of physician practices and
other related entities, generate revenues from several new contracts with new
medical facilities, or raise additional cash from the sale of stock or debt.
While all these sources of capital are being pursued, the Company intends to
continue reducing costs, work with the vendors to obtain extended credit terms
and increasing revenues at existing facilities. No assurances can be made that
the Company can obtain additional sources of capital or that operations can
produce positive cash flow.
SUBSEQUENT EVENTS
- -----------------
On October 28, 1996, the Company purchased a medical practice located in
Los Angeles, California. The acquisition price for the practice was paid with
168,000 shares of The Company's HPI common stock and will be supplemented by an
earn-out. The earn-out will also be paid in Company shares and will be
calculated at 75% of collected revenues derived from specified services provided
to new patients during the one year period commencing after the effective date
of the practice operations transfer. The earn-out stock will be valued at 70% of
the average market closing price calculated during the 20 trading days preceding
the close of the earn-out period.
During October and November, the Company received proceeds of $750,000 in
convertible loans in a series of convertible debentures issued under Regulation
S. The unconverted balance of the loans bear interest at 5% per annum and will
become due in October and November of 2001. The loans are convertible into
common stock at a 30% discount from the lower of the closing trading price on
the American Stock Exchange at the time the loans were made or at the time of
conversion. Proceeds of the loans have been used in connection with the
Company's new Los Angeles operations and for general working capital.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The financial statements and schedules listed in Item 14(a)(1) and (2) are
included in this report beginning on Page F-1.
27
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The following information is submitted concerning the directors, executive
officers and significant employees of the Company based upon information
received by the Company from such persons:
Name Age Position
- ---- --- --------
William M. Reiter, M.D. 41 Chairman of the Board, President and
Chief Executive Officer
Susanne Loarie 50 Vice President - Marketing and Business
Development
Bradford J. Beilly 42 Vice President - General Counsel
W. Douglas Kahn 47 Chief Financial Officer
Paul J. Cimoch, M.D. 39 Director
John Marsh 37 Director
Fred Roa 59 Director
______________________
Dr. Reiter has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since August 1992. Dr. Reiter has also
been President, Chief Executive Officer and Director of Research of CSI since
1986. Dr. Reiter attended the Johns Hopkins University and the Albany Medical
College of Union University and received his M.D. in 1980. He completed his
residency in Internal Medicine at the University of Miami and was Board
Certified in 1983. He was elected a Fellow of the American College of Physicians
in 1988.
Ms. Loarie has been the Vice President - Marketing and Business
Development of the Company since September 1992. Other positions with the
Company held by Ms. Loarie include: Chief Executive Officer (May 1992 to August
1992), President (December 1991 to September 1992), Chief Operating Officer
(December 1991 to May 1992) and Executive Vice President (January 1991 to
November 1991). From 1988 to October 1990, Ms. Loarie was Vice President and
General Manager of the Roche Professional Service Centers, a subsidiary of
Hoffman-La Roche Inc., a national health care services company. Ms. Loarie
received her Bachelor and Master degrees in political science and in business
administration, respectively, from the University of California, at Irvine.
Mr. Beilly has been outside General Counsel of the Company since July
1993, and in October 1993 he was elected Vice President--General Counsel of the
Company. Prior to that he was a partner in the law firm Miller, Beilly and
Pozzuoli, and is now a partner in Beilly & Pozzuoli. Mr. Beilly received his
B.A. from the State University of New York at Albany in 1976 and his J.D. from
Nova University in 1980.
Mr. Kahn has been the Chief Financial Officer of the Company since
November 1, 1995. He brings twenty-three years of health care financial
operations and business experience to HPI. He served as Vice-President for
Finance for Doctors' Healthcare System, headquartered in Tulsa, Oklahoma from
June, 1990 until August, 1995 after its acquisition by Columbia/HCA. He
previously held the positions of Senior State Auditor and the Chief of
Accounting for the Colorado Department of Health before becoming Controller for
28
<PAGE>
the National Jewish Center in Denver, Colorado. Mr. Kahn received a Bachelor of
Science degree from Colorado State University and is a Certified Public
Accountant.
Dr. Cimoch has been a Director of the Company since April 1996. Dr. Cimoch
is also the Company's Director of Medical Affairs. He co-founded CSI with Dr.
Reiter in 1986. He attended the University of Texas Medical Branch in Galveston,
where he received his medical degree in 1983, completed his residency in
Internal Medicine at the University of Miami and was Board certified in 1986. He
was elected a Fellow of the American College of Physicians in 1991. Dr. Cimoch
is a past President of the Physicians' Association for AIDS Care.
Dr. Gomatos has been a Director of the Company since September 1996. Dr.
Gomatos is also the Company's Director of Clinical Trials, and Deputy Director
of Research. He has served as Professor of Microbiology at the Sloan-Kettering
Institute in New York and Clinical Professor of Medicine at the University of
California, San Francisco. Dr. Gomatos recently served as Associate Director of
the Division of AIDS in charge of the Treatment Research Program at the National
Institute of Allergy and Infectious Disease of the National Institute of Health
(NIH). He received a Bachelor of Science degree in Biology from the
Massachusetts Institute of Technology, his MD from The Johns Hopkins University,
his Internal Medicine training at the Massachusetts General Hospital and his
PH.D. in Virology and Biochemistry from Rockefeller University.
Mr. Roa has been a Director of the Company since February 1993. Mr. Roa
has been the managing director of Telesis Corp. (a merger and acquisitions
consulting firm specializing in the healthcare field) since 1980. Mr. Roa is a
licensed public accountant and is affiliated with several professional organi
zations, including the New York State Association of Health Care Providers.
Mr. Marsh has been a Director of the Company since October 1993. Since
1988, Mr. Marsh has been a vice president of P&M Marine Consultants, a firm
specializing in computer controlled integrated mechanical and electronic systems
design and construction.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
Executive officers hold office until their successors are elected and qualified,
subject to earlier removal by the Board of Directors.
No family relationship exists between any director or executive officer
and any other director or executive officer of the Company. However, Marvin
Reiter, the Executive Vice President for Clinic Operations is the uncle of Dr.
William Reiter.
29
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Cash Compensation
- -----------------
The following table shows the cash compensation paid to, or accrued for,
the Company's Chief Executive Officer and the Company's executive officers who
are serving as executive officers at September 30, 1996 and who received more
than $100,000 during the fiscal year ended September 30, 1996:
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ------------
Options All Other
Name and Principal Position FYE Salary (1) Bonus Shares Compensation
- ----------------------------- ----------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
William M. Reiter 1996 (2) $170,800 -- 90,000 (4) --
Chairman of the Board, 1995 $220,500 -- --
President and 1994 $210,000 10,000 (4)
Chief Executive Officer
Susanne Loarie 1996 $136,500 72,000 --
Vice President of Marketing 1995 $125,000 8,000 --
and Business Development 1994 $125,000 -- --
Bradford J. Beilly 1996 -- -- 45,000 (4) 148,000 (3)
Vice President and 1995 $ 33,200 -- 1,000
General Counsel 1994 $121,000 4,000 (4) 106,200 (3)
</TABLE>
Long-Term
_______________
(1) Represents all amounts earned during the fiscal year shown; although some
compensation was deferred and paid in the subsequent fiscal year. Deferred
amounts at September 30, 1996 were approximately $35,600 for Dr. Reiter.
(2) Annual compensation includes amounts paid to AGA, Inc., a corporation
wholly owned by William M. Reiter.
(3) Paid to Beilly and Pozzuoli, a law firm in which Mr. Beilly is a partner.
(4) These options were repriced in September, 1995 to $.50 per share, the
market price of the Company's Common Stock at said date was $.25. In
connection with the reverse stock split in April, 1996, these options were
repriced to $5.00 per share.
Compensation Agreements
- -----------------------
CSI entered into a Services Agreement, dated December 23, 1991, with AGA,
Inc. ("AGA"), for the purpose of retaining the services of Dr. William Reiter,
the sole shareholder of AGA, to act as the President of CSI, for a term of five
years. In consideration for such services, CSI agreed to pay AGA a fee of
$200,000 per annum, subject to annual increases, as well as to reimburse AGA for
30
<PAGE>
the cost of providing Dr. Reiter with employee benefits, including health
insurance, employee benefit plans and incentive compensation plans. In
connection with Dr. Reiter becoming the Company's Chairman of the Board, the
Company and AGA in October 1992 agreed that the Company would pay Dr. Reiter a
salary of $150,000 per annum and that CSI would pay AGA a fee of $50,000 per
annum in lieu of the foregoing arrangement, with the new compensation
arrangement including a cost of living adjustment. Effective October 1, 1993,
the AGA agreement was terminated and Dr. Reiter and the Company executed a
three-year agreement with similar terms. The new agreement also provides Dr.
Reiter with a bonus for each fiscal year of the Company during the term of this
agreement equal to 5% of pre-tax profits for each year to the extent such
pre-tax profits exceed the greater of $1,500,000 or the highest pre-tax profits
earned during any preceding year for which Dr. Reiter is entitled to a bonus.
The Agreement expired on October 1, 1996 and The Company is negotiating with Dr.
Reiter on a new contract.
The Company entered into an employment agreement with Ms. Loarie, dated
September 18, 1992, pursuant to which Ms. Loarie served as Vice President -
Marketing and Business Development of the Company for the three-year term ending
September 12, 1995. On September 18, 1995, the Company entered into a new three
(3) year agreement with Ms. Loarie. The Contract contains an initial annual base
salary of $141,000.00, with yearly increases of 5%, with an incentive bonus for
each fiscal year of the Company during the term of the employment agreement
equal to 1% of the Company's consolidated pre-tax profits from operations in
excess 1% of pre-tax profits for each succeeding year to the extent such pre-tax
profits exceed the greater of $1,500,000 or the highest pre-tax profits earned
during any preceding year for which Ms. Loarie is entitled to a bonus. In
addition, the agreement provides for the Company to provide Ms. Loarie with a
life insurance policy in the amount of $250,000 payable to her designated
beneficiary in the event of her death during the term of her employment
agreement.
The Company entered into an employment agreement with Mr. Beilly,
effective as of September 1, 1993, pursuant to which Mr. Beilly serves as Vice
President-- General Counsel of the Company. The employment agreement was for a
three-year term at an initial annual base salary of $120,000 adjusted annually
for cost of living increases. The annual base salary was increased to $132,800
on September 1, 1994. In January, 1995, as part of the Company's internal
restructuring, Mr. Beilly's compensation was changed to an Independent
Contractor relationship under which Beilly & Pozzuoli was paid $11,800 per month
for providing Mr. Beilly's legal services. As part of his employment agreement,
Mr. Beilly received warrants to purchase 5,000 shares of the Company's common
stock at $1.375 per share, which since had been modified to $.50 cents per
share, and then $5.00 per share due to the reverse stock split and which are
exercisable, through July 1998. In September of 1996, Mr. Beilly received
additional warrants to purchase 45,000 shares of the Company's common stock at
$5.00 per share. In addition, the Board of Directors in February 1996 approved
10,000 shares (post split) of the Company's common stock to be issued to Mr.
Beilly to compensate him for additional significant responsibilities taken on
beyond that of General Counsel and Secretary.
The Company entered into an employment agreement with Mr. Kahn, effective
October 31, 1995, pursuant to which Mr. Kahn serves as Chief Financial Officer
of the Company for the five (5) year term ending October 31, 2000. The Contract
contains an initial base salary of $80,000, with yearly increases of 5%, with an
incentive bonus for each fiscal year commencing the fiscal year ending September
30, 1996 based on the Company's "Consolidated Pre-Tax Profits from Operations"
for the fiscal year in excess of $100,000.00. For "Consolidated Pre-Tax Profits"
between $100,000 and $250,000, Mr. Kahn shall receive 5% of the Company's
profits. For "Consolidated Pre-Tax Profits" between $250,000 and $500,000, Mr.
Kahn shall receive 7% of the Company's profits. For "Consolidated Pre-Tax
Profits" in excess of $500,000, Mr. Kahn shall receive 9% of the Company's
profits. The bonus for fiscal year ending September 30, 1996 and September 30,
1997 are capped at $50,000. As part of the employment agreement, Mr. Kahn shall
receive 2,000 incentive stock options at an exercise price of $5.00 per share,
with the first 10,000 options fully vested upon his execution of the employment
agreement. The options cannot be exercised until November 1, 1996. Upon
commencement of the second calendar year of employment, an additional 1,000
stock options at an exercise price of $5.00 per share shall vest. These options
cannot be exercised until November 1, 1997. In September, 1996, Mr. Kahn was
granted additional options of 27,000, of which 18,000 of these options cannot be
exercised until November 1, 1996 and 9,000 of these options will vest upon
commencement of the second year of employment. In addition, Mr. Kahn shall be
entitled to a $250,000.00 life insurance policy, payable to his designated
beneficiary in the event of his death during the term of his employment
agreement.
31
<PAGE>
The Company entered into an employment agreement with Mr. Clark Todd
effective May 6, 1996, pursuant to which Mr. Todd served as Chief Operating
Officer of the Company for the three year and five month term ending September
30, 1999. However, as of September 2, 1996, Mr. Todd's employment was terminated
by mutual agreement. The agreement stipulates that Mr. Todd is to be paid
$75,000 plus medical benefits over a six month period.
The Company currently compensates outside directors for their services in
such capacity at an annual fee of $6,000, paid on a quarterly basis in cash or
at the director's option, in shares of the Company's common stock. During fiscal
1995, Fred Roa received 30,000 shares of the Company's common stock in lieu of
$7,500 which was owed to him as director's fees. In addition, Messrs. Roa and
Marsh were each issued 25,000 unregistered shares of the Company's common stock
in consideration for them agreeing to serve without directors and officers
liability insurance, the absence of which saves the Company approximately
$110,000 per year.
Stock Option Plans
- ------------------
1991 Stock Option Plan. In December 1991, the Company adopted its 1991
Stock Option Plan ("1991 Plan") providing for an aggregate of 600,000 shares of
common stock to be reserved for issuance thereunder. The Plan is administered by
the Board of Directors of the Company and is maintained for the purpose of
encouraging employees, directors and officers of the Company to participate in
the growth and development of the Company. The Board of Directors determines, in
accordance with the provisions of the Plan, the number of shares to be optioned,
the option price and any other terms in respect of such option. In no event
shall the purchase price of an option issued to an employee of the Company be
less than the fair market value of the common stock on the date of grant (or,
for persons who own more than 10% of the Company's outstanding voting stock, no
less than 110% of such fair market value). The aggregate fair market value
(determined as of the time the option is granted) of shares of common stock with
respect to which incentive stock options become exercisable for the first time
by the optionee under the Plan during any calendar year may not exceed $100,000.
No option granted under the 1991 Plan may be exercised more than five years from
the date of grant. If a participant ceases to be an employee, officer or
director of the Company (for any reason other than death, disability or
retirement at age 65), any option not previously exercised shall automatically
lapse, terminate and expire. The 1991 Plan terminates on December 22, 2001.
The following table sets forth certain information with respect to stock
options exercised during fiscal 1996 by each of the executive officers named in
the summary compensation table under "Cash Compensation" above:
Aggregate Option Exercise in the Last Fiscal Year and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In The Money
Options Options (1)
---------------------- --------------------
Shares Value
Name Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ------------ ------------ --------------- ----------------- --------------- ---------------
- --
<S> <C> <C> <C> <C> <C> <C>
William M. Reiter -- -- 100,000 0 $ 0 $ 0
Susanne Loarie -- -- 100,000 0 0 0
Bradford J. Beilly -- -- 50,000 0 0 0
__________________
(1) The fair market value of the Company's common stock on September 30, 1996 was $3.31 per share.
</TABLE>
32
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of the common stock as of December 31, 1996 by all persons
known by the Company to be beneficial owners of more than five (5%) percent of
its common stock, each director of the Company and all officers and directors of
the Company as a group:
Amount and Nature
of Beneficial Percent
Name and Address * Ownership (1) of Class
- ---------------- --------------- --------
William M. Reiter, M.D. 1,118,292 (2)(3) 24.0%
Susanne Loarie 117,500 (4) 2.5%
Fred Roa 15,200 (5) **
John Marsh 11,500 (5) **
Paul J. Cimoch, MD 514,300 (5)(6) 11.3%
Bradford Beilly 110,000 (7) **
W. Douglas Kahn 10,000 (8)(9) **
SunDance Venture Partners, L.P. 280,000 (10) 5.8%
Societe Financier du Seujet, LTD 620,000 13.6%
All officers and directors as 2,796,792 54.1%
a group (7 persons)
_______________________________
* All addresses are in care of the Company at 515 E. Las Olas Boulevard,
Suite 1600, Fort Lauderdale, FL 33301, except as otherwise indicated.
** Represents less than 1% of the Company's outstanding common stock.
(1) Unless otherwise indicated below, all shares are owned beneficially and of
record.
(2) Includes 100,000 shares issuable under currently exercisable stock options
(3) Includes 100,000 shares issuable under current exercisable stock options.
(4) Includes 10,000 shares issuable under currently exercisable stock options.
(5) Includes 100,000 shares issuable under currently exercisable under warrants
and vested stock options.
(6) Exclude 10,000 shares issuable under vested stock options exercisable on or
after November 1, 1997.
(7) Includes 10,000 shares issuable under currently exercisable stock options.
(8) Consists of 280,000 warrants issuable under a warrant agreement exercisable
at $2.50 per share.
33
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
As discussed under "Business" above, for each facility owned and prior to
the Fort Lauderdale and Miami, Florida purchase on January 1, 1996, and the
Irvine purchase on September 30, 1996, CSI contracted with a professional
corporation to utilize the facility in order to provide care to its patients. In
the case of the facilities located in Fort Lauderdale and Miami, CSI had
contracted with William M. Reiter, M.D., PA, a Professional Association, which
is owned by Dr. Reiter, the Company's Chairman of the Board and Chief Executive
Officer, although in 1996 and 1995, the only contract in effect related to the
Fort Lauderdale facilities. Revenues derived by the Company from the Fort
Lauderdale contract amounted to $321,000 for fiscal 1996 as compared to
$1,241,000 and $2,109,000 for fiscal 1995 and fiscal 1994 for both the Miami and
Fort Lauderdale facility. The Florida medical practices were acquired for
$1,366,000. The purchase price approximated one year's net revenues from March
1995 to February, 1996. The proceeds were used to pay amounts due to the Company
of $1,300,000 and the Company assumed the medical practice net amounts
receivable of $124,000. The balance of $66,000 was paid in cash. In the case of
the facility located in Irvine, CSI had contracted with Paul J. Cimoch, M.D.,
PC, a Professional Corporation, which is owned by Dr. Cimoch, a member of the
Company's Board of Directors. Revenues derived by the Company from the Irvine
contract amounted to $2,396,000 for fiscal 1996 as compared to $2,147,000 and
2,291,000 for fiscal 1995 and fiscal 1994. The Irvine practice was purchased by
a Management Service Organization in California, which was created by the
Company for $2,309,000. The purchase price approximated one year's net revenues
from August 1995 through July, 1996. The proceeds were used to pay amounts due
to the Company of $2,303,000 and the Company assumed the medical practice net
accounts receivable of $921,000. The balance of $6,000 was paid in cash.
Pursuant to the contracts with the professional associations, the Company
advances funds from time to time to the professional associations to meet their
cash requirements. As of September 30, 1996, the receivables, including advances
due to the company from William M. Reiter, M.D. and Paul Cimoch, M.D., were
fully paid from the proceeds of the sale of the practices to the Company on
January 1, 1996 and September 30, 1996, respectively, with the net proceeds
being paid to Dr. Reiter, Dr. Cimoch, respectively.
As described in Footnote 3 to the Company's Financial Statements, the
Company in December 1991 acquired CSI, of which Dr. Reiter was then a 60%
shareholder. Under the terms of that acquisition, the Company is was required to
make certain payments of cash and stock to Dr. Reiter and the other former
shareholders of CSI based upon CSI's earnings (as defined in the acquisition
agreement) over the next two years. During fiscal 1993, the Company became
obligated under the terms of the foregoing acquisition to issue Dr. Reiter
384,175 shares of its common stock and to pay him $1,311,316, of which $731,316
remains owing to him as of December 31, 1993. The Company has provided a
guarantee to the former shareholders of CSI that sales of shares of the
Company's common stock issued to them in connection with the Company's
acquisition of CSI would generate certain specified minimum proceeds to them.
The Company has granted a security interest in all of the outstanding common
stock of CSI to these former shareholders in connection with these guarantees.
These guarantees included the agreement of the Company to fund any loss realized
by Dr. Reiter on any sales by him of approximately 720,000 shares that were
issued to him by the Company at a price of approximately $1.00 per share if made
within one year from the date of issuance and to pay Dr. Reiter with respect to
approximately 60,000 shares previously issued to him an amount equal to the
amount, if any, by which his net proceeds from any sales of these shares made
within the next year are less than $5.12 per share (the defined market value at
the time of the Company's acquisition of CSI). On December 5, 1994, the Company
received a notice of default from the counsel for the former CSI shareholders
together with a settlement proposal. The Board, excluding Dr. Reiter, after
engaging outside legal counsel and extensive discussions, negotiated and agreed
to a final settlement offer, which was ratified and approved by the Board of
Directors. In January, 1995, the Board of Directors of the Company approved a
settlement transaction with Dr. William Reiter, the Chairman and Chief Executive
Officer of the Company, and the other CSI shareholders. The settlement
transaction resulted from one actual default, two stock price guarantee
obligations which, when the related shares were sold, would likely become
defaults and the third year earn out which would require additional
consideration to be paid to CSI shareholders. Pursuant to the settlement the CSI
shareholders were issued 3,102,000 shares of common stock resulting from the
third year earn out. The Company agreed to register 1,679,000 shares previously
issued, and the Company issued to the CSI shareholders, a convertible note (the
"Convertible Note") for the cash arising from the stock price guarantees,
without selling such shares, and the cash portion of the 1995 earn out. The
$3,193,000 Convertible Note bore interest at prime and is convertible into
34
<PAGE>
common stock at 70% of the market price at anytime after February 1, 1997. In
February 1996, the Company's Board of Directors approved an agreement to
immediately convert, $3,000,000 of the $3,193,000 convertible debt owed to the
former CSI shareholders into 1,200,000 (post-split) share of the Company's
common stock valued at $2.50 a share (post-split).
In September, of 1996, Dr. Reiter, the Company's Chairman of the Board and
Chief Executive Officer loaned the Company $125,000 in order for the company to
meet current commitments. In October through December approximately $96,000 of
the loan has been repaid.
The CSI Foundation, Inc. is controlled by Dr. William Reiter, Dr. Paul
Cimoch and Marvin Reiter and performs research and development activities
primarily in connection with its Immune Reconstitution Cell Transfer Therapy for
late stage AIDS patients. Previously, the Foundation did not have assets to
support the project and the Company continued to perform the research. During
Fiscal years 1996, 1995, and 1994, the Company recorded expenses of $192,000,
$59,000 and $95,000, respectively, related to the Foundation. Dr. William
Reiter, Dr. Paul Cimoch and Marvin Reiter, collectively reimbursed the Company
the sums of $124,000 (1996), $136,000 (1995) and $0 (1994), respectively for
services rendered to the Foundation. All such reimbursements and contributions
to the Foundation were for ordinary charitable purposes.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
(a)(1) and (a)(2) Financial Statements and Schedules
See the Index to Consolidated Financial Statements on Page F-1 hereafter,
which is incorporated herein by reference.
The following Financial Statement Schedules for the years 1996, 1995 and
1994 are submitted herewith:
Schedule II - Valuation and Qualifying Accounts.
[All other Schedules are omitted from this report as they are inapplicable
or not required under Regulation S-X or because the required information
is set forth in the Consolidated Financial Statements or related notes.]
(a)(3) Exhibits
Exhibit
Number Exhibit Description
------ -------------------
3(a) Certificate of Incorporation (5)
3(b) By-Laws (5)
3(c) Amendment to the Certificate of Incorporation
4(a) Form of Warrant Agreement between the Warrant Agent and the Company
(including form of Class B Warrants) (1)
4(b) Form of Unit Purchase Option (1)
10(a) Settlement Agreement, dated July 16, 1990, between Edward J.
Kuriansky as claiming authority and on behalf of the State of New
York, and the Company (2)
10(b) Form of Modified Settlement, dated January 12, 1994, by and among
Edward J. Kuriansky as claiming authority and Deputy Attorney
General for Medicaid Fraud Control, Professional Care, Inc., the
Company, Martin and Harriet Weissman, Israel Cohen and Arthur I.
Goldberg as executor of the Estate of Arlene Cohen (9)
10(c) Lease Agreement dated December 21, 1984 between 125 Eas Bethpage
Associates and the Company, as amended (3)(4)(6)
10(d) 1982 Stock Option Plan (6)
10(e) 1991 Stock Option Plan (7)
10(g) Agreement and Plan of Merger, dated December 23, 1991, by and among
Center for Special Immunology, Inc., CSI Development Corp., William
M. Reiter, M.D., Paul Cimoch, M.D., Marvin Reiter and the Company
(the "CSI Merger Agreement")(6)
10(h) Employment Agreement dated September 18, 1992 between Susanne Loarie
and the Company (7)
36
<PAGE>
10(i) Services Agreement dated December 23, 1991 between AGA, Inc. and
Center for Special Immunology, Inc. (7)
10(j) Severance Agreement dated May 14, 1992 between Martin Weissman and
the Company; Promissory Note by Martin Weissman to the Company dated
June 26, 1992; Agency Agreement dated June 26, 1992 (7)
10(k) Settlement Agreement dated January 11, 1994 by and among the
Company, Martin Weissman and Breslow & Walker (10)
10(l) Lease Agreement dated November 20, 1992 between I-SBC Limited
Partnership and the Company (7)
10(m) Asset Purchase Agreement dated April 15, 1993 by and among Premier
Service, Inc. and Health Professionals East, Inc., Health
Professionals West, Inc., Hematech, Inc., Insurance Medical
Reporter, Inc., and Professional Care, Inc. and related documents
and agreements (10)
10(n) Employment Agreement dated October 26, 1993 between Bradford J.
Beilly and the Company (9)
10(o) Consulting Agreement dated July 19, 1993 between J.D. Ross Interna-
tional and the Company and related Warrant (9)
10(p) Attorney's Retention Agreement dated July 19, 1993 between Richard
Morganstern, a Professional Corporation, and the Company and related
Warrant (9)
10(q) Form of identical Factoring Agreements between each of Paul J.
Cimoch, M.D., P.C., William M. Reiter, M.D., P.A., and Daniel S.
Berger, M.D., Ltd., respectively, subsidiaries of CSI, and Capital
Factors (9)
10(r) Modification and Supplement to Premier Asset Purchase Agreement (9)
10(s) Second Modification to CSI Merger Agreement (10)
10(t) Employment Agreement dated November 1, 1995, between W. Douglas Kahn
and the Company
10(u) Amended Employment Agreement dated September 19, 1995, between
Susanne Loarie and the Company
10(v) Loan and Securities Purchase Agreement dated December 28, 1995
between SunDance Venture Partners, L.P. and the Company
10(w) Fort Lauderdale purchase
10(x) Chicago purchase
10(y) Irvine purchase
10(z) Los Angeles purchase
22 Subsidiaries
24 Independent Certified Public Accountants' Consent
27 Financial Data Schedule (Electronic filing only)
37
<PAGE>
_________________
(1) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Registration Statement on Form S-1, File No. 33-37204.
(2) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Form 8-K, which date of report is July 6, 1990.
(3) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Form 10-K for the fiscal year ended September 30, 1990.
(4) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Form 8-K, which date of report is November 29, 1984.
(5) Incorporated by reference from Registrant's Registration Statement on Form
S-4, File No. 33-42675.
(6) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1991.
(7) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1992.
(8) Incorporated by reference from Registrant's Form 8-K, dated June 21, 1993.
(9) Incorporated by reference from Registrant's Form 10-K, for the fiscal year
ended September 30, 1994.
(10) Incorporated by reference from Registrant's Form 10-Q for the quarter ended
December 31, 1994.
(b) Reports on Form 8-K
None.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HEALTH PROFESSIONALS, INC.
Date: January 13, 1997 By: /s/ William M. Reiter
-------------------------------- ------------------------------
William M. Reiter, M.D.,
Chairman of the Board
President and Chief Executive
Officer
Date: January 13, 1997 By: /s/ Douglas Kahn
-------------------------------- ------------------------------
Douglas Kahn, Chief Financial
and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date: January 13, 1997
-------------------------------- ------------------------------
Fred Roa, Director
Date: January 13, 1997 /s/ John Marsh
-------------------------------- ------------------------------
John Marsh, Director
Date: January 13, 1997 /s/ William M. Reiter
-------------------------------- ------------------------------
William Reiter, M.D., Director
Date: January 13, 1997 /s/ Paul Cimoch
-------------------------------- ------------------------------
Paul Cimoch, M.D., Director
39
<PAGE>
Health Professionals, Inc. and Subsidiaries
Index
-----
Report of Independent Certified Public Accountants ........................ F-2
Consolidated Balance Sheets, September 30, 1996 and 1995................... F-3
Consolidated Statements of Operations,
Years Ended September 30, 1996, 1995 and 1994......................... F-4
Consolidated Statements of Stockholders' Equity,
Years Ended September 30, 1996, 1995 and 1994......................... F-5
Consolidated Statements of Cash Flows,
Years Ended September 30, 1996, 1995 and 1994......................... F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
and Stockholders of
Health Professionals, Inc.
We have audited the accompanying consolidated balance sheets of
Health Professionals, Inc. and subsidiaries as of September 30, 1996 and 1995
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1996.
We have also audited the accompanying schedule of valuation and qualifying
accounts. These consolidated financial statements and the schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as,
evaluating the overall presentation of the financial statements and schedule. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Health
Professionals, Inc. and subsidiaries at September 30, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
Also in our opinion, the schedule referred to above presents fairly,
in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations, has a cash deficiency from operations and is
experiencing ongoing operating losses that 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 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Miami, Florida BDO SEIDMAN, LLP
January 7,1997
F-2
<PAGE>
Health Professionals, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 1996 and 1995
(Note 1)
===========================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 49,000 $ 20,000
Accounts receivable, less allowance for doubtful
accounts of $1,981,000 and $937,000,
respectively (Note 6) 3,425,000 1,947,000
Accounts receivable from related parties,
less allowance for doubtful accounts of
$0 and $765,000, respectively (Note 10) -- 2,119,000
Inventory 108,000 106,000
Notes receivable - Premier
Medical Services, Inc., current portion -- 330,000
Prepaid consulting fees, current portion (Note 9) 115,000 --
Prepaid expenses and other 46,000 15,000
------------ ------------
Total current assets 3,743,000 4,537,000
NOTES RECEIVABLE - PREMIER
MEDICAL SERVICES, less current portion -- 375,000
EQUIPMENT, FURNITURE AND FIXTURES AND
LEASEHOLD IMPROVEMENTS, net (Note 4) 1,338,000 1,459,000
PREPAID CONSULTING FEES, less current portion (Note 9) 145,000 --
COVENANTS NOT TO COMPETE, less accumulated amortization
of $131,000 (Note 3) 419,000 --
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES
ACQUIRED, less accumulated amortization of
$765,000 and $587,000 (Note 3) 6,134,000 2,995,000
OTHER ASSETS 463,000 268,000
------------ ------------
TOTAL $ 12,242,000 $ 9,634,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 7) $ 3,725,000 $ 2,866,000
Accrued salaries and payroll taxes 117,000 228,000
Factoring line of credit (Note 6) 1,100,000 718,000
Current portion of long-term debt (Note 6) 474,000 427,000
------------ ------------
Total current liabilities 5,416,000 4,239,000
------------ ------------
LONG-TERM DEBT, less current portion (Note 6) 1,519,000 4,365,000
------------ ------------
LITIGATION, COMMITMENTS AND SUBSEQUENT EVENTS (Notes 8 and 13)
STOCKHOLDERS' EQUITY (Notes 3, 6 and 9):
Serial preferred stock, $1 par value;
authorized 100,000 shares; issued - none -- --
Common stock, $.02 par value; authorized
25,000,000 shares; issued 4,554,000
and 2,189,000 shares, respectively 91,000 44,000
Additional paid-in capital 43,280,000 36,090,000
Less: 4,000 shares of Treasury Stock at cost (42,000) (42,000)
Deficit (38,022,000) (35,062,000)
------------ ------------
Total stockholders' equity 5,307,000 1,030,000
------------ ------------
TOTAL $ 12,242,000 $ 9,634,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Health Professionals, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended September 30, 1996, 1995 and 1994
(Note 1)
======================================
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Operating revenues $ 4,622,000 $ 5,011,000 $ 4,460,000
Operating revenues - related
parties (Note 10) 2,717,000 4,379,000 3,342,000
Gain on sale of securities 166,000 -- --
Interest and other income 59,000 219,000 326,000
------------ ------------ ------------
7,564,000 9,609,000 8,128,000
------------ ------------ ------------
COSTS AND EXPENSES:
Direct service 4,053,000 4,165,000 5,198,000
Selling, general and administrative
(Note 8) 6,240,000 5,864,000 6,180,000
Interest 518,000 575,000 321,000
Costs incurred in connection with
litigation (Note 8) 75,000 62,000 379,000
Research and development (Note 10) 403,000 20,000 200,000
Provision (recovery) for loss on advances
and other professional association
reserves to related parties (Note 3) (765,000) 20,000 (58,000)
Provision for loss in connection with
future note discount -- -- 1,000,000
Provision for impairment of costs in
excess of net assets acquired (Note 3) -- -- 4,000,000
------------ ------------ ------------
10,524,000 10,706,000 17,220,000
------------ ------------ ------------
NET LOSS $ (2,960,000) $ (1,097,000) $ (9,092,000)
============ ============ ============
NET LOSS PER SHARE $ (.96) $ (.52) $ (4.86)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 3,092,000 2,089,000 1,870,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Health Professionals, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1996, 1995 and 1994
(Note 1)
==================================
..........Common Stock........... Additional
Treasury Paid-in
Shares Amount Stock Capital Deficit Total
---------- ------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 1993 1,498,000 30,000 -- 35,784,000 (24,873,000) 10,941,000
Sale of Common Stock (Note 9) 157,000 3,000 -- 976,000 -- 979,000
Earn Out Shares issued in 104,000 2,000 -- 935,000 -- 937,000
lieu of cash (Note 3)
Escrow Shares Cancelled (3,000) -- -- (144,000) -- (144,000)
Employee Stock Purchase Plan 40,000 1,000 -- 158,000 -- 159,000
(Note 9)
Other Stock Sale 40,000 1,000 -- 159,000 -- 160,000
Shares Issued for Services 9,000 -- -- 50,000 -- 50,000
Stock Price Guarantees to
CSI Shareholders (Note 3) -- -- -- (2,872,000) -- (2,872,000)
Value of Stock to be Issued -- -- -- 970,000 -- 970,000
(Note 3)
Less: Purchase of Treasury Stock -- -- (42,000) -- -- (42,000)
Net Loss -- -- -- -- (9,092,000) (9,092,000)
---------- ------- -------- ------------ ------------ -----------
Balances at
September 30, 1994 1,845,000 37,000 (42,000) 36,016,000 (33,965,000) 2,046,000
Earn Out Shares issued in
lieu of cash (Note 3) 310,000 6,000 -- (6,000) -- --
Shares Issued for Services 34,000 1,000 -- 80,000 -- 81,000
Net Loss -- -- -- -- (1,097,000) (1,097,000)
---------- ------- -------- ------------ ------------ -----------
Balances at
September 30, 1995 2,189,000 44,000 (42,000) 36,090,000 (35,062,000) 1,030,000
Sale of Common Stock (Note 9) 500,000 10,000 -- 1,990,000 -- 2,000,000
Conversion of debt owed to
former CSI shareholders
to equity (Note 9) 1,200,000 24,000 -- 2.976,000 -- 3,000,000
Sale of Chicago
practice to Company (Note 3) 246,000 5,000 -- 1,078,000 -- 1,083,000
Stock warrants issued
at a discount (Note 9) -- -- -- 42,000 -- 42,000
Shares issued for services
(Note 9) 419,000 8,000 -- 1,104,000 -- 1,112,000
Net Loss -- -- -- -- (2,960,000) (2,960,000)
Balances at
September 30, 1996 4,554,000 $91,000 $(42,000) $ 43,280,000 $(38,022,000) $ 5, 307,000
========== ======= ======== ============ ============ ===========
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
Health Professionals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended September 30, 1996, 1995 and 1994
(Notes 1 and 11)
================================
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,960,000) $(1,097,000) $(9,092,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 565,000 504,000 455,000
Amortization of goodwill and covenants 309,000 149,000 249,000
Provision (recovery) for bad debts (765,000) 320,000 144,000
Provision for loss in connection with note discount -- -- 1,000,000
Provision for impairment of costs in excess of net
assets acquired -- -- 4,000,000
Securities issued for services 852,000 81,000 --
Lease obligations (106,000) 141,000 162,000
Change in assets and liabilities, net of effects of acquisitions:
(Increase) in accounts receivable (730,000) (1,884,000) (469,000)
(Increase) decrease in inventory (2,000) 174,000 20,000
(Increase) decrease in prepaid expenses and
other (31,000) 97,000 138,000
(Increase) in other assets (195,000) (11,000) (51,000)
Increase in accounts payable
and accrued expenses 859,000 218,000 910,000
(Decrease) increase in accrued salaries and payroll taxes (111,000) 46,000 (51,000)
Net cash (used in) operating activities (2,315,000) (1,262,000) (2,585,000)
----------- ----------- -----------
INVESTING ACTIVITIES:
Collection of notes receivable 683,000 1,404,000 1,134,000
Purchase of Treasury Stock -- -- (42,000)
Cash paid for acquisition of medical practices (72,000) -- --
Capital expenditures, net (444,000) (135,000) (272,000)
----------- ----------- -----------
Net cash provided by investing activities 167,000 1,269,000 820,000
----------- ----------- -----------
FINANCING ACTIVITIES:
Repayment of long-term debt and
current maturities (887,000) (645,000) (524,000)
Proceeds from long-term borrowing 682,000 -- 150,000
Proceeds from sales of common stock 2,000,000 -- 1,298,000
Cash received from Factor, net 382,000 618,000 91,000
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,177,000 (27,000) 1,015,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 29,000 (20,000) (750,000)
CASH, BEGINNING OF PERIOD 20,000 40,000 790,000
----------- ----------- -----------
CASH, END OF PERIOD $ 49,000 $ 20,000 $ 40,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
1. GOING CONCERN
The Company's consolidated financial statements are presented on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has incurred losses of $2,960,000 $1,097,000 and $9,092,000 for each of
the three years in the period ended September 30, 1996, respectively. In
addition, the Company used $2,315,000 of cash for its fiscal 1996
operations. In order to remain a going concern the Company must obtain
additional sources of cash and ultimately achieve profitable operations.
The Company's plans for raising additional sources of cash primarily rely
on (1) obtaining a strategic partner who will provide capital to the
Company while also offering certain operational opportunities; and/or, (2)
obtaining an investment partner to further develop certain technology
owned by the Company. While additional sources of cash are being pursued,
the Company intends to further down size operations, thereby reducing
costs while attempting to increase market share for the existing clinics
until operations can produce positive cash flow. No assurances can be made
that the Company can obtain additional sources of cash or that operations
can produce a positive cash flow.
The Company's continued existence is dependent upon its ability to resolve
its liquidity problems by raising additional cash and by achieving
profitable operations as set forth above. Working capital limitations
continue to impinge on day-to-day operations, thus, contributing to
continued operating losses. The continued support of its creditors will be
required, although this is not assured.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
2. SUMMARY OF ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Center For Special Immunology (CSI), a
subsidiary owns and operates an integrated healthcare delivery and
clinical research system that includes a multistate network of primary
care and clinical facilities specializing in immune system disorders,
consisting primarily of HIV, AIDS and Chronic Fatigue Immune Dysfunction
Syndrome (CFIDS). This network also conducts multi-center trials in
cooperation with biotechnology and pharmaceutical companies. CSI derives
the major portion of its revenues from medical professional corporations
either which CSI owns or which contract with CSI to utilize its facilities
and utilize CSI's ancillary services in order for the professional
corporation to provide care to its patients.
CONCENTRATION OF CREDIT RISK - The Company grants credit, including cash
advances to the contracted medical professional corporations and its other
customers, substantially all of whom are in the health care industry.
PRINCIPLES OF CONSOLIDATION - The accompanying financial statements
include the accounts of Health Professionals, Inc. and its wholly owned
subsidiaries (the "Company"). All operations are conducted by CSI and its
subsidiaries. All material intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION - The Company recognizes revenues as services are
provided.
ACCOUNTS RECEIVABLE - The Company records allowances related to the
amounts due from the professional corporations, with whom CSI has
contracted, based upon the excess of the amounts due from the professional
corporations above the collateral, primarily the receivables of the
professional corporations, even though such advances are expected to be
collected from future operations. The Company records patient accounts
receivable for those medical professional associations that it owns at net
of allowances for those items that the company won't collect on, such as
certain contractual amounts and bad debts.
F-7
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
DEPRECIATION AND AMORTIZATION - Equipment, furniture and fixtures are
recorded at cost and are depreciated over the estimated useful lives of
the related assets. Leasehold improvements are amortized over the life of
the related lease or the useful life of the asset, whichever is shorter.
Depreciation and amortization are computed principally by the
straight-line method.
INVENTORY - Inventory is recorded at the lower of cost or market. Cost is
determined by the first-in, first-out method.
PER SHARE INFORMATION - Per share information is computed based on the
weighted average number of common shares outstanding. Per share
information excludes common equivalent shares since their inclusion would
be anti-dilutive. All share and per share data in the accompanying
financial statements reflect the effects of the Company's 1996 one-for-ten
reverse split for all periods presented.
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED AND COVENANTS NOT TO
COMPETE - The excess of costs over net assets of businesses acquired is
being amortized on a straight-line basis over 25 years. Covenants not to
compete are amortized over their 2 year economic life. The Company
periodically reviews the carrying value of these intangible assets and
records adjustments when it is determined that the assets are no longer
considered fully recoverable from future operating cash flows.
INCOME TAXES - The Company adopted Statement of Financial Accounting
Standards No. 109, effective October 1, 1993 and elected not to restate
financial statements for prior periods. The statement requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and
tax basis of assets and liabilities. The adoption of Statement No. 109 did
not have a material effect on the accompanying consolidated financial
statements.
RECLASSIFICATIONS - Certain reclassifications to the prior year
consolidated financial statements have been made to conform to the 1996
presentations.
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 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.
FUTURE ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". The Statement requires, among other things,
impairment loss of assets to be held and gains or losses from assets that
are expected to be disposed of be included as a component of income from
continuing operations before taxes on income. The Company will adopt the
Statement as of fiscal 1997 and its implementation is not expected to have
a material effect.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." The Statement
establishes a fair value method for accounting for stock-based compensation
plans either through recognition or disclosure. The Company does not
presently intend to adopt the fair value based method but instead will,
beginning in fiscal 1997, disclose the effects of the calculation required
by the statement.
In June 1996, the Financial Accounting Standards Board issued Statement
No.125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." The Statement establishes a
financial-components approach to transfers and servicing of financial
assets and extinguishment of liabilities that focuses on control. The
Company will adopt the Statement as of fiscal 1997 and its implementation
is not expected to have a material effect.
3. ACQUISITION OF CSI AND MEDICAL PRACTICES
On December 23, 1991, the Company acquired 100% of the outstanding common
stock of the Center for Special Immunology, Inc. ("CSI"). The purchase
price was $400,000 in cash, and unregistered shares of Common Stock of
$600,000, based upon the quoted market price (valued at $330,000 since
such shares are not freely tradeable). In addition, the acquisition
agreement provided for contingent consideration based upon the earnings of
CSI for each of the three years in the period from April 1, 1992 through
March 31, 1995. For the year ended March 31, 1994, no additional
consideration was required. The final year was calculated at two and one
half times the increase in after tax earnings, as defined, for the year
ended March 31, 1995 over the year ended March 31, 1993, or two and one
half times the base year earnings amount if funds were not made available
during the year ended March 31, 1994 to CSI to open three new facilities.
As funds were not made available during the year ended March 31, 1994 to
F-8
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
open three new centers, the minimum additional consideration of $1,616,000
was recorded at September 30, 1994 as additional consideration due
resulting in an increase in "Costs in excess of net assets of business
acquired." The amount of additional consideration in each year was to be
payable 40% in cash and 60% in stock. The number of shares is based upon
the market value of the Company's stock. Any unregistered shares issued in
connection with the acquisition have a one year price guarantee
(protection year) following the date on which the shareholders may first
sell any of the acquired shares. If any such shares are sold at less than
$5.12, or such lower amount, the Company is obligated to pay the
difference in cash, subject to certain adjustments, one year after the
expiration of the protection year (see Note 8(a)).
The Company, may at its option make the cash portion of the contingent
payments in common stock of the Company based upon the then prevailing
market value per share. (See Note 7(a))
At September 30, 1994, management determined that factors existed which
might impair the carrying amount of the excess cost over the net assets
acquired in connection with the acquisition of CSI. A write down was
recorded based upon management's belief that without a significant
infusion of cash required to expand the operations, the impairment to the
asset would be other than temporary. The write down was based, in part,
upon consideration of the obligation to the former CSI shareholders, which
is collateralized by the stock of CSI.
In fiscal 1992 to 1995, the Company recorded aggregate reserves of
$925,000 related to estimated losses on cash advances and trade
receivables from the medical practices. In early fiscal 1996, the related
party physicians collateralized the cash advances with specific security
and a $765,000 recovery was recorded.
From 1991 to part of fiscal 1996, the Company's services to the above
medical practices were conducted under the terms of contractual
agreements, whereby fees were earned by the Company for specific services
and the underlying medical practices remained under the ownership of
physicians. During fiscal 1996, the Company's Board of Directors decided,
as a result of the recent permissibility of corporations to practice
medicine in certain states, among other factors, to purchase the
underlying medical practices and to release the collateral discussed
above. On January 1, 1996, the Company purchased the medical practices in
Fort Lauderdale and Miami, Florida from the Chairman of the Company's
Board of Directors, on April 1, 1996, purchased the medical practice in
Chicago, Illinois from its physician owner, and on September 30, 1996,
purchased the Irvine, California medical practice from a stockholder and
member of the Board of Directors of the Company. The purchase price of
each location approximated one year's net revenues (based upon the prior
one year's net revenues for the California and Florida practices and upon
the next years estimated net revenues for Illinois). The Florida medical
practices were acquired for $1,366,000, of which $1,300,000 were comprised
of amounts then due to the Company from the medical practices with the
balance paid in cash. The Chicago practice was acquired for $1,438,000,
which was comprised of $1,083,000 in shares (valued at fair value) of the
Company's common stock and a purchase money obligation payable of
$355,000. As of September 30, 1996, the Company has issued 246,000 shares
of common stock and is obligated to issue the balance in June 1997. The
Irvine, California medical practices were acquired for $2,309,000, of
which $2,303,000 was comprised of amounts then due to the Company from the
medical practice with the balance in cash. In connection with the
transaction, the selling stockholders, each of whom are physicians,
entered into non-compete agreements with the Company for two years for
Florida, Illinois, and California which are valued at $250,000, $150,000
and $150,000, respectively, in the accompanying balance sheet. Costs in
excess of net assets acquired in connection with the above fiscal 1996
transactions aggregated $992,000, $1,445,000, and $876,000, for Florida,
Illinois and California, respectively.
The following is a proforma summary of consolidated results of operations
after giving effect to proforma amorization of costs in excess of net
assets of businesses acquired and elimination of intercompany transactions
as if the Company had acquired all of the practices on October 1, 1995 and
October 1, 1994.
Year Ended September 30,
1996 1995
---- ----
(unaudited) (unaudited)
Revenues $ 8,551,000 $11,170,000
Net Loss $ (2,527,000) $ (628,000)
Net Loss per common share $ (0.82) $ (0.30)
F-9
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
4. EQUIPMENT, FURNITURE AND FIXTURES AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and fixtures and leasehold improvements consist of the
following:
<TABLE>
<CAPTION>
Useful September 30,
Lives (Years) 1996 1995
------------- ----------- ------------
<S> <C> <C> <C>
Equipment, furniture and fixtures 5 - 7 2,561,000 $ 1,693,000
Assets under capital lease obligations 5 - 7 325,000 415,000
Leasehold improvements 1 - 12 176,000 665,000
3,062,000 2,773,000
Less accumulated depreciation
and amortization 1,724,000 1,314,000
----------- ------------
$ 1,338,000 $ 1,459,000
=========== ============
</TABLE>
5. INCOME TAXES
The Company has not recorded any expense for Federal or state income taxes
for the years September 30, 1994 through September 30, 1996, due to the
existence of tax losses for all applicable periods.
The Company has investment and other tax credit carryforwards, and net
operating loss carryforwards of approximately $600,000 and $18,800,000,
respectively, expiring through the year 2011. The net operating loss is
subject to an annual limitation of approximately $1,300,000 based upon
certain ownership changes.
Deferred income taxes are comprised of the following:
1996 1995
------------ ------------
Loss carryforwards $ 6,900,000 $ 5,800,000
Tax credit carryforwards 600,000 600,000
7,500,000 6,400,000
Deferred tax asset valuation allowance (7,500,000) (6,400,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
Realization of any portion of the net deferred tax asset is not considered
to be more likely than not and accordingly, a valuation allowance has been
provided for such amount.
F-10
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
6. LONG-TERM DEBT AND FACTORING LINES OF CREDIT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Due to shareholders (a) $ _ $ 3,402,000
Litigation settlement (b) - 426,000
Due to Officer (c) 125,000 -
Notes Payable, less unamortized discount of $36,000 (d) 664,000 -
Medical practice purchase obligation (e) 355,000 -
Lease obligation (f) 474,000 580,000
Capital leases 199,000 258,000
Other 176,000 126,000
----------- -----------
1,993,000 4,792,000
Less current portion 474,000 427,000
----------- -----------
$ 1,519,000 $ 4,365,000
=========== ===========
</TABLE>
(a) On December 21, 1994, the Board of Directors of the Company approved a
settlement transaction with Dr. William Reiter, the Chairman and Chief
Executive Officer of the Company, and the other former CSI
shareholders. The settlement transaction resulted from one actual
default, two stock price guarantee obligations which, when if the
related shares were sold would likely become defaults and the third
year earn out which would require additional consideration to be paid
to the former CSI shareholders. The settlement provided that the former
CSI shareholders be issued shares for the third year earn out and be
issued convertible notes for the obligations arising from the stock
price guarantees $2,872,000, without selling such shares, and $321,000
resulting from the cash portion of the 1995 earn out. The convertible
notes bore interest and were convertible into common stock at 70% of
the market price at the date of conversion. In February 1996, the
Company's Board of Directors approved an agreement to immediately
convert, $3,000,000 of the $3,193,000 convertible debt then owed to the
former CSI shareholders into 1,200,000 shares of the Company's common
stock valued at $2.50 a share. The remaining balance was retired during
fiscal 1996.
(b) On July 16, 1990, a subsidiary of the Company settled litigation
brought by the State of New York by agreeing to pay $3,250,000. Of this
amount, $1,000,000 was paid in cash and the balance was payable at
$50,000 per month, including interest at 9%.
The Company renegotiated the obligation to require payments of $25,000
per month, through December 15, 1994 after which the payment increased
to $50,000 through February 1996, with interest at 11%. The company
granted a security interest to the State of New York for a portion of
the notes receivable arising from the sale of discontinued operations.
In September, 1996, in exchange for a $15,000 discount with the State
of New York, the Company prepaid the remaining balance due on the
agreement, which was approximately $308,000.
(c) In September, of 1996, the Company's Chairman of the Board and Chief
Executive Officer loaned the Company $125,000, due upon demand and
bearing interest at 8.25% per annum in order for the Company to meet
current commitments. In October through December approximately $96,000
of the loan has been repaid.
(d) On December 28, 1995 and February 13, 1996, the Company closed on two
loans and securities purchase agreements with SunDance Venture
Partners, Ltd. (SunDance), from which the Company received net proceeds
of $700,000 in loans. Both notes provide for payments of interest at
12% per annum for the first twenty-four months and at 13% per annum for
the next twelve months, followed by quarterly payments of principal and
interest at 15% through December 2000. The funds were utilized for
working capital.
(e) In connection with the purchase of the Chicago, Illinois medical
practice, the Company issued a $355,000 note payable bearing interest
F-11
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
at 3% per annum, payable in quarterly installments of principal and
interest through July, 1999.
(f) Lease obligations consist of accruals for office space leases with
reduced rents in early years to straight-line rent expense over the
life of the lease at September 30, 1996 and 1995 of $ 474,000 and
$483,000, respectively and a $97,000 settlement with a landlord at
September 30, 1995.
Payments required on long-term debt and lease obligations during each of
the five years subsequent to September 30, 1996 are as follows:
Year Ending
September 30
------------
1997 $ 339,000
1998 284,000
1999 414,000
2000 435,000
2001 261,000
Thereafter 260,000
-----------
Total $ 1,993,000
===========
FACTORING AGREEMENT - Certain subsidiaries of CSI together with the
medical professional corporations presently under contract with or owned
by said subsidiaries entered into factoring agreements providing for up to
$2,500,000 in lines of credit, based upon eligible accounts receivable.
Fees charged by the factor for factoring was amended in June, 1996 from an
initial 1% of all eligible receivables to an initial 1% of eligible
receivables up to $5,000,000 a year. The fee then progressively decreases
to .75% for eligible receivables in excess of $10,000,000 a year. Funds
are then advanced by the factor at 2% over prime. The advances are
collateralized by the related receivables. The advances drawn by the
medical professional corporations are guaranteed by CSI. At December 31,
1996, approximately $1,144,000 was available for borrowing under the
agreement, $1,100,000 of which was drawn down.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses are Therapeutics and
Home Health expenses of approximately $266,000 at September 30, 1996 and
professional and consulting fees of approximately $500,000 at September
30, 1995. No other items included therein exceed 5 percent of total
current liabilities.
8. LITIGATION AND COMMITMENTS
(a) During 1993, three shareholder class action suits were filed
against the Company and its officers, certain of whom are also
directors, as a result of the decline in the market value of the
common stock. These lawsuits, which sought unspecified monetary
damages and attorneys' fees alleged that the defendants withheld
material adverse information and made material misrepresentations
relating to the Company's finances and its business prospects. In
May 1995, the class action suit plaintiffs agreed to a dismissal of
the suits in exchange for an extension of the statute of
limitations until September 30, 1996. As of September 30, 1996, the
statute of limitations expired without any additional action being
filed.
(b) During 1993, the SEC advised the Company that it had commenced a
formal investigation of potential securities law violations in
connection with certain trading activity in the Company's stock and
requested certain information from the Company and certain of its
officers in connection with that investigation. The Company, and
the officers have complied with these requests.
While management believes that it has been successful in the
matters mentioned in the previous paragraphs, there is no assurance
that there will not be a material adverse effect on the financial
condition or results of operations of the Company and the
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
(c) EMPLOYMENT AGREEMENTS - The Company has employment agreements with
several key executives for initial terms ranging from two to five
years and at annual salaries ranging from $80,000 to $220,500,
subject to annual increases and incentive bonuses in some
instances. Future minimum commitments under these agreements are as
follows:
F-12
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
Year Ending
September 30,
1997 464,000
1998 487,000
1999 93,000
2000 97,000
----------
$1,141,000
==========
(e) OPERATING LEASES - The Company is obligated under operating leases
for the use of its office facilities. Office leases provide for
rent increases due to escalation of real estate taxes and cost of
living.
Future minimum payments on operating leases with noncancelable
terms in excess of one year at September 30, 1996 are:
Year Ending
September 30,
1997 $ 645,000
1998 501,000
1999 520,000
2000 410,000
2001 392,000
Thereafter 573,000
-----------
$ 3,041,000
===========
Aggregate rental expense under operating leases was approximately
$812,000, $810,000, and $763,000, for the years ended September
30, 1996, 1995, and 1994 respectively.
9. STOCKHOLDERS' EQUITY
REVERSE STOCK SPLIT - On April 19, 1996, the stockholders approved a
one-for-ten reverse stock split. All share and per share data in the
accompanying financial statements reflect the effects of the reverse
stock split for all periods presented.
STOCK OPTION PLAN - The Company had a stock option plan which provided
for the granting of options to purchase 140,000 shares of the Company's
common stock. This plan expired in fiscal 1992 although options granted
under this plan remained outstanding as of September 30, 1996. In
February 1992, the Company adopted a new stock option plan which
provides for the granting of options to purchase 60,000 shares of the
Company's common stock. The Plan provides that (i) in no event shall
the purchase price of an option be less than the fair market value of
the common stock on the date of grant (110% for persons owning more
than 10% of the Company's outstanding voting stock), (ii) the aggregate
fair market value (determined as of the time the option is granted) of
shares of common stock with respect to which incentive stock options
become exercisable by the optionee during any calendar year may not
exceed $100,000 and (iii) no option may be exercised more than five
years from the date of grant.
Changes in the Company's options outstanding under its Stock Option
Plans during the three years ended September 30, 1996 are summarized
below:
No. of Shares Option Price
------------- ------------
Outstanding at September 30, 1994 99,580 $6.90 - 87.50
Granted 51,900 $5.00
Exercised - -
Terminated or Expired (98,530) $5.00
Outstanding at September 30, 1995 52,950 $5.00 - 87.50
Granted 10,000 $5.00
Exercised -
Terminated or Expired -
--------- -------------
Outstanding at September 30, 1996 62,950 $5.00 - 87.50
========= =============
F-13
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
WARRANTS - As of September 30, 1996, warrants initially issed in the
Company's 1991 public offering remain outstanding to acquire 57,256 shares
of the Company's common stock, exercisable at $53.50 per share through
1998. In connection with the Company's 1996 loans from SunDance, the
Company issued SunDance warrants to acquire 280,000 shares of common stock
exercisable at $2.50 per share through January 2001, which were valued at
fair value of $42,000.
UNDERWRITER UNITS - An underwriter holds an option to purchase 21,000
units, which was issued in connection with the sale of the Company's stock
in 1990. Once the holder exercises the option, the aggregate exercise
price of which is $598,500, the holder will be issued 21,000 shares of the
Company's common stock and class A warrants. The class A warrants are
exercisable at an aggregate exercise price of $748,125 to purchase 21,000
shares of the Company's Common Stock and 5,200 Class B warrants until
December 9, 1997. Each Class B warrant entitles the holder to purchase two
shares of the Company's Common Stock for $106.875 ($53.4375 per share).
In September through November 1991, 104,890 Class A Warrants to purchase
209,580 shares of common stock were exercised for net proceeds to the
Company of approximately $7,460,000. In conjunction with the exercise,
52,445 Class B Warrants to purchase 104,890 shares of common stock were
issued. During the fiscal year 1992, 4,355 Class B Warrants to purchase
8,710 shares of common stock were exercised for net proceeds to the
Company of approximately $465,000. During the fiscal year ended September
30, 1994, 19,462 Class B Warrants to purchase 38,924 shares of common
stock were exercised for net proceeds to the Company of approximately
$2,080,000. The Class B Warrants are callable by the Company if the
average closing price of the Company's common stock equals or exceeds
$75.00 for twenty consecutive days prior to the five days before calling.
In January 1992, the Company issued warrants to purchase 4,000 shares of
common stock, exercisable over a period of five years at $85.00 per share,
to a landlord in return for certain rent abatements. In connection with a
subsequent settlement with that landlord, the exercise price of the
warrants was decreased to $6.875 per share.
In June 1992, the Company issued warrants to purchase 2,000 shares of
common stock, exercisable over a period of five years at $75.00 per share,
to the former Chairman of the Board and Chief Executive Officer of the
Company.
In July 19, 1993, the Company issued warrants to two consultants to
purchase a total of 60,000 shares of common stock, exercisable over a
period of five years at $31.25 per share. In connection therewith $120,000
was charged to operations. The warrants were cancelled and 40,000 warrants
were issued at an exercise price of $8.00 per share with the other terms
unchanged.
In October, 1993, the Company issued warrants to purchase 10,000 shares of
common stock exercisable over a period of five years at $13.75 per share.
These warrants were issued to the Company's internal general counsel
(5,000) and a litigation attorney (5,000). On February 1994 the 5,000
warrants issued to the litigation counsel were cancelled. In December
1995, the 5,000 warrants given to the Company's general counsel were
modified to change the exercise price to $5.00 per share.
At September 30, 1996, the Company has reserved 580,862 shares of common
stock for issuance upon exercise of outstanding options and warrants.
EMPLOYEE STOCK PURCHASE PLAN - On June, 1994, the Board of Directors of
the Company approved a plan whereby employees of the Company could
purchase shares at $3.97 per share, payable over a two year period. The
employees purchased 40,000 shares and such shares contained a one year
restriction on sale.
CONVERSION OF DEBT TO EQUITY- In February 1996, the Company's Board of
Directors approved an agreement to immediately convert, $3,000,000 of the
$3,193,000 convertible debt owed to the former CSI shareholders into
1,200,000 (post-split) shares of the Company's common stock valued at
$2.50 a share (post-split).
SALE OF COMMON STOCK - On December 28, 1993, the Company completed the
sale of 157,100 shares of common stock, pursuant to Regulation S resulting
in net proceeds to the Company of $979,000. On May 3, 1996, the Company
completed a selling agreement with Societe Financiere du Seujet, LTD., a
foreign investment banking concern, pursuant to Regulation S in which the
Company sold 500,000 shares of common stock for $2,000,000.
During fiscal 1996, the Company issued 160,000 shares of common stock to a
consultant. The shares of common stock were valued at $470,000 and were
issued in exchange for consulting services relating to financial matters,
and evaluating and structuring business acquisitions to be performed
through 1999. Also during fiscal 1996, the Company issued 259,000 shares
of common stock, valued
F-14
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
at an aggregate $642,000, to professional advisors and consultants for
services rendered during the year.
10. SIGNIFICANT CUSTOMERS AND RELATED PARTIES
One of the medical professional corporations that was under contract prior
to the sale to the Company on January 1, 1996 with CSI was controlled by
the Chairman of the Board and one was controlled prior to its sale to the
Company on September 30, 1996 by another individual who was a founder of
CSI, both of whom are physicians. Revenues derived by CSI directly from
those professional corporations amounted to $2,717,000, $4,379,000, and
$3,342,000 or 37%, 47%, and 43% of operating revenues from continuing
operations for the years ended September 30, 1996, 1995 and 1994
respectively. At September 30, 1996 and 1995, the Company has accounts
receivable from such entities for services rendered amounting to $0and
$832,000 and outstanding cash advances receivable amounting to $0 and
$1,287,000, respectively, net of an allowance of $0and $765,000 at
September 30, 1996 and 1995.
The CSI Foundation, Inc. is controlled by the Chairman of the Board and
two other stockholders and performs research and development activities
primarily in connection with its Immune Reconstitution Cell Transfer
Therapy for late stage AIDS patients. During Fiscal years 1996, 1995, and
1994, the Company recorded expenses of $192,000, $59,000 and $95,0000,
respectively to the Foundation and was reimbursed by the stockholders the
sums of $124,000, $136,000 and $0, respectively. All such contributions to
the Foundation were for ordinary charitable purposes.
11. CASH FLOWS
Supplemental disclosures of cash flow information:
Year Ended September 30,
1996 1995 1994
-------- --------- --------
Cash paid during the year for:
Interest (no amounts were capitalized) $249,000 $ 338,000 $200,000
Supplemental schedule of noncash investing and financing activities:
1994
----
The Company issued 1,040,000 shares of stock in lieu of the $937,000 owed
from the first year's earnout and agreed to issue stock valued at $970,000
in connection with the third year's earnout. In addition, the Company
issued a $3,193,000 convertible note in connection with the settlement
agreement with the CSI shareholders. The Company issued 87,000 shares of
stock in connection with the payment of 50,000 in legal services.
In April 1994, the Company purchased equipment by entering into a capital
lease in the amount of $196,000.
1996
----
During fiscal 1996, the Company issued 160,000 shares of common stock to a
consultant. The shares of common stock were valued at $470,000 and were
issued in exchange for consulting services relating to financial matters,
and evaluating and structuring business acquisitions to be performed
through 1999. Also during fiscal 1996, the Company issued 259,000 shares
of common stock, valued at an aggregate $642,000, to professional advisors
and consultants for services rendered during the year.
During 1996, the Company acquired three medical practices for which
$3,603,000 of the purchase price consisted of amounts previously advanced
to or otherwise due from the medical practices, $1,083,000 consisted of
equity securities and $355,000 consisted of a note payable. In connection
with the transactions, the Company recorded accounts receivable, covenants
not to compete and costs in excess of net assets acquired of $1,250,000,
$550,000 and $3,313,000, respectively.
In February 1996, the Company's Board of Directors approved an agreement
to immediately convert, $3,000,000 of the $3,193,000 convertible debt owed
to the former CSI shareholders into 1,200,000 shares of the Company's
common stock valued at $2.50 a share.
F-15
<PAGE>
Health Professionals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
============================================
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash accounts
receivables, prepaid expenses and current payables and long-term debt. The
estimated fair value is not necessarily indicative of the amounts the
Company could realize in a current market exchange or of future earnings or
cash flows.
13. SUBSEQUENT EVENTS
On October 28, 1996, The Company purchased a medical practice located in
Los Angeles, California for $259,000. The acquisition price for the
practice was paid with 168,000 shares of The Company's HPI common stock
(valued at estimated fair value) and will be supplemented by an earn-out.
The earn-out will also be paid in Company shares and will be calculated at
75% of collected revenues derived from specified services provided to new
patients during the one year period commencing after the effective date of
the practice operations transfer. The earn-out stock will be valued at 70%
of the average market closing price calculated during the 20 trading days
preceding the close of the earn-out period.
During October and November, The Company received proceeds of $750,000 in
convertible loans in a Regulation S transaction. The loans bear interest at
5% per annum and will become due in October and November of 2001. The loans
are convertible into common stock at a 30% discount from the lower of the
closing trading price on the American Stock Exchange at the time the loans
were made or at the time of conversion. Proceeds of the loans have been
used in connection with the Company's new Los Angeles operations and for
general working capital.
F-16
<PAGE>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
-------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- -------------------------- ----------- ----------
Additions
--------------------------
(1) (2)
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts Deduction of period
----------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1996:
Allowance for doubtful
accounts $ 1,702,000 $ (765,000) $ 1,044,000(A) - $ 1,981,000
Accumulated amortization of costs
in excess of net assets of
business acquired $ 587,000 $ 178,000 - - $ 765,000
Accumulated amortization of
covenants not to compete $ - $ 131,000 $ - $ - $ 131,000
Year ended September 30, 1995:
Allowance for doubtful
accounts $ 1,382,000 $ 320,000 $ - $ - $ 1,702,000
Accumulated amortization of costs
in excess of net assets of
business acquired $ 438,000 $ 149,000 $ - $ - $ 587,000
Year ended September 30, 1994:
Allowance for doubtful
accounts $ 1,152,000 $ 288,000 $ - $ 58,000(B) $ 1,382,000
Accumulated amortization of costs
in excess of net assets of
businesses acquired $ 189,000 $ 249,000 $ - $ - $ 438,000
Accumulated amortization of costs
in excess of net assets of
businesses acquired $ 1,624,000 $ 151,000 $ - $ 1,586,000(C) $ 189,000
</TABLE>
(A) Allowances acquired upon purchases of medical practices.
(B) Write-off of uncollectible receivables, net of recoveries.
(C) Sale of staffing and medical examination divisions.
S-1
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit Description Sequential Page Number
- ------ ------------------- ----------------------
3(a) Certificate of Incorporation (5)
3(b) By-Laws (5)
3(c) Amendment to the Certificate of Incorporation
4(a) Form of Warrant Agreement between the Warrant Agent and the Company
(including form of Class B Warrants) (1)
4(b) Form of Unit Purchase Option (1)
10(a) Settlement Agreement, dated July 16, 1990, between Edward J.
Kuriansky as claiming authority and on behalf of the State of New
York, and the Company (2)
10(b) Form of Modified Settlement, dated January 12, 1994, by and among
Edward J. Kuriansky as claiming authority and Deputy Attorney
General for Medicaid Fraud Control, Professional Care, Inc., the
Company, Martin and Harriet Weissman, Israel Cohen and Arthur I.
Goldberg as executor of the Estate of Arlene Cohen (9)
10(c) Lease Agreement dated December 21, 1984 between 125 Eas Bethpage
Associates and the Company, as amended (3)(4)(6)
10(d) 1982 Stock Option Plan (6)
10(e) 1991 Stock Option Plan (7)
10(g) Agreement and Plan of Merger, dated December 23, 1991, by and among
Center for Special Immunology, Inc., CSI Development Corp., William
M. Reiter, M.D., Paul Cimoch, M.D., Marvin Reiter and the Company
(the "CSI Merger Agreement")(6)
10(h) Employment Agreement dated September 18, 1992 between Susanne Loarie
and the Company (7)
10(i) Services Agreement dated December 23, 1991 between AGA, Inc. and
Center for Special Immunology, Inc. (7)
10(j) Severance Agreement dated May 14, 1992 between Martin Weissman and
the Company; Promissory Note by Martin Weissman to the Company dated
June 26, 1992; Agency Agreement dated June 26, 1992 (7)
10(k) Settlement Agreement dated January 11, 1994 by and among the
Company, Martin Weissman and Breslow & Walker (10)
10(l) Lease Agreement dated November 20, 1992 between I-SBC Limited
Partnership and the Company (7)
10(m) Asset Purchase Agreement dated April 15, 1993 by and among Premier
Service, Inc. and Health Professionals East, Inc., Health
Professionals West, Inc., Hematech, Inc., Insurance Medical
Reporter, Inc., and Professional Care, Inc. and related documents
and agreements (10)
10(n) Employment Agreement dated October 26, 1993 between Bradford J.
Beilly and the Company (9)
10(o) Consulting Agreement dated July 19, 1993 between J.D. Ross Interna-
tional and the Company and related Warrant (9)
10(p) Attorney's Retention Agreement dated July 19, 1993 between Richard
Morganstern, a Professional Corporation, and the Company and related
Warrant (9)
40
<PAGE>
10(q) Form of identical Factoring Agreements between each of Paul J.
Cimoch, M.D., P.C., William M. Reiter, M.D., P.A., and Daniel S.
Berger, M.D., Ltd., respectively, subsidiaries of CSI, and Capital
Factors (9)
10(r) Modification and Supplement to Premier Asset Purchase Agreement (9)
10(s) Second Modification to CSI Merger Agreement (10)
10(t) Employment Agreement dated November 1, 1995, between W. Douglas Kahn
and the Company
10(u) Amended Employment Agreement dated September 19, 1995, between
Susanne Loarie and the Company
10(v) Loan and Securities Purchase Agreement dated December 28, 1995
between SunDance Venture Partners, L.P. and the Company
10(w) Fort Lauderdale purchase
10(x) Chicago purchase
10(y) Irvine purchase
10(z) Los Angeles purchase
22 Subsidiaries
24 Independent Certified Public Accountants' Consent
27 Financial Data Schedule (Electronic filing only)
_________________
(1) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Registration Statement on Form S-1, File No. 33-37204.
(2) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Form 8-K, which date of report is July 6, 1990.
(3) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Form 10-K for the fiscal year ended September 30, 1990.
(4) Incorporated by reference from Professional Care, Inc.'s (predecessor to
Registrant) Form 8-K, which date of report is November 29, 1984.
(5) Incorporated by reference from Registrant's Registration Statement on Form
S-4, File No. 33-42675.
(6) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1991.
(7) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1992.
(8) Incorporated by reference from Registrant's Form 8-K, dated June 21, 1993.
(9) Incorporated by reference from Registrant's Form 10-K, for the fiscal year
ended September 30, 1994.
(10) Incorporated by reference from Registrant's Form 10-Q for the quarter ended
December 31, 1994.
(b) Reports on Form 8-K
None.
41
LIST OF SUBSIDIARIES
--------------------
(1) Center for Special Immunology, Inc.
(2) CSI Fort Lauderdale, Inc.
(3) CSI Miami, Inc.
(4) CSI Illinois, Inc.
(5) CSICA Corporation
(6) CSI Dallas, Inc.
(7) CSI New York, Inc.
(8) CSI Kansas, Inc.
(9) CSI Clinical Laboratories, Inc.
(10) CSI Clinical Trials, Inc.
(11) CSI Managed Care, Inc.
(12) CSI Therapeutics, Inc.
(13) Professional Care, Inc.
(14) Health Professionals East, Inc.
(15) Hematech, Inc.
(16) Health Professionals West, Inc.
(17) IR Liquidating, Inc.
42
EXHIBIT 24
----------
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
We hereby consent to the incorporation by reference in Post- Effective Amendment
No. 3 to Registration Statement No. 33-37204 on Form S-3, and Post-Effective
Amendment No. 1 to Registration Statement No. 33-42675 on Form S-8 of our report
dated January 7, 1997, which report raises substantial doubt about the Company's
ability to continue as a going concern, relating to the consolidated financial
statements and schedule of Health Professionals, Inc. and subsidiaries appearing
in the Company's Annual Report on Form 10-K for the year ended September 30,
1996.
Miami, Florida /s/ BDO Seidman, LLP
January 10, 1997 ------------------------------
43
EXHIBIT 3C
----------
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HEALTH PROFESSIONALS, INC.
Health Professionals, Inc., a corporation organized and existing under and
by virtue of the General Corporation of Law of the State of Delaware, (the
"Corporation"), DOES HEREBY CERTIFY
FIRST:By the unanimous resolution of the directors of Health
Professionals, Inc., a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation
declaring said amendment to be advisable and seeking the approval of the
majority of the shareholders of said corporation to adopt such amendment
to the Certificate of Incorporation, pursuant to Sections 222 and 242 of
the Delaware General Corporation Law. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that ARTICLE FOURTH be amended by adding the following
paragraph:
"C. Effective as of the effective date of this Amendment, each ten (10)
shares of Common Stock, $.02 par value per share, outstanding before the
effective date of the Amendment will be changed into one (1) fully paid
and nonassessable share of Common Stock, $.02 par value per share; and
that after the effective date of the Amendment, each holder of record of
one or more certificates representing shares of the old Common Stock shall
be entitled to receive one or more certificates representing the
proportionate number of shares of new Common stock on surrender of a
stockholder's old certificates for cancellation. If a stockholder shall be
entitled to a fractional number of new shares of Common Stock which is not
a whole number, then fractional interests of .5 or more of the number of
new shares of Common Stock issued to the Stockholder shall be rounded
upward to the highest whole number and fractional interests of less than
.5 of the number of new shares of Common Stock will be reduced to the next
nearest whole number. Any Stockholder whose aggregate stockholding is
reduced to a fraction of one (1) share will receive one (1) share of new
Common Stock."
SECOND: that a majority of the Stockholders have given their written
consent to the above amendments in accordance with the provisions of
Section 242 of the Delaware General Corporation Law;
44
<PAGE>
THIRD:that the aforesaid amendment shall be duly adopted in accordance
with the applicable Sections 242 and 222 of the Delaware General
Corporation Law.
FOURTH: that the capital of the Corporation shall not
be reduced under or by reason of said amendment.
FIFTH:that this amendment shall become effective upon its filing in the
office of the Secretary of State of Delaware, and therefore being, the
record date of a one (1) for ten (10) (1.10) reverse stock split of the
Company's issued and outstanding shares of Common Stock.
IN WITNESS WHEREOF, the corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and
Secretary, this 17th day of February, 1996.
HEALTH PROFESSIONALS, INC.
Attest:______/s/____________ By:________/s/________________
Bradford J. Beilly, William M. Reiter, President
Secretary
45
EXHIBIT 10X
-----------
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") dated as of April 1, 1996
by and between Daniel S. Berger, M.D., Ltd., (the "Seller"), a Illinois
corporation with an office at 2835 N. Sheffield Avenue, Suite 104, Chicago,
Illinois and CSI Illinois Inc., a Florida corporation with an office at 515 East
Las Olas Boulevard, Suite 1600, Fort Lauderdale, FL 33301, (the "Purchaser").
R E C I T A L S:
WHEREAS, Seller owns the assets of a medical practice with
offices in Chicago, Illinois; and
WHEREAS, Purchaser desires to purchase and the Seller desires to sell to
Purchaser all of the assets of Seller's medical practice; and
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
a.. PURCHASE OF ASSETS.
1. SALE AND PURCHASE. Subject to the terms and conditions set forth
in this Agreement, Seller agrees to sell and deliver to the Purchaser and the
Purchaser agrees to purchase from the Seller at the Closing, hereinafter defined
the assets of Sellers medical practice set forth on Schedule "A" annexed hereto
(hereinafter the "Assets").
2. PURCHASE PRICE. In consideration for the sale of the Assets, the
Purchaser agrees to pay to the Seller 100% of the amount of actual cash
collections of the medical practice for the twelve (12) month period between
April 1, 1996 and March 31, 1997 which cash collections and price shall be
calculated on or before June 30, 1997.
3. PAYMENT OF PURCHASE PRICE. The purchase price will be paid as
follows:
a) 20% of the price shall be paid in cash in eight (8) equal
quarterly installments with the first quarterly payment being due on July 31,
1997 and second payment being due on October 31, 1997. The unpaid principal
shall bear interest at 5% percent per annum from July 31, 1997 until paid in
full. The balance due from time to time may be paid in full at any time without
any prepayment penalty.
b) The balance of the purchase price shall be paid in
unregistered shares of the common stock of Health Professionals, Inc., a
Delaware corporation as follows:
i) An initial $400,000 worth of stock (the "INITIAL
SHARES") shall be credited to the account of the Daniel S. Berger Irrevocable
Trust, said stock valued at $1.75 per share (the "INITIAL SHARE VALUATION
PRICE"). Seller acknowledges that as of April 1, 1996, that it is indebted to
Buyer and/or CSI Delaware for advances made or debts justly due in the amount of
$336,910.00 and that this sum may be set off against the INITIAL SHARES.
Accordingly, Purchaser shall deliver to the Daniel S. Berger Irrevocable Trust
the equivalent of $66,052 at $1.75 per share (36,052 shares). Purchaser
46
<PAGE>
acknowledges Seller is neither a control person or purchaser nor an affiliate as
those terms are defined by SEC rules, but that Purchaser shall prepare, at its
expense, any forms required to be filed by the SEC or any State agency.
ii) The balance of the stock ("BALANCE OF SHARES")
shall be issued on July 31, 1997 and shall be valued at 70% percent of the
average closing price of the stock for the 5 trading days preceding June 30,
1997 (the "BALANCE OF SHARES VALUATION PRICE").
c) Purchaser and its parent, Health Professionals, Inc. shall
guarantee the INITIAL SHARE VALUATION PRICE and the BALANCE OF SHARES VALUATION
PRICE of the HPI shares delivered to the Daniel S. Berger Irrevocable Trust for
a period of five trading days from the date said shares are first eligible for
sale under Rule 144 or otherwise (the "GUARANTEE PERIOD"), to the extent that,
if during the GUARANTEE PERIOD the market price of either the INITIAL SHARES or
BALANCE OF SHARES delivered to the Daniel S. Berger Irrevocable Trust is lower
than 70% of its market value on the date of issuance (the GUARANTEED PRICE),
then Purchaser shall pay the Daniel S. Berger Irrevocable Trust the difference
between the average market price at the close of business of the five days
constituting the GUARANTEE PERIOD and the GUARANTEED PRICE in either cash or HPI
stock so that the market value of the HPI shares received by Seller for the
stock portion of the purchase price is no less than 70% percent of the market
value of said stock on the respective dates of issuance.
d) The initial shares and balance of shares shall be due
and payable even if Daniel S. Berger, M.D. is not associated with Health
Professionals, Inc., for any reason, when said shares become due to be issued.
b. CLOSING AND CONDITION TO CLOSING.
i. CLOSING AND CLOSING DATE . The closing (the "Closing") shall
take place at the offices of the Purchaser, effective on the 1st day of April,
1996.
ii. CONDITION TO CLOSING. The Closing shall be subject to
satisfaction of the condition that (a) the representations and warranties of (i)
the Seller contained in Section 3 hereof, and (ii) the Purchaser contained in
Section 4 hereof are true and correct and shall be true and correct as of the
Closing Date; (b) the Seller shall have delivered to the Purchaser the items
required by Section 2.3 hereof; and (c) the Purchaser and the Seller shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by such party prior to or as of the
Closing Date.
iii. DELIVERIES BY THE SELLER. At the Closing the Seller shall
deliver or cause to be delivered to the Purchaser a bill of sale for the assets
in form annexed hereto as Exhibit "C".
iv. DELIVERIES BY THE PURCHASER. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Seller a copy of instructions to
the transfer agent directing the issuance of the INITIAL SHARES to the Daniel S.
Berger Irrevocable Trust.
c. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
i. ORGANIZATION AND STANDING OF THE SELLER. The Seller is a pro-
fessional association duly organized, validly existing and in good standing
under the laws of the State of Illinois, and has clear title to the assets and
is entitled to sell said assets.
47
<PAGE>
ii. AUTHORITY OF THE SELLER; CONSENTS; EXECUTION OF AGREEMENTS. The
Seller has all requisite power, authority, and capacity to enter into this
Agreement and to perform the transactions and obligations to be performed by it
hereunder. No consent, authorization, approval, license, permit or order of, or
filing with, any person or governmental authority is required in connection with
the execution of the transactions and obligations to be performed by it
hereunder. The execution and delivery of this Agreement, and the performance of
the transactions and obligations contemplated hereby by the Seller, have been
duly authorized by all requisite action of the Seller. This Agreement has been
duly executed and delivered by the Seller and constitutes a valid and legally
binding obligation of the Seller, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws.
D. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
1. AUTHORITY OF THE PURCHASER; CONSENTS; EXECUTION OF AGREEMENTS.
The Purchaser is a duly and properly formed corporation under the laws of the
State of Florida and has all requisite power, authority, and capacity to enter
into this Agreement and to perform the transactions and obligations to be
performed by it hereunder.
2. No consent, authorization, approval, license, permit or order of,
or filing with, any person or governmental authority is required in connection
with the execution of the transactions and obligations to be performed by it
hereunder. The execution and delivery of this Agreement, and the performance of
the transactions and obligations contemplated hereby by the Purchaser, have been
duly authorized by all requisite action of the Purchaser.
3. This Agreement has been duly executed and delivered by the
Purchaser and constitutes a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws.
4. Purchaser and HPI certifies that it has sufficient stock author-
ized to issue the INITIAL SHARES and balance of shares.
5. Purchaser and HPI certifies that all issuances of stock, as set
forth herein do not violate any rules or regulations of the SEC or shareholder
agreements.
E. EMPLOYMENT OF DANIEL S. BERGER, M.D. Contemporaneously with the
closing, the Purchaser and Daniel S. Berger, M.D. shall enter into the written
Employment Agreement annexed hereto, which cannot be rescinded or cancelled for
any reason, except cause as set forth therein.
F. COVENANT NOT TO COMPETE.
1. During the term of the Employment Agreement and for a period of
two (2) years thereafter, Dr. Berger shall not, directly or indirectly, (a)
divert or attempt to divert any business or patients of CSI to any other medical
practice or research facility in competition with CSI within the geographic area
48
<PAGE>
of Cook County, Illinois or (b) solicit or induce employees of CSI to terminate
their employment with CSI and/or engage in any business in competition with the
business carried on by CSI.
2. Daniel S. Berger, M.D. shall not, during the term of this
Agreement or any time thereafter, communicate or divulge to, or use for the
benefit of any other person, partnership, association, corporation or entity,
any confidential or proprietary information regarding CSI's research, protocols,
procedures, systems, techniques, formulas, inventions or other knowledge
concerning CSI, the Facilities or the research being conducted at the Facilities
or any of the services provided by CSI. Nothing contained in these restrictive
covenants shall prohibit Daniel S. Berger, M.D. from conducting clinical
research at his discretion nor prohibit him from publishing the results of his
research.
3. During the term of the Employment Agreement and for a period of 2
years thereafter, Daniel S. Berger, M.D. will not compete with, or, directly or
indirectly, own, manage, operate, control, loan money to, or participate in the
ownership, operation or control of, or be connected with as a director, partner,
consultant, agent, independent contractor or otherwise, or acquiesce in the use
of his name in any other business or organization which is in direct competition
with CSI as a for-profit provider of specialized services for the treatment of
HIV infection, Chronic Fatigue Syndrome and related diseases in the geographical
area of Cook County, Illinois provided, however, that Employee shall be
permitted after the cessation of his employment but during the Covenant Period
to own less than a 5% interest as a shareholder in any company which is listed
on any national securities exchange even though it may be in competition with
CSI.
G. MISCELLANEOUS.
1. COSTS AND EXPENSES. Each party agrees to pay its own costs and
expenses in connection with the preparation, execution and delivery of this
Agreement and any other instruments and documents to be delivered hereunder.
2. WAIVERS AND AMENDMENTS. This Agreement may be amended or modified
in whole or in part only by a writing which makes reference to this Agreement
and is executed by the parties to this Agreement. The obligations of any party
hereunder may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the party
claimed to have given the waiver; provided, however, that any waiver by any
party of any violation of, breach of, or default under any provision of this
Agreement or any other agreement provided for herein shall not be constructed
as, or constitute, a continuing waiver of such provision, or waiver of any other
violation of, breach of or default under any provision of this Agreement or any
other agreement provided for herein.
3. INVALIDITY. the sale described in this Agreement shall be
determined to be invalid, illegal, or unenforceable, then the transaction shall
be null and void and the assets conveyed hereunder shall be returned to the
Seller and the Seller shall return all consideration paid by the Buyer whether
in stock, its cash equivalent or in cash upon terms mutually agreeable. In
addition, Buyer shall assign to Seller all accounts receivable which had not
49
<PAGE>
been collected and all other monies received less office expenses for the
Chicago office, including rent, salaries for Chicago employees and office
supplies. If any other provision in this Agreement shall be determined to be
invalid, illegal or unenforceable, such provision shall not effect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
4. DEFAULT BY PURCHASER. In the event the Purchaser fails to pay
either the cash portion or stock portion of the purchase price when due and
fails to correct the failure within five days from the receipt of written notice
of default, than Seller shall be entitled to the return of all the patient files
and other assets sold hereunder and be relieved from the restrictive covenant
set forth in paragraph addition, Buyer shall assign to Seller all accounts
receivable of Seller's medical practice which had not been collected. In the
event of such default, Seller shall also retain all consideration paid and all
stock issued to the Daniel S. Berger Irrevocable Trust as liquidated damages.
5. GOVERNING LAW. This Agreement shall in all respects be governed
by and constructed in accordance with the laws of the State of Florida without
giving effect to the principles of conflicts of law thereof.
6. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and be deemed to have been duly given if
personally delivered or five business days after being sent by recognized
overnight courier or confirmed facsimile to the parties at their respective
addresses set forth herein.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
8. SUCCESSORS AND ASSIGNS. Neither this Agreement, nor any of the
rights or obligations hereunder, shall be assigned by either party hereto
without the prior written consent of the other party hereto. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
9. THIRD PARTIES. Nothing expressed or implied in this Agreement is
intended, or shall be constructed, to confer upon or give any person or entity
other than the parties hereto and their permitted assigns any rights or remedies
under or by reason of this Agreement.
10. EXHIBITS. The exhibits attached to this Agreement are
incorporated herein and shall be part of this Agreement for all purposes.
11. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
50
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed, or have caused their
duly authorized officer or representative to execute, this Asset Purchase
Agreement as of the date first above written.
SELLER:
DANIEL S. BERGER, M.D., LTD.
By:________/S/_______________
Daniel S. Berger, M.D.
PURCHASER:
CSI ILLINOIS, INC., a Florida
corporation
By:________/S/________________
William M. Reiter, President
GUARANTOR:
HEALTH PROFESSIONALS, INC., a
Florida corporation
By:________/S/_________________
William M. Reiter, President
51
EXHIBIT 10Y
-----------
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") dated as of September 30,
1996 by and between PAUL J. CIMOCH, MD PC, (the "Seller"), a California
corporation with an office at 100 Pacifica, Suite 100, Irvine, California 92618
and CSICA Corporation, a California corporation with an office at 100 Pacifica,
Suite 100, Irvine, California 92618, (the "Purchaser").
R E C I T A L S:
WHEREAS, Seller owns the assets of a medical practice with offices in
Irvine and San Diego, California; and
WHEREAS, Purchaser desires to purchase and the Seller desires to sell to
Purchaser all of the assets of Seller's medical practice; and
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
d.. PURCHASE OF ASSETS.
1. SALE AND PURCHASE. Subject to the terms and conditions set forth
in this Agreement, Seller agrees to sell and deliver to the Purchaser and the
Purchaser agrees to purchase from the Seller at the Closing, hereinafter defined
the assets of Sellers medical practice set forth on Schedule "A" annexed hereto
(hereinafter the "Assets"), inclusive of Seller's Accounts Receivable for
medical and ancillary services.
2. PURCHASE PRICE. In consideration for the sale of the Assets, the
Purchaser agrees to pay to the Seller the sum of $1,388,270.36.
3. PAYMENT OF PURCHASE PRICE. The purchase price will be paid as
follows:
a) Purchaser together with its corporate parent, CSI, a
Delaware corporation, shall release Seller from the obligation to repay all
advances and other payables due from Seller whether billed or unbilled as of the
effective date of this Agreement, and
b) Purchaser shall pay Seller an additional amount of
$5,966.00 in cash.
e. CLOSING AND CONDITION TO CLOSING.
i. CLOSING AND CLOSING DATE. The closing (the "Closing") shall take
place at the offices of the Purchaser, effective on the effective date of this
Agreement.
2. CONDITION TO CLOSING. The Closing shall be subject to
satisfaction of the condition that (a) the representations and warranties of (i)
the Seller contained in Section 3 hereof, and (ii) the Purchaser contained in
Section 4 hereof are true and correct and shall be true and correct as of the
Closing Date; (b) the Seller shall have delivered to the Purchaser the items
required by Section 2.3 hereof; and (c) the Purchaser and the Seller shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by such party prior to or as of the
Closing Date.
52
<PAGE>
3. DELIVERIES BY THE SELLER. At the Closing the Seller shall deliver
or cause to be delivered to the Purchaser a bill of sale for the assets in form
annexed hereto as Exhibit "C".
f. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
i. ORGANIZATION AND STANDING OF THE SELLER. The Seller is a
professional association duly organized, validly existing and in good standing
under the laws of the State of California, and has clear title to the assets and
is entitled to sell said assets.
ii. AUTHORITY OF THE SELLER; CONSENTS; EXECUTION OF AGREEMENTS. The
Seller has all requisite power, authority, and capacity to enter into this
Agreement and to perform the transactions and obligations to be performed by it
hereunder. No consent, authorization, approval, license, permit or order of, or
filing with, any person or governmental authority is required in connection with
the execution of the transactions and obligations to be performed by it
hereunder. The execution and delivery of this Agreement, and the performance of
the transactions and obligations contemplated hereby by the Seller, have been
duly authorized by all requisite action of the Seller. This Agreement has been
duly executed and delivered by the Seller and constitutes a valid and legally
binding obligation of the Seller, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws.
D. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
1. AUTHORITY OF THE PURCHASER; CONSENTS; EXECUTION OF AGREEMENTS.
The Purchaser is a duly and properly formed corporation under the laws of the
State of Florida and has all requisite power, authority, and capacity to enter
into this Agreement and to perform the transactions and obligations to be
performed by it hereunder. No consent, authorization, approval, license, permit
or order of, or filing with, any person or governmental authority is required in
connection with the execution of the transactions and obligations to be
performed by it hereunder. The execution and delivery of this Agreement, and the
performance of the transactions and obligations contemplated hereby by the
Purchaser, have been duly authorized by all requisite action of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and legally binding obligation of the Purchaser, enforceable
in accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws.
E. COVENANT NOT TO COMPETE.
1. During the term of this Agreement and for a period of two (2)
years thereafter, Seller and Paul J. Cimoch shall not, directly or indirectly,
(a) divert or attempt to divert any business or patients of CSI to any other
medical practice or research facility in competition with CSI within the
geographic area of Cook County, Illinois or (b) solicit or induce employees of
CSI to terminate their employment with CSI and/or engage in any business in
competition with the business carried on by CSI.
2. Seller and Paul J. Cimoch shall not, during the term of this
Agreement or any time thereafter, communicate or divulge to, or use for the
53
<PAGE>
benefit of any other person, partnership, association, corporation or entity,
any confidential or proprietary information regarding CSI's research, protocols,
procedures, systems, techniques, formulas, inventions or other knowledge
concerning CSI, the Facilities or the research being conducted at the Facilities
or any of the services provided by CSI.
3. Seller and Paul J. Cimoch agree that for a period of two years they
will not compete with, or, directly or indirectly, own, manage, operate,
control, loan money to, or participate in the ownership, operation or control
of, or be connected with as a director, partner, consultant, agent, independent
contractor or otherwise, or acquiesce in the use of his name in any other
business or organization which is in direct competition with CSI as a for-profit
provider of specialized services for the treatment of HIV infection, Chronic
Fatigue Syndrome and related diseases in the geographical area of Irvine and San
Diego, California provided, however, that Employee shall be permitted after the
cessation of his employment but during the Covenant Period to own less than a 5%
interest as a shareholder in any company which is listed on any national
securities exchange even though it may be in competition with CSI.
4. Since a breach of the provisions of this Section 6 could not
adequately be compensated by money damages and will cause irreparable injury to
CSI, CSI shall be entitled, in addition to any other right or remedy available
to it, to an injunction or restraining order restraining such breach or a
threatened breach, and no bond or other security shall be required in connection
therewith, and Seller and Paul J. Cimoch hereby consent to the issuance of any
such injunction or restraining order. Seller and Paul J. Cimoch agree that the
provisions of the Section 6 are reasonable and necessary to protect CSI and its
business. It is the desire and intent of the parties that the provisions of this
Section 6 shall be enforced to the fullest extent permitted under the public
policies and laws applied in each jurisdiction in which enforcement is sought.
If any restriction contained in this Section 6 shall be deemed to be invalid,
illegal or unenforceable by reason of the extent, duration or geographical scope
thereof, or otherwise, then the court making such determination shall have the
right to reduce such extent, duration, geographical scope or other provision
hereof and in its reduced form such restriction shall then be enforceable in the
manner contemplated hereby.
F. MISCELLANEOUS.
1. COSTS AND EXPENSES. Each party agrees to pay its own costs and
expenses in connection with the preparation, execution and delivery of this
Agreement and any other instruments and documents to be delivered hereunder.
2. WAIVERS AND AMENDMENTS. This Agreement may be amended or modified
in whole or in part only by a writing which makes reference to this Agreement
and is executed by the parties to this Agreement. The obligations of any party
hereunder may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the party
claimed to have given the waiver; provided, however, that any waiver by any
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party of any violation of, breach of, or default under any provision of this
Agreement or any other agreement provided for herein shall not be constructed
as, or constitute, a continuing waiver of such provision, or waiver of any other
violation of, breach of or default under any provision of this Agreement or any
other agreement provided for herein.
3. INVALIDITY.If any provision in this Agreement shall be determined
to be invalid, illegal or unenforceable, such provision shall not effect any
other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
4. GOVERNING LAW. This Agreement shall in all respects be governed
by and constructed in accordance with the laws of the State of Florida without
giving effect to the principles of conflicts of law thereof.
5. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and be deemed to have been duly given if
personally delivered or five business days after being sent by recognized
overnight courier or confirmed facsimile to the parties at their respective
addresses set forth herein.
6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
7. SUCCESSORS AND ASSIGNS. Neither this Agreement, nor any of the
rights or obligations hereunder, shall be assigned by either party hereto
without the prior written consent of the other party hereto. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8. THIRD PARTIES. Nothing expressed or implied in this Agreement is
intended, or shall be constructed, to confer upon or give any person or entity
other than the parties hereto and their permitted assigns any rights or remedies
under or by reason of this Agreement.
9. EXHIBITS. The exhibits attached to this Agreement are
incorporated herein and shall be part of this Agreement for all purposes.
10. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed, or have caused their
duly authorized officer or representative to execute, this Asset Purchase
Agreement as of the date first above written.
SELLER:
PAUL J. CIMOCH, MD PC
By:______/S/___________________
Paul J. Cimoch, M.D.
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Paul J. Cimoch, M.D.,
Individually
PURCHASER:
CSICA Corporation
a California corporation
By:________/S/_________________
William M. Reiter, President
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EXHIBIT 10W
-----------
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") dated as of January 1,
1996 by and between WILLIAM M. REITER, MD PA, (the "Seller"), a Florida
corporation with an office at 515 East Las Olas Boulevard, Suite 1600, Fort
Lauderdale, Florida and CSI Fort Lauderdale, Inc., a Florida corporation with an
office at 515 East Las Olas Boulevard, Suite 1600, Fort Lauderdale, FL 33301,
(the "Purchaser").
R E C I T A L S:
WHEREAS, Seller owns the assets of a medical practice with offices in Fort
Lauderdale and Miami, Florida; and
WHEREAS, Purchaser desires to purchase and the Seller desires to sell to
Purchaser all of the assets of Seller's medical practice; and
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
g.. PURCHASE OF ASSETS.
1. SALE AND PURCHASE. Subject to the terms and conditions set forth
in this Agreement, Seller agrees to sell and deliver to the Purchaser and the
Purchaser agrees to purchase from the Seller at the Closing, hereinafter defined
the assets of Sellers medical practice set forth on Schedule "A" annexed hereto
(hereinafter the "Assets"), exclusive of Seller's Accounts Receivable for
medical and ancillary services.
2. PURCHASE PRICE. In consideration for the sale of the Assets, the
Purchaser agrees to pay to the Seller the sum of $1,242,303.00. In addition,
Purchaser agrees to purchase Seller's Accounts Receivable for an additional
$123,787.00.
3. PAYMENT OF PURCHASE PRICE. The purchase price will be paid as
follows:
a) Purchaser together with its corporate parent, CSI, a
Delaware corporation, shall release Seller from the obligation to repay all
advances and other payables due from Seller whether billed or unbilled as of the
effective date of this Agreement, and
b) Purchaser shall pay Seller an additional amount of
$65,567.00 in cash.
h. CLOSING AND CONDITION TO CLOSING.
i. CLOSING AND CLOSING DATE. The closing (the "Closing") shall take
place at the offices of the Purchaser, effective on the effective date of this
Agreement.
2. CONDITION TO CLOSING. The Closing shall be subject to
satisfaction of the condition that (a) the representations and warranties of (i)
the Seller contained in Section 3 hereof, and (ii) the Purchaser contained in
Section 4 hereof are true and correct and shall be true and correct as of the
Closing Date; (b) the Seller shall have delivered to the Purchaser the items
required by Section 2.3 hereof; and (c) the Purchaser and the Seller shall have
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performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by such party prior to or as of the
Closing Date.
3. DELIVERIES BY THE SELLER. At the Closing the Seller shall deliver
or cause to be delivered to the Purchaser a bill of sale for the assets in form
annexed hereto as Exhibit "C".
i. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
i. ORGANIZATION AND STANDING OF THE SELLER. The Seller is a
professional association duly organized, validly existing and in good standing
under the laws of the State of Florida, and has clear title to the assets and is
entitled to sell said assets.
ii. AUTHORITY OF THE SELLER; CONSENTS; EXECUTION OF AGREEMENTS. The
Seller has all requisite power, authority, and capacity to enter into this
Agreement and to perform the transactions and obligations to be performed by it
hereunder. No consent, authorization, approval, license, permit or order of, or
filing with, any person or governmental authority is required in connection with
the execution of the transactions and obligations to be performed by it
hereunder. The execution and delivery of this Agreement, and the performance of
the transactions and obligations contemplated hereby by the Seller, have been
duly authorized by all requisite action of the Seller. This Agreement has been
duly executed and delivered by the Seller and constitutes a valid and legally
binding obligation of the Seller, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws.
D. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
1. AUTHORITY OF THE PURCHASER; CONSENTS; EXECUTION OF AGREEMENTS.
The Purchaser is a duly and properly formed corporation under the laws of the
State of Florida and has all requisite power, authority, and capacity to enter
into this Agreement and to perform the transactions and obligations to be
performed by it hereunder. No consent, authorization, approval, license, permit
or order of, or filing with, any person or governmental authority is required in
connection with the execution of the transactions and obligations to be
performed by it hereunder. The execution and delivery of this Agreement, and the
performance of the transactions and obligations contemplated hereby by the
Purchaser, have been duly authorized by all requisite action of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and legally binding obligation of the Purchaser, enforceable
in accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws.
E. COVENANT NOT TO COMPETE.
1. During the term of this Agreement and for a period of two (2)
years thereafter, Seller and William M. Reiter shall not, directly or
indirectly, (a) divert or attempt to divert any business or patients of CSI to
any other medical practice or research facility in competition with CSI within
the geographic area of Cook County, Illinois or (b) solicit or induce employees
of CSI to terminate their employment with CSI and/or engage in any business in
competition with the business carried on by CSI.
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2. Seller and William M. Reiter shall not, during the term of this
Agreement or any time thereafter, communicate or divulge to, or use for the
benefit of any other person, partnership, association, corporation or entity,
any confidential or proprietary information regarding CSI's research, protocols,
procedures, systems, techniques, formulas, inventions or other knowledge
concerning CSI, the Facilities or the research being conducted at the Facilities
or any of the services provided by CSI.
3. Seller and William M. Reiter agree that for a period of two years
they will not compete with, or, directly or indirectly, own, manage, operate,
control, loan money to, or participate in the ownership, operation or control
of, or be connected with as a director, partner, consultant, agent, independent
contractor or otherwise, or acquiesce in the use of his name in any other
business or organization which is in direct competition with CSI as a for-profit
provider of specialized services for the treatment of HIV infection, Chronic
Fatigue Syndrome and related diseases in the geographical area of Fort
Lauderdale and Miami, Florida provided, however, that Employee shall be
permitted after the cessation of his employment but during the Covenant Period
to own less than a 5% interest as a shareholder in any company which is listed
on any national securities exchange even though it may be in competition with
CSI.
4. Since a breach of the provisions of this Section 6 could not
adequately be compensated by money damages and will cause irreparable injury to
CSI, CSI shall be entitled, in addition to any other right or remedy available
to it, to an injunction or restraining order restraining such breach or a
threatened breach, and no bond or other security shall be required in connection
therewith, and Seller and William M. Reiter hereby consent to the issuance of
any such injunction or restraining order. Seller and William M. Reiter agree
that the provisions of the Section 6 are reasonable and necessary to protect CSI
and its business. It is the desire and intent of the parties that the provisions
of this Section 6 shall be enforced to the fullest extent permitted under the
public policies and laws applied in each jurisdiction in which enforcement is
sought. If any restriction contained in this Section 6 shall be deemed to be
invalid, illegal or unenforceable by reason of the extent, duration or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope or other provision hereof and in its reduced form such restriction shall
then be enforceable in the manner contemplated hereby.
F. MISCELLANEOUS.
1. COSTS AND EXPENSES. Each party agrees to pay its own costs and
expenses in connection with the preparation, execution and delivery of this
Agreement and any other instruments and documents to be delivered hereunder.
2. WAIVERS AND AMENDMENTS. This Agreement may be amended or modified
in whole or in part only by a writing which makes reference to this Agreement
and is executed by the parties to this Agreement. The obligations of any party
hereunder may be waived (either generally or in a particular instance and either
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retroactively or prospectively) only with the written consent of the party
claimed to have given the waiver; provided, however, that any waiver by any
party of any violation of, breach of, or default under any provision of this
Agreement or any other agreement provided for herein shall not be constructed
as, or constitute, a continuing waiver of such provision, or waiver of any other
violation of, breach of or default under any provision of this Agreement or any
other agreement provided for herein.
3. INVALIDIIf any provision in this Agreement shall be determined to
be invalid, illegal or unenforceable, such provision shall not effect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
4. GOVERNING LAW. This Agreement shall in all respects be governed
by and constructed in accordance with the laws of the State of Florida without
giving effect to the principles of conflicts of law thereof.
5. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and be deemed to have been duly given if
personally delivered or five business days after being sent by recognized
overnight courier or confirmed facsimile to the parties at their respective
addresses set forth herein.
6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
7. SUCCESSORS AND ASSIGNS. Neither this Agreement, nor any of the
rights or obligations hereunder, shall be assigned by either party hereto
without the prior written consent of the other party hereto. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8. THIRD PARTIES. Nothing expressed or implied in this Agreement is
intended, or shall be constructed, to confer upon or give any person or entity
other than the parties hereto and their permitted assigns any rights or remedies
under or by reason of this Agreement.
9. EXHIBITS. The exhibits attached to this Agreement are
incorporated herein and shall be part of this Agreement for all purposes.
10. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed, or have caused their
duly authorized officer or representative to execute, this Asset Purchase
Agreement as of the date first above written.
SELLER:
WILLIAM M. REITER, MD PA
By:_______/S/__________________
William M. Reiter, M.D.
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_________/S/__________________
William M. Reiter, M.D.
Individually
PURCHASER:
CSI FORT LAUDERDALE, INC.
a Florida corporation
By:__________/S/______________
W. Douglas Kahn
61
EXHIBIT 10Z
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of October 28,
1996 by and between Reginald J. Warren, D.O., (the "Seller"), Ralph S. Hansen,
M.D. P.C., a California corporation with an office at 515 East Las Olas
Boulevard, Suite 1600, Fort Lauderdale, FL 33301, (the "Purchaser") and HEALTH
PROFESSIONALS, INC. (hereinafter referred to as "HPI"), a Delaware corporation,
with an office at 515 East Las Olas Boulevard, Suite 1600, Fort Lauderdale, FL
33301, (the "GUARANTOR").
R E C I T A L S:
WHEREAS, Seller owns 100% (100 shares of the authorized for issuance
amount of 7,500) of the issued and outstanding shares of Dr. Reginald J. Warren,
Inc., a professional corporation (hereinafter the "PC") which owns and operates
a medical practice with offices in Beverly Hills, California; and
WHEREAS, Purchaser desires to purchase and the Seller desires to sell to
Purchaser all of the shares of stock in the PC; and
WHEREAS, the parties have agreed to the terms and conditions under which
Seller shall sell and Purchaser shall purchase the shares of stock of the PC;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. PURCHASE OF STOCK.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
in this Agreement, Seller agrees to sell and deliver to the Purchaser and the
Purchaser agrees to purchase from the Seller at the "Closing", hereinafter
defined, 100% of the issued and outstanding shares of stock of PC. The parties
agree that prior to closing, the PC shall distribute to Seller individually, all
of the cash on hand as of October 28, 1996 and the Accounts Receivable of the PC
for medical and ancillary services rendered prior to October 28, 1996.
1.2 PURCHASE PRICE. In consideration for the sale of the Stock and
the services to be rendered during the "Transition Period" as described below,
the Purchaser agrees to deliver to Reginald J. Warren, D.O. 168,000 unregistered
shares of the common stock of Health Professionals, Inc. (the "HPI Shares"), a
Delaware corporation, which, for purposes of this sale, have been valued at
$2.275 per share (the "Share Valuation Price").
1.3 GUARANTEE OF DELIVERY AND VALUATION OF SHARES.
Purchaser and Guarantor shall guarantee the delivery and the SHARE VALUA-
TION PRICE of the HPI Shares delivered to Reginald J. Warren, D.O. for a period
of five trading days from, the later of the date said shares are first eligible
for sale under Rule 144 or two years from October 28, 1996 (the "GUARANTEE
PERIOD"), to the extent that, if during the GUARANTEE PERIOD the market price of
the HPI Shares delivered to Reginald J. Warren, D.O. is lower than $2.275 (the
GUARANTEED PRICE), then Purchaser and Guarantor shall pay Reginald J. Warren,
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D.O. the difference between the average market price at the close of business of
the five days constituting the GUARANTEE PERIOD and the GUARANTEED PRICE in
additional shares of HPI stock so that the market value of the HPI shares
received by Seller in payment of the purchase price is no less than $2.275 per
share. The parties agree that HPI's obligation under the Guarantee shall be
limited to the issuance of 160,000 additional shares. This Guarantee is personal
to Seller and is not assignable to any third party.
2. TRANSITION OF PATIENTS. During the period between October 28, 1996
and February 1, 1997, Seller shall aid and assist Purchaser in transitioning the
PC's patients to Purchaser. Seller shall be available during normal business
hours and shall continue to treat patients as is necessary. Seller shall not be
obligated to work weekends or evenings, shall not be on call during this period,
can be on vacation Thursday, November 28 through Monday, December 2, 1996 and
will have two (2) additional business days off between Christmas and New Years
Day. Seller will receive no compensation except his out-of-pocket costs will be
paid, for example, monthly parking at the office building and E&O insurance
premiums for the duration of transition period. Reginald J. Warren, D.O. shall
not receive any consideration for services rendered during the transition
period.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller makes the
following representations and warranties in order to induce Purchaser to
purchase the shares in the PC. It is intended that these representations and
warranties survive the closing.
3.1 ORGANIZATION AND STANDING OF THE SELLER. PC is a professional
corporation rendering medical services duly organized, validly existing and in
good standing under the laws of the State of California, and except as set forth
below, has clear title to the assets other than as set forth below and is
entitled to sell said assets.
3.2 AUTHORITY OF THE SELLER; CONSENTS; EXECUTION OF AGREEMENTS. The
Seller has all requisite power, authority, and capacity to enter into this
Agreement and to perform the transactions and obligations to be performed by it
hereunder. No consent, authorization, approval, license, permit or order of, or
filing with, any person or governmental authority is required in connection with
the execution of the transactions and obligations to be performed by it
hereunder. The execution and delivery of this Agreement, and the performance of
the transactions and obligations contemplated hereby by the Seller, have been
duly authorized by all requisite action of the Seller. This Agreement has been
duly executed and delivered by the Seller and constitutes a valid and legally
binding obligation of the Seller, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws.
3.3 TITLE TO ASSETS/LIPC is the owner of the assets set forth in Schedule
A annexed hereto and shall have clear and unencumbered title to the assets on
the date of closing, except as set forth below.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser makes the following representations and warranties in order to induce
Seller to sell the shares in the PC. It is intended that these representations
and warranties survive the closing.
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4.1 The Purchaser is a duly and properly formed corporation under
the laws of the State of California.
4.2 The Purchaser has all requisite power, authority, and capacity
to enter into this Agreement and to perform the transactions and obligations to
be performed by it hereunder.
4.3 No consent, authorization, approval, license, permit or order
of, or filing with, any person or governmental authority is required in
connection with the execution of the transactions and obligations to be
performed by it hereunder. The execution and delivery of this Agreement, and the
performance of the transactions and obligations contemplated hereby by the
Purchaser, have been duly authorized by all requisite action of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and legally binding obligation of the Purchaser, enforceable
in accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws.
5. REPRESENTATIONS AND WARRANTIES OF GUARANTOR.
5.1 The Guarantor is a duly and properly formed corporation under
the laws of the State of Delaware.
5.2 The Guarantor has all requisite power, authority, and capacity
to enter into this Agreement and to perform the transactions and obligations to
be performed by it hereunder.
5.3 No consent, authorization, approval, license, permit or order
of, or filing with, any person or governmental authority is required in
connection with the execution of the transactions and obligations to be
performed by it hereunder. The execution and delivery of this Agreement, and the
performance of the transactions and obligations contemplated hereby by the
Guarantor, have been duly authorized by all requisite action of the Guarantor.
This Agreement has been duly executed and delivered by the Guarantor and
constitutes a valid and legally binding obligation of the Guarantor, enforceable
in accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws.
6. ASSIGNMENT OF LEASES.
6.1 Seller is presently the Tenant under that certain Office
Building Lease with Liberman Enterprises, dated April 14, 1992. At closing,
Seller shall assign said lease to Purchaser and Purchaser shall assume said
lease and indemnify and hold Seller harmless from its obligations on said lease
accruing after October 28, 1996.
6.2 Seller is presently under lease with Coulter Microlift 16 (CBC
machine) through January, 1998. At closing, Seller shall assign said lease to
Purchaser and Purchaser shall assume said lease and indemnify and hold Seller
harmless from its obligations on said lease accruing after October 28, 1996.
6.3 Seller is presently under lease with Pitney Bowes for a stamp
machine. At closing, Seller shall assign said lease to Purchaser and Purchaser
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shall assume said lease and indemnify and hold Seller harmless from its
obligations on said lease accruing after October 28, 1996.
6.4 Seller is presently under lease with the County of Los Angeles
Art Museum rental program. At closing, Seller shall assign said lease to
Purchaser and Purchaser shall assume said lease and indemnify and hold Seller
harmless from its obligations on said lease accruing after October 28, 1996.
7. ASSUMPTION OF ACCOUNTS PAYABLE.At or prior to closing, the Seller shall
execute an assumption and indemnity agreement with PC under which Seller shall
agree to pay all accrued but unpaid accounts payable of PC for the period ending
8:00 a.m., Monday, October 28, 1996. The PC shall remain responsible for all
accounts payable accruing after 8:00 a.m., Monday, October 28, 1996 and the PC
and the Purchaser shall indemnify, defend and hold the Seller harmless for all
of said accounts payable.
8. CLOSING AND CONDITION TO CLOSING.
8.1 CLOSING AND CLOSING DATE. The closing (the "Closing") shall take
place by mail and will be effective on the 28th day of October, 1996.
8.2 CONDITION TO CLOSING. The Closing shall be subject to
satisfaction of the condition that (a) the representations and warranties of (i)
the Seller contained in Section 3 hereof, (ii) the Purchaser contained in
Section 4 hereof and, (iii) the Guarantor contained in Section 5 hereof, are
true and correct and shall be true and correct as of the Closing Date; (b) the
Seller shall have delivered to the Purchaser and the Purchaser shall have
delivered to the Seller the items required by Sections 8.3 and 8.4 hereof; and
(c) the Purchaser and the Seller shall have performed and complied with all
agreements and conditions required by this Agreement to be performed and
complied with by such party prior to or as of the Closing Date.
8.3 DELIVERIES BY THE SELLER. At the Closing the Seller shall
deliver or cause to be delivered to the Purchaser 100% of the issued and
outstanding shares of PC and a stock power for transfer of said shares in form
annexed hereto as Exhibit "B" and the Assignment of Lease in the form annexed
hereto as Exhibit "C".
8.4 DELIVERIES BY THE PURCHASER. At the Closing, the Purchaser shall
deliver or cause to be delivered to the Seller a copy of instructions to the
transfer agent directing the issuance of the HPI SHARES to Reginald J. Warren,
D.O. in the form annexed hereto as Exhibit "D".
9. COVENANT NOT TO COMPETE.
9.1 During the performance of the transition services and for a
period of two (2) years thereafter, Reginald J. Warren, D.O. shall not, directly
or indirectly, (a) divert or attempt to divert any business or patients of
Purchaser to any other medical practice or research facility in competition with
CSI within the geographic area of Los Angeles County, California or (b) solicit
or induce employees of Purchaser to terminate their employment with Purchaser
and/or engage in any business in competition with the business carried on by
Purchaser.
9.2 Since a breach of the provisions of this Section 9 could not
adequately be compensated by money damages and will cause irreparable injury to
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Purchaser, Purchaser shall be entitled, in addition to any other right or remedy
available to it, to an injunction or restraining order restraining such breach
or a threatened breach, and no bond or other security shall be required in
connection therewith, and Employee hereby consents to the issuance of any such
injunction or restraining order. Reginald J. Warren, D.O. agrees that the
provisions of Section 9 are reasonable and necessary to protect CSI and its
business. It is the desire and intent of the parties that the provisions of this
Section 9 shall be enforced to the fullest extent permitted under the public
policies and laws applied in each jurisdiction in which enforcement is sought.
If any restriction contained in this Section 9 shall be deemed to be invalid,
illegal or unenforceable by reason of the extent, duration or geographical scope
thereof, or otherwise, then the court making such determination shall have the
right to reduce such extent, duration, geographical scope or other provision
hereof and in its reduced form such restriction shall then be enforceable in the
manner contemplated hereby.
10. MISCELLANEOUS.
10.1 COSTS AND EXPENSES. Each party agrees to pay its own costs and
expenses in connection with the preparation, execution and delivery of this
Agreement and any other instruments and documents to be delivered hereunder.
10.2 LITIGATION COSTS. If any legal action or any other proceeding,
including arbitration or an action for declaratory relief, is brought for the
enforcement of this Agreement or because of an alleged dispute, breach, default,
or misrepresentation in connection with any provision of this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees and
other costs incurred in that action or proceeding, in addition to any other
relief to which the prevailing party may be entitled.
10.3 FURTHER ASSURANCES. When requested to do so by a party, each
party shall execute, acknowledge, and deliver all further conveyances,
assignments, confirmations, satisfactions, releases, powers of attorney,
instruments of further assurance, approvals, consents, and all further
instruments and documents as may be necessary, expedient, or proper, in order to
complete all conveyances, transfers, sales, and assignments under this
Agreement, and to do all other acts and to execute, acknowledge, and deliver all
documents as requested in order to carry out the intent and purpose of this
Agreement.
10.4 ARBITRATION Any dispute under this agreement shall be
determined by arbitration under the Commercial Rules of American Arbitration
Association. Venue for any such arbitration shall take place in Los Angeles
County, California. Each party shall appoint one arbitrator and shall notify the
other party of such appointment in within thirty days after the written request
from the other party. The two arbitrators shall select a third arbitrator. The
written decision of a majority of the arbitrators shall be binding upon both
parties and enforceable at law or equity according to the laws of the State of
California. The arbitrators shall, by majority vote, determine the allocation of
the expenses of arbitration including costs and reasonable attorney's fees.
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10.5 WAIVERS AND AMENDMENTS. This Agreement may be amended or
modified in whole or in part only by a writing which makes reference to this
Agreement and is executed by the parties to this Agreement. The obligations of
any party hereunder may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
party claimed to have given the waiver; provided, however, that any waiver by
any party of any violation of, breach of, or default under any provision of this
Agreement or any other agreement provided for herein shall not be constructed
as, or constitute, a continuing waiver of such provision, or waiver of any other
violation of, breach of or default under any provision of this Agreement or any
other agreement provided for herein.
10.6 INVALIDITY. If any provision in this Agreement shall be
determined to be invalid, illegal or unenforceable, such provision shall not
effect any other provision hereof, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.
10.7 GOVERNING LAW. This Agreement shall in all respects be governed
by and constructed in accordance with the laws of the State of California
without giving effect to the principles of conflicts of law thereof.
10.8 NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and be deemed to have been duly given if
personally delivered or five business days after being sent by recognized
overnight courier or confirmed facsimile to the parties at their respective
addresses set forth herein.
10.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
10.10 SUCCESSORS AND ASSIGNS. Neither this Agreement, nor any of the
rights or obligations hereunder, shall be assigned by either party hereto
without the prior written consent of the other party hereto. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
10.11 EXHIBITS. The exhibits attached to this Agreement are
incorporated herein and shall be part of this Agreement for all purposes.
10.12 HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed, or have caused their
duly authorized officer or representative to execute, this Stock Purchase
Agreement as of the date first above written.
SELLER:
________/S/___________________
Reginald J. Warren, D.O.
PURCHASER:
67
<PAGE>
RALPH S. HANSEN, M.D. P.C., a
California corporation
By:________/S/_________________
Print: Paul J. Cimoch, M.D.
As Its: President
GUARANTOR:
HEALTH PROFESSIONALS, INC., a
Delaware corporation
By:______/S/__________________
Print: William M. Reiter, M.D.
As Its: President
68
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEALTH PROFESSIONALS, INC., FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 5,406
<ALLOWANCES> 1,981
<INVENTORY> 108
<CURRENT-ASSETS> 3,743
<PP&E> 3,062
<DEPRECIATION> 1,724
<TOTAL-ASSETS> 12,242
<CURRENT-LIABILITIES> 5,416
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 5,216
<TOTAL-LIABILITY-AND-EQUITY> 12,242
<SALES> 7,339
<TOTAL-REVENUES> 7,564
<CGS> 0
<TOTAL-COSTS> 10,524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518
<INCOME-PRETAX> (2,960)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,960)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)
</TABLE>
