SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to
______________
Commission file number 0-19685
METROVISION OF NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
New York 16-1276525
(State or other jurisdiction of incorporation or
organization) (IRS Employer Identification No.)
75 South Church Street, Pittsfield, MA 01201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 413-448-
2111
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Units consisting of six shares of Common Stock
(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 report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No []
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-KSB or any amendment to this Form 10KSB [ X ]
As of April 10, 1998, 5,574,275 shares of common stock
were outstanding. The aggregate market value of the voting
stock held by persons who are not officers or directors (or
their affiliates) of the Registrant, including 646,535 shares
of 5% Series A Convertible Preferred Stock which is
convertible into 140,985 shares of common stock, based on the
average bid and asked prices of the common stock on April 10,
1998 as quoted on the electronic bulletin board commonly
referred to as the "pink sheets", held by non-affiliates of
the Registrant was approximately $459,326.
ITEM 1. BUSINESS
Recent Developments
On April 1, 1997, MetroVision of North America, Inc.
("MetroVision" or "the Company") consummated a merger (the
"Merger") as a result of which York Hannover Pharmaceuticals,
Inc. ("York Hannover"), a Florida corporation, merged with
and into the Company, with the Company as the surviving
corporation, pursuant to an Agreement and Plan of Merger
dated as of May 10, 1996 among the Company and York Hannover
(the "Merger Agreement"). Under the terms of the Merger
Agreement, York Hannover distributed all of its assets and
liabilities to Stockbridge Investment Partners, Inc. prior to
the Merger except for York Hannover's 40% interest in York
Hannover Partnership and York Hannover's outstanding debt
under a National HealthCare Corporation Promissory Note and
related accrued interest. Pursuant to the Merger Agreement,
among other things: (i) the Company changed its corporate
name to York Hannover Health Care, Inc. (subject to receipt
of all necessary regulatory consents which are still
pending); and (ii) each share of York Hannover
Pharmaceuticals, Inc. Common Stock outstanding on April 1,
1997 was converted into 4,000 shares of the Company's Common
Stock, or an aggregate of 4,000,000 shares of Common Stock,
constituting approximately 71.8% of the shares of Common
Stock outstanding after giving effect to the Merger.
On November 30, 1997, the Company announced its plans to
discontinue its MetroVision Commuter Channel media
operations, effective February 28, 1998. The Company will
shut-down the operations and will not receive any proceeds
related to the shut-down. The Company is currently
negotiating settlement agreements with various customers due
to the Company's decision to terminate its media operations.
In management's opinion, adequate provision has been made for
any material loss resulting from the fulfillment of these
service commitments. However, events unknown at this time
related to the termination of the media operations may
subsequently arise which could have a material adverse impact
on the Company.
The Company is seeking to sell substantially all of its
assets to Bay Pharmacies, Inc. by selling its 40% equity
interest in York Hannover Partnership ("York Interest").
If the sale of the York Interest (the "Sale") is
completed, the Company's strategic focus will be
significantly altered. The Company will apply the proceeds
of the Sale to pay off a secured loan to National HealthCare
Corporation ("NHC") and certain other unsecured liabilities
of the Company; and if the remaining proceeds of the Sale, if
any, are sufficient, to seek to maximize shareholder value of
the Company through entering into a business combination or
other transaction realizing the value of the Company's public
capital structure. If the proceeds of the Sale are not
sufficient to pay its current liabilities, the Company may be
forced to seek additional financing or sources of capital and
explore other strategic opportunities, including bankruptcy
protection. The Company's liabilities (the "Liabilities")
include a secured loan to NHC, accounts payable, legal,
accounting and printing expenses incurred in connection with
the Sale, liabilities related to the winding up of the
Commuter Channel business and a working capital loan to Lenox
Healthcare Inc., an affiliate of Mr. Thomas M. Clarke, the
Company's President. The Company believes that the sale of
the York Interest will allow the Company to maximize the
value of its assets for the benefit of creditors and
shareholders.
Because the Sale may constitute a "voluntary
liquidation" under the Company's Certificate of
Incorporation, upon completion of the Sale, holders of the
Company's 5% Preferred Stock could potentially be entitled to
payment of the liquidation preference ("Liquidation
Preference") on the Company's 5% Preferred Stock which would
be paid from the proceeds of the Sale remaining after the
payment of the Liabilities. Any amounts remaining
thereafter, which are not anticipated, would be distributed
to holders of the Company's Common Stock.
York Hannover Pharmaceuticals, Inc. ("York Hannover")
was incorporated under the laws of the State of Florida on
June 20, 1990. On July 24, 1990, York Hannover's shares were
transferred to York Hannover Leisure Properties, Inc.
("YHLPI"), a Florida corporation and a wholly owned
subsidiary of Progressive Investments International, Inc.
("Progressive"). On December 17, 1993, Stockbridge
Investment Partners, Inc. ("Stockbridge"), a Florida
corporation, purchased the stock of Progressive and
concurrent with the acquisition, merged with Progressive and
renamed it Stockbridge Investment Partners, Inc. Prior to
August 1, 1995, York Hannover provided institutional pharmacy
service, infusion therapy, urological, enteral and general
medical supplies to licensed nursing facilities, hospitals,
correction facilities and retirement facilities throughout
the State of Florida. On August 1, 1995, York Hannover
formed a partnership with United Professional Companies, Inc.
("UPC"), a Delaware corporation, named York Hannover
Partnership (the "Partnership") which now provides the above-
mentioned services.
Business
York Hannover Partnership purchases, repackages and
dispenses prescription and non prescription medication in
accordance with physician orders and delivers such
prescriptions at least daily to the nursing facility for
administration to individual patients by the facility's
nursing staff. York Hannover Partnership currently services
55 nursing homes from its centralized pharmacy located in
Brooksville, Florida. York Hannover Partnership maintains a
24-hour, on-call pharmacist service 365 days per year for
emergency dispensing and delivery or for consultation with
the facility's staff or attending physician.
Upon receipt of a prescription, the relevant patient
information is entered into York Hannover Partnership's
computerized dispensing and billing systems. At that time,
the dispensing system will check the prescription for any
potentially adverse drug interactions or patient sensitivity.
When required and/or specifically requested by the physician
or patient, branded drugs are dispensed; generic drugs are
substituted in accordance with applicable state and federal
laws and as requested by the physician or patient.
York Hannover Partnership utilizes a "unit dose"
distribution system. Most of its prescriptions are filled
utilizing specialized unit-of-use packaging and delivery
systems. Maintenance medications are typically provided in
30-day supplies utilizing either a box unit dose system or
unit dose punch card system. The unit dose system, preferred
over the bulk delivery systems employed by retail pharmacies,
improves control over drugs in the nursing facility and
improves patent compliance with drug therapy by increasing
the accuracy and timeliness of drug administration.
Integral to York Hannover Partnership's drug
distribution system is its computerized medical records and
documentation system. York Hannover Partnership provides to
the facility computerized medication administration records
and physician's order sheets and treatment records for each
patient. Data extracted from these computerized records are
also formulated into monthly management reports on patient
care and quality assurance. The computerized documentation
system in combination with the unit dose drug delivery system
results in greater efficiency in nursing time, improved
control, reduced drug waste in the facility and lower error
rates in both dispensing and administration. These benefits
improve drug efficacy and result in fewer drug-related
hospitalizations.
Consultant Pharmacist Services
Federal and state regulations mandate that nursing
facilities in addition to providing a source of
pharmaceuticals, retain consultant pharmacist services to
monitor and report on prescription drug therapy in order to
maintain and improve the quality of patient care. The
Omnibus Budget Reconciliation Act ("OBRA") implemented in
1990 seeks to further upgrade and standardize care by setting
forth more stringent standards relating to planning,
monitoring and reporting on the progress of prescription drug
therapy as well as facility-wide drug usage.
York Hannover Partnership provides consultant pharmacist
services which help clients comply with such federal and
state regulations applicable to nursing homes. The services
offered by York Hannover Partnership's consultant pharmacist
include: (i) comprehensive, monthly drug regimen reviews for
each patient in the facility to assess the appropriateness
and efficacy of drug therapies, including a review of the
patient's medical records, monitoring drug reactions to other
drugs or food, monitoring lab results and recommending
alternate therapies or discontinuing unnecessary drugs; (ii)
participation on the Pharmacy and Therapeutics, Quality
Assurance and other committees of client nursing facilities
as well as periodic involvement in staff meetings; (iii)
monthly inspection of medication carts and storage room; (iv)
monitoring and monthly reporting on facility-wide drug usage
and drug administration systems and practices; (v)
development and maintenance of pharmaceutical policy and
procedures manuals; and (vi) assistance to the nursing
facility in complying with state and federal regulations as
they pertain to patient care.
Ancillary Services
York Hannover Partnership provides the following
ancillary products and services to nursing facilities:
Infusion Therapy Products and Services. York Hannover
Partnership provides infusion therapy support services for
residents in its client nursing facilities. Infusion therapy
consists of the product (a nutrient, antibiotic, chemotherapy
or other drugs in solution) and the intravenous
administration of the product. York Hannover Partnership
prepares the product to be administered using proper
equipment in a sterile environment and then delivers the
product to the nursing home for administration by the nursing
staff. Proper administration of intravenous ("IV") drug
therapy requires a highly trained nursing staff. York
Hannover Partnership's consultant pharmacists and nurse
consultants operate an education and certification program on
IV therapy to assure proper staff training and compliance
with regulatory requirements in client facilities offering an
IV program.
By providing an infusion therapy program, York Hannover
Partnership enables its client nursing facilities to admit
and retain patients who otherwise would need to be cared for
in an acute-care facility. York Hannover Partnership
believes that by providing these high acuity pharmacy
services it has a competitive advantage over other pharmacy
providers. The most common infusion therapies York Hannover
Partnership provides are total prenatal nutrition, antibiotic
therapy, chemotherapy, pain management and hydration.
Wholesale Medical Supplies/Medicare Part B Billing.
York Hannover Partnership distributes disposable medical
supplies, including urological, ostomy, nutritional support
and wound care products and other disposables needed in the
nursing home environment. In addition, York Hannover
Partnership provides direct Medicare billing services for
certain of these product lines for patients eligible under
the Medicare Part B program. As part of this service, York
Hannover Partnership determines patient eligibility, obtains
certifications, orders products and maintains inventory on
behalf of the nursing facility. York Hannover Partnership
also contracts to act as billing agent for certain nursing
homes that supply these products directly to the patient.
Other Services. York Hannover Partnership's majority
partner, United Professional Companies, Inc. ("UPC"), also
provides respiratory therapy products and durable medical
equipment for its clients in certain of its market areas.
York Hannover Partnership continues to review the expansion
of these as well as other products and services that may
further enhance the ability of its client nursing facilities
to care for their residents in a cost effective manner.
Product and Market Development
York Hannover Partnership's pharmacy business engages in
a continuing program for the development of new services and
the marketing thereof. New service and new market
development are important factors for the growth of this
business. Any new service or marketing effort, including
those in the developmental stage, could require the
investment of a material portion of York Hannover
Partnership's assets.
Materials/Supply
York Hannover Partnership purchases pharmaceuticals
through a wholesale distributor with whom it has a prime
vendor contract and under contracts negotiated directly with
pharmaceutical manufacturers. York Hannover Partnership also
is a member of industry buying groups which contract with
manufacturers for discounted prices based on volume which are
passed through to York Hannover Partnership by its wholesale
distributor. York Hannover Partnership has numerous sources
of supply available to it and has not experienced any
difficulty in obtaining pharmaceuticals or other products and
supplies used in the conduct of its business.
Patents, Trademarks and Licenses
York Hannover Partnership's business operations are not
dependent upon any material patents, trademarks or licenses.
Inventories
York Hannover Partnership's centralized pharmacy
maintains adequate on-site inventories of pharmaceuticals and
supplies to ensure prompt delivery service to its customers.
Inventories on hand are not considered to be high by industry
standards. York Hannover Partnership's primary wholesale
distributor also maintains a local warehouse.
Competition
By its nature, the long-term care pharmacy business is
highly regionalized and, within a given geographic region of
operations, highly competitive. In the geographic region it
serves, York Hannover Partnership competes with numerous
local retail pharmacies, local and regional institutional
pharmacies and pharmacies owned by long-term care facilities.
York Hannover Partnership competes in this market on the
basis of quality, cost-effectiveness and the increasingly
comprehensive and specialized nature of its services along
with the clinical expertise, pharmaceutical technology and
professional support if offers.
Government Regulation
Institutional pharmacies, as well as the long-term care
facilities they serve, are subject to extensive Federal,
state and local regulation. These regulations cover required
qualifications, day-to-day operations, reimbursement and the
documentation of activities. York Hannover Partnership
continuously monitors the effect of regulatory activity on
its operations.
Licensure, Certification and Regulation. States
generally require that companies operating a pharmacy within
the state be licensed by the state board of pharmacy. York
Hannover Partnership currently has a pharmacy license in the
State of Florida in which it operates a pharmacy. In
addition, York Hannover Partnership's pharmacy is registered
with the appropriate state and Federal authorities pursuant
to statutes governing the regulation of controlled
substances.
Client nursing facilities are also separately required
to be licensed in the states in which they operate and, if
service Medicare of Medicaid patients, must be certified to
be in compliance with applicable program participation
requirements. Client nursing facilities are also subject to
the nursing home reforms of the Omnibus Budget Reconciliation
Act of 1987, which imposed strict compliance standards
relating to quality of care for nursing home operations,
including vastly increased documentation and reporting
requirements. In addition, pharmacists, nurses and other
health care professionals who provide services on York
Hannover Partnership's behalf are in most cases required to
obtain and maintain professional licenses and are subject to
state regulation regarding professional standards and
conduct.
Federal and State Laws Affecting the Repackaging.
Labeling, and Interstate Shipping of Drugs. Federal and
state laws impose certain repackaging, labeling, and package
insert requirements on pharmacies that repackage drugs for
distribution beyond the regular practice of dispensing or
selling drugs directly to patients at retail. A drug
repackager must register with the Food and Drug
Administration. York Hannover Partnership holds all required
registrations and licenses, and its prepackaging operations
are in compliance with applicable state and Federal
requirements.
Medicare and Medicaid. The nursing home pharmacy
business has long operated under regulatory and cost
containment pressures from state and Federal legislation
primarily affecting Medicaid and, to a lesser extent,
Medicare.
As is the case for nursing home services generally, York
Hannover Partnership receives reimbursement from Medicaid and
Medicare programs, directly from individual residents
(private pay), and from other payors such as third-party
insurers. York Hannover Partnership believes that its
reimbursement mix is in line with nursing home expenditures
nationally. For the year ended December 31, 1997, York
Hannover Partnership's payor mix was approximately as
follows: 39% private pay and nursing homes, 32% Medicaid,
26% Medicare and 3% insurance and other private sources.
For those patients who are not covered by government-
sponsored programs or private insurance, York Hannover
Partnership generally directly bills the patient or the
patient's responsible party on a monthly basis. York Hannover
Partnership may alternatively bill private patients through
the nursing facility. Pricing for private pay patients is
based on prevailing regional market rates of "usual and
customary" charges.
The Medicaid program is a cooperative Federal-state
program designed to enable states to provide medical
assistance to aged, blind, or disabled individuals, or
members of families with dependent children whose income and
resources are insufficient to meet the costs of necessary
medical services. State participation in the Medicaid
program is voluntary. To become eligible to receive Federal
funds, a state must submit a Medicaid "state plan" to the
Secretary of the Department of Health and Human Services
("HHS") for approval. The Federal Medicaid statute specifies
a variety of requirements which the state plan must meet,
including requirements relating to eligibility, coverage of
services, payment and administration.
Federal law and regulations contain a variety of
requirements relating to the furnishing of prescription drugs
under Medicaid. First, states are given broad authority,
subject to certain standards, to limit or specify conditions
to the coverage of particular drugs. Second, Federal
Medicaid law establishes standards affecting pharmacy
practice. These standards include general requirements
relating to patient counseling and drug utilization review
and more specific requirements for nursing facilities
relating to drug regimen reviews for Medicaid patients in
such facilities. Recent regulations clarify that, under
Federal law, a pharmacy is not required to meet the general
standards for drugs dispensed to nursing facility residents
if the nursing facility complies with the drug regimen review
requirements. However, the regulations indicate that states
may nevertheless require pharmacies to comply with the
general standards, regardless of whether the nursing facility
satisfies the drug regimen review requirement. Florida, the
state in which the York Hannover Partnership operates
currently, requires its pharmacy to comply therewith.
Third, Federal regulations impose certain requirements
relating to reimbursement for prescription drugs furnished to
Medicaid patients. In addition to requirements imposes by
Federal law, states have substantial discretion to determine
administrative, coverage, eligibility and payment policies
under their state Medicaid programs which may affect the
Partnership's operations. For example, some states have
enacted "freedom of choice" requirements which may prohibit a
nursing facility from requiring its residents to purchase
pharmacy or other ancillary medical services or supplies from
particular providers that deal with the nursing home. Such
limitations may increase the competition which York Hannover
Partnership faces in providing services to nursing facility
patients.
The Medicare program is a Federally funded and
administered health insurance program for individuals age 65
and over or who are disabled. The Medicare program consists
of two parts: Part A, which covers, among other things,
inpatient hospital, skilled nursing facility, home health
care and certain other types of health care services; and
Medicare Part B, which covers physicians' services,
outpatient services, and certain items and services provided
by medical suppliers. Medicare Part B also covers a limited
number of specifically designated prescription drugs, The
Medicare program establishes certain requirements for
participation of providers and suppliers in the Medicare
program. Pharmacies are not subject to such certification
requirements. Skilled nursing facilities and suppliers of
medical equipment and supplies, however, are subject to
specified standards. Failure to comply with these
requirements and standards may adversely affect an entity's
ability to participate in the Medicare program and receive
reimbursement for services provided to Medicare
beneficiaries.
The Medicare and Medicaid programs are subject to
statutory and regulatory changes, retroactive and prospective
rate adjustments, administrative rulings, freezes and funding
reductions, all of which may adversely affect York Hannover
Partnership's business. There can be no assurance that
payments for pharmaceutical supplies and services under
governmental reimbursement programs will continue to be based
on the current methodology or remain comparable to present
levels. In this regard, York Hannover Partnership may be
subject to rate reductions as a result of federal budgetary
legislation related to the Medicare and Medicaid programs.
In addition, various state Medicaid programs periodically
experience budgetary shortfalls which may result in Medicaid
payment delays to York Hannover Partnership. To date, York
Hannover Partnership has not experienced any material adverse
effect due to any such budgetary shortfall. In addition, the
failure, even if inadvertent, of York Hannover Partnership
and/or its client institutions to comply with applicable
reimbursement regulations could adversely affect York
Hannover Partnership's business. Additionally, changes in
such reimbursement programs or in regulations related
thereto, such as reductions in the allowable reimbursement
levels, modifications in the timing or processing of payments
and other changes intended to limit or decrease the growth of
Medicaid and Medicare expenditures, could adversely affect
York Hannover Partnership's business.
Referral Restrictions. The Company is subject to
Federal and state laws which govern financial and other
arrangements between health care providers. These laws
include the Federal anti-kickback statute, which was
originally enacted in 1977 and amended in 1987, and which
prohibits, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration
directly or indirectly in return for or to induce the
referral of an individual to a person for the furnishing of
any item or service for which payment may be made in whole or
in part under Medicare or Medicaid. Many states have enacted
similar statutes which are not necessarily limited to items
and services for which payment is made by Medicare of
Medicaid. Violations of these laws may result in fines,
imprisonment, and exclusion from the Medicare and Medicaid
programs or other state-funded programs. Federal and state
court decisions interpreting these statutes are limited, but
have generally construed the statutes to apply if "one
purpose" of remuneration is to induce referrals or other
conduct within the statute.
Federal regulations establish "safe harbors," which give
immunity from criminal or civil penalties to parties in good
faith compliance. While the failure to satisfy all criteria
for a safe harbor does not mean that an arrangement violates
the statute, it may subject the arrangement to review by the
HHS Office of Inspector General ("OIG"), which is charged
with administering the Federal anti-kickback statute. There
are no procedures for obtaining binding interpretations or
advisory opinions from the OIG on the application of the
Federal anti-kickback statute to an arrangement or its
qualification for a safe harbor upon which York Hannover
Partnership can rely.
The OIG issues "Fraud Alerts" identifying certain
questionable arrangements and practices which it believes may
implicate the Federal anti-kickback statute. The OIG has
issued a Fraud Alert providing its views on certain joint
venture and contractual arrangements between health care
providers. The OIG also issued a Fraud Alert concerning
prescription drug marketing practices that could potentially
violate the Federal statute. Pharmaceutical marketing
activities may implicate the Federal anti-kickback statute
because drugs are often reimbursed under the Medicaid
program. According to the Fraud Alert, examples of practices
that may implicate the statute include certain arrangements
under which remuneration is made to pharmacists to recommend
the use of a particular pharmaceutical product.
In addition, a number of states have recently undertaken
enforcement actions against pharmaceutical manufacturers
involving pharmaceutical marketing programs, including
programs containing incentives to pharmacists to dispense one
particular product rather than another. These enforcement
actions arose under state consumer protection laws which
generally prohibit false advertising, deceptive trade
practices, and the like. York Hannover Partnership believes
its contract arrangements with other health care providers,
its pharmaceutical suppliers and its pharmacy practices are
in compliance with these laws. There can be no assurance
that such laws will not, however, be interpreted in the
future in a manner inconsistent with York Hannover
Partnership's interpretation and application.
Health Care Reform and Federal Budget Legislation. The
Clinton administration and members of Congress have proposed
plans to reform the health care system. Currently, Congress
is considering such reforms in the context of Federal budget
reconciliation legislation. This legislation could result in
significant reductions in payments to providers under the
Medicare program and a complete restructuring and reduced
payments to providers under the Medicaid program. With
respect to Medicare, proposals include establishment of a
prospective payment system for Skilled Nursing Facilities
("SNFs"); limits on payments to Medicare SNFs for certain
non-routine services, including, among others, prescription
drugs, diagnostic services, and physical therapy and other
rehabilitative services; requiring consolidated billing by a
SNF and all Part A and B claims for SNF residents; and other
limits on reimbursement of costs for Medicare SNF services.
If enacted, there can be no assurance that such proposals
would not have a material adverse effect on the business of
York Hannover Partnership. While budget negotiations are
continuing, the future of any reform proposals in Congress is
unknown.
In addition, a number of states have enacted and are
considering various health care reforms, including reforms
through Medicaid demonstration projects. Federal law allows
HHS to authorize waivers of Federal Medicaid program
requirements, including requirements relating to coverage,
free choice of providers and payment for health care
services, in connection with state demonstration projects
that promote Medicaid program objectives. HHS published
procedures and public notice requirements designed to open
the waiver approval process to public comment and to expedite
processing. Legal actions have been initiated challenging
the waiver process and the authority of HHS to approve
waivers for broad-based Medicaid managed care programs. The
Federal budget legislation restructuring the Medicaid program
would effectively eliminate Medicaid managed care
demonstration projects.
Several state Medicaid programs have established
mandatory statewide managed care programs for Medicaid
beneficiaries to control costs through negotiated or
capitated rates, as opposed to traditional cost-based
reimbursement for Medicaid services, and propose to use
savings achieved through these programs to expand coverage to
those not previously eligible for Medicaid. HHS has approved
waivers for statewide managed care demonstration projects in
several states, and are pending for several other states.
These demonstration projects generally exempt
institutionalized care, including nursing facility services,
from the programs. York Hannover Partnership is unable to
predict what impact, if any, future projects might have on
its operations. Because there are currently various reform
proposals under consideration at the Federal and state
levels, it is uncertain at this time what health care reform
initiatives, if any, will be implemented, or whether there
will be other changes in the administration of governmental
health care programs or interpretations of governmental
policies or other changes affecting the health care system.
There can be no assurance that future health care of budget
legislation or other changes will not have an adverse effect
on the business of York Hannover Partnership.
Employees
As of December 31, 1997, York Hannover Partnership
employed 56 persons, including one in an executive position,
20 pharmacists and pharmacy technicians, three administrators
and 32 other supporting services. None of such individuals
are covered by a collective bargaining agreement. York
Hannover Partnership believes that the relationship with its
employees is satisfactory.
Environmental Matters
In operating it facility, York Hannover Partnership
makes every effort to comply with pollution control laws. No
major difficulties have been encountered in effecting
compliance. No material capital expenditures for
environmental control facilities are expected. While York
Hannover Partnership cannot predict the effect which any
future legislation, regulations, or interpretations may have
upon its operations, it does not anticipate any changes that
would have a material adverse impact on its operations.
Commuter Channel
The Company owns and operates the Commuter Channel, a
video cable network for the mass transit industry. The
Commuter Channel displays a program cycle of generally 10 to
12 minutes which is segmented into information from transit
authorities, news, weather, sports and entertainment
headlines and advertising. Broadcasts on the Commuter
Channel are displayed 24 hours a day, seven days a week, on
high-resolution video display monitors and projection screens
situated on rail platforms and in passenger waiting areas.
The Commuter Channel is currently installed in the Port
Authority Trans Hudson ("PATH") system in New York and New
Jersey, the Southeastern Pennsylvania Transit Authority
("SEPTA") system in Philadelphia, Pennsylvania, the
Massachusetts Bay Transit Authority ("MBTA") and the Bay
Area Rapid Transit ("BART") system in the San Francisco Bay
area in California. On November 30, 1997, The Board of
Directors voted to terminate the Company's ownership and
operation of the Commuter Channel. Accordingly, the Company
is currently ceasing operation of the Commuter Channel and
negotiating the termination of contractual obligations.
ITEM 2. PROPERTIES
The Company's headquarters are located at 75 South
Church Street, Suite 650, Pittsfield, Massachusetts, 01201.
ITEM 3. LEGAL PROCEEDINGS
On July 15, 1997, Paramount Metal Finishing Company,
Inc. (the "Plaintiff"), filed a complaint against
MetroVision, and one other defendant in the Superior Court of
Union County, New Jersey (Civil Action No. UNN-L-399297),
alleging monies due by MetroVision related to certain
services and goods provided in the amount $16,912, which
indebtedness is recorded on MetroVision's consolidated
balance sheet at December 31, 1997. The Plaintiff sought
damages in the aggregate amount of $22,770.16, which included
interest thereon, court costs and counsel fees. On September
3, 1997, a Final Judgment was entered against MetroVision in
the amount of $22,770.16. On November 21, 1997, a Default
Judgment was entered in the amount of $22,770.16 against the
Company and Lenox Healthcare, Inc. ("Lenox"). As of March
22, 1998, MetroVision has paid to the Plaintiff $17,000.
MetroVision is currently in default of this judgment. Except
as stated above, MetroVision is not party to any material
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MetroVision's Common Stock is traded on the over-the-
counter market under the symbol "MVNA". Until May 22, 1996,
the Common Stock was included for quotation on the Nasdaq
SmallCap Market. On that date, the Common Stock was delisted
from the Small Cap Market for failing to meet certain listing
criteria. Consequently, since May 23, 1996, the Common Stock
has traded on an electronic bulletin board established for
securities that do not meet the Nasdaq SmallCap listing
requirements. The following table sets forth (for the
periods indicated) the range of high and low bid prices for
the Common Stock as reported by Nasdaq on the SmallCap Market
prior to May 23, 1996 and as reported on the electronic
bulletin board thereafter. The quotations reflect inter-
dealer prices, without retail mark-up, mark-down or
commission and may not necessarily reflect actual
transactions.
Price Per Share
1998 High Low
1st Quarter 9/32 1/4
1997
4th Quarter 3/8 1/4
3rd Quarter 1/2 3/8
2nd Quarter 1 1/4 5/8
1st Quarter 1 1/4 5/8
1996
4th Quarter 5/8 5/8
3rd Quarter 1 1/8 5/8
2nd Quarter 2 1/4 5/8
1st Quarter 1 5/8 5/8
As of April 10, 1998 there were 5,574,275 shares of
Common Stock, held of record by approximately 166 holders.
The Company believes that certain holders of record hold for
significantly more beneficial owners. The closing bid price
for the Company's Common Stock on April 10, 1998 was $0.25.
To date, the Company has not paid any dividends on its
Common Stock. The payment of dividends, if any, in the
future is within the discretion of the Board of Directors and
will depend on the Company's earnings, its capital
requirements and financial condition and other relevant
factors. The Company does not expect to declare or pay any
dividends in the foreseeable future. Further, payment of
dividends on the Common Stock will be subject to the prior
payment of dividends on the shares of 5% Preferred Stock,
which dividends are payable cumulatively in arrears.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from
the Consolidated Financial Statements of the Company. On
April 1, 1997, the Company consummated a merger with York
Hannover that has been accounted for as a reverse acquisition
of the Company by York Hannover under the purchase method of
accounting as prescribed by APB Opinion 16. Accordingly, the
historical financial statements of the Company prior to the
merger have been changed to reflect the historical financial
statements of York Hannover. The data should be read in
conjunction with the Consolidated Financial Statements,
related Notes, and other financial information included
herein.
Statement of Operations Data :
Summary Historical Condensed Financial Data
(In Thousands)
Year Ended December 31,
1993(1) 1994 1995
Statement of Operations Data:
Net patient revenues $3,466 $4,260 $2,673
Equity in earnings of
York Hannover Partnership -- -- 104
Total revenues 3,466 4,260 2,777
Cost of patient revenues (1,924) (2,396) (1,392)
Selling, general and
administrative (950) (1,128) (1,546)
Depreciation and amortization
expense (476) (82) (45)
Amortization of deferred
revenue -- -- 55
Other income (expense) -- -- 118
Interest expense, net (159) (319) (290)
Income tax provision -- -- --
Discontinued operations,
net of tax -- -- --
Net income (loss) $(43) $335 $(323)
(1) Reflects operations of predecessor entity prior to
purchase by York Hannover in December 1993 and does not
represent the ongoing operations after the purchase.
Year Ended December 31,
1996 1997
Statement of Operations Data:
Net patient revenues $-- $--
Equity in earnings of York
Hannover Partnership 448 768
Total revenues 448 768
Cost of patient revenues -- --
Selling, general and
administrative (391) (329)
Depreciation and
amortization expense -- --
Amortization of deferred
revenue 133 33
Other income (expense) 121 (19)
Interest expense, net (290) (292)
Income tax provision (19) (61)
Discontinued operations,
net of tax -- (1,438)
Net income (loss) $2 ($1,338)
Summary Historical Financial Data
(In Thousands)
Year Ended December 31,
1993 1994 1995
Balance Sheet Data:
Working capital
(deficit) (1) $430 $34 $(192)
Total assets 842 1,335 1,240
Short-term debt -- 771 174
Long-term debt (excluding
current portion) 2,713 1,924 2,180
(1)The Company has a history of operating losses and has a
working capital deficit and a deficit in common
stockholders' equity. These conditions raise substantial
doubt about the Company's ability to continue as a going
concern. See Note 2 of Notes to Financial Statements.
Year Ended December 31,
1996 1997
Balance Sheet Data:
Working capital
(deficit) (1) $(3,341) $(3,726)
Total assets 1,632 1,269
Short-term debt 2,751 2,547
Long-term debt (excluding
current portion) -- --
As of December 31, 1997 the Company has received loans
from affiliates totaling $596,957. These loans, including
all accrued and unpaid interest, are due no later than May 1,
1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations
Twelve Months Ended December 31, 1997 Compared to Twelve
Months Ended December 31, 1996
On April 1, 1997, MetroVision of North America, Inc.
consummated a merger with
York Hannover that has been accounted for as a reverse
acquisition of MetroVision by York Hannover under the
purchase method of accounting as prescribed by APB Opinion
16. Hereinafter the "Company" refers to York Hannover
and its acquired business MetroVision.
Accordingly, the historical financial statements of the
Company prior to the merger have been changed to reflect the
historical financial statements of York Hannover after giving
effect to a recapitalization of the historical stockholders'
equity of York Hannover. Therefore, the 1997 historical
period includes twelve months of operations of York Hannover
and nine months of operations of MetroVision. The 1996
historical period represents the operations of York Hannover.
On November 30, 1997 the Company announced its plans to discontinue
its MetroVision media operations, effective February 28, 1998. The
Company will shut-down the operations and will not receive any proceeds
related to the shutdown. As a result of the discontinuance, the related
assets, liabilities and results of operations are segregated in the
consolidated statement of operations and cash flows. Net revenue
and operating expenses have been reclassified for amounts associated
with the discontinued operations. net revenues attributable to the
discontinued operations were $329,203 in 1997.
Net Revenues. Net Revenues for the twelve months ended
December 31, 1997, were $768,017 an increase of 71.5% or
$320,172 from net revenues of $447,845 for the twelve months
ended December 31, 1996. This increase in net revenues for
the twelve months ended December 31, 1997 was attributable to
an increase in equity in earnings from York Hannover
Partnership.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the twelve months
ended December 31, 1997, were $254,197, an increase of 95.5%
or $124,186 from selling, general and administrative expenses
of $130,011 for the twelve months ended December 31, 1996.
This increase was primarily attributable to increases in
costs incurred in connection with the merger of MetroVision
with York Hannover.
Management Fees. Management fees for the twelve months ended
December 31, 1997, were $75,000, a decrease of 71% or $186,00
from management fees of $261,000 for the twelve months ended
December 31, 1996. This decrease was attributable to the
reduction in management fees as a result of the merger.
Other Expenses. Other expenses primarily include interest
expense on a note payable to National HealthCare Corporation
partially offset by the amortization of a Non-Compete
Agreement. Other net expenses for the twelve months ended
December 31, 1997, were $277,162, an increase of 680.4% or
$241,646 from other expenses of $35,516 for the twelve months
ended December 31, 1996. This increase was primarily the
result of a reduction in income from the amortization of
deferred revenue and a $66,914 loss on the sale of marketable
securities in 19997.
Liquidity and Sources of Capital
At December 31, 1997, the Company had negative working
capital of $3,725,997 and a ratio of current assets to
current liabilities of (.01) as compared to (.14) at December
31, 1996. Cash was $58,291 at December 31, 1996 and $11,956
at December 31, 1997. Marketable securities decreased to $0
at December 31, 1997 from $446,041 at December 31, 1996. In
January and February 1997 the Company received proceeds
aggregating to $399,198 from the sale of its Marketable
Securities. These funds were primarily used to repay margin
loans of $275,537, notes payable to former shareholders of
$94,199 and other operating expenses. Accumulated deficit
increased $1,338,147 from $2,201,928 at December 31, 1996 to
$3,540,075 at December 31, 1997. This increase is the result
of the net loss for the period ended December 31, 1997.
As of December 31, 1997, the Company's primary asset was
its ownership of a 40% interest in York Hannover Partnership
(the "Partnership Interest"). For the twelve months ended
December 31, 1997, the Company's equity in earnings from the
Partnership totaled $768,016. The Company does not have
control over distributions made by the Partnership
(the "Partnership"). All Partnership distributions are
subject to the availability of York Hannover Partnership
cash.
The Company is not currently generating sufficient cash
flow to fund its operations and is dependent on other
financing in order to sustain its operations. Although there
can be no assurance, the Company believes that, based on
currently proposed plans and assumptions relating to the
proposed sale of its Partnership Interest that proceeds will
be sufficient to satisfy the Company's contemplated cash
requirements for 1998.
Such cash requirements primarily relate to the payment of principal and
interest on the outstanding note payable to National HealthCare ("NHC)
and other liabilities owed to unrelated third party creditors.
The above discussion and the Company's financial statements have been
presented on the basis that is is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
coarse of business. The factors discussed below raise a substantial
doubt about the Company's ability to continue as a going concern.
There can be no assurance, however,
that the Company will be successful in its new business
endeavors or able to generate revenues or ever achieve
profitable operations. The Company has outstanding a
$1,950,000 promissory note payable to National HealthCare
Corporation ("NHC") that became due on December 31, 1997 and
is currently in default and payable on demand. Accrued
interest in the promissory note is $161,340 as of December
31, 1997. The Company currently does not have the financial
resources necessary to meet its payment obligation other than
from proceeds from the anticipated sale of the interest in
York Hannover Partnership. In the event the Company is
unable to meet its payment obligation and the promissory note
is not re-negotiated, NHC, as a secured creditor, has the
right to take possession of or otherwise sell the interest in
the Partnership in satisfaction of the indebtedness and may
seek recourse against the Company's other assets, if
necessary. In addition, as a result of the current default,
it is anticipated that the Company will be required to pay
certain additional interest beginning January 1, 1998. The
Company also has outstanding a $596,957 working capital note
payable (including accrued interest) to Lenox Healthcare,
Inc. (an affiliate of the Company) that becomes due in May of
1998.
Subsequent to December 31, 1997, the Company engaged in
negotiations to sell its 40 % interest in the Partnership to
and affiliate of United Professional Companies, Inc. ("UPC").
There can be no assurance that the proceeds from the proposed
sale will be sufficient to satisfy all of the outstanding
obligations of the Company. UPC currently has a 60% interest
in the Partnership. It is anticipated that upon closing of
the proposed sale, the proceeds will be held in escrow
pending approval of the Company's shareholders. It is
anticipated that the proceeds from the sale will be used
first to satisfy the note payable and related accrued
interest to NHC.
Additionally, subsequent to December 31, 1997, the
majority holders of the 5% Series A Preferred Stock have
asserted certain claims against the Company which could have
a material adverse impact on the Company's financial
position. Although management does not believe these
assertions represent obligations of the Company as of
December 31, 997, management is currently discussing these
assertions with the preferred shareholders in conjunction
with the structuring of the proposed sale of the Partnership.
Management believes that these assertions will be resolved
during 1998 through ongoing discussions with the preferred
shareholders but is unable to determine the ultimate outcome
of the ongoing discussions.
Subsequent to the anticipated sale of the Partnership
and subject to shareholder approval, management intends to
seek merger opportunity with other entities in 1998.
However, no such merger opportunities are currently known and
there can be no assurance that the Company will be able to
locate such a merger opportunity in 1998.
The Company has not identified any potential sources of
debt or equity financing and there can be no assurance that
the Company will be able to obtain additional financing if
and when needed or that, if available, financing will be on
terms acceptable to the Company. Furthermore, the results of
these matters cannot be predicted and there is no assurance
that the Company will continue in existence.
In the event the Company's plans change or its
assumptions change or prove inaccurate or proceeds of the
sale of the Partnership Interest prove to be insufficient to
payoff the Company's debt and operating liabilities, the
Company may be required to seek additional financing. The
Company has no current arrangements with respect to or
sources of additional financing other than the current
working capital line of credit or the sale of its Partnership
Interest, and there can be no assurance that financing will
be available to the Company on commercially reasonable terms,
if at all. Any inability to obtain additional financing
could have a material adverse effect on the Company,
including possibly requiring the Company to significantly
curtail or cease its operations.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), has been issued effective
for fiscal periods ending after December 15, 1997. SFAS 128
establishes standards for computing and presenting earnings
per share. The Company is required to adopt the provisions
of SFAS 128 in the fourth quarter of 1997. Under the
standards established by SFAS 128, basic earnings per share
is computed by dividing net income by the weighted average
number of common shares outstanding during the year. Due to
the Company's option and warrant prices compared to the
respective market value of those instruments, the effects of
SFAS No. 128 have no impact to the Company's reported
earnings per share amounts.
Year 2000 Compliance
The Company is currently in the process of evaluating
its information technology infrastructure for Year 2000
Compliance. The Company does not expect that the cost to
modify its information technology infrastructure to be Year
2000 compliant will be material to its financial condition or
results of operations. The Company does not anticipate any
material disruption in its operations as a result of any
failure to be in compliance. However, the Company currently
does not have any information concerning the Year 2000 Compliance
status of York Hannover Partnership's customers, suppliers
and third party payors. In the event that any of York
Hannover Partnership's significant suppliers, customers or
third party payors do not successfully and timely achieve
Year 2000 Compliance, the Company's business and operations
could be adversely affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted in a separate
section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Meetings of the Board
During the fiscal year ended December 31, 1997 the Board
of Directors of the Company held 3 meetings. During such
period, each of the current directors of the Company attended
75% or more of the aggregate of (1) the total number of
meetings of the Board of Directors and (2) the total number
of meetings held by all committees of the Board on which such
director served.
The Board of Directors has three committees - an Audit
Committee, a Compensation Committee and a Stock Option Plan
Committee.
The Compensation Committee makes recommendations to the
Board of Directors regarding remuneration of executive
officers and directors of the Company and the Stock Option
Plan Committee was established to review the internal
accounting procedures of the Company and to consult with and
review the Company's independent auditors and the services
provided by such auditors.
The Stock Option Plan Committee, the Audit Committee and
the Compensation Committee did not meet during the fiscal
year.
Name Age Position Held Director
Since
Thomas M. Clarke 42 Pres, CEO & Dir 1997
Linda M. Clarke 45 Exec VP, Treas & Dir 1997
Lawrence B. Cummings 42 Director 1997
Robert F. Hussey 48 Director 1991
Courtlandt G. Miller 45 Director 1997
David M. Fancher 38 CFO & Director 1997
Thomas M. Clarke, age 42, has been the President and CFO
of Lenox Healthcare, Inc. since 1991. Mr. Clarke has over 16
years of experience in the Healthcare industry and has held
positions with public and private Healthcare organizations.
Mr. Clarke is a Fellow in the Healthcare Financial Management
Association. Mr. Clarke is a graduate of the University of
Maine and completed his Masters in Science in Business at
Husson College.
Linda M. Clarke, age 45, has been Treasurer of Lenox
Healthcare, Inc. since 1991. Mrs. Clarke has over seven years
experience in the Healthcare industry. In addition to her
position with Stockbridge, Mrs. Clarke was previously employed
by the Houlton Regional Hospital Development Office and
participated in various fundraising activities. Mrs. Clarke
attended the University of Maine and was previously employed
by the Maine School Administrative District #29 for 5 years.
She continues to be Treasurer of Stockbridge Investment
Partners, Inc. as well as Treasurer of several other privately
held Healthcare companies.
Lawrence B. Cummings, age 42, is the Chief Executive
Officer of Stockbridge Investment partners, Inc. Mr.
Cummings has over ten years of health care experience and is
an active investor in the health care industry. From 1989 to
1992, Mr. Cummings was Chairman of the Board, Chief Executive
Officer and President of Providence Health Care, Inc.
("Providence"), a Cleveland, Ohio based publicly-traded
nursing home management company which Mr. Cummings founded
and which was acquired by the Multicare Companies, Inc. in
1992. Mr. Cummings received his undergraduate degree from
Harvard University and a Masters in Business Administration
from Harvard Business School. On May 23, 1996, a Final
Judgment of Dissolution of Marriage was entered transferring
certain assets to Mr. Cummings' former spouse and ordering
Mr. Cummings to pay her over $6.0 million, which has been
appealed. As a result of this order and other personal
indebtedness, on August 20, 1996, Mr. Cummings filed for
personal reorganization under Chapter 11, which case is now
pending in the U.S. Bankruptcy court for the Southern
District of Florida.
Robert F. Hussey, age 48, has served as a director of
MetroVision since February 1991. From July 1985 to May 1991,
Mr. Hussey was President and Chief Executive Officer of POP
Radio Corporation, an alternative media company which created
an in-store broadcasting network. POP Radio was purchased in
1991 by Heritage Media Corporation. From 1979 to 1985, Mr.
Hussey was Vice President of Grey Advertising. Mr. Hussey has
also held marketing positions at E.F. Hutton and American Home
Products. He is a director of Ivex Corporation, a private
company engaged in electronic hardware and software design and
manufacturing. Mr. Hussey is a graduate of Georgetown
University and received his Masters in Business Administration
from George Washington University.
Courtlandt G. Miller, age 45, is a private investor.
From 1988 until its purchase by Value Health Inc. in 1995, Mr.
Miller was Executive Vice President and general counsel of
Diagnostek, Inc., a New York Stock Exchange traded, pharmacy
benefit management company. He is also a director of
PowerBike, LLC, a privately held technology company. Mr.
Miller is a graduate of Fordham University and received his
law degree from the Tulane University School of Law.
David M. Fancher, age 38, joined MetroVision in November
1994 and is Vice President and Chief Financial Officer of the
Company. Prior to joining MetroVision, Mr. Fancher served as
Controller for McMillan Publishing, Professional Business
Reference Division, between 1991-1994, and for Chemical Waste
Management, a wholly owned subsidiary of Waste Management,
Inc. between 1988-1991. Mr. Fancher is a graduate of Monmouth
University with a B.S. Degree in Business Administration.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation
paid by the Company, as well as certain other compensation
paid or accrued, for the fiscal years ended December 31,
1995, 1996 and 1997 to the Company's President. None of the
Company's executive officers, including the Company's
President, had a total annual salary and bonus exceeding
$100,000 in the reported years.
SUMMARY COMPENSATION TABLE
Free type table - will be quicker
(1) The value of perquisites and other personal benefits,
securities and other property paid to or accrued for Mr.
Clarke and Mr. Hussy did not exceed the lesser of $50,000
or 10% of such officer's total reported annual salary and
bonus, and thus are not included in the table.
(2) Mr. Clarke served as Chairman of the Board of Directors
and Chief Executive Officer during fiscal year 1997 after
the effective date of the Merger on April 2, 1997.
Stock Options
The following table contains information concerning the
grant of stock options under the Company's 1991 Stock Option
Plan to the Company's President during the last fiscal year.
Option Grants in Last Fiscal Year
Free type table - will be quicker
The following table summarizes for the Company's
President the total number of unexercised options held at
December 31, 1997 and the aggregate dollar value of in-the-
money, unexercised options held at December 31, 1997. The
value of an unexercised, in-the-money option at fiscal year
end is the difference between its exercise or base price and
the fair market value of the underlying stock on December 31,
1997, which was $.28 per share. These values have not been
and may never be, exercised; and actual gains, if any, on
exercise will depend on the value of shares of Common Stock
on the date of exercise. There can be no assurance that
these values will be realized.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year End Option Value
Annual
Compensation (1) Long-Term
Name & Principal Position Year Salary Compensation
Thomas M. Clarke 1997 $0 $0
Robert F. Hussey 1997 $0 $0
(1)The value of perquisites and other personal benefits, securities and other
property paid to or accrued for Mr. Clarke and Mr. Hussey did not exceed the
lesser of %50,000 or 10% of such officer's total reported annual salary and
bonus, and thus are not included in the table.
Stock Options
The following table contains information concerning the grant of stock
options under the Company's 1991 Stock Option Plan to the Company's President
during the last fiscal year.
Options Grants in Last Fiscal Year
Name Number of Shares Percent of total Options Exercise
Underlying Options Granted to Employees in Price Per
Granted Fiscal Year 1997 Share
Thomas M. Clarke 0 0% n/a
Employment Agreements
The Company entered into employment agreements with
Messrs. Clarke and Cummings which expire on April 1, 2000.
The agreement provided that Messrs. Clarke and Cummings will
not engage in a business competitive with the Company's
current and anticipated business for the term of the
agreement and for two years thereafter.
Option Plan
In June 1991, the Board of Directors approved the
Company's Stock Option Plan (the "Option Plan") which was
approved by the Company's shareholders on December 7, 1991.
The Option Plan is administered by the Board of Directors or
a committee appointed by the Board. Pursuant to the Option
Plan, options to acquire an aggregate of 900,000 shares of
Common Stock may be granted. The Option Plan provides for
grants to employees, consultants and director of the Company
or any parent or subsidiary (as defined in the Option Plan)
of the Company.
The Option Plan authorized the Board to issue incentive
stock options ("ISOs), as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"), and
stock options that do not conform to the requirements of the
Code section ("Non-ISOs"). Consultants and directors who are
not also employees of the Company may only be granted Non-
ISOs. The exercise price of each ISO may not be less than
100% of the fair market value of the Common Stock at the time
of grant, except that in the case of a grant to an employee
who owns 10% or more of the outstanding stock of the Company
or a subsidiary or parent of the Company (a "10%
Stockholder"), the exercise price shall not be less than 110%
of the fair market value on the date of grant. The exercise
price of each Non-ISO granted under the Option Plan may not
be less that 85% of the fair market value of the Common Stock
at the time of grant or 110% of the fair market value in the
case of a Non-ISO granted to a 10% Stockholder. ISOs may not
be exercised after the tenth anniversary (fifth anniversary
in the case of any option granted to a 10% Stockholder) of
their grant. Options may not be transferred during the
lifetime of an optionholder. No stock options may be granted
under the Option Plan after May 31, 2001. Subject to the
provisions of the Option Plan, the Board has the authority to
determine the individuals to whom the stock options are to be
granted, the number of shares to be converted by each option,
the exercise of the option, the terms for the payment of the
option price and other terms and conditions. Payments by
optionholders upon the exercise of an option may be made (as
determined by the Board) in cash or such other form of
payment as may be permitted under the Option Plan, including,
without limitation, by promissory note of by shares of Common
Stock.
To date, 125,000 options have been granted under the
Option Plan, of which none have been exercised. All options
granted under the Option Plan have been granted with an
exercise price not less than 100% of the fair market value of
the Common Stock on the date of grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Stockholders
The following table sets forth information, as of April
10, 1998, based on information obtained from the persons
named below or from reports filed on Schedule 13G or 13D,
with respect to the beneficial ownership of the shares of
Common Stock by each person known by the Company to be the
beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, each director, and all
officers and directors as a group. Each of the persons named
below has sole voting power and sole investment power with
respect to the shares set forth opposite his name, except as
otherwise noted.
Name of Beneficial Amt. & Nature % of Outstanding
Owner Of Ownership (1) Shares Owned
Robert F. Hussey (3) 128,296 (2) 2.3%
Thomas M. Clarke (3) 4,294,925 (4)(5) 73.7%
Linda M. Clarke (3) 4,044,925 (6) 72.6%
David M. Fancher (3) 135,650 (7) 2.4%
Lawrence B. Cummings (3)` 4,250,000 (5) 73.0%
Courtlandt G. Miller (3) 4,347 *
William G. Walters
c/o Whale Securities
650 Fifth Avenue
New York NY 10019 421,628 7.6%
All officers and
directors as a group
(seven persons) 4,563,218 (2)-(7) 81.2%
* Less than 1%.
(1)Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment
power with respect to all shares of Common Stock
beneficially owned by them.
(2)Includes 4,331 shares issuable upon conversion of shares
of 5% Preferred Stock, 32,697 shares issuable upon the
exercise of immediately exercisable warrants.
(3)The address of this individual is c/o the Company, 75
South Church Street, Suite 650, Pittsfield, MA 01201.
(4)Includes 826 shares owned by Mr. Clarke's wife (as to
which Mr. Clarke disclaims beneficial ownership), 22,630
shares owned by Greylock Health Corporation, of which Mr.
Clarke is a controlling stockholder, and 21,469 shares
owned by Lenox Healthcare, Inc., of which Mr. Clarke is a
principal shareholder.
(5)Represents 4,000,000 shares owned by Stockbridge
Investment Partners, Inc., of which the named individual
is a principal stockholder and director, and immediately
exercisable warrants to purchase 250,000 shares granted to
the named individual.
(6)Represents 4,000,000 shares owned by Stockbridge
Investment Partners, Inc., of which the named individual
is a principal stockholder and director, including 22,630
shares owned by Greylock Health Corporation, of which Ms.
Clarke is a controlling stockholder, and 21,469 shares
owned by Lenox Healthcare, Inc., of which Ms. Clarke is a
principal shareholder.
(7)Includes 132,607 shares issuable upon the exercise of
immediately exercisable stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a)(1) Index of Financial Statements
The following consolidated financial statements of
MetroVision of North America, Inc. are included:
Report of independent public accountants - December 31
1997 and 1996.
Consolidated balance sheets - December 31, 1997 and
1996.
Consolidated statements of operations - years ended
December 31, 1997 and 1996
Consolidated statements of stockholders deficit - years
ended December 31, 1997 and 1996.
Consolidated statements of cash flows - years ended
December 31, 1997 and 1996.
Notes to consolidated financial statements - December
31, 1997
The following financial statements of York Hannover
Partnership are included:
Report of independent public accountants - December 31,
1997 and 1996.
Balance sheets - December 31, 1997 and 1996.
Statements of income - December 31, 1997 and 1996.
Statement of partners' capital - December 31, 1997 and
1996.
Statements of cash flows - December 31, 1997 and 1996.
Notes to financial statements - December 31, 1997 and
1996.
(a)(2) Index of Financial Statement Schedules
All other schedules for which provision are made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are not applicable and therefore, have been
omitted.
(a)(3) Exhibits
3.1(1) Restated Certificate of Incorporation, as amended.
3.2(1) Certificate of Amendment to Restated Certificate of
Incorporation.
3.3(1) By-laws.
4.1(1) Unit Purchase Option sold to Whale Securities., L.P.
in December, 1991.
4.2(4) Form of Underwriters Warrant Agreement between the
Company and Whale Securities., L.P.
4.3(1) Specimen Common Stock Certificate.
4.4(4) Form of Class B Warrant Agreement and Warrant
Certificate.
10.1(3)Agreement, dated November 1, 1992 between the Company
and TargetVision Inc. relating to the licensing of
software.
10.2(1)Agreement dated August 9, 1989 between the Company and
the Port Authority Trans Hudson.
10.3(1)Agreement dated July 29, 1987 between the Company and
the Chicago Transit Authority.
10.4(1)Agreement dated January 19, 1987 between the Company
and the Southeastern Pennsylvania Transit Authority.
10.5(1)Agreement dated August 30, 1992 between the Company
and the San Francisco Bay Area Rapid Transit District.
10.6(1)Agreement dated August 13, 1992 between the Company
and the Massachusetts Bay Transit Authority.
10.7(1)1991 Stock Option Plan of the Company and forms of
incentive stock option agreement and non-qualified
stock option agreement. *
10.8(4)1993 Non Employee Directors Stock Option Plan of the
Company. *
10.11(1)Agreement dated October 3, 1991 by and between the
City of Syracuse and the Company.
10.12(1)Financial Consulting Agreement entered into with
Whale Securities Co. L.P. in December 1991.
10.13(2)Stock Purchase Agreement, dated October 28, 1992 by
and among the Company, A. Leigh Baier, all of the
stockholders of record and warrant holders of
Touchtel, Inc., and certain persons who loaned money
to Touchtel, Inc.
10.14(3)Agreement dated October 28, 1991, between Touchtel
Inc. and the Port Authority of New York and New
Jersey.
10.16(4)Registration Rights Amendment, dated April 16, 1993
between the Company and Transportation Displays Inc.
("TDI")
10.17(4)Standstill and Non-Competition Agreement , dated
April 16 1993 between the Company and TDI.
10.24(4)Agreement dated May 1993 between the Company and
Robert F. Hussey.
10.25(4)Promissory Note dated May 24, 1993 by the Company to
Robert Hussey.
10.26(4)Warrant dated May 24, 1993 issued to Robert F.
Hussey.
10.27(4)Agreement dated March 8, 1993, between the Company
and Chiel Communication of America, Inc.
10.28(4)Form of Financial Consulting Agreement entered into
with Whale Securities Co. L.P.
10.29(4)Form of Agreement dated September 1993 by the Company
to Bridge Investor.
10.31(4)Form of Agreement dated September 1993 issued to
Bridge Investor.
10.32(4)Form of Agreement between the Company and certain
holders of options and warrants to purchase the
Company's Common Stock and 5% Preferred Stock.
10.33(4)Merger Agreement dated May 10, 1996 between the
Company and York Hannover Pharmaceuticals, Inc.
Exhibits to the Company's 1991 Registration Statement of
Form S-1 and its pre-effective amendments are incorporated
herein by reference.
Exhibits to the Company's Current Report of Form 8-K
dated December 10, 1992 are incorporated herein by reference.
Exhibits to the Company's Post Effective Amendment No. 2
to the Registration Statement of Form S-1 filed February 16,
1993 are incorporated herein by reference.
Exhibits to the Company's 1993 Registration Statement on
Form S-1 (File No. 33-67786) and its pre-effective amendments
are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Pittsfield and State of Massachusetts on the 14th day of
April, 1998.
METROVISION OF NORTH AMERICA, INC.
By:
Thomas M. Clarke
President and CEO
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 registrant and in the
capacities, and on the dates indicated.
Titles Date
Thomas M. Clarke Pres., CEO and Director 4/14/98
Linda M. Clarke Treas., Sec. and Director 4/14/98
Lawrence B. Cummings Director 4/14/98
David M. Fancher CFO and Director 4/14/98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Pittsfield and State of Massachusetts on the 14th day of
April, 1998.
METROVISION OF NORTH AMERICA, INC.
By:
Thomas M. Clarke
President and CEO
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 registrant and in the
capacities, and on the dates indicated.
Titles Date
/s/ Thomas M. Clarke
Thomas M. Clarke Pres., CEO and Director 4/14/98
/s/ Linda M. Clarke
Linda M. Clarke Treas., Sec. and Director 4/14/98
/s/ Lawrence B. Cummings
Lawrence B. Cummings Director 4/14/98
/s/ David M. Fancher
David M. Fancher CFO and Director 4/14/98
METROVISION OF NORTH AMERICA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MetroVision of North America, Inc.:
We have audited the accompanying consolidated balance sheets of
METROVISION OF NORTH AMERICA, INC. (a New York corporation) as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, common stockholders' deficit and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. 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 MetroVision of North America, Inc. as of December 31,
1997 and 1996, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements, the
Company has suffered recurring losses from operations and has a
net capital deficiency and a net working capital deficiency at
December 31, 1997. The Company has an outstanding note payable
and related accrued interest in the total amount of $2,111,340
that was due on December 31, 1997. In the event the Company is
unable to meet its payment obligation and the promissory note is
not re-negotiated, the secured creditor has the right to take
possession of or otherwise sell the Company's interest in the
York Hannover Partnership in satisfaction of the indebtedness and
may seek recourse against the Company's other assets, if
necessary. The Company also has outstanding a $596,957 working
capital note payable to an affiliate of the Company that becomes
due in May of 1998. In addition, as discussed in Note 7, certain
holders of the Company's preferred stock currently assert that
total cumulative unpaid preferred stock dividends of $902,000 are
due and payable and that the Company's proposed sale of its
interest in York Hannover Partnership during 1998 would obligate
the Company to pay a liquidation preference to the Preferred
Stockholders of $3,605,855. Management believes that these
assertions will be resolved during 1998 through ongoing
discussions with the preferred shareholders but is unable to
determine the ultimate outcome of the ongoing discussions. These
matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to
these matters, including its intent to seek potential merger
opportunities in 1998 and its intent to sell its investment in
York Hannover Partnership during 1998 and utilize the proceeds to
satisfy the outstanding note payable, are described in Note 2.
The accompanying consolidated financial statements do not include
any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable
to continue as a going concern.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
April 9, 1998
METROVISION OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $11,956 $58,291
Marketable securities - 466,071
TOTAL CURRENT ASSETS 11,956 524,362
OTHER ASSETS:
Investment in York Hannover
Partnership 1,269,195 701,179
Due from York Hannover
Partnership - 160,747
Due from related parties - 245,267
TOTAL OTHER ASSETS 1,269,195 1,107,193
TOTAL ASSETS $1,281,151 $1,631,555
The accompanying notes are an integral part of these consolidated
financial statements.
METROVISION OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1996
CURRENT LIABILITIES:
Due to related parties $596,957 $-
Due to Stockbridge Investment
Partners, Inc. - 404,837
Accrued expenses 297,765 370,835
Deferred revenue - 743,381
Notes payable 1,950,000 2,346,370
Net liability of discontinued
operations 893,231 -
Total current liabilities 3,737,953 3,865,423
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001
par value, 1,280,000
shares authorized,
no shares outstanding - -
Cumulative preferred stock,
5% series a $.001 par value,
720,000 shares authorized,
$5.56 per share redemption
value and liquidation value,
648,535 shares issued and
outstanding 649 649
Common stock, $.001 par value,
25,000,000 shares authorized,
5,574,275 and 1,574,275 shares
issued and outstanding in 1997
AND 1996, RESPECTIVELY 5,574 1,574
Unrealized loss on securities,
net of taxes - (32,040)
Capital (deficit) in excess of
par value 1,077,050 (2,123)
Accumulated deficit (3,540,075) (2,201,928)
Total stockholders' deficit (2,456,802) (2,233,868)
Total liabilities and stockholders'
deficit $1,281,151 $1,631,555
The accompanying notes are an integral part of these consolidated
financial statements.
METROVISION OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
REVENUES:
Equity in earnings of York
Hannover Partnership $768,017 $447,845
Net revenues 768,017 447,845
OPERATING COSTS AND EXPENSES:
General and administrative 254,197 130,011
Management fees 75,000 261,000
Total operating expenses 329,197 391,011
Operating income 438,820 56,834
OTHER INCOME (EXPENSE):
Interest expense, net (292,101) (289,767)
Amortization of deferred
revenue 33,285 133,143
Other income (expense), net (18,346) 121,108
Total other expense (277,162) (35,516)
NET INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 161,658 21,318
INCOME TAX PROVISION (61,430) (19,331)
NET INCOME FROM CONTINUING
OPERATIONS 100,228 1,987
DISCONTINUED OPERATIONS
(NOTE 4 ):
Loss from operations of
discontinued operations (less
applicable income tax benefit
of $45,868) (1,073,995) -
Loss on disposal of assets of
discontinued operations,
including provision of
$379,942 for operating
losses during phase-out
period (less applicable
income tax benefit of
$15,562) (364,380) -
Total loss from discontinued
operations (1,438,375) -
NET INCOME (LOSS) BEFORE PREFERRED STOCKHOLDER DIVDEND
REQUIREMENTS $ (1,338,147) $ 1,987
LESS - PREFERRED STOCK DIVIDEND
REQUIREMENTS (180,293) $ (180,293)
NET LOSS APPLICABLE TO COMMON STOCK $ (1,518,440) $ (178,306)
BASIC NET LOSS PER COMMON SHARE FROM
CONTINUING OPERATIONS $ (.02) $ (.04)
BASIC NET LOSS PER COMMON SHARE FROM
DISCONTINUED OPERATIONS $ (.28) $ -
BASIC NET LOSS PER COMMON SHARE $ (.30) $ (.04)
WEIGHTED AVERAGE NUMBER OF SHARES 5,180,706 4,000,000
The accompanying notes are an integral part of these consolidated
financial statements.
METROVISION OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Capital in Unrealized
Preferred Common Excess of Par Loss on Accumulated
Stock Stock Value Securities Deficit Total
BALANCE, at
December 31,
1995 $ 649 $ 1,518 $ (2,067) -$ (2,203,915) $(2,203,815)
Unrealized loss
on securities,
net of taxes - - - (32,040) - (32,040)
Conversion of
warrants - 56 (56)
Net income - - - - 1,987 1,987
BALANCE, at
December
31, 1996 649 1,574 (2,123) (32,040)(2,201,928) (2,233,868)
Common stock
issued in
reverse
acquisition - 4,000 300,000 - - 304,000
Capital
contribution
prior to
merger - - 779,173 - - 779,173
Sale of
securities - - - 32,040 - 32,040
Net loss - - - - (1,338,147)(1,338,147)
BALANCE, at
December
31, 1997 $ 649 $ 5,574$1,077,050 $-$ (3,540,075)$(2,456,802)
The accompanying notes are an integral part of these consolidated financial
statements.
METROVISION OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$ (1,338,147) $ 1,987
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Realized loss on sale of
marketable securities 66,914 -
Amortization of non-compete
agreement (33,285) (133,143)
Income tax provision 61,340 19,331
Noncash gain on settlement of
debt (16,000) -
Dividends on marketable
securities - (20,953)
Equity in earnings in excess of
distributions of York
Hannover Partnership (568,017) (147,845)
Discontinued operations, net of taxes 1,438,375 - -
Changes in operating assets and
liabilities:
Decrease in accounts receivable - 111,538
Decrease in non-current
deferred tax asset - 141,876
Increase (decrease) in accounts
payable and other accrued
expenses (10,458) 156,972
Net cash used in continuing
operations (399,278) (129,763)
Discontinued Operations:
Cash loss from discontinued operations (228,855) - -
Cash loss on disposal of discontinued
operations (18,720) -
Change in discontinued net
liabilities 11,324 -
Net cash used in
discontinued operations (236,251) -
Net cash used in operating
activities (635,529) -
CASH FLOWS USED FOR INVESTING
ACTIVITIES:
Loans to York Hannover Partnership,
net of payments received 49,221 (55,279)
Net proceeds from related party loans 533,231 (895)
Capital expenditures for operating
equipment (22,718) -
Purchases of marketable securities - (30,642)
Proceeds from sale of marketable
securities 399,198 6,813
Net cash provided by
investing activities 958,932 80,003
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable borrowings - 275,537
Principal repayments of notes payable (369,738) (282,922)
Net cash used in financing
activities (369,738) (7,385)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (46,335) 42,375
CASH AND CASH EQUIVALENTS, beginning of
year 58,291 15,916
CASH AND CASH EQUIVALENTS, end of year $11,956 $ 58,291
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for
interest $ 456,024 $ 41,649
The accompanying notes are an integral part of these consolidated
financial statements.
METROVISION OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
On April 1, 1997, MetroVision of North America, Inc.
("MetroVision") consummated a merger with York Hannover
Pharmaceuticals, Inc. ("YHPI"), a Florida corporation, in
a tax-free reorganization as defined in the Internal
Revenue Code. The merger has been accounted for as a
reverse acquisition of MetroVision by YHPI under the
purchase method of accounting as prescribed by APB
Opinion 16. Hereinafter, "the Company" refers to YHPI
and its acquired business, MetroVision. Accordingly, the
historical financial statements of the Company prior to
the merger have been changed to reflect the historical
financial statements of YHPI after giving effect to a
recapitalization of the historical stockholders' equity
of YHPI. Therefore, the 1997 historical period includes
twelve months of operations of YHPI and nine months of
operations of MetroVision. The 1996 historical period
represents the operations of YHPI. In conjunction with
the merger on April 1, 1997, the Company effected a 1 for
4.6 reverse stock split. Accordingly, all historical per
share, options, warrants and exercise prices have been
restated to reflect the stock split. See Note 3 for
further discussion of the merger.
The accompanying financial statements have been prepared
on the accrual basis of accounting under the assumption
that the Company will continue as a going concern. As
discussed in Note 2, the Company has suffered recurring
losses from operations and has a stockholders' deficit as
of December 31, 1997. See Note 2 for discussion of
management's plan to satisfy debt requirements and
finance on-going operations.
Description of Business
Historically, YHPI's only operations and only significant
asset has been its investment in York Hannover
Partnership, which is a provider of institutional
pharmacy services, infusion therapy, third-party billing,
medical equipment and supplies, respiratory therapy and
other institutional pharmacy services.
Historically, MetroVision owned and operated a video
cable network called the "Commuter Channel" for the
purpose of providing information (departure and arrival
times, news, sports, entertainment and advertising) via a
large screen video display monitor in certain mass
transit locations.
On November 30, 1997, the Company announced its plans to
discontinue its MetroVision media operations, effective
February 28, 1998. See Note 4 for further discussion of
the discontinued operations.
Principles of Consolidation
The consolidated financial statements as of December 31,
1997 include the accounts of the Company and a
wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be
cash equivalents.
Marketable Securities
At December 31, 1996, the Company had marketable
securities classified as available for sale that were
recorded based on quoted market prices. Unrealized gains
and losses on available for sale securities were recorded
in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). In 1997, the
Company sold these securities and recorded a realized
loss of $66,914 .
System Contracts
MetroVision has installed equipment in public mass
transit systems pursuant to contractual agreements with
applicable transit authorities. The contracts provide
for payment to transit authorities in the form of
commissions and certain of these contracts provide for
minimum guaranteed commissions. As discussed in Note 4,
the Company will cease its MetroVision media operations
effective February 28, 1998. Management believes
adequate provision has been made to fulfill its
obligations to customers.
Revenue Recognition
On August 1, 1995, YHPI and United Professional
Companies, Inc. ("UPC") formed York Hannover Partnership
(the "Partnership") for the purpose of providing
institutional pharmacy services, infusion therapy,
third-party billing, medical equipment and supplies,
respiratory therapy and other services. UPC and the
Company have a 60% and 40% interest in the Partnership,
respectively. The Company's investment in the
Partnership has been accounted for under the equity
method of accounting. The Partnership has a minimum term
of five years.
Advertising revenues have been recognized after the
related advertising has been broadcast over the network.
If merchandise or services are received prior to the
advertising being broadcast, a liability is recorded.
Revenue from installation contracts have been recognized
on the percentage-of-completion method based on costs
incurred to date to the total estimated cost at
completion. All revenues related to the media
operations are included in "Loss from operations of
discontinued operations."
Income Taxes
In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income
Taxes", the Company establishes deferred tax liabilities
and assets based on the difference between the financial
statement and income tax carrying amounts of assets and
liabilities using existing rates.
Basic Net Loss Per Common Share
In 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings per Share". The
Company adopted the provisions of SFAS 128 during the
fourth quarter of 1997. Basic net loss per common share
is computed based on the weighted average number of
common shares assumed to be outstanding which pertain to
the respective operations in each period as defined by
SFAS 128. Where anti-dilutive, cumulative convertible
preferred shares, options and warrants have been excluded
from the computations and net loss has been adjusted for
imputed dividends on the convertible preferred stock.
Fully diluted net loss per common share has not been
presented as the impact of the preferred shares, options
and warrants is anti-dilutive.
Concentration of Credit Risks
The Company's credit risks primarily relate to cash and
cash equivalents and receivables. Cash and cash
equivalents are primarily held in bank accounts. The
Company maintains allowances for uncollectible accounts.
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." The Statement
encourages, but does not require, companies to record
compensation expense for stock-based compensation at fair
value. The Company has adopted the disclosure
requirements of SFAS No. 123, but did not change its
method of accounting for stock-based compensation.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
Reclassifications
Certain reclassifications of 1996 amounts have been made
to conform with the 1997 presentation.
2. LIQUIDITY
The Company's inability to generate significant revenues
to finance operations has resulted in significant net
losses and negative cash flows from operations as shown
in the accompanying financial statements. In addition,
the Company's current liabilities are significantly
greater than its current assets as shown in the
accompanying financial statements. These conditions have
significantly weakened the Company's liquidity and
financial position and raise substantial doubt about the
Company's ability to continue as a going concern.
The Company has outstanding a $1,950,000 promissory note
payable to National HealthCare Corporation ("NHC") that
became due on December 31, 1997 and is currently in
default and payable on demand. Accrued interest on the
promissory note payable to NHC is $161,340 as of December
31, 1997. The Company currently does not have the
financial resources necessary to meet its payment
obligation other than from proceeds from the anticipated
sale of the interest in York Hannover Partnership (the
"Partnership"). In the event the Company is unable to
meet its payment obligation and the promissory note is
not re-negotiated, NHC, as a secured creditor, has the
right to take possession of or otherwise sell the
interest in the Partnership in satisfaction of the
indebtedness and may seek recourse against the Company's
other assets, if necessary. In addition, as a result of
the current default, it is anticipated that the Company
will be required to pay certain additional interest
beginning January 1, 1998. The Company also has
outstanding a $596,957 working capital note payable
to Lenox Healthcare, Inc.
("Lenox", an affiliate of the Company) that becomes due
in May of 1998. See Note 6 for discussion of the note
payable to NHC and Note 10 for discussion of the working
capital note payable to Lenox.
Subsequent to December 31, 1997, the Company engaged in
negotiations to sell its 40% interest in the Partnership
to an affiliate of UPC. There can be no assurance that
the proceeds from the proposed sale will be sufficient to
satisfy all of the outstanding obligations of the
Company. UPC currently has a 60% interest in the
Partnership (see Note 5). It is anticipated that upon
closing of the proposed sale, the proceeds will be held
in escrow pending approval of the Company's shareholders.
It is anticipated that the proceeds from the sale will be
used first to satisfy the note payable and related
accrued interest to NHC.
Additionally, subsequent to December 31, 1997, the
majority holders of the 5% Series A Preferred Stock have
asserted certain claims against the Company which could
have a material adverse impact on the Company's financial
position. Although management does not believe that
these assertions represent obligations of the Company as
of December 31, 1997, management is currently discussing
these assertions with the preferred shareholders in
conjunction with the structuring of the proposed sale of
the Partnership. Management believes that these
assertions will be resolved during 1998 through ongoing
discussions with the preferred shareholders but is unable
to determine the ultimate outcome of the ongoing
discussions. See Note 7 for further discussion of this
contingency.
Subsequent to the anticipated sale of the Partnership and
subject to shareholder approval, management intends to
seek merger opportunities with other entities in 1998.
However, no such merger opportunities are currently known
and there can be no assurance that the Company will be
able to locate such a merger opportunity in 1998.
The Company has not identified any potential sources of
debt or equity financing and there can be no assurance
that the Company will be able to obtain additional
financing if and when needed or that, if available,
financing will be on terms acceptable to the Company.
Furthermore, the results of these matters cannot be
predicted and there is no assurance that the Company will
continue in existence. The financial statements do not
include any adjustments to reflect the possible future
effects of the recoverability and classification of
assets or amounts and classification of liabilities that
may result from the possible inability of the Company to
continue as a going concern.
3. MERGER OF YORK HANNOVER PHARMACEUTICALS, INC. AND
METROVISION OF NORTH AMERICA, INC.
On April 1, 1997, MetroVision merged with YHPI in a
transaction that has been accounted for as a reverse
acquisition of MetroVision by YHPI. The merger has been
accounted for under the purchase method of accounting as
prescribed by APB Opinion 16. Accordingly, the
historical financial statements of the Company prior to
the merger have been changed to reflect the historical
financial statements of YHPI. The statements of common
stockholders' equity have been converted from YHPI's
capital stock structure to the Company's capital stock
structure.
Under terms of the agreement, YHPI distributed (prior to
the merger) all of its assets and liabilities to
Stockbridge Investments Partners, Inc. ("SIP", an
affiliated entity owned by certain stockholders of the
Company) except for YHPI's 40% interest in the
Partnership and YHPI's note payable to NHC and related
accrued interest. The net liabilities distributed of
$770,173 have been reflected as a capital contribution in
the statements of common stockholders' equity. Each
share of YHPI common stock outstanding on April 1, 1997
(a total of 1,000 shares) was converted into 4,000 shares
of the Company's common stock, or an aggregate of
4,000,000 shares of common stock, constituting
approximately 72% of the shares of common stock after the
merger. In addition, the Company issued certain warrants
to two members of SIP's management, as discussed in Note
9. If all of such warrants were exercised (and assuming
no other increases on the Company's capital stock), these
two members of SIP's management would beneficially own,
directly and through SIP, approximately 78% of the
Company's outstanding common stock. No warrants were
exercised in 1997. On April 1, 1997, simultaneous with
the merger and pursuant to shareholder approval at a
Special Meeting of Shareholders, the Company filed an
amendment to its Restated Certificate of Incorporation to
effect a 1 for 4.6 reverse stock split.
The acquisition of MetroVision was accounted for using
the purchase method of accounting. The shares
attributable to MetroVision's operations were valued at
an estimated fair market value of $300,000 on the date of
merger. The excess of the consideration paid over the
fair market value of the net assets was assigned to
goodwill.
The following unaudited pro forma results of the Company
for the year ended December 31, 1997 are presented as if
the merger had occurred on January 1, 1997. The
unaudited pro forma information is presented for
informational purposes only and is not necessarily
indicative of the operating results that would have
occurred had the merger been consummated on January 1,
1997, nor are they necessarily indicative of future
operating results.
Year Ended
December 31,
1997
Unaudited
Net income from continuing operations $ 100,228
Discontinued operations:
Loss from operations of discontinued
operations (1,209,301)
Loss on disposal of assets of
discontinued operations (364,380)
Total loss from discontinued operations (1,573,681)
Net loss (1,473,453)
Less - preferred stock dividends (180,293)
Net loss applicable to common stock $ (1,653,746)
Basic net loss per common share from
continuing operations $ (.02)
Basic net loss per common share from
discontinued operations $ (.28)
Basic net loss per common share
$ (.30)
Loss from operations of discontinued operations in the
above unaudited pro forma of operations includes a full
year of results of operations of MetroVision.
4. DISCONTINUED OPERATIONS
On November 30, 1997, the Company announced its plans to
discontinue its MetroVision media operations, effective
February 28, 1998. The Company will shut-down the
operations and will not receive any proceeds related to
the shut-down as the remaining assets have been written
off as discussed further below. As a result of the
discontinuance, the related assets, liabilities and
results of operations are segregated in the accompanying
consolidated balance sheets, statements of operations and
cash flows. Net revenues and operating expenses have
been reclassified for amounts associated with
discontinued operations. Net revenues attributable to
the discontinued operations were $329,203 in 1997.
The Company is currently negotiating settlement
agreements with various customers due to the Company's
decision to terminate its media operations. In
management's opinion, adequate provision has been made
for any material loss resulting from the fulfillment of
these service commitments. However, events unknown at
this time related to the termination of the media
operations may subsequently arise which could have a
material adverse impact on the Company.
Assets and liabilities as of December 31, 1997 have been
reclassified for amounts associated with discontinued
operations. Summarized balance sheet data for the
discontinued operations is as follows at December 31,
1997:
Accounts receivable, net $ 33,348
Prepaid expenses and other 10,621
current assets
Total assets 43,969
Shut-down accrual (379,942)
Accounts payable and accrued
expenses (557,258)
Total liabilities (937,200)
Net liability of discontinued
operations $ (893,231)
Pursuant to the Company's decision to discontinue its
MetroVision media operations, the Company wrote-off the
remaining net book value of its operating equipment and
goodwill of $312,718 and $481,681, respectively. These
amounts are included in "Loss from operations of
discontinued operations" in the income statement for the
period ended December 31, 1997. The Company also
recorded a $379,942 provision to reserve for potential
losses related to the shut-down of the media operations.
This additional reserve for potential losses is included
in "Loss on disposal of assets of discontinued
operations" in the income statement for the period ended
December 31, 1997.
5. INVESTMENT IN YORK HANNOVER PARTNERSHIP
Earnings and losses of the Partnership are allocated to
the Company and UPC based on each partners' general
partnership interest. Under terms of the agreement, the
Company had a right to priority distributions of its
share of Partnership net income limited to $300,000, all
of which was received by the Company during 1996. After
reaching the maximum priority distribution to the
Company, distributions were made to UPC up to an amount
representing an equality of the ownership percentages.
Subsequently, distributions have been made to the Company
and UPC in proportion to each partner's respective
ownership interest. All distributions are subject to the
availability of Partnership cash. Distributions made to
the Company were $200,000 and $300,000 in 1997 and 1996,
respectively. Distributions made to UPC were $750,000
and $0 in 1997 and 1996, respectively.
The Company is currently out of compliance with the
Partnership Agreement ('the Agreement") with UPC.
According to the Agreement, at no time during the term of
the Partnership shall the principal amount of indebtedness
secured by the Partnership Interest
be greater than $1,750,000. As discussed
in Note 2, the principal amount outstanding at December
31, 1997 was $1,950,000. The Company does not believe
that this violation will have a material impact on the
results of operations or financial position of the
Company.
See Note 2 for discussion of the Company's plans to sell
its 40% interest in the Partnership.
Summary financial statements of the Partnership as of and
for the years ended December 31, 1997 and 1996 are as follows:
December 31, December 31,
Balance Sheet 1997 1996
Accounts receivable $ 1,995,570 $ 2,273,810
Inventory 583,498 587,940
Cash 606,713 122,796
Other current assets 100,721 59,094
Net property, plant and equipment 806,613 716,317
Total assets $ 4,093,111 $ 3,759,957
Working capital loans - due to the
Company and UPC $ - $ 630,000
Accounts payable 237,853 295,959
Due to UPC - 38,082
Due to Stockbridge Investment
Partners, Inc. 4,770 -
Accrued expenses 119,436 107,011
Current portion of capital lease 63,527 37,032
Current portion of promissory
note payable 17,000 15,580
Capital lease obligation 126,053 64,739
Promissory note payable 351,484 368,602
Partners' capital 3,172,992 2,202,952
Total liabilities and partners'
capital $ 4,093,115 $ 3,759,957
Income Statement
Revenues $ 10,891,082 $ 9,383,651
Cost of sales (5,316,022) (4,899,122)
Gross profit 5,575,060 4,484,529
Expenses (3,655,020) (3,364,916)
Net income $ 1,920,040 $ 1,119,613
6. NOTES PAYABLE
At December 31, 1997, the Company was in default on its
outstanding borrowing arrangements. The Company's notes
payable are summarized as follows:
December 31,
1997 1996
Promissory note payable to NHC,
interest at 12% and principal
and interest due at December
31, 1997 $ 1,950,000 $ 1,950,371
Other notes - 120,462
$ 1,950,000 $ 2,070,833
As discussed in Note 2, the promissory note with NHC is
secured by the Company's interest in the Partnership, the
personal guarantees of the two stockholders of the
Company and certain assets of SIP and Monterey
Investments, Inc ("Monterey", a related party of the
Company as discussed in Note 10). Also as discussed in
Note 2, the NHC promissory note was due on December 31,
1997 and is currently in default.
7. COMMITMENTS AND CONTINGENCIES
The majority shareholders of the 5% Series A Convertible
Preferred Stock ("the preferred stock") have asserted
that the Company's merger with YHPI obligates the Company
to pay all holders of the preferred stock all cumulative
unpaid dividends which approximated $902,000 at December
31, 1997. In management's opinion, the Company is not
obligated to pay the cumulative dividends until approval
by the Company's Board of Directors and therefore has not
recorded a liability at December 31, 1997. In addition,
the preferred shareholders have asserted the Company's
proposed sale of its interest in the Partnership would
obligate the Company to pay a liquidation preference of
approximately $3,605,855 and that the Company may have
entered into certain corporate events without proper
approval from the Board of Directors, potentially to the
detriment of shareholders. Although management does not
believe that these assertions represent obligations of
the Company as of December 31, 1997, management is
currently discussing these assertions with the preferred
shareholders in conjunction with the structuring of the
proposed sale of the Partnership. Management believes
that these assertions will be resolved during 1998
through ongoing discussions with the preferred
shareholders but is unable to determine the ultimate
outcome of the ongoing potential settlement discussions.
These matters, in conjunction with other liquidity
matters as discussed in Note 2, raise substantial doubt
about the Company's ability to continue as a
going-concern.
8. INCOME TAXES
As of January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." Under the asset and
liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled.
Deferred tax assets and liabilities, at 38% of the
respective amounts, are comprised of the following:
December 31,
1997 1996
Deferred tax assets:
Net operating loss
carryforwards $ 128,000 $ 83,000
Deferred revenue - 280,000
Unrealized loss on marketable
securities - 19,000
Reserves and accruals deducted
for book purposes but not
yet available for tax
purposes 157,000 -
Depreciation and fixed asset
write-offs 157,000 -
Contract rights and
installations in process 347,000 -
789,000 382,000
Valuation allowance
(789,000) (382,000)
$ - $ -
Due to the Company's historical operating losses and
anticipated future losses, it is not likely that the
Company will generate sufficient taxable income in the
future to realize the deferred tax assets. Therefore, in
accordance with SFAS No. 109, the Company has provided a
valuation allowance at December 31, 1997 and 1996 to
offset the deferred tax assets not anticipated to be
utilized. The following summarizes the change in
valuation allowance for the year ended December 31, 1997
and 1996:
1997 1996
Valuation allowance at
January 1 $ 382,000 $ 385,000
Valuation allowance at
December 31 789,000 382,000
Increase (decrease) in valuation
allowance $ 407,000 $ 3,000
The Company's 1997 income tax provision of $61,430 is
offset by a benefit from discontinued operations.
9. STOCKHOLDERS' EQUITY
Preferred Stock
Each share of the Company's 5% Series A preferred stock
has a liquidation preference of $5.56 per share, plus
accrued but unpaid dividends. The dividends were
accumulated from the first anniversary of the Company's
initial public offering on December 17, 1992. At
December 31, 1997, dividends in arrears on the 5% Series
A preferred stock were approximately $902,000 or $1.39
per share. In management's opinion, the Company is not
obligated to pay the cumulative dividends until approval
by the Company's Board of Directors and, therefore, has
not recorded a liability at December 31, 1997. The stock
is senior to all preferred and common stock and is
convertible at the option of the holder at any time prior
to redemption by the Company, subject to certain
provisions at the rate of 4.6 shares of preferred for one
share of common stock. The holders are entitled to vote
on a converted basis, together with the holders of the
common stock in all matters in which holders of common
stock are entitled to vote. This security is a common
stock equivalent. See Note 7 for discussion of the
Company's dispute with the 5% Series A preferred
shareholders.
Stock Warrants
In connection with the Company's initial public offering
in November 1991, the Company issued warrants to the
underwriters (as adjusted for anti-dilution provisions)
to purchase up to 73,443 units (each unit consisting of
one share of common stock at an exercise price of $3.40
per unit and one warrant to purchase a share of stock at
$6.81). The exercise price of these warrants was equal
to or greater than the fair market value of the common
stock at the measurement date. On December 11, 1996, the
Company reset the exercise price for these warrants to
$1.84 and extended the expiration date from December 17,
1996 to December 12, 1998. None of these warrants have
been exercised.
Also in connection with the November 1993 offering, as
compensation for services, the underwriters were issued
warrants to purchase 17,391 units at $11.04 per unit.
Each unit consists of six shares of common stock and a
warrant to purchase an additional share of stock for
$.92. The warrants expire November 2, 1998. None of
these warrants have been exercised.
In connection with the issuance of bridge loans in 1993,
the Company granted certain stockholders additional
warrants to purchase 47,826 shares of common stock at an
exercise price of $9.20 (reset to $3.82 upon secondary
offering in November 1993) which was not less than the
fair market value of the common stock at the date the
warrants were issued. The remaining warrants expire
September 1998. None of these warrants have been
exercised.
As part of a secondary offering in November 1993, the
Company sold Class B Redeemable warrants to purchase
173,913 shares of $.001 par value common stock at a price
of $.92 with an exercise period from May 1994 until
November 1996. Prior to expiration, a total of 56,547 of
these warrants were exercised, including 55,210 warrants
exercised during 1996.
In connection with the issuance of bridge loans in 1996,
the Company granted certain stockholders additional
warrants to purchase 42,000 shares of common stock at
exercise prices ranging from $.69 to $.92 through 2001.
The exercise price of these warrants was equal to or
greater than the fair market value of the common stock at
the measurement date. None of these warrants have been
exercised.
In connection with the merger with YHPI on April 1, 1997,
the Company granted warrants to certain members of SIP's
management to purchase 1,500,000 shares of the Company's
common stock, exercisable in three cumulative equal
annual installments, at exercise prices ranging from $.63
to $.945 per share. None of these warrants have been
exercised.
Stock Option Plans
The Company's Stock Option Plan (the "Plan") provides for
the grant of qualified and non-qualified stock options to
employees, consultants, and directors of the Company to
purchase in the aggregate up to 900,000 shares of common
stock. Under the Plan, the Company's Stock Option
Committee has complete discretion
to establish the terms and conditions of each option,
subject to the plan provisions. The options may be
exercised over a specified period not in excess of ten
years from the date of grant. As of December 31, 1997,
non-qualified options have been granted to purchase
133,695 shares of common stock. None of these options
have been exercised.
The Board of Directors have also approved the Company's
Non-Employee Directors Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for the grant of
non-qualified stock options to non-officer directors of
the Company to purchase in the aggregate up to 50,000
shares of common stock. Options are granted under the
Directors' Plan according to a formula based upon
attendance at Board of Directors meetings in addition to
a minimum of 5,000 options per year. Options will be
granted with an exercise price equal to the fair market
value on the date of grant and may be exercised over a
period not in excess of ten years from the date of grant.
No options have been granted under the Directors' Plan.
Based on the number of options outstanding and the
historical and expected future trends of factors
affecting valuation of those options, management believes
that no compensation cost exists under SFAS No. 123
attributable to options granted.
Options outstanding under the above plans are as follows:
Weighted
Average
Exercise Number of
Price Shares
Outstanding and exercisable at
December 31, 1995 $ 1.01 97,826
Canceled during 1996 .92 (5,870)
Granted during 1996 .87 16,739
Outstanding and exercisable at
December 31, 1996 1.01 108,695
Canceled during 1997 (100,000)
Granted during 1997 .60 125,000
Outstanding and exercisable at
December 31, 1997 $ .60 133,695
As of December 31, 1997, outstanding options for 133,695
shares were exercisable at prices ranging from $.58 to
$.92 with 125,000 options having a weighted average
remaining contractual life of five years and the
remaining options having no expiration date. All options
have been granted with an exercise price equal to or
greater than the fair market value of the common stock on
the date of the grant.
10. RELATED PARTY TRANSACTIONS
Lenox, Pinellas Healthcare Investors, Inc. and Monterey
are related parties of the Company because the majority
stockholders of these entities are also the majority
stockholders of SIP. SIP is the majority stockholder of
the Company. Net amounts due to or from related parties
as of December 31, 1997 and 1996 consist of the
following:
December 31, December 31,
1997 1996
Due from York Hannover Partnership $ - $ 160,747
Due from (to) related parties:
Lenox Healthcare, Inc. $ (596,597) $ -
Pinellas Healthcare Investors,
Inc. - 235,000
Monterey Investments, Inc. - 10,267
$ (596,597) $ 245,267
Due to Stockbridge Investment
Partners, Inc. $ - $(404,837)
In June 1997, the Board of Directors authorized the
Company to enter into a line-of-credit agreement with
Lenox to borrow amounts up to $200,000. Interest accrues
at prime plus 2% with principal and interest due on May
8, 1998. The Company had $596,597 and $22,516 in
principal and accrued interest outstanding under the
line-of-credit at December 31, 1997 and therefore had
exceeded the maximum amount to be borrowed as authorized
by the Board of Directors. However, subsequent to
December 31, 1997, the Board of Directors of the Company
approved a maximum borrowing of $700,000 under the
line-of-credit agreement.
The Company incurred management fee expense of
$75,000 and $261,000 to Lenox in 1997 and 1996, respectively.
YORK HANNOVER PARTNERSHIP
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To York Hannover Partnership:
We have audited the accompanying balance sheets of YORK HANNOVER
PARTNERSHIP (a Wisconsin general partnership) as of December 31,
1997 and 1996, and the related statements of income, partners'
capital, and cash flows for the years then ended. These
financial statements are the responsibility of York Hannover
Partnership's Management. Our responsibility is to express an
opinion on these financial statements 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 are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of York Hannover Partnership as of December 31, 1997 and 1996,
and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 13, 199
YORK HANNOVER PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 606,713 $ 122,796
Accounts receivable, less
allowance for doubtful accounts
of $278,453 and $260,057,
respectively 1,995,570 2,273,810
Inventory 583,498 587,940
Due from York Hannover
Pharmaceuticals, Inc. - 8,620
Due from United Professional
Companies, Inc. 65,836 -
Other current assets 34,885 50,474
Total current assets 3,286,502 3,043,640
PROPERTY AND EQUIPMENT:
Building and improvements 451,459 431,837
Furniture and equipment 699,798 437,297
1,151,257 869,134
Accumulated depreciation (344,644) (152,817)
Property and equipment,
net 806,613 716,317
Total assets $ 4,093,115 $ 3,759,957
The accompanying notes to financial statements are an
integral part of these balance sheets.
YORK HANNOVER PARTNERSHIP
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1996
LIABILITIES AND PARTNERS' CAPITAL 1997 1996
CURRENT LIABILITIES:
Working capital note payable to York
Hannover Pharmaceuticals, Inc. $ - $ 80,000
Working capital note payable to
United Professional Companies,
Inc. - 550,000
Accounts payable 237,853 295,959
Accrued expenses 119,436 107,011
Due to Stockbridge Investment
Partners, Inc. 4,770 -
Due to United Professional
Companies, Inc. - 38,082
Current portion of promissory note
payable to Extendicare, Inc. 17,000 15,580
Current portion of capital lease
obligations 63,527 37,032
Total current liabilities 442,586 1,123,664
NON-CURRENT LIABILITIES:
Promissory note payable to
Extendicare, Inc. 351,484 368,602
Capital lease obligations 126,053 64,739
Total non-current liabilities 477,537 433,341
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 3,172,992 2,202,952
Total liabilities and
partners' capital $ 4,093,115 $ 3,759,957
The accompanying notes to financial statements are an
integral part of these balance sheets.
YORK HANNOVER PARTNERSHIP
STATEMENTS OF INCOME
DECEMBER 31, 1997 AND 1996
1997 1996
REVENUES $ 10,891,082 $ 9,383,651
COST OF SALES (5,316,022) (4,899,122)
Gross margin 5,575,060 4,484,529
EXPENSES:
Salaries, wages and benefits 1,819,611 1,529,390
General and administrative 1,039,430 1,060,220
Management fee 434,832 375,066
Provision for uncollectible accounts 117,894 189,988
Depreciation 184,127 123,759
Interest 59,126 86,493
Total expenses 3,655,020 3,364,916
NET INCOME $ 1,920,040 $ 1,119,613
The accompanying notes to financial statements are an
integral part of these statements
YORK HANNOVER PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
DECEMBER 31, 1997 AND 1996
MetroVision United
of North Professional
America,Inc. Companies, Total
BALANCE, December 31,
1995 $ 553,334 $ 830,005 $ 1,383,339
Partnership
distributions (300,000) - (300,000)
Net incomen 447,845 671,768 1,119,613
BALANCE, December 31,
1996 701,179 1,501,773 2,202,952
Partnership
distributions (200,000) (750,000) (950,000)
Net income 768,016 1,152,024 1,920,040
BALANCE, December 31,
1997 $ 1,269,195 $ 1,903,797 $ 3,172,992
The accompanying notes to financial statements are an
integral part of these statements
YORK HANNOVER PARTNERSHIP
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997 AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,920,040 $ 1,119,613
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 184,127 123,759
Gain on sale of property,
plant and equipment (282) -
Changes in assets and liabilities:
Accounts receivable, net 278,240 (1,131,398)
Inventory 4,443 (92,590)
Other assets 15,589 (40,025)
Accounts payable (58,106) 52,302
Accrued expenses 12,425 19,142
Due to partners (90,526) (27,817)
Net cash provided by operating
activities 2,265,950 22,986
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (138,773) (131,688)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (47,640) (16,891)
Long-term debt borrowings - 9,303
Short-term debt borrowings - 530,000
Payments on long-term debt (15,620) -
Payments on short-term debt (630,000) (100,000)
Distributions to partners (950,000) (300,000)
Net cash provided by
(used in) financing
activities (1,643,260) 122,412
NET INCREASE IN CASH AND CASH EQUIVALENTS 483,917 13,710
CASH AND CASH EQUIVALENTS, beginning of
period 122,796 109,086
CASH AND CASH EQUIVALENTS, end of period $ 606,713 $ 122,796
SUPPLEMENTAL INFORMATION:
Cash payments of interest expense $ 59,126 $ 88,964
Capital lease obligations $ 189,580 $ 101,771
The accompanying notes to financial statements are an
integral part of these statements.
YORK HANNOVER PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
The financial statements include the accounts of York
Hannover Partnership ("the Partnership") formed for the
purpose of providing institutional pharmacy services,
infusion therapy, urological, enteral and general medical
supplies to licensed nursing facilities, hospitals,
correction facilities and retirement facilities
throughout the State of Florida.
The Partnership commenced operations August 1, 1995, upon
formation of the Partnership by and between York Hannover
Pharmaceuticals, Inc. ("YHPI"), formerly a wholly-owned
subsidiary of Stockbridge Investment Partners, Inc.
("SIP"), and United Professional Companies, Inc. ("UPC"),
a wholly-owned subsidiary of Extendicare, Inc. (formerly
"United Health, Inc."). Pursuant to the terms of the
Partnership agreement, YHPI contributed to the
Partnership assets with a total net book value of
$449,638 as of the date of the contribution. UPC
contributed assets with a total net book value of
$674,460 as of the date of the contribution. In exchange
for these contributions, YHPI received a 40% general
partnership interest and UPC a 60% general partnership
interest in the Partnership. The Partnership has a
minimum term of five years.
On April 1, 1997, YHPI merged with MetroVision of North
America Inc. ("MetroVision") with MetroVision the
surviving legal entity. Under terms of the merger
agreement, YHPI contributed its 40% interest in the
Partnership. Pursuant to the merger, SIP is the majority
stockholder of MetroVision. See Note 4 for discussion of
MetroVision's proposed sale of its interest in the
Partnership.
Earnings and losses are allocated based on general
partnership interests. All distributions are subject to
the availability of Partnership cash. Under the terms of
the Partnership agreement, YHPI had a right to priority
distributions of its share of Partnership net income
limited to $300,000, all of which was distributed in
1996. During 1997, UPC has received distributions up to
an amount representing an equality of the ownership
percentages with subsequent distributions made to
MetroVision and UPC in proportion to each partner's
respective ownership interest.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Operational Management
The operations of the Partnership are managed by UPC for
a maximum management fee of 4% of net revenues. SIP and
UPC also provide certain billing services to the
Partnership for which they receive 7.5% of amounts
billed.
Revenues
Revenues are generated from the sale of institutional
pharmacy services, infusion therapy, urological, enteral
and general medical supplies to licensed nursing
facilities, hospitals, correction facilities and
retirement facilities throughout the State of Florida.
The Partnership receives payment for the sale of certain
supplies to patients covered by Medicare and the Florida
Medicaid programs. Revenues generated from patients
covered by Medicare and the Florida Medicaid programs are
based on reasonable charges. In the opinion of
management, adequate provision has been made for any
adjustments that may result from reviews by the Medicare
and Medicaid programs.
Over 90% of the Partnership's revenues in 1997 and 1996
were to patients in nursing facilities owned by SIP and
Extendicare, Inc.
Inventory
All inventories as of December 31, 1997 were priced at
the lower of cost (on a first-in, first-out basis) or
market.
Property and Equipment
The Partnership's buildings, furniture and equipment are
depreciated using the straight-line method over the
estimated useful lives of the assets. The estimated
useful lives range from 3 to 25 years.
Concentration of Credit Risks
The Partnership's credit risks primarily relate to cash
and cash equivalents and receivables. Cash and cash
equivalents are primarily held in bank accounts.
Receivables consist primarily of amounts due from
patients and long-term health care centers in the state
of Florida and from the Florida Medicaid programs. The
Company maintains allowances for uncollectible accounts
on these receivables.
Cash Equivalents
Cash equivalents include highly liquid investments with
an original maturity of less than three months.
Federal Income Taxes
The Partnership is a general partnership for purposes of
federal and state income taxation. As such, income or
losses of the Partnership are attributed to the partners
and are reflected on the partners' income tax returns.
Accordingly, no income tax provision or benefits are
recorded in the financial statements.
2. RELATED PARTIES
Capital lease obligations and net amounts due to related
parties as of December 31, 1997 and 1996 consist of the
following:
December 31, December 31,
1997 1996
Working capital note payable -
YHPI $ - $ 80,000
Working capital note payable -
UPC - 550,000
$ - $ 630,000
Due to (from) related parties
- current:
SIP $ 4,770 $ -
YHPI - (8,620)
UPC (65,836) 38,082
$ (61,066) $ 29,462
Promissory note payable to
Extendicare, Inc. $ 368,484 $ 384,182
Less current portion (17,000) (15,580)
$ 351,484 $ 368,602
Pursuant to the terms of the Partnership agreement,
MetroVision and UPC will provide working capital funding
to the Partnership, as required, in proportion to their
respective ownership interests.
During 1995, the Partnership entered into a promissory
note payable with Extendicare, Inc. to finance the
purchase and improvement of a building in Brooksville,
Florida. The promissory note payable bears interest at
the prime rate plus .5%. Equal monthly payments of
interest and principal are required based on a 15 year
amortization with the remaining principal and accrued and
unpaid interest due on August 1, 2000. The maximum
principal outstanding under the promissory note is
limited to $400,000. The promissory note payable is
secured by the related building and improvements. The
promissory note payable is guaranteed by SIP and by the
personal guarantees of the stockholders of SIP.
A schedule of the principal maturity of amounts owed to
Extendicare, Inc. for the five years subsequent to
December 31, 1997 is as follows:
1998 17,000
1999 18,550
2000 332,934
2001 -
2002 -
The Partnership leases certain equipment from
Extendicare, Inc. under capital leases. Future minimum
rental payments required on capital leases for the next
five years beginning January 1, 1998, less amounts
representing interest, are as follows:
1998 $ 47,466
1999 19,778
2000 -
2001 -
2002 -
67,244
Less amounts representing
interest (6,460)
$ 60,784
The property and equipment under the capital lease as of
December 31, 1997 consists of the following:
Property and equipment under capital
lease $ 254,111
Less accumulated depreciation (68,361)
$ 185,750
3. COMMITMENTS AND CONTINGENCIES
Healthcare Regulations
The healthcare industry is subject to numerous laws and
regulations of Federal, state and local governments.
These laws and regulations include, but are not
necessarily limited to, matters such as licensure,
accreditation, government healthcare program
participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse.
Recently, government activity has increased with respect
to investigations and/or allegations concerning possible
violations of fraud and abuse statutes and/or regulations
by healthcare providers. Violations of these laws and
regulations could result in expulsion from government
healthcare programs together with the imposition of
significant fines and penalties, as well as significant
repayments for patient services previously billed.
Management believes that the Company is in compliance
with fraud and abuse statutes, as well as other
applicable government laws and regulations. Compliance
with such laws and regulations can be subject to future
government review and interpretations as well as
regulatory actions unknown or unasserted at this time.
Insurance
Health insurance and worker's compensation insurance for
the Partnership is maintained by UPC in accordance with
UPC's management of the Partnership. In management's
opinion, there are no outstanding claims that would
result in losses that would be material to the financial
condition or results of operations of the Partnership.
4. SUBSEQUENT EVENT
Subsequent to year-end, MetroVision engaged an affiliate
of Extendicare in negotiations about the possible sale of
its 40% interest in the Partnership.
41
14
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<PERIOD-END> DEC-31-1997
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