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SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-20438
TELMED, INC.
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(Exact name of registrant as specified in its charter.)
Delaware 65-0273037
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(State or other jurisdiction of (IRS Employer
incorporation or organization) identification number)
9350 South Dixie Highway, Suite 1220
Miami, Florida 33156
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 670-9773
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 $.007 per share
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(Title of Class)
Common Stock Purchase Warrants
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] 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-K or any
amendment to this Form 10-K. [X]
As of February 4, 1997, the aggregate market value of the registrant's
voting stock held by non-affiliates was approximately $519,500.
As of February 4, 1997, the registrant had approximately 620,000 shares of
Common Stock, par value $.007 per share, outstanding.
Documents incorporated by reference: N/A
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PART I
ITEM 1. BUSINESS.
Company Overview
TelMed, Inc. ("TelMed" or the "Company") was organized in 1991 to engage in
the development of a portable fetal monitor used to provide specialized home
health care services, in conjunction with physicians, for pregnant women with
high risk pregnancy. Such services are intended to include monitoring the
well-being of the fetus and the management and treatment of preterm labor. The
services are intended to enable pregnant women who are at risk of giving
premature birth to be monitored and treated in their homes for the management
of their pregnancy in order to achieve improved medical outcomes at significant
cost savings through the reduction of maternal and neonatal hospitalization.
TelMed has been developing a portable fetal monitor to be used in providing
such services. TelMed has completed Phase I hospital clinical testing of its
monitor and is now in the latter stages of Phase II in-home clinical testing in
order to obtain approval for the product's use from the Food and Drug
Administration ("FDA"). (See "Governmental Regulation.")
In 1993, TelMed acquired Consul-Med, Inc., a Florida corporation
("Consul-Med"). Consul-Med is engaged in the business of owning and managing
Comprehensive Outpatient Rehabilitative Facilities ("CORF") and providing home
health care services in the State of Florida. Consul-Med is the Company's sole
operating subsidiary.
In fiscal 1996, Consul-Med experienced significant losses. That, coupled
with continuing expenses related to the Company's clinical testing of the fetal
monitor, has resulted in a severe liquidity problem (See "Liquidity and Capital
Resources").
The Company is seeking additional sources of capital through the sale or
licensing of its rights to the fetal monitor; through the sale of all or part
of the business of Consul-Med; by combination with another company; or through
additional debt or equity financing. No assurances can be given, however, that
any of these alternatives will prove successful.
As used herein, the terms "TelMed" or the "Company" refers to TelMed, Inc.
together with its subsidiary corporations.
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Consul-Med - Comprehensive Outpatient Rehabilitative Facilities
In fiscal 1996, Consul-Med expanded its operations to provide rehabilitative
therapy, primarily to Medicare patients, through its comprehensive out patient
rehabilitation facilities (CORF). Services offered by Consul-Med at its CORFs
include physical, occupational, speech and respiratory therapy as well as
social work services. The first facility was established in Delray Beach,
Florida in September 1994 and an additional site in Jacksonville, Florida was
licensed in the second quarter of the 1996 fiscal year.
The primary direction for Consul-Med's future growth involves providing
management support services in establishing and operating independently owned
CORFs. Under a Support Service Agreement, Consul-Med receives an up front fee
for providing assistance in establishing a new CORF. Consul-Med will also
provide (on an ongoing basis) support services, including quality assurance,
billing and collection services, accounting support and outcome data management
for an established fee. Consul-Med is also able to integrate its copyrighted
progressive step pulmonary rehabilitation program into existing CORFs for an up
front fee and provide the same ongoing support services referenced above.
Consul-Med received reimbursement from Medicare for services provided at its
owned facilities in Delray Beach and Jacksonville. The Delray Beach facility
was subsequently sold in January 1997 and a Support Service Contract was signed
with the purchaser for Consul-Med to provide certain ongoing services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Consul-Med - Home Health Care Services
Consul-Med provides nurses and other health care professionals to
non-affiliated, Medicare certified home health care agencies primarily in the
South Florida and the Jacksonville area. It also provides such services
directly to non-Medicare patients. It provides personnel in the following
disciplines: registered nurses, licensed practical nurses, home health aides,
physical therapists, respiratory therapists, occupational therapists, speech
therapists and medical social workers. The health care professionals deliver
care and therapies, on a temporary basis, at patients' places of residence.
Consul-Med's home health care includes infusion therapy and pharmaceutical
services. The health care professionals used by Consul-Med are retained as
employees of Consul-Med or as independent contractors on a case by case basis.
Services provided by Consul-Med are available on a twenty-four hour per day,
seven days per week basis.
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Providing nursing care and therapy in the patient's home is a cost-effective
alternative to institutional care in hospitals and other health care
facilities. Requests for such services come from patients, members of their
families, physicians and social workers. The type of service provided depends
upon the individual needs of the patient. All services require the written
order of a physician. A substantial portion of Consul-Med's Home Health
services during the 1996 fiscal year were provided by Consul-Med as a
sub-contractor to Medicare licensed home health agencies. In the latter
instance, payment for Consul-Med's services is made to it by the Medicare
licensed home health agencies.
Consul-Med's services include assisting patients in obtaining reimbursement
from their insurance companies or other third-party payors. Consul-Med's
procedures include contacting patients' insurance companies and other
third-party payors prior to the commencement of services in order to determine
the amounts of coverage, evaluate the coverages and employ established
procedures to obtain payments. Consul-Med generally obtains assignments of
benefits from patients and receives payments directly; only an insignificant
portion of revenues are derived from patients who have no health benefits or
insurance. Reimbursement also comes from Medicare certified agencies for which
Consul-Med provides staffing.
Consul-Med maintains a strong presence in the Broward/Palm Beach and
Jacksonville areas of Florida. Referrals are obtained from hospital social
work departments, case managers of managed care companies, skilled nursing
facilities, nursing homes and physicians. This portion of Consul-Med's
business depends on Consul-Med's ability to establish and maintain strong
working relationships with these referral sources. The home health care
industry in south Florida is seasonal, with the highest volume experienced in
the period of November through April, and marketing efforts are more extensive
during such period.
Consul-Med is also engaged in the development of disease based out-patient
care protocols with appropriate outcome data bases.
Pregnancy Monitoring - Background
One of the most common and most serious complications of pregnancy is
preterm labor, an acute condition usually resulting in premature birth. The
most effective treatment for preterm labor is early detection and the immediate
therapeutic intervention when it commences to attempt to prolong the pregnancy.
Comprehensive systems of managing pregnancies in the patient's home have been
developed to improve the medical outcome of complicated pregnancies at reduced
costs. Such systems generally combine initial
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screening of patients to ascertain which are at risk of experiencing premature
delivery, education and training of patients with respect to symptoms and
proper care, daily telephone contact between perinatal nurses and patients for
the assessment of the condition of the patients and infusion therapies, usually
consisting of intravenous administration of tocolytic drugs, when prescribed by
the patient's physician. The systems also include the use of portable monitors
for the daily at home measurement of the patient's uterine activity and the
transmission of such data to a central location, where it is recorded, graphed
and assessed by trained, perinatal nurses. The nurses contact the patients'
physicians as needed. The principal advantages of such systems are that they
assist the physician in the early detection of labor, thus enabling prompt
treatment of the patient in order to achieve an improved medical outcome. By
enabling such functions to be performed in the home, it avoids the
inconvenience, expenses and stress associated with visits to the hospital or
doctor's office.
The use of portable monitors for the prevention of preterm labor has not
been universally accepted, and questions have been raised by some medical
authorities concerning the efficacy of home monitoring. However, the FDA has
approved such devices for use in the management and monitoring of high risk
pregnancy.
In patients with a high risk pregnancy, it is especially important to
monitor the well-being of the fetus on a frequent and regular basis. One
prevalently used method to perform such monitoring is termed a non stress test
("NST"). NST is a diagnostic test made up of two components: (1) measurement
of fetal heart rate and (2) measurement of uterine contraction activity. Data
on these two factors assist the physician to decide whether the condition of
the fetus may require further medical attention. NST has become widely
accepted as a primary antepartum screening mechanism in high risk pregnancy.
TelMed's monitor is designed to enable such non-stress testing to be performed
in the patient's home. The ability to perform such testing in the patient's
home and transmit the results to a health professional via the telephone lines
are intended to permit patients to avoid the inconvenience and stress
associated with visits to the hospital or doctor's office for routine
monitoring.
Tel-Med's Fetal Monitor
TelMed entered into an agreement dated December 27, 1994 with Advanced
Medical Systems, Inc. ("AMS") pursuant to which it purchased all of AMS's
rights to a fetal heart rate and uterine contraction monitor and to employ AMS
as its exclusive manufacturer of the monitor. During 1994, TelMed worked with
AMS to develop a more advanced model than a monitor which AMS has been
marketing in France and Israel. AMS retained the
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right to continue selling its earlier model in France and Israel. Pursuant to
this agreement, TelMed paid AMS $100,000 upon its execution and will pay an
additional sum of $100,000 when approval is obtained from the Food and Drug
Administration, which latter sum will be applied as a credit against purchases
of units by TelMed. This agreement also provides for the payment by TelMed of
a royalty to AMS equal to 5% of the gross revenues collected by TelMed from the
sale, lease or rental of the monitor. (See "Governmental Regulation.")
Large, stationary monitors which measure both uterine activity and fetal
heart rate have been routinely used in the care of patients prior to or during
labor and delivery, but such use has been limited to hospital settings because
of their size. TelMed believes that its monitor will be the first portable
monitor which can perform both functions and transmit such data by ordinary
telephone lines to a remote location.
TelMed's monitor consists of a portable, lightweight computerized recorder
which contains a modem for telephonic transmission, to which are attached two
belts containing sensing units. One belt is designed to be attached around the
abdomen above the navel and the other, below the navel. One sensor detects
uterine contractions, and the other detects the fetal heart rate. The patient
wears the belts during designated periods each day, at which time uterine
activity and fetal heart beat data are recorded. After each monitoring
session, the patient connects the recorder to a standard telephone outlet, and
the recorded data is thus transmitted to a center, where the data will be
recorded, graphed on a computer screen and assessed by a registered nurse. The
nurse will contact the patient's physician as needed and provide the physician
with information concerning the patient, including a graphic display (by
computer, telephonic facsimile copy or hard copy) of the data recorded by the
monitor.
During the 1996 fiscal year, TelMed conducted in-home clinical (Phase II)
tests of the monitor. It is anticipated that Phase II clinical testing of the
fetal monitor will be concluded in the first half of 1997; thereafter, FDA
approval will be sought. However, no assurances can be given that Phase II
clinical testing will be successfully completed or that FDA approval will be
given.
Upon completion of the FDA approval process, it is the Company's intent to
either sell the rights to this product to a third party, or enter into
licensing arrangements for its commercialization.
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Competition
There are only a few companies offering CORF development and management
services and management believes the "Progressive Step Pulmonary
Rehabilitation" program is also unique to Consul-Med. However, competition
could emerge from other more established health care providers who could expand
their business to include CORF services. No assurances can be given that
Consul-Med's CORF business will prove profitable.
Consul-Med's home health car business competes with a large number of
companies that offer similar services, including nurse staffing agencies,
hospitals and non-profit home health agencies, skilled nursing facilities and
other CORF's. The home health care business is highly fragmented. According
to the National Association for Home Care, there are more than 12,000 home care
agencies in the United States. In its rehabilitative services, it also faces
severe competition from numerous competitors. Most of Consul-Med's competitors
are local businesses serving a small area, but there are several large national
firms which also compete. Some of the large national firms have much greater
resources, and are better established, than Consul-Med. Home health care
business is generated by referrals from local physicians and other medical
organizations. Accordingly, home health care providers compete on a local
basis to develop relationships with key referral sources. The main components
of an entity's ability to compete in the market are quality and range of
services, speed of response, reliability and price.
Governmental Regulation
Consul-Med's nursing facilities are licensed under the Home Health Services
Act of Florida as home health agencies. Such Act and the regulations
thereunder contain numerous provisions regulating the conduct of the home
health care business, including among other things, meeting professional
standards regarding certain employees, maintaining quality standards in
providing care, keeping of records, and having certain personnel policies.
The Company's CORFs received their Comprehensive Outpatient Rehabilitative
Facility certification from the U.S. Health Care Finance Administration.
In order to be eligible for Medicare payments in the State of Florida, a
home health care agency is required to obtain a certificate of need ("CON").
Services provided by Consul-Med for Medicare patients are provided by it only
as a subcontractor for other home health agencies which have CON's, and
accordingly, Consul-Med is not required to have
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CON approval. During 1995, Consul-Med became certified to provide services
under Medicaid.
Consul-Med is also subject to various federal, state and local laws and
regulations regarding aspects of their operations. Consul-Med believes that it
is in compliance with all laws and regulations applicable to their business.
TelMed's fetal monitor is subject to regulation by the FDA under the
provisions of the Federal Food, Drug, and Cosmetic Act ("FDC Act"). TelMed has
completed in-hospital (Phase I) clinical testing and is in the latter stages of
Phase II clinical trials. At the conclusion of the clinical trials, the
Company anticipates that it will take 30 to 60 days to prepare and submit its
report to the FDA. It is the Company's understanding that FDA review can take
from six months to one year. There can be no assurance that the clinical
trials will be successful or that a PMA for the fetal monitor will be approved.
TelMed's proposed monitoring services will be subject to various other
federal, state and local regulations. Moreover, the health care field is an
area of extensive and dynamic regulatory changes, which can have enormous
effects on permissible activities, the costs of doing business and the amount
of permissible payments by third-party payors. Legislative action is currently
being proposed at the federal and state levels which may substantially affect
the home health care industry. The results of such proposals and effects of
any future legislation cannot be predicted.
Insurance
In recent years health care providers and participants have become subjected
to an increasing number of lawsuits alleging malpractice or product liability,
many of which assert large monetary claims, and it has become more and more
costly to defend such lawsuits. The Company may find itself the subject of
such actions despite any precautions taken by it in conducting its operations
in a proper manner. Consul-Med maintains general liability and professional
liability insurance in the amount of $1,000,000 per occurrence, $3,000,000
aggregate limit, to protect itself against claims. However, there can be no
assurance that the amounts of its coverage will be adequate to protect it from
potential adverse judgments. The Company maintains no product liability
insurance with regards to the clinical testing of its fetal monitor.
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Employees
At October 31, 1996, the Company had 54 employees in addition to its
officers, of which all but two were employed in Consul-Med. In addition to
such employees, Consul-Med employs the services of nurses on a case by case
basis. The Company believes that its employee relations are good. None of its
employees is covered by collective bargaining agreements.
ITEM 2. PROPERTIES.
The Registrant's main office is located at 9350 South Dixie Highway, Suite
1220, Miami, Florida 33156. The office consists of approximately 3,100 square
feet of space and is rented pursuant to a lease expiring on August 30, 1999 at
base annual rentals of $43,400 from March 1, 1995 to February 28, 1997 and
$46,500 from March 1, 1997 to August 30, 1999. During fiscal year 1996, the
Company reduced the rent expense at this main office by 50% through a
facilities sharing arrangement. Subsequent thereto this sharing arrangement
will reduce the Company's rent expense for this office to $4,800 per year.
Consul-Med maintains facilities for its operations at 3275 West Hillsboro
Boulevard, Suite 210, Deerfield Beach, Florida. Such premises consist of 3,546
square feet of space and are leased from an unaffiliated party pursuant to a
lease expiring on November 15, 1998 at a base annual rental of $33,687.
Consul-Med also leases approximately 1,635 square feet of office space in
Jacksonville, Florida at a monthly rental of approximately $1,555 pursuant to a
lease expiring in May, 1998. In addition, Consul-Med leases approximately
2,736 square feet of space for a rehabilitation facility in Delray Beach,
Florida at a monthly rental of $5,081 pursuant to a lease expiring on December
1, 1998. Consul-Med also leases approximately 950 square feet of office space
in Ft. Pierce, Florida pursuant to a lease expiring on July 31, 1998. During
the 1996 fiscal year, Consul-Med entered into a lease for approximately 2,000
square feet of space for a CORF location in Jacksonville, Florida at a monthly
rental of $1,917.
ITEM 3. LEGAL PROCEEDINGS.
On September 30, 1996, the Company instituted a civil action against Daniel
Diena, Emmanuel Diena and 460617 Ontario Limited d/b/a Daniel Laboratories in
the Circuit Court for the Eleventh Judicial Circuit, Dade County, Florida, Case
No. 96-119734 (CA-27). The suit alleges various causes of action against the
defendants with respect to the non-payment of a $450,000 loan and accumulated
interest evidenced by a promissory note personally guaranteed by Emmanuel and
Daniel Diena. On or about January 9, 1997,
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after defendants were unsuccessful in attempting to dismiss the case for
jurisdictional reasons, an Answer, Affirmative Defenses and Counterclaim was
filed. The counterclaim is based upon allegations that the defendants were
fraudulently induced to execute the promissory note and guarantee, seeks
unspecified damages in excess of $15,000, prejudgment and post judgement
interest and punitive damages. Discovery procedures in this case have been
recently initiated. The Company intends to vigorously pursue the claims
against the defendants as well as vigorously defend the counterclaim to which
the Company believes there are meritorious defenses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The following table sets forth, for the periods indicated, the average of
the high and low closing prices for the Company's Common Stock as reported by
the Nasdaq Stock Market. The prices below have NOT been adjusted to reflect a
1-for-7 reverse split effective January 31, 1997.
<TABLE>
<CAPTION>
High Low
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FISCAL YEAR ENDED OCTOBER 31, 1996
First Quarter 1 3/8
Second Quarter 50/64 5/16
Third Quarter 1 1/16 5/16
Fourth Quarter 15/16 5/16
</TABLE>
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, 1995
<S> <C> <C>
First Quarter 7 1/8 1
Second Quarter 3 1 1/2
Third Quarter 2 1/16 1
Fourth Quarter 1 7/16 3/4
</TABLE>
Holders
The number of record holders of shares of the Company's Common Stock was
approximately 131 as of October 31, 1996. The Company believes that, in
addition, there were, as of such date, in excess of 1,200 beneficial owners of
its Common Stock whose shares are held in "street name."
Dividends
To date, the Company has not paid any cash 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 upon the Company's earnings, its capital
requirements and financial condition and other relevant factors. The Board
does not expect to declare any dividends in the foreseeable future since it
intends to use earnings, if any, in its operations.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below are derived from the
financial statements of the Company. The financial statements for the years
ended October 31, 1994, 1995 and 1996 and the reports thereon, are included
elsewhere in this Form 10-K. The selected financial data as of October 31,
1992 and 1993 are derived from financial statements previously filed with the
Commission and not included in this Form 10-K. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Financial
Statements.
Consolidated Operations Data (1):
<TABLE>
<CAPTION>
For the years ended October 31,
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Revenues:
Services revenues $ 2,656,879 $ 3,955,654 $ 3,353,454 $ 780,442 $ 0
Rehabilitative therapy revenues $ 1,318,766 $ 467,051 $ 16,326 $ 0 $ 0
Management fee income $ 0 $ 12, 780 $ 12,914 $ 8,216 $ 0
Interest and other income $ 51,478 $ 142,382 $ 89,311 $ 142,942 $ 35,240
Costs and expenses:
Cost of services provided $ 2,312,702 $ 2,375,496 $ 1,943,476 $ 464,668 $ 0
Research and development $ 97,006 $ 143,788 $ 93,453 $ 51,144 $ 42,735
General and administrative $ 4,584,874 $ 3,048,911 $ 2,328,295 $ 809,578 $ 262,661
Unrealized loss on investment $ 0 $ 0 $ 139,763 $ 0 $ 0
Interest $ 10,326 $ 1,382 $ 5,945 $ 2,151 $ 0
Net loss $ (2,962,860) $ (1,025,765) $ (974,266) $ (399,063) $(270,156)
Net loss per share $ (4.78) $ (1.75) $ (1.80) $ (0.74) $ (0.74)
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
October 31,
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Current asset $ 800,021 $ 1,670,478 $ 1,565,626 $ 2,040,025 $ 4,218,874
Total assets $ 1,189,657 $ 3,730,362 $ 3,418,379 $ 4,186,021 $ 4,347,066
Current liabilities $ 1,012,350 $ 573,227 $ 405,916 $ 323,649 $ 114,528
Total liabilities $ 1,051,706 $ 573,227 $ 405,916 $ 366,096 $ 114,528
Minority interests $ 41,112 $ 102,487 $ 70,229 $ (13,550) $ 0
Stockholders' equity $ 96,839 $ 3,054,648 $ 2,942,234 $ 3,833,475 $ 4,232,538
</TABLE>
(1) The operations of Consul-Med, Inc. have been included in the Company's
operations since August 1, 1993, the date of acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Years Ended October 31, 1996 and 1995
Consul-Med contributed all of the operating revenue of the Company
during fiscal 1996 and fiscal 1995. Service revenues from in-home nursing care
decreased 33% from $3,955,654 in fiscal 1995 to $2,656,879 in fiscal 1996.
With expansion of managed care, especially in the South Florida area, the
opportunities to provide third party nursing services greatly diminished in
that managed care providers provided such services through wholly owned
subsidiaries or through contracts with national service companies. This trend
is expected to continue, resulting in increased pressure on the Company's
ability to generate revenue from in-home nursing care.
Rehabilitative therapy revenues increased 182% from $467,051 to
$1,318,766 in fiscal 1996. These revenues represent income from CORF services
provided. Subsequent to the 1996 fiscal year end, the Company sold one of its
CORF's, while maintaining a management and support service agreement for this
CORF. Accordingly, it is anticipated that total revenues from this part of
Consul-Med's business will decrease. However, the Company anticipates an
increase in revenue from the management of CORF's in the next fiscal year, at
least equal to this decrease.
Direct operating expenses decreased approximately 3% from $2,375,496
in fiscal 1995 to $2,312,702 in fiscal 1996. While nursing expenses were
reduced 12%, from $2,205,596 to $1,936,115, rehabilitative therapy expenses
increased 122% from $169,900 to $376,587, offsetting a portion of this expense
reduction. The decrease in nursing expenses was primarily the result of a
reduction in nurse staffing during the year. The increase in rehabilitative
therapy expenses was the result of expanded operations.
General and administrative costs increased 50% from $3,048,911 in
fiscal 1995 to $4,584,874 in fiscal 1996. This increase in general and
administrative costs was primarily the result of (i) an increase of
approximately $1,100,000 of operating expenses incurred by Consul-Med
(approximately $200,000 of which resulted from the write down of a substantial
amount of accounts receivable partially due to errors in billing procedures
related to the development of the CORFs), (ii) a write-off of goodwill and
related intangibles of approximately $600,000, and (iii) the establishment of a
$450,000 loan loss provisions (see "Legal Proceedings" and "Certain
Relationships and Related Transactions").
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Years Ended October 31, 1995 and 1994
Consul-Med contributed all of the operating revenue of the Company
during fiscal 1995 and fiscal 1994. Service revenues increased 18% from
$3,353,454 to $3,955,654. These revenues represent income from in-home nursing
care services provided during fiscal 1995 and fiscal 1994, respectively.
Rehabilitative therapy revenues of $467,051 represents income from CORF
services provided during fiscal 1995. There were no significant comparable
revenues from this aspect of Consul-Med's business during fiscal 1994.
Direct operations expenses increased 22% from $1,946,476 in fiscal
1994 to $2,375,496 in fiscal 1995. Nursing expenses increased 13% from
$1,943,476 to $2,205,596 in fiscal 1994 and 1995 respectfully, while
rehabilitative therapy expenses were $169,900 in fiscal 1995. There were no
comparable expenses from this aspect of Consul-Med's busienss during fiscal
1994.
General and administrative costs increased 31% from $2,330,076 in
fiscal 1994 to $3,048,911 in fiscal 1995. These costs consist of operating
expenses incurred by Consul-Med of $1,930,233 and $1,575,869 during fiscal 1995
and fiscal 1994, respectively, as well as officer salary, professional fees and
general overhead expenses incurred by the Company of $1,001,678 and $754,207
during fiscal 1995 and fiscal 1994, respectively. The increases were due
primarily to higher administrative salaries, rents, professional fees and
travel costs.
Liquidity and Capital Resources
The Company experienced significant cash flow problems during fiscal
year 1996. Although during fiscal 1996, the Company adopted certain cost
reductions in general and administrative expenses with respect to
administrative staff, this was offset by increased expenses associated with the
establishment of CORFs and the development of the pulmonary program. The
Company funded Consul-Med's operating deficit and the continued expenses
associated with testing the fetal monitor, through the utilization of remaining
cash and loans from related parties. In addition, subsequent to year-end, the
Company began factoring accounts receivable. In the first quarter of fiscal
1997, the Company sold one of its CORF facilities for $500,000 and retained a
management contract.
The Company is currently revising its operating budget, evaluating
the profitability of the various operating departments, and reducing
administrative costs and personnel in order to preserve existing cash and
anticipated cash flow.
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The ability of the Company to continue as a going concern is
dependent on the Company's ability to generate cash flow and return to
profitable operations, or obtain suitable financing from third parties. No
assurances can be given, however, that these goals can be accomplished.
The Company has no current commitments for capital expenditures.
Forward Looking Statements
From to time to, the Company may publish forward looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, usage and development
activities and some other matters. The words "may", "will", "expect",
"anticipate", "continue", "estimate", "project", "intend" and similar
expressions are intended to identify such forward looking statements. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause its actual
results and experience to differ materially from anticipated results and other
expectations expressed by the Company's forward looking statements. The risks
and uncertainties that may effect the operations, performance, development and
results of business, include but are not limited to, the following:
(1) Consul-Med's home health care services could experience
continued decrease in revenues.
(2) Consul-Med's CORF operations could experience difficulties
in generating increased revenues or revenues could decrease due to competitive
and other factors.
(3) Tel-Med's fetal monitor's clinical testing could be
prolonged due to further testing requirements.
(4) The FDA could require additional testing prior to final
determination.
(5) There can be no assurances that the fetal monitor will
ultimately receive FDA approval or that this device can be sold or licensed to
third parties.
(6) There can be no assurances that additional funding, if
necessary, could be obtained in order to continue the operations of the
business.
(7) There can be no assurances that the Company's desire to
acquire other business can be achieved.
-15-
<PAGE> 16
Readers are cautioned not to place undue reliance on forward looking
statements when made, which speak only as of the date made. The Company
undertakes no obligation to publicly release the results of any revision of
these forward looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Immediately following the signature page in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-16-
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jeffrey I. Binder 50 Chairman of the Board
and Director
Emmanuel Diena 40 Director
Kenneth A. Rosen, M.D. 51 Director
Alan I. Miller, M.D. 54 Director, President & CEO
Thomas M. Chaundy 34 Chief Financial Officer
</TABLE>
Mr. Binder has been the Chairman of the Board and a director of the
Company since its inception, and he was the chief executive officer of the
Company until October, 1996. Mr. Binder is also Chairman of JeMJ Financial
Services, Inc., a private holding company, and from November, 1994 until
August, 1995, he was a director of NAL Financial Group, Inc., a public company
engaged in the finance business. Mr. Binder has been Chairman of Commodore
Holdings Ltd., a publicly traded cruise line holding company, since April,
1995. Since 1995, Mr. Binder has been Chairman of the Board and a director of
HP America, Inc., a holding company which owns health maintenance organizations
and medical practice companies. From December, 1987 to June, 1994, he was a
director, and during part of such period he was the Vice Chairman, of GGL
Industries, Inc., a private holding company. From September, 1985 to June,
1994, he was Chairman of the Board of Georgetown Manor, Inc. (which formerly
operated a retail furniture outlet) and Furniture Industries of Florida, Inc.
(a real estate holding company). Mr. Binder received a bachelor's degree from
Drake University in 1968, a master's degree from the London School of Economics
in 1969 and a Juris Doctor degree from George Washington National Law Center in
1971. Mr. Binder devotes only a portion of his time to the Company.
Mr. Diena has been employed by Daniel Medical Laboratories since
1980, where he is currently a Vice President and a director. Mr. Diena
received a bachelor's degree from the University of Toronto in 1980 and a
doctorate in rabbinical studies from Ner Israel Rabbinical College, Toronto, in
1982. Mr. Diena is a citizen of Canada.
-17-
<PAGE> 18
Dr. Miller has been a practicing physician since 1967. He has been
engaged in private practice in Florida since 1974, specializing in
gastroenterology. Dr. Miller was one of the co-founders of Consul-Med, Inc. in
1988. The Company acquired Consul-Med in 1993. Dr. Miller closed his
practice in 1995 in order to devote his full time to the Company. Dr. Miller
was a consultant to Consul-Med from June 21, 1993 to June 30, 1994, and has
been president of Consul-Med since then. He has been President and Chief
Executive Officer of the Company since October, 1996. He holds a Bachelor of
Science degree (1963) and a Doctor of Medicine degree (1967) from the
University of Miami, Florida. He is a diplomat of the American Board of
Internal Medicine and the American Board of Gastroenterology.
Dr. Rosen has been a practicing physician in Miami, Florida since
1972, and he is affiliated with Baptist Hospital and South Miami Hospital. Dr.
Rosen is also an Associate Professor in the Department of Dermatology at the
University of Miami Medical School. He received a bachelor's degree from Emory
University in 1965 and a Doctor of Medicine degree from the University of Miami
School of Medicine in 1969. Dr. Rosen holds a Diplomate from the American
Board of Dermatology.
Mr. Chaundy has been employed by the Company as chief financial
officer since November, 1996. He is also chief financial officer, vice
president and secretary/Treasurer of Consul-Med, Inc. From November, 1995
until he joined the Company, Mr. Chaundy was accounting manager of The Court at
Palm Aire, a skilled nursing facility. From May, 1995 until November, 1995 he
was controller of Qualis Care, L.P., a medical collections company. From
August, 1994 until May, 1995 he was controller of Interim Healthcare, a home
health agency and from 1987 until he joined Interim Healthcare he was regional
controller of MetPath Laboratory, a clinical lab.
Directors are elected for one-year terms to serve until the next
annual meeting of stockholders and until their successors are elected and
qualified. The officers of the Company are elected annually by the Company's
Board of Directors. Each officer holds office at the pleasure of the Company's
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who beneficially own
more than 10% of the Company's Common Stock, to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10% beneficial
owners also are required by rules promulgated by the SEC to furnish the Company
with copies of all Section 16(a) forms they file. Based solely upon a review
of the copies of such forms furnished to the Company and written
representations
-18-
<PAGE> 19
that no other reports were required, the Company believes that, for the fiscal
year ended October 31, 1996, all Section 16(a) filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with.
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides a summary of compensation paid to certain
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Year Salary
- --------------------------- ---- ------
<S> <C> <C>
Jeffrey I. Binder, COB(1) 1996 $160,000
1995 150,000
1994 150,000
Alan I. Miller, M.D., President(2) 1996 $150,000
& CEO and Director
1995 150,000
1994 150,000
</TABLE>
________________
(1) See also Item 13, Certain Relationships and Related
Transactions in this Form 10-K.
(2) Dr. Miller became president and CEO of the Company in October,
1996. Prior to that date Dr. Miller's salary was paid to him
as president of Consul-Med.
-19-
<PAGE> 20
The Company has an employment agreement with Mr. Binder providing for
his employment as Chairman and Chief Executive Officer of the Company for a
term of five years commencing on May 1, 1993 at an annual base salary of
$150,000.
The Company had an employment agreement with Dr. Miller providing for
his employment as chief executive officer of Consul-Med, for the period from
July 1, 1994 to October 31, 1996, which provided for an annual salary of
$75,000 until July 1, 1995 and $150,000 thereafter, plus an annual bonus equal
to 5% of the net income of Consul-Med before state and federal taxes.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of January 31,
1997, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of the Company's Common Stock, par value
$.007 per share, by (I) each person who is known by the Company to own
beneficially more than five (5%) percent of the Company's outstanding Common
Stock; (ii) each of the Company's directors; and (iii) all directors and
executive officers of the Company as a group. The share amounts reflect a
1-for-7 reverse split effective January 31, 1997.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
------------------- ----------------------- ----------
<S> <C> <C>
Jeffrey I. Binder 66,000 12%
9300 So. Dadeland Blvd.
Miami, FL 33156
Emmanuel Diena 33,000 6%
1111 Flint Road, Unit 1
Downsview, Ont. M3J 3C7
Canada
Kenneth A. Rosen, M.D. 1,428(1) *
c/o TelMed, Inc.
9300 So. Dadeland Blvd.
Miami, FL 33156
</TABLE>
-20-
<PAGE> 21
<TABLE>
<S> <C> <C>
Alan I. Miller 0 -
3275 W. Hillsboro Blvd., #207
Deerfield Beach, FL 33442
All directors and executive
officers as a group (5 persons) 100,428 21%
</TABLE>
_____________
*Less than 1%.
(1) Shares subject to currently exercisable options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In November, 1995, the Company loaned $450,000 to 460617 Ontario
Limited (a Canadian corporation), carrying on business as Daniel Medical
Laboratories (Daniel Medical), pursuant to a promissory note payable on May 6,
1996 with interest at 10.75% per annum. Daniel Medical is owned by Mr.
Emmanuel Diena and members of his family, and the loan was personally
guaranteed by Emmanuel Diena and Daniel Diena, his brother. On September 30,
1996, the Company instituted a civil action against Daniel Diena, Emmanuel
Diena and 460617 Ontario Limited d/b/a Daniel Laboratories in the Circuit Court
for the Eleventh Judicial Circuit, Dade County, Florida seeking payment of the
loan (See Item 3, Legal Proceedings).
During fiscal 1996 Mr. Binder and Dr. Miller loaned funds to
Consul-Med. At October 31, 1996 Consul-Med owed $120,000 and $125,000 to Mr.
Binder and Dr. Miller, respectively. Mr. Binder's loans, which are payable on
demand, bear no interest. The interest rate on $75,000 of the loans from Dr.
Miller is 8% per annum and is 15% per annum on $50,000. The 8% loan was
extended to February 1998 and the 15% loan is renewable monthly. No interest
has been paid on any of these loans. Subsequent to the 1996 fiscal year end,
$50,000 was paid to Dr. Miller on the 8% loan, and Mr. Binder's loan was
reduced to $100,000.
-21-
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements
(i) Report of Independent Auditors'
(ii) Consolidated Balance Sheets at October 31,
1995 and 1996
(iii) Consolidated Statements of Operations for
each of the years in the three-year period
ended October 31, 1996
(iv) Consolidated Statements of Cash Flows for
each of the years in the three-year period
ended October 31, 1996
(v) Consolidated Statements of Stockholders'
Equity for each of the years in the three-
year period ended October 31, 1996
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
None.
(3) Exhibits
<TABLE>
<CAPTION>
Sequential
Page No.
-------
<S> <C> <C> <C>
3(a)(I) - Restated Certificate of Incorporation and (1)
Amendment to Certificate of Incorporation.
3(a)(ii) - Amendment to Certificate of Incorporation _
3(b) - By-Laws. (1)
4(b)(I) - Warrant Agreement for Public Warrants (2)
4(b)(ii) - Warrant Agreement for Private Warrants _
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C> <C>
10(a)(I) - Employment Agreement between Registrant (3)
and Jeffrey I. Binder.
10(a)(ii) - Stock Option Plan of Registrant. (3)
10(a)(iii) - Employment Agreement between Consul-Med, Inc. (4)
and Alan I. Miller.
10(a)(iv) - Consulting Agreement between Consul-Med, Inc. (4)
and Marvin L. Finston.
10(a)(v) - Lease Agreement between Consul-Med of South (4)
Florida, Inc. and HHL Financial Services, Inc.
10(a)(vi) - Promissory Notes, dated February 21, 1995 and (5)
June 21, 1995, of Extreme Technologies, Inc.
payable to the Company.
10(a)(vii) - Assignment Agreement, dated October 1, 1995, (5)
between HMA Investments, Inc. and the
Company with respect to promissory notes
of Extreme Technologies, Inc.
10(a)(viii) - Promissory Note dated November 6, 1995 of (5)
Daniel Laboratories payable to the
Company and Guaranty Agreement of Daniel
Diena and Emmanuel Diena.
21 - List of Subsidiaries of Registrant. _
</TABLE>
________
(1) Incorporated by reference to the corresponding exhibit in the
Company's Registration Statement on Form S-1 (SEC File No. 33-45472).
(2) Incorporated by reference to the corresponding exhibit in the
Company's Report on Form 10-K for the fiscal year ended October 31,
1992.
(3) Incorporated by reference to the corresponding exhibit in the
Company's Report on Form 10-K for the fiscal year ended October 31,
1993.
-23-
<PAGE> 24
(4) Incorporated by reference to the corresponding exhibit in the
Company's Report on Form 10-K for the fiscal year ended October 31,
1994.
(5) Incorporated by reference to the corresponding exhibit in the
Company's Report on Form 10-K/A for the fiscal year ended October 31,
1995.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended October 31, 1996.
-24-
<PAGE> 25
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.
TELMED, INC.
By: /s/ Jeffrey I. Binder
---------------------------
Jeffrey I. Binder, Chairman
Dated: February 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alan I. Miller, M.D. Director, February 10, 1997
- -------------------------- President & CEO
Alan I. Miller, M.D.
/s/Jeffrey I. Binder Chairman and Director February 10, 1997
- --------------------------
Jeffrey I. Binder
/s/ Thomas Chaundy Principal Financial and February 10, 1997
- -------------------------- Accounting Officer
Thomas Chaundy
- -------------------------- Director February __, 1997
Emmanuel Diena
/s/ Kenneth A. Rosen, M.D. Director February 10, 1997
- --------------------------
Kenneth A. Rosen, M.D.
</TABLE>
-25-
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of TelMed, Inc.
We have audited the accompanying consolidated balance sheets of TelMed, Inc.
and subsidiaries as of October 31, 1996 and 1995, and the related consolidated
statements of operations, cash flows, and stockholders' equity for the three
years ended October 31, 1996, 1995 and 1994. 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 did not audit the consolidated financial
statements of ConsulMed, Inc., a wholly owned subsidiary, which statements
reflect total assets of $1,018,302 and $996,756 as of October 31, 1996 and
1995, respectively, and total revenues of $4,001,955, $4,500,485 and $3,382,880
for the years ended October 31, 1996, 1995 and 1994, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for
ConsulMed, Inc. is based solely on the reports of the other auditors.
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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of TelMed, Inc. and subsidiaries as
of October 31, 1996 and 1995, and the results of their operations and their
cash flows for the three years ended October 31, 1996, 1995 and 1994, 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. The Company has incurred
substantial operating losses since inception, including a consolidated net loss
of $2,962,860 in fiscal 1996. The Company has also consistently experienced
negative cash flow from operations, and its working capital deficiency has been
increasing. These factors, among others, as discussed in Note 1 to the
consolidated financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The fiscal 1996 consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Schneider Ehrlich & Wengrover LLP
(formerly Schneider Ehrlich
Sosinsky Rodis & Wengrover LLP)
Woodbury, New York
January 24, 1997, except for Note 12a,
as to which the date is January 31, 1997
<PAGE> 27
DiRocco, Dombrow & Associates, P.A.
Certified Public Accountants and Consultants
Belle Terre of Tamarac
6610 N. University Drive, Suite 220
Tamarac, Florida 33321
Telephone: (305) 722-7100
Facsimile (305) 722-7407
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Consul-Med, Inc.
Deerfield Beach, Florida
We have audited the accompanying consolidated balance sheet of Consul-Med, Inc.
as of October 31, 1996 and the related consolidated statements of operations,
stockholder' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consul-Med, Inc. and the results of its consolidated operations and its
consolidated cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered a significant operating loss
from operations and has a net capital deficiency which raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 13. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
January 24, 1997
<PAGE> 28
DiRocco, Dombrow & Associates, P.A.
Certified Public Accountants and Consultants
Belle Terre of Tamarac
6610 N. University Drive, Suite 220
Tamarac, Florida 33321
Telephone: (305) 722-7100
Facsimile (305) 722-7407
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Consul-Med, Inc.
Deerfield Beach, Florida
We have audited the accompanying consolidated balance sheet of Consul-Med, Inc.
as of October 31, 1995 and the related consolidated statements of operations,
stockholder' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consul-Med, Inc. and the results of its consolidated operations and its
consolidated cash flows for the year then ended in conformity with generally
accepted accounting principles.
January 17, 1996
<PAGE> 29
DiRocco, Dombrow & Associates, P.A.
Certified Public Accountants and Consultants
Belle Terre of Tamarac
6610 N. University Drive, Suite 220
Tamarac, Florida 33321
Telephone: (305) 722-7100
Facsimile (305) 722-7407
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Consul-Med, Inc.
Deerfield Beach, Florida
I have audited the accompanying consolidated balance sheet of Consul-Med, Inc.
as of October 31, 1994 and the related consolidated statements of operations,
stockholder' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consul-Med, Inc. and the results of its consolidated operations and its
consolidated cash flows for the year then ended in conformity with generally
accepted accounting principles.
January 4, 1995
<PAGE> 30
TELMED, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31,
1996 1995
---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 44,139 $ 493,916
Accounts receivable, net of allowance for doubtful
accounts of $213,688 and $62,809, respectively 701,254 806,967
Loan receivable - related party -- 196,500
Due from affiliates 26,189 49,189
Prepaid expenses and other current assets 28,439 123,906
----------- -----------
Total current assets 800,021 1,670,478
Property and equipment - net 140,840 99,166
Investment in debt securities - available for sale 109,487 731,900
Loan receivable - HMA Investments, Inc. -- 289,318
Investment in general partnership -- 29,657
Goodwill, net of accumulated amortization of
$26,894 and $50,890, respectively 39,249 618,227
Covenant not to compete, net of accumulated amortization
of $-0- and $90,000, respectively -- 110,000
Other assets 100,060 181,616
----------- -----------
Total assets $ 1,189,657 $ 3,730,362
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Loans payable - related parties $ 245,000 $ --
Accounts payable 277,263 205,962
Accrued expenses 478,583 367,265
Due to affiliate 2,100 --
Current portion of capital lease obligation 9,404 --
----------- -------------
Total current liabilities 1,012,350 573,227
Capital lease obligation, less current portion 39,356 --
----------- ------------
Total liabilities 1,051,706 573,227
----------- -----------
Minority interests 41,112 102,487
----------- -----------
Commitments (see Notes)
Stockholders' Equity
Common stock - par value $.007 per share, 10,000,000 shares
authorized, 620,000 shares issued and outstanding, as adjusted 4,340 4,340
Additional paid-in capital 5,685,016 5,685,016
Accumulated deficit (5,677,581) (2,714,721)
Unrealized gain on securities available for sale 85,064 80,013
----------- -----------
Total stockholders' equity 96,839 3,054,648
----------- -----------
Total liabilities and stockholders' equity $ 1,189,657 $ 3,730,362
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 31
TELMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
For the years ended
October 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Service revenues $ 2,656,879 $ 3,955,654 $ 3,353,454
Rehabilitative therapy revenues 1,318,766 467,051 16,326
Management fee income -- 12,780 12,914
Interest and other 51,478 142,382 89,311
------------ ------------- ------------
Total revenues 4,027,123 4,577,867 3,472,005
------------ ------------- ------------
Costs and Expenses:
Cost of services provided 1,936,115 2,205,596 1,943,476
Cost of rehabilitative therapy revenues 376,587 169,900
Research and development costs 97,006 143,788 93,453
General and administrative 3,449,120 3,048,911 2,328,295
Write-down of intangible assets 685,754 -- --
Provision for loan loss 450,000 -- --
Unrealized loss on investment -- -- 139,763
Interest 10,326 1,382 5,945
------------ ------------- ------------
Total expenses 7,004,908 5,569,577 4,510,932
------------ ------------- ------------
Loss before minority interests (2,977,785) (991,710) (1,038,927)
Minority interest in income (loss) of
consolidated entities (14,925) 34,055 (64,661)
------------ ------------- ------------
Net loss $ (2,962,860) $ (1,025,765) $ (974,266)
============ ============= ============
Per share:
Net loss $ (4.78) $ (1.75) $ (1.80)
============ ============= ============
Weighted average shares outstanding 620,000 585,320 541,205
============ ============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS INDICATED
<TABLE>
<CAPTION>
For the years ended
October 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss $(2,962,860) $(1,025,765) $ (974,266)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash compensation -- 7,500 --
Loss on asset dispositions 24,674 112,682 --
Unrealized loss on marketable securities -- -- 137,982
Depreciation and amortization 89,990 144,974 93,894
Provision for loan loss 450,000 -- --
Write-down of intangible assets 685,754 -- --
Decrease (Increase) in accounts receivable 105,713 (299,053) (92,642)
Increase (Decrease) in minority interest (14,925) 34,055 (64,661)
(Increase) decrease in prepaid expenses
and other current assets 95,467 70,187 (14,251)
Increase (decrease) in accrued expenses 111,318 96,092 129,195
Increase in accounts payable 71,301 114,823 33,940
----------- ----------- -----------
Net cash used in operating activities (1,343,568) (744,505) (750,809)
----------- ----------- -----------
Cash flows from investing activities:
Decrease in available-for-sale investments 622,413 34,400 175,412
Acquisition of equipment (94,067) (50,438) (21,411)
Increase in other assets 27,560 (79,119) (30,299)
Contribution to general partnership -- (300) --
Distribution from general partnership -- -- 4,143
Decrease in general partnership interest 29,657 -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities 585,563 (95,457) 127,845
----------- ----------- -----------
Cash flows from financing activities:
Loan receivable - HMA Investments, Inc. -- (364,318) --
Payment of loan receivable - HMA
Investments, Inc. 289,318 75,000 --
Loan receivable - 460617 Ontario Ltd. (450,000) -- --
Loan receivable - related party 196,500 (196,500) --
Increase (decrease) in due to affiliates 25,100 (40,750) (10,539)
Proceeds from loans payable - related parties 325,000 -- --
Repayment of loans payable - related parties (80,000) -- --
Payment of long-term debt -- (43,269) (68,518)
Due to minority interests (46,450) (1,797) 60,009
Increase in capital lease obligation 48,760 -- --
Proceeds from issuance of securities -- 1,050,332 --
----------- ----------- -----------
Net cash provided by (used in) financing activities 308,228 478,698 (19,048)
----------- ----------- -----------
Increase in cash and cash equivalents (449,777) (361,264) (642,012)
Balance at beginning of period 493,916 855,180 1,453,604
----------- ----------- -----------
Balance at end of period $ 44,139 $ 493,916 $ 811,592
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 33
TELMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period from November 1, 1993 to October 31, 1996
<TABLE>
<CAPTION>
Additional Unrealized gain
Common Stock Paid-In Accumulated on Securities
Shares Amount Capital Deficit Available for Sale Total
------ ------ ------- ------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balances, November 1, 1993 538,984 $ 3,773 $4,544,392 $ (714,690) $ -- $3,833,475
Shares attributable to Loyalty Units issued 1,980 14 (14) -- -- --
Shares issued under consulting agreements 1,286 9 60,741 -- -- 60,750
Shares issued for purchase of minority interests 786 5 22,270 -- -- 22,275
Net loss for the year -- -- -- (974,266) -- (974,266)
------- ------- ---------- ------------ -------- ------------
Balances, October 31, 1994 543,036 3,801 4,627,389 (1,688,956) -- 2,942,234
Shares granted to employee 1,428 10 7,490 -- -- 7,500
Private placement of common stock 75,536 529 1,050,137 -- -- 1,050,666
Net loss for the year -- -- -- (1,025,765) -- (1,025,765)
Unrealized gain on securities available for sale -- -- -- -- 80,013 80,013
------- ------- ---------- ------------ -------- ------------
Balances, October 31, 1995 620,000 4,340 5,685,016 (2,714,721) 80,013 3,054,648
Unrealized gain on securities available for sale -- -- -- -- 5,051 5,051
Net loss for the year -- -- -- (2,962,860) -- (2,962,860)
------- ------- ---------- ------------ -------- ------------
Balances, October 31, 1996 620,000 $ 4,340 $5,685,016 $ (5,677,581) $ 85,064 $ 96,839
======= ======= ========== ============ ======== ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 34
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 1 - DESCRIPTION OF BUSINESS AND FINANCIAL DIFFICULTIES
TelMed, Inc. (the "Company") was incorporated on June 24, 1991 under
the laws of the State of Delaware. The Company is currently seeking
regulatory approval to market a portable fetal monitor for use by
women with high risk pregnancies. During fiscal 1996, the Company
began in-home clinical (Phase II) tests of the monitor, and expects to
complete Phase II testing during fiscal 1997. Thereafter, the Company
will seek approval from the U.S. Food and Drug Administration ("FDA")
to market the device. There can be no assurance that Phase II
clinical testing will be successfully completed or that the FDA will
grant its approval based on the Company's clinical studies.
In August 1993, the Company acquired all of the outstanding Common
Stock of ConsulMed, Inc. ("ConsulMed"). ConsulMed provides in-home
nursing care and rehabilitative therapy for private pay and Medicare
patients located within the State of Florida. ConsulMed has expanded
its operations to provide rehabilitative therapy, primarily to
Medicare patients, through its comprehensive out-patient
rehabilitation facilities ("CORFs"). ConsulMed has established two
CORFs in Florida, one of which was sold subsequent to year-end.
ConsulMed also offers management support services to assist
independent owners in the establishment and operation of CORFs.
The Company has incurred consolidated net losses of approximately
$2,962,000, $1,025,000 and $974,000 for the years ended October 31,
1996, 1995 and 1994, respectively. The Company has an accumulated
deficit of approximately $5,677,000 and negative working capital of
approximately $212,000 at October 31, 1996. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of the aforementioned
uncertainty. Management anticipates that TelMed will not be prepared
to generate revenues through at least the end of fiscal 1997, and that
ConsulMed will require additional funds for operations at least
through the first half of fiscal 1997. Management's plans regarding
these matters include i) implementing a cost-cutting program to reduce
overhead expenses, ii) using available accounts receivable financing
and related party loans for operating capital, and iii) selling
business assets. There is no assurance that such efforts will be
successful.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's policy is to consolidate with entities over which it has
operational and financial control, including those entities in which
it does not own a majority interest. These financial statements
include the accounts of the Company's wholly-owned subsidiaries,
ConsulMed, Consul-Med of South Florida, Inc., ConsulMed of
Jacksonville, Inc., Jacksonville Home Care, Inc. and Direct Health
Care, L.C.; Quality Life Care Associates, A.J.V., a joint venture
50%-owned by ConsulMed; Quality Life Care Associates of Jacksonville,
Ltd. (QLCA-Jax), and Quality Life Care Associates of Dade (QLCA-Dade),
limited partnerships in which ConsulMed holds a 50% general
partnership interest. The Company's other general partnership
investment, which was sold during the year, has been accounted for
under the cost method. All intercompany accounts and transactions
have been eliminated in consolidation.
Certain reclassifications have been made to amounts previously
reported for fiscal 1995 and 1994 to conform with the fiscal 1996
presentation.
Use of Estimates
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
Revenue Recognition
The Company recognizes revenues at the time the related services are
rendered.
<PAGE> 35
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
Bad Debts
The Company's policy is to provide an allowance for all uncollectible
accounts. The allowance is based on prior year's experience and
management's analysis of possible bad debts. Bad debt expense was
$194,530, $51,174 and $12,020 for the years ended October 31, 1996,
1995 and 1994, respectively.
Loss per Share
Loss per share is based on the weighted average number of shares
outstanding during the period. All share and per share information
has been retroactively adjusted for the reverse 7:1 stock split
effected in January 1997 (see Note 12).
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Fixed assets are
depreciated on a straight-line basis over their estimated useful lives
as follows:
Office furniture and equipment 5 - 7 years
Computer and medical equipment 5 years
Leasehold improvements 7 years
Investments in Debt Securities - Available for Sale
Effective in fiscal 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the provisions of
SFAS No. 115, debt securities classified as available-for-sale are
recorded at their fair value. Declines in value deemed to be other
than temporary are charged directly to earnings. Subsequent increases
in value are reflected as a component of stockholders' equity.
Long-lived assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the
Company records impairment losses on long-lived assets used in
operations, including goodwill and intangible assets, when events and
circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets.
Recent Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation". SFAS No. 123 is
effective for fiscal years beginning after December 15, 1995, and
requires that the Company either recognize in its financial statements
costs related to its employee stock-based compensation plans, such as
stock option and stock purchase plans, or make proforma disclosures of
such costs in a footnote to the financial statements. The Company has
elected to continue to use the intrinsic value-based method of APB
Opinion No. 25, as allowed under SFAS No. 123, to account for all of
its employee stock-based compensation plans. The adoption of SFAS
No. 123 did not have a material effect on the Company's financial
position or results of operations.
NOTE 3 - ACQUISITION
During fiscal 1994, the Company issued 786 shares of its Common Stock
to purchase the remaining 50% interest in Quality Life Care Associates
(QLCA), a general partnership. The partnership was then dissolved and
the operations and accounts of QLCA were transferred to ConsulMed.
The total consideration was $22,275 in Company share value plus
assumed liabilities
<PAGE> 36
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
of approximately $44,000. In connection with the acquisition, the
Company issued an additional 1,286 shares of its Common Stock
to the various individual stockholders of the acquired
entities for consulting services to be rendered to the Company
over a one-year period. The shares have been valued at
$60,750.
The transaction described above has been accounted for as a purchase
and, accordingly, the net assets or net liabilities and results of
operations of the acquired entity has been included in the Company's
consolidated financial statements commencing on the date of
acquisition. The acquisition would not have had a material impact on
the Company's financial position or result of operations had the
purchase been effected as of the beginning of fiscal 1994 on a
proforma basis.
NOTE 4 - COMMITMENTS
Consulting and Employment Agreements
a) The Company has entered into employment agreements with two of its
officers. One agreement, with the Company's chairman, has a five-year
term and provides for annual compensation of $160,000, as adjusted,
plus an annual performance bonus determined by the Board of Directors.
Base compensation will be adjusted annually for increases in the
Consumer Price Index.
Effective June 30, 1994, the president of ConsulMed resigned by mutual
agreement and his employment contract terminated. Also as of that
date, the other selling shareholder of ConsulMed became president and
entered into a new employment agreement. The agreement provides for a
salary of $75,000 through December 31, 1994, and $150,000 per annum
through October 31, 1996. This agreement was not renewed at
expiration; the officer continues to be employed by the Company.
b) The Company entered into a medical consulting agreement with one of
the former ConsulMed shareholders who currently serves as its
president. Under the agreement, the consultant received a monthly fee
of $6,250 per month plus an annual bonus equal to 2.5% of the annual
pre-tax income of ConsulMed and its consolidated entities. This
agreement terminated on January 1, 1995.
A two-year agreement with a medical consultant providing for a monthly
fee of $2,266.48 expired in fiscal 1995. A $50,000 certificate of
deposit pledged to collateralize a bank loan to the consultant was
released to the Company during the year when the loan was repaid.
The Company's former president, who resigned during fiscal 1993, had
been serving as a consultant to the Company on a month-to-month basis
at the rate of $60,000 per year. This arrangement was terminated in
December 1995.
Operating Leases
The Company is committed to leases for office space at various
locations in Florida. Future minimum rentals on these leases as of
October 31, 1996 are as follows:
<TABLE>
<CAPTION>
October 31,
----------
<S> <C>
1997 $241,996
1998 234,677
1999 68,371
2000 9,922
--------
$554,966
========
</TABLE>
Rent expense was $218,267, $125,432 and $12,106 for fiscal 1996,
1995 and 1994, respectively.
NOTE 5 - LOAN RECEIVABLE - HMA INVESTMENTS, INC.
During fiscal 1995, the Company loaned a total of $350,000 to
Extreme Technologies, Inc. ("Extreme"), a publicly traded
Canadian corporation which the Company at the time was
negotiating to acquire. The Company subsequently discontinued
its efforts to acquire Extreme. The first loan, evidenced by a
10% Senior Promissory Note of $100,000
<PAGE> 37
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
was scheduled to mature on April 21, 1995. The second loan,
evidenced by a $250,000 note was scheduled to mature on September
19, 1995. The loans were secured by the pledge of 6,550,000
restricted shares of Extreme common stock and 1,028,415 free
trading shares of Extreme common stock owned by principal
shareholders and officers of Extreme.
In October 1995, in consideration of a payment of $75,000 and the
issuance of a 10% Purchase Promissory Note in the amount of
$289,318, the Company assigned the Extreme Notes to HMA
Investments Inc. ("HMA"), a privately held investment company.
The HMA note was initially payable in six bi-weekly installments
of $48,841 from November 14, 1995 through January 23, 1996. The
Company subsequently extended the maturity of the entire note
balance to March 31, 1996. The loan was paid in full in April
1996.
NOTE 6 - OTHER ASSETS
In December 1994, the Company entered into an agreement with
Advanced Medical Systems, Inc. (AMS) pursuant to which the
Company agreed to purchase all of AMS' rights to a fetal heart
rate and uterine contraction monitor, and to employ AMS as its
exclusive manufacturer of the monitor. AMS will retain the right
to continue selling its earlier model of the monitor in France
and Israel. The Company paid AMS $100,000 upon execution of the
agreement, and is obligated to pay an additional sum of $100,000
when market approval is obtained from the FDA. This latter
payment will be applied as a credit against purchases of monitor
units from AMS. The agreement also requires the Company to pay
to AMS a royalty equal to 5% of the gross revenues collected by
the Company from the sale, lease or rental of the monitor. The
payment for marketing rights is included in Other Assets in the
1995 balance sheet at its original $100,000 amount; the asset was
written down to $50,000 in 1996 in light of delays in the
approval process and uncertainties regarding the market potential
for the monitor.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
October 31,
1996 1995
---- ----
<S> <C> <C>
Capital lease equipment $ 44,885 $ --
Office equipment 174,738 126,595
Medical equipment -- 19,894
Leasehold improvements 17,077 28,698
-------- --------
236,700 175,187
Less: Accumulated depreciation and amortization 95,860 76,021
-------- --------
$140,840 $ 99,166
======== ========
</TABLE>
Depreciation expense was $46,822, $47,591 and $35,764 for the
years ended October 31, 1996, 1995 and 1994, respectively.
<PAGE> 38
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 8 - INVESTMENT IN MARKETABLE DEBT SECURITIES
<TABLE>
<CAPTION>
October 31,
1996 1995
---- ----
Cost Market Cost Market
---- ------ ---- -------
<S> <C> <C> <C> <C>
U.S. government agency
collateralized mortgage
obligation (CMO), 5.75%,
contractual maturity
August 2003 $194,551 $109,487 $591,104 $531,356
U.S. Treasury Bill, 5.27%,
due December 7, 1995 -- -- 200,544 200,544
-------- -------- -------- --------
$194,551 $109,487 $791,648 $731,900
======== ======== ======== ========
</TABLE>
The Company reported an unrealized loss on the CMO of $137,982 in
its Statement of Operations for fiscal 1994. As of October 31,
1996, the investment had recovered $85,064 in value, which the
Company has reflected as a credit directly to stockholders'
equity.
NOTE 9 - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
October 31,
1996 1995
---- ----
<S> <C> <C>
Accrued insurance $148,980 $ 3,587
Accrued payroll and payroll taxes 190,347 252,592
Other 139,256 111,086
-------- --------
$478,583 $367,265
======== ========
</TABLE>
NOTE 10 - CAPITAL LEASE OBLIGATION
The Company has entered into a lease for medical equipment which
qualifies for capitalization under applicable accounting rules.
The following is a schedule of future minimum lease payments
required under the capital lease, together with its present value
as of October 31, 1996:
<TABLE>
<CAPTION>
Year ending October 31,
----------------------
<S> <C>
1997 $14,917
1998 14,917
1999 14,917
2000 14,917
2001 9,943
-------
69,611
Less amount representing interest 20,851
-------
Present value of net minimum lease payments $48,760
=======
</TABLE>
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS 107, which
requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the
balance sheet. The fair value of the financial instruments
disclosed therein are not necessarily representative of the
amount that could be realized or settled,
<PAGE> 39
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
nor does the fair value amount consider the tax consequences of
realization or settlement. The fair value of the Company's
capital lease obligation is based on current rates at which the
Company could borrow funds with similar remaining maturities.
NOTE 12 - STOCKHOLDERS' EQUITY
a) Recapitalization
In December 1996, the Company's board of directors ratified,
subject to stockholder approval, a 1-for-7 reverse stock split of
the Company's Common Stock, an increase in par value to $.007 per
share, and a change in the number of authorized shares from
20,000,000 to 10,000,000. The Company's stockholders approved
the recapitalization on January 31, 1997.
b) Warrants
In connection with its public offering of units in August 1992,
the Company issued 71,429 Common Stock Purchase Warrants. Each
Warrant entitles the holder to purchase one share of Common Stock
for a period of five years through August 20, 1997 at a price of
$28.00 per share. An additional 28,571 warrants were issued
prior to the Company's public offering are also outstanding.
These warrants have the same terms as the public warrants.
c) Private Placement
During fiscal 1995 the Company raised net proceeds of $1,050,666
from the private sale of 264,375 Units at $4.00 per Unit. Each
Unit consists of two shares of Common Stock and one Warrant to
purchase one share of Common Stock for $3.00 per share during the
five-year period ending March 22, 2000. The offering expired on
November 15, 1995.
As adjusted for the reverse stock split, the number of shares
issued in this offering totaled 75,536. The number of warrants
issued and the warrant exercise price remain at 264,375 and
$3.00, respectively, due to anti-dilution provisions.
d) Stock Grant
In July 1995, the Company sold 1,429 unregistered shares of its
Common Stock to an officer for par value ($.007 per share). The
difference between the value of the shares and the consideration
paid, which amounted to $7,490, was charged to operations during
the year.
NOTE 13 - STOCK OPTION PLAN
The Company has reserved 71,429 shares of Common Stock for
issuance under its stock option plan (the "Plan"). The Plan
provides for the granting of options to officers, directors,
employees and advisors of the Company. The exercise of incentive
stock options ("ISOs") issued to employees who are less than 10%
stockholders shall not be less than the fair market value of the
underlying shares on the date of grant or not less than 100% of
the fair market value of the shares in the case of an employee
who is a 10% stockholder. The exercise price of non-statutory
stock options shall not be less than the par value of the shares
to which the option relates. Options are not exercisable for
a period of one year from the date of grant. Thereafter, options
may be exercised as determined by the Board of Directors, with
maximum terms of ten and five years, respectively, for ISOs
issued to employees who are less than 10% stockholders and
employees who are 10% stockholders. The Plan will terminate in
2002.
In fiscal 1995, the Company granted one of its officers an option
to purchase up to 4,286 shares of the Company's Common Stock for
$.007 per share, subject to certain vesting requirements. The
option expired in November 1995 when the officer left the
Company. No other options have been issued to date.
<PAGE> 40
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 14 - INCOME TAXES
As of October 31, 1996, the Company has a federal net operating
loss carryforward for tax purposes of approximately $4,100,000,
expiring from 2006 through 2011. The carryforwards are subject
to limitations on the amount that can be utilized by the Company
in a year due to change of ownership rules as defined by
applicable federal tax statutes. As of October 31, 1996, the
Company has not recognized the potential future tax benefits of
any net operating loss carryforwards.
NOTE 15 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During fiscal 1996, two customers accounted for 25% and 25%,
respectively, of the Company's service revenues. During fiscal
1995, three customers accounted for 49%, 16% and 16%,
respectively of the Company's service revenues. During fiscal
1994, three customers accounted for 22%, 20% and 12%,
respectively, of the Company's service revenues.
All of the Company's business activity is with customers located
within the State of Florida. The Company grants credit to its
customers who are comprised principally of large
Medicare-certified home health agencies. The Company's CORF
facilities file claims for cost reimbursement directly with
Medicare. Failure to adhere to strict filing standards could
produce significant credit losses as a result of claim rejections
or adjustments.
NOTE 16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
October 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest paid $4,105 $ 1,382 $ 5,945
====== ======= =======
Acquisition of minority interest:
Net liabilities assumed $43,868
Common Stock issued 22,275
-------
$ -- $ -- $66,143
====== ======= =======
Common Stock issued pursuant to
stock grants and consulting agreements $ -- $ 7,500 $60,750
====== ======= =======
</TABLE>
NOTE 17 - IMPAIRMENT OF ASSETS
After evaluating the recoverability of goodwill and a non-compete
agreement relating to the nurse staffing operation purchased in
the acquisition of ConsulMed, the Company has recorded an
impairment loss of $635,754 in its 1996 Statement of Operations.
The Company has also reserved $50,000 against its $100,000
payment to AMS for rights to market the portable fetal monitor.
NOTE 18 - TRANSACTIONS WITH RELATED PARTIES
Loan receivable - 460617 Ontario Ltd.
In November 1995, the Company's Board of Directors approved a
$450,000 loan to 460617 Ontario Ltd., a Canadian corporation
controlled by a member of the Company's board. The loan was due
in May 1996, bearing interest at the rate of 10.75% per annum,
and is guaranteed by the board member and his brother, who is
also a stockholder of the borrower. The borrower subsequently
defaulted on the loan, whereupon the Company, on September 30,
1996, instituted a collection action against the borrower and its
guarantors in the Circuit court for the Eleventh Judicial Court,
Dade County, Florida. The defendants have since filed a
counterclaim alleging fraudulent inducement, and seek unspecified
damages in excess of $15,000. The Company is pursuing its claims
against the defendants in court and
<PAGE> 41
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
believes it has meritorious defenses to the counterclaim. In
light of the uncertainty of collection, however, the Company has
provided a reserve of $450,000 in its fiscal 1996 Statement of
Operations.
Loan receivable - related party
The Loan receivable - related party represents non-interest
bearing advances to an individual who is related to one of the
Company's directors and who is also a stockholder in 460617
Ontario Ltd. The advances were repaid in June 1996. During the
fourth quarter of fiscal 1995, the Company advanced an additional
$100,000 to this individual, which amount was repaid in October
1995.
Officer loans
During fiscal 1996, two officers of the Company made various cash
advances to the Company for working capital. As of October 31,
1996, the Company owed a total of $120,000 to its Chairman. This
amount is unsecured and non-interest bearing, and was subsequently
repaid. An additional advance of $30,000 was repaid during the
year. The Company also owed $125,000 to its President at
year-end. This amount is evidenced by notes bearing interest at
the rate of 8% per annum with respect to $75,000, and 15% per
annum with respect to $50,000. The 8% notes were subsequently
extended to February 1998; the 15% note is renewed on a
month-to-month basis. An additional note in the amount of $50,000
was repaid during the year.
NOTE 19 - RESTATEMENT
The Company has restated its financial statements for the year
ended October 31, 1995 to correct the misclassification of a loan
to a related party in the amount of $196,500. The loan was
previously recorded as research and development expenditures, of
which $118,000 was expensed and $78,500 recorded as Capitalized
software costs. In addition, the Company has reclassified a
$100,000 payment for financial consulting services from research
and development costs to general and administrative expenses.
The effect of these restatements was to decrease the 1995 net
loss and net loss per share by $118,000 and $.21, respectively.
The effect on the Company's Consolidated Balance Sheet was to
increase current assets by $196,500, decrease Capitalized
software costs by $78,500, and increase Stockholders' equity by
$118,000.
NOTE 20 - SUBSEQUENT EVENTS
Factoring agreement
In November 1996, ConsulMed entered into a financing agreement
with a commercial lender to factor its receivables. The factor
will purchase on a recourse basis eligible receivables, as
defined, at 75% of face value, subject to maximum availability of
$250,000. The 25% reserve will be used as security for
uncollected receivables, and to pay a purchase discount assessed
at the rate of 1.333% per month on uncollected balances. Any
purchased account aged more than ninety days from date of
purchase will be charged back to the Company. The Company may
terminate the agreement after one-year upon 30 days written
notice; the factor may terminate the agreement at any time. The
Company has granted the factor a security interest in certain
other assets as additional security for the collection of
purchased receivables.
CORF sale
In January 1997, ConsulMed entered into an agreement to sell its
Delray Beach CORF facility. The purchase price was $500,000 in
cash, with an additional $250,000 payable in up to three
installments if the CORF meets specified revenue targets by
January 31, 1999. The purchaser is a subsidiary of an entity in
which the Company's chairman is an officer and stockholder. In
the opinion of management, the contract price reflects the fair
market value of the assets purchased. The Company's chairman
abstained from the board of directors' vote approving the
transaction.
<PAGE> 42
TELMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
Management agreements
Subsequent to year-end, ConsulMed entered into agreements to
provide management services to four CORF facilities, including
the recently sold Delray Beach CORF. Under the contracts,
ConsulMed will assume management of each facility for a fee equal
to 15% of the CORF's monthly reimbursement receipts. With
respect to three of the agreements, ConsulMed will also receive
fees to complete the CORFs' Medicare certifications.
Officer loan
In December 1996, the Company's chairman advanced an additional
$100,000 to the Company for working capital. The funds are
non-interest bearing, unsecured and payable on demand.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TELMED, INC. FOR THE YEAR ENDED OCTOBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 915
<ALLOWANCES> 214
<INVENTORY> 0
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0
0
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</TABLE>
