FORM 10-KSB
U.S. Securities and Exchange Commission
Washington, D.C.
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED )
For the Fiscal Year Ended December 31, 1995
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1943 (NO FEE REQUIRED) For the
transition period from ____________________ to ____________________
Commission File Number 0-20356
HEART LABS OF AMERICA, INC.
(Name of small business issuer in its charter)
FLORIDA 65-0158479
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1903 S. CONGRESS AVE., SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of Principal Executive Offices, including zip code)
(561) 737-2227
(Issuer's Telephone Number)
Securities Registered Under Section 12(b) of the Exchange Act:
None
Act Securities Registered Under Section 12(g) of the Exchange:
Title of Each Class
Common Stock
Stock Purchase Warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenue for its most recent fiscal year. $4,518,035.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the last sales price June 26, 1996 was $12,997,913
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. At June 26, 1996, there
were 19,499,885 shares of common stock outstanding.
<PAGE>
HEART LABS OF AMERICA, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-KSB
PART I
PAGE
----
Item 1 Description of Business ...................................... 3
Item 2 Description of Property ...................................... 19
Item 3 Legal Proceedings ............................................ 19
Item 4 Submission of Matters to a Vote of Security Holders .......... 20
PART II
Item 5 Market for Common Equity and Related Stockholder Matters ..... 20
Item 6 Management's Discussion and Analysis ......................... 22
Item 7 Financial Statements ......................................... 25
Item 8 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 25
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act .......... 27
Item 10 Executive Compensation ....................................... 30
Item 11 Security Ownership of Certain Beneficial Owners and
Management
Item 12 Certain Relationships and Related Transactions ............... 33
Item 13 Exhibits and Reports on Form 8-K ............................. 34
SIGNATURES
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Heart Labs of America, Inc., (the "Company") incorporated in September
1989 in the State of Florida has its principal executive offices at 1903 S.
Congress Ave., Suite 400, Boynton Beach, Florida 33426, telephone number
(561)737-2227. Unless the context otherwise requires, all references to the
"Company" include Heart Labs of America, Inc. and its wholly-owned subsidiaries.
The Company has provided mobile cardiac catheterization services to
hospitals on a shared user basis since 1990.
In August 1995, the Company completed a Share Exchange Agreement with
Technomed, Inc. ("Technomed") shareholders, three of which were directors of the
Company at the time of the acquisition. Technomed is comprised of two
wholly-owned subsidiaries: CJ Holdings, Inc. d/b/a A/R Mediquest ("A/R
Mediquest") and Sysdacomp, Inc. (Sysdacomp). Technomed subsidiaries operate in
the fields of Management Information Systems ("MIS") and Hospital Information
Systems ("HIS") which systems aid in operating hospital and medical office
practices as well as performing billing and collection services for professional
organizations, hospitals, doctors, medical practices, and medical networks. See
Item 1. "Description of Business - Hospital Information Systems / Management
Information Systems" and Item 12. "Certain Relationships and Related
Transactions".
In October 1995, the Company, pursuant to a Stock Exchange Agreement,
acquired two companies engaged in the managed care environment, Essential Care
Medical Centers, Inc. (Essential") and Prime Dental Centers, Inc. (Prime).
Since October 1995, the Company opened or acquired four additional
centers and currently owns and operates five managed care centers (the
"Essential Care Centers"). In addition, the Company plans to open three managed
care centers in 1996 that will be dedicated to the treatment of AIDS patients in
South Florida the "Health Labs"). See Item 1. Description of Business-Clinical
Care".
In November 1995, the Company purchased 49% of the outstanding common
stock of Westmark Group Holdings, Inc. (NASDAQ Symbol-WGHI). Westmark Group
Holdings, Inc. ("Westmark") owns and/or operates three wholly owned
subsidiaries; Westmark Mortgage Corporation ("Westmark Mortgage") Network
Capital Group, ("Network Capital") and Westmark Leasing Corporation ("Westmark
Leasing"). See Item 1. "Description of Business-Westmark Group Holdings, Inc.
In April 1996, the Company acquired 100% of the outstanding common stock
of Greenworld Technologies, Inc. ("Greenworld"). Greenworld is the owner of
world-wide licensing rights to the Talon RMS product, a product which lowers
energy costs thus enabling hospitals to reduce temperatures in critical care
units and operating theaters in order to reduce the risk of post treatment
infection without increasing their costs. See Item 1. "Description of
Business-Greenworld".
During 1994, the Company started one company and acquired three other
companies engaged in the rental of rehabilitative medical equipment and other
home healthcare products, principally continuous passive motion ("CPM")
rehabilitative products. During 1995 the Company sold all of its "CPM"
subsidiaries. See Item I. "Description of Business - Continuous Passive Motion".
In August 1993, the Company completed the acquisition of substantially
all of the assets of Cortex Diagnostic Services, Inc., a company engaged in
providing neurological testing services which it sold in July, 1995. See Item 1.
"Description of Business - Neurological Testing.
BUSINESS OPERATIONS
CARDIAC CATHETERIZATION
Cardiac catheterization is a relatively low-risk, widely used diagnostic
procedure which utilizes catheters, contrast agents and sophisticated
radiological instrumentation to provide clinical evaluation of the functioning
of the heart and major blood vessels. The entire cardiac catheterization
procedure generally lasts less than an hour and has a complication rate of less
than .01%. Most low risk cardiac catheterization procedures are performed on an
outpatient basis.
The Company began providing mobile cardiac catheterization services in
February 1990 and currently operates two Mobile Cardiac Catheterization
Laboratories ("Mobile Labs").
In September 1993, the Company's Mobile Units were the first mobile Labs
to be accredited by the Joint Commission on Accreditation of Healthcare
Organizations ("Joint Commission"). The accreditation is effective for three
years and will expire in September 1996. During 1996, the Company will go
through a standard review, which is extensive in nature, of the medical
procedures and operations of the Mobile Labs to become reaccredited. Although
the Company believes that its Mobile Labs will continue to be accredited there
can be no assurances in this regard.
Currently, the Company provides mobile catheterization services to
facilities in Northern, Central and South Florida through two Mobile Labs.
Additional contracts are being negotiated to provide one additional Lab, to
provide services in Pahokee, Winter Haven and Okeechobee, Florida.
Generally, a team of cardiovascular technicians and registered nurses
trained in cardiac catheterization are assigned to each of the Company's Mobile
Labs. Movement of the Company's Mobile Labs typically occurs at night via an
independent trucking service or by a driver employed by the Company. The driver
sets up the Mobile Lab upon arrival so it is operational when the Company's
personnel arrive on the following scheduled day.
The Company's Mobile Labs are divided into three rooms, a main working
laboratory area where the catheterization procedure is performed; a monitoring
room where the Company's technologist and the operating cardiologist can monitor
the procedure and view the results; and a processing room where the film of the
procedure is developed. All waste, medical or other, generated by the Mobile lab
is disposed of by the healthcare facility at which the Mobile lab is operating
in accordance with such facility's procedures.
The Company relies upon equipment warranties and fixed-fee contracts
provided by independent service organizations for equipment maintenance.
Consequently, the Company's business might be adversely affected if its
suppliers cease providing maintenance services. A service contract generally
provides that maintenance be performed outside of regular hours, thereby
minimizing interruptions to a client's schedule.
The medical equipment included in the Company's Mobile Labs is all
purchased from major manufacturers and may be leased from third party lessors.
The Company is not dependent on any one supplier and believes that it has good
relationships with all of its suppliers. Although the Company does not expect
current mobile cardiac catheterization technology to become obsolete in the near
future, it believes that the equipment in its Mobile Labs can be readily adapted
to incorporate new technologies. Currently, one Mobile Lab has been upgraded by
adding digital subtraction angiography. This equipment allows physicians to
perform additional procedures and thus increase the Company's revenues.
The profitability of the Company's mobile cardiac catheterization
business is substantially dependent on the degree to which the Company can
utilize its equipment. Failure to obtain or maintain contracts providing for
sufficient utilization of its Mobile Labs at profitable rates could have a
material adverse effect on the Company's financial condition and results of
operation.
Fees for cardiac catheterization are based on a number of factors, the
most important of which is the cost of equipment utilized and related direct
operating expenses. Other factors in establishing fees include, among other
things, general economic conditions, competitive conditions in the client's
market and the rate of reimbursement provided to the customer by private
healthcare insurers and Medicare.
Initially, the Company offered its Mobile Lab services for a base fixed
fee. Currently, the Company has only one fixed fee contract, which accounted for
59% of total cardiac catheterization revenue for 1995. This contract is due to
expire in February 1997. Increased competition has driven the Company to offer
non-fixed fee contracts, based on utilization of the Mobile Labs. Currently, the
Company has two, one year non-fixed fee contract and provides services to
hospitals on an as needed basis. This non-fixed fee structure has lowered the
Cardiac Catheterization division's revenue and profit margins. See Item 6,
"Management's Discussion and Analysis". The Company has been successful to date
in maintaining sufficient utilization of its Mobile Labs to meet the equipment
costs and direct operating expenses of the Mobile Labs. In the event that the
utilization of its Mobile Labs decreases or one or more of its customers
terminate or fail to renew their existing contracts, the Company will be
required to market the Mobile Labs to other customers. If the Company is unable
to acquire sufficient customers to utilize the Mobile Labs, the financial
condition of this division would be materially adversely affected.
The Company's mobile cardiac catheterization division derives its
revenues from contracts with hospitals which in turn bill for the technical
component of the Company's services. A hospital's motivations for providing
cardiac catheterization services through the Company and the fee it is willing
to pay depends upon the profitability of the service. Consequently, the rate at
which insurance companies, Medicare or other third party payers are willing to
reimburse or pay for such services indirectly affects the fees the Company can
charge. Any widespread application of restricted payment or reimbursement
schedules could adversely affect the Company's mobile cardiac catheterization
division.
Pursuant to the Company's current contracts, at June 26, 1996, the
Company provided mobile cardiac catheterization services for an average of (i)
one day per week to a hospital located in Pahokee Florida (ii) 3 days a week in
Gainesville, Florida and (iii) 5 days a week in Hollywood, Florida, pursuant to
a fixed fee contract.
HOSPITAL INFORMATION SYSTEMS/MANAGEMENT INFORMATION SYSTEMS
In August 1995, the Company acquired, through a Share Exchange Agreement
with Technomed shareholders, three of which were affiliated with the Company
prior to the transaction, two companies that specialize in Hospital and
Management Information Systems, A/R Mediquest and Sysdacomp. A/R Mediquest's and
Sysdacomp's Hospital and Management Information Systems provides software
support for hospital and medical office operations as well as performing billing
and collection services for professional organizations, hospitals, doctors,
medical practices and medical networks. Pursuant to the terms of the Exchange
Agreement, the Company issued 2,739,003 shares of its common stock in exchange
for 7,422,500 shares (100%) of Technomed, Inc. common stock. See Item 12.
"Certain Relationships and Related Transactions".
A/R Mediquest
A/R Mediquest through its predecessor C.J. Holdings, Inc. has been in
operation since 1975. A/R Mediquest's main products are Medical Information
Management System ("MIMS") and Patient Registration and Account Management
("PRAM") software packages. MIMS software gives up to date financial information
on each Medicare/Medicaid ("DRG") covered patient concurrently with vital data
being delivered in a matter of hours. MIMS can be interfaced with PRAM, enabling
interim billing summaries to be compared to the DRG derived voucher amount,
yielding daily profit/loss controls based on either charge or cost data.
A/R Mediquest licenses the use of its software to hospitals, clinics,
nursing homes and other related healthcare companies. When the software is sold
the client healthcare institution signs a one to three year contract for on-line
support services. These contracts are typically renewed, however, since these
contracts are a significant source of revenue to A/R Mediquest, non-renewal of a
significant number of these contracts could adversely affect A/R Mediquest's
results of operation.
Sysdacomp
Sysdacomp has been in operation since 1982. It provides data processing
services to the healthcare industry. Sysdacomp's products include: hospital
financial software which serves as an accounting package for the hospital,
hospital order entry software that networks all departments in the hospital for
ordering all patient services and Physician Practice Management software for all
functions necessary in a physicians office, including scheduling.
In addition to the hospital software, Sysdacomp provides collection
software and processing services for collection agencies and healthcare billing
services. Services for the collection agencies include: complete account
activity history on line, letter printing and mailing, accounting reports and
credit reporting. Billing services include: printing and mailing of the billing
forms, electronic submission of claims and accounts receivable management
services.
In June 1996, the Company was informed by the prior shareholders of
Sysdacomp (the "Prior Holders") that Technomed, prior to its acquisition by the
Company, had breached the Agreement pursuant to which Technomed acquired
Sysdacomp. The alleged breaches are: (i) failure to issue the correct number of
shares to the Prior Holders, (ii) failure to merge Sysdacomp with Technomed and
Technomed with the Company; and (iii) failure of the company to register or buy
back the Heart Lab shares issued to the Prior Holders pursuant to the Company's
acquisition of Technomed.
The Company is presently negotiating with the Prior Holders to resolve
this matter or to rescind the transaction. The Company does not believe that
such recision will have a material adverse impact on the Company's financial
condition.
MANAGED CARE CENTERS
Overview
The managed care center provides an excellent vehicle to provide high
quality, low cost, medical services, primarily to Health Maintenance
Organizations ("HMO") clients. The Company has acquired established medical
centers and intends, when possible, to operate each center with existing
management. The Company anticipates that the consolidation of duplicate
operations among the Centers such as administration, financial management,
purchasing, marketing and promotion, transportation, billing and collection,
insurance, patient scheduling and other support services will improve efficiency
and increase operating margins and increase volume. Fixed costs, capital and
operating, will be spread over a number of physicians and a large patient base.
In addition to the general practice physicians, the Company intends to enter
into employment contracts with the multi-specialty physicians practicing through
the Centers.
The Company hopes to achieve growth in managed care center operations
through the addition of physicians and ancillary services such as ambulatory
surgery, CT scanning, mammography, nuclear medicine, ultrasound x-rays, clinical
laboratories, and pharmacies, diabetes centers, weight management and
pharmaceutical clinical trial programs. The Company recognizes that the key to
its growth will be its ability to greatly improve and expand healthcare services
while consolidating expenses. In this regard, the Company envisions a network of
Centers working together to provide total healthcare services.
In October 1995, the Company acquired through a Share Exchange
Agreement, Essential Medical Care Centers, Inc. ("Essential") and Prime Dental
Care, Inc. ("Prime"). This Agreement was amended May 8, 1996. Pursuant to the
terms of the Amended Exchange Agreement, the Company was required to issue
575,526 shares of its common stock for 100% of the Prime and Essential
outstanding common stock. In addition, two parcels of real property with
building improvements were purchased for an additional 252,132 shares. Should
Prime and Essential have pre-tax earnings of $350,000 for their fiscal year
ended July 31, 1996, the Company will issue 375,000 shares of Technomed at $1.00
par value, convertible preferred stock, convertible into shares of the Company's
common stock, to one of the Prime/Essential shareholders. If the pre-tax
earnings are less than $350,000, the number of preferred shares to be issued
will decrease proportionately. The Company originally was required to issue an
additional 375,000 shares of Technomed convertible preferred stock to Harry
Kobrin, the other Prime/Essential shareholder. Mr. Kobrin has been appointed as
the Company's Executive Vice President and as such is no longer in control of
the day-to-day operations of Prime/Essential and as a result he has waived his
rights to the convertible preferred shares. The Company will compensate Mr.
Kobrin for his performance in 1996 through the issuance of stock options to
purchase 264,000 shares at $.375 per share.
Essential and Prime are healthcare clinics located in the South Florida
area. Essential and Prime have several contracts with area Health Maintenance
Organizations ("HMO"). In addition, the Company has opened or is in the process
of opening four additional Essential Centers in Florida. These Centers will be
staffed on a per diem instead of a salaried basis, thereby reducing their
costs. In addition to the new Essential Centers discussed below, the Company
plans to rehabilitate one of its buildings in order to open a hospice to serve
the AIDS population. The Clinical Care division currently and in the future will
derive its revenues from a variety of sources. The main source of revenue is and
will be managed care contracts. The revenue from these contracts is generated by
the amount of patients contracted to the Centers from various HMO's. The
Clinical Care division, to a lesser extent, also generates revenue on a fee for
service basis whereby the Company will be paid at the time services are
rendered. See Item 12. "Certain Relationships and Related Transactions".
Essential Care Clinics
Essential operates its original managed care facility in Dade County,
Florida ("Essential One"). Essential One has provider contracts with four Health
Maintenance Organizations (HMO). Essential One, which opened in June 1994,
occupies a single purpose building, owned by the Company, of approximately 5,800
square feet as of January 1, 1996. Prime Dental Care is also located at this
facility.
At present, the Prime Dental Care Center generates approximately $8,000
in revenue per month. The Company expects to expand this segment of its business
to other locations in late 1996.
The following table provides certain information with regard to the
Company's Essential Care Clinics:
<TABLE>
<CAPTION>
LEASE
ESSENTIAL LOCATION RENT/MORTGAGE EXPIRATION OPENING
CARE CENTER # (FLORIDA) LEASE/OWN (PER MONTH) SQ. FEET DATE DATE
- ------------- -------------- --------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
One Miami Own $2,056 5,800 NA June 1994
Two Port Charlotte Rent $3,630 3,800 May 1999 May 1996
Three Hialeah Rent $1,900 -- Dec. 1997 June 1996
Five Ft. Lauderdale Rent $1,273 2,000 June 2001 May 1996
Six Plantation Rent $2,650 2,700 June 1999 June 1996
</TABLE>
The Company is presently negotiating provider contracts for Essential
Two, Three, Five and Six with the same HMO's that have granted contracts to
Essential One.
AIDS Care Centers
The Company also expects to open AIDS Care Centers ("Health Labs") in
Miami, Florida, South Miami, Florida and at the Parkway West Hospital in Miami,
Florida prior to Fall 1996. The Health Labs will serve the AIDS population in
South Florida. Each Health Lab will be an independent medical facility. The AIDS
Centers will primarily work through referrals from AIDS counselors and other
medical personnel.
In addition, since it is difficult for AIDS patients to obtain dental
services, Prime Dental will provide dental care for the clients of the Health
Labs.
GREENWORLD
In April 1996, the Company acquired 100% of the common stock of
Greenworld Technologies, Inc. ("Greenworld"), a Company located in Valley
Springs, California.
As a consideration for the purchase the Company agreed to: (i) fund the
cost of four lawsuits involving the Talon Refrigerant Management System ("Talon
RMS") in an estimated amount of approximately $180,000 - $290,000 (ii) issue to
the seller, ECS International, Inc. ("ECS"), 50,000 shares of the Company's
preferred stock ($250,000 face value) and 100,000 shares of the Company's common
stock; (iii) provide $200,000 to Greenworld for operating capital; (iv) provide
up to $300,000 to establish the Talon RMS patent worldwide; (v) grant ECS
options to purchase 900,000 shares of the Company's common stock at $1.50 per
share and (vi) cancel a Bridge Loan Note in the amount of $100,000. In addition,
the Company agreed that once Greenworld gross sales exceeded $100,000,000, it
would transfer 51% of the outstanding common stock of Greenworld back to ECS and
distribute the other 49% to the Company's shareholders as a dividend. The
distribution of the 49% to the Company's shareholders would effectively
"spin-off" Greenworld as a publicly owned company.
Greenworld owns the worldwide licensing rights to the Talon RMS product
for the life of the patent and any reissues thereof. The Talon RMS is a device
that works in conjunction with air conditioning, heat pumps and refrigeration
units to lower compression pressures thereby causing a reduction in energy costs
and extending the useful life of the systems compressor. The original
application is for use by medical facilities to cost effectively allow them to
lower emergency and operating room temperatures to reduce the possibility of
staph infections. It has also been tested in commercial buildings and apartment
complexes. To date, 400 installations have taken place for such entities as the
Jack-In-The-Box Restaurants in Mexicali, Mexico; Hunt Wesson Foods; Union
Pacific Fruit Express Company; Stevenot Winery, California; Ice Unlimited,
Barbados; Mt. Retreat, Inc., California; Federal Commission of Electricity,
Mexico; Bullhead Community Hospital, Arizona and the Queens Medical Center,
Hawaii. The Company intends to commercialize the Talon RMS product and market it
for private home use in the near future.
The Talon RMS product is manufactured by Refrigeration Research and
Standard Refrigeration Company and presently sells for $198 to $1,500 depending
on the size of the unit.
The Company is not aware of any significant competition for the Talon
RMS product.
WESTMARK GROUP HOLDINGS, INC.
In November 1995, the Company signed a Share Exchange Agreement with
Westmark Group Holdings, Inc. ("Westmark"). Westmark is a publicly traded
company (NASDAQ-WGHI). This Share Exchange Agreement gave the Company 49%
interest or 1,298,388 shares of Westmark common stock in exchange for $1,210,000
in cash and cash equivalents, a note in the amount of $315,000 and 200,000
shares of the Company's Series B preferred stock, with a stated value of $10.
The Stock Exchange Agreement provides that the Company's ownership position,
equal to 49%, will not be diluted and that Westmark is obligated to issue
additional shares to maintain such ownership position. Westmark owns and/or
operates three wholly owned subsidiaries. Also see Item 12. "Certain
Relationships and Related Transactions".
Westmark Mortgage is engaged in the business of originating, purchasing
and selling mortgage loans secured primarily by single family, multi-family and
condominium residences. Westmark Mortgage is registered and/or licensed to
originate, purchase closed loans, underwrite, fund or sell residential mortgage
loans in the states of Alabama, California, Colorado, Florida, Georgia, Hawaii,
Idaho, Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Nevada, Ohio,
Oregon, Utah, Washington and Wyoming. Westmark Mortgage pools and sells loans to
third-party investors including the Federal Home Loan Mortgage Corporation
(Freddie Mac or FHLMC), the Federal National Mortgage Association (Fannie Mae),
the Department of Housing and Urban Development (HUD), its lending agency the
Government National Mortgage Association (Ginnie Mae) and various non-conforming
mortgage conduits.
Network Capital, a wholly owned subsidiary of Westmark is basically
inactive except for its real estate holdings in California.
In March 1996, Westmark incorporated Westmark Leasing for the purpose of
financing equipment for physicians, labs and testing facilities.
In the first and second quarter of 1996 the Company provided Westmark
with additional financing in an aggregate amount of $2,453,000 million to be
used for Westmark's operations and financing activities. The financing was to be
provided in the form of short-term advances which the Company may, at its
option, convert to equity. As of this date, $700,000 of the loan amounts have
been converted to 200,000 shares of Westmark's Series C Preferred Stock . See
Item 12 "Certain Relationships and Related Transactions".
FLEMMING PHARMACEUTICAL
During 1994, under the prior management and prior Board of Directors,
the Company's CPM division invested $610,000 in Flemming Pharmaceutical, Inc.
("Flemming"), a start-up generic and brand name pharmaceutical company that had
the license rights to the product CAPSIN. CAPSIN is an FDA approved, all-natural
lotion made from oleoresins of chili peppers with the primary ingredient being
Capsiacin. CAPSIN is used for the relief of pain connected with strains,
backache, arthritis and general pain management. In connection with its
investment, the Company was granted the world-wide marketing rights to CAPSIN
for use above the neck, primarily for relief of pain connected with the
temporomandibular joint ("TMJ") disease, which would be marketed along with the
CPM division's TheraPacer product. Terms of this transaction are more
specifically set forth in the Company's 1994 10-KSB.
In February 1996, the Company recovered 10% of their investment in Faro
Pharmaceutical, Inc. (Flemming changed its name in 1995). The Company is
reviewing the Flemming investment transaction in order to determine if it should
seek legal remedies to recover the unrecovered portion of its investment from
the former directors.
NEUROLOGICAL TESTING
In July 1995, the Company sold the medical equipment and business
operations of its neurological testing division to Neurological Diagnostic
Services, Inc. for $50,000, payable as follows: $25,000 at closing, a $25,000,
sixty day Promissory Note bearing interest at the rate of 10% per annum and the
assumptions of lease agreements related to the medical equipment. The Note was
due September 30, 1995, but was not paid until February 1996.
CONTINUOUS PASSIVE MOTION
During 1994, the Company acquired three companies, KVM Rehabilitation,
U.S. BioInnovations and Managed Home Recovery, Inc. and started one company that
supplied physical rehabilitation products, principally Continuous Passive Motion
("CPM") devices to hospitals, clinics and home care markets.
CPM devices are classified as durable medical equipment and require a
doctor's prescription and/or a letter of medical necessity in order to receive
reimbursement from a provider.
In July 1995, as a result of a lawsuit settlement, the Company sold the
assets, medical equipment and business operations of the three companies to
Thera-Kinetics, Inc., a New Jersey based firm ("TK"). See Item 3. "Legal
Proceedings". Consideration for the sale included a $250,000 Promissory Note,
bearing interest at the prime rate, payable to the Company in 12 installments of
$20,833.33, and the assumption of approximately $400,000 in equipment leases. As
of the date of this Report, TK had not assumed any of the leases, which has
resulted in at least one lawsuit, and was in default on the Promissory Note. See
Note 8. "Notes to the Consolidated Financial Statements". The Company is
presently exploring its remedies for the purpose of enforcing the provisions of
the settlement agreement.
In September 1995, the Company sold the fourth company, Managed Home
Recovery, Inc. ("MHR") to one of MHR's former owners in connection with the
settlement of a lawsuit brought by that owner in May 1995. Consideration for the
sale included $15,000 in cash, the return of 16,071 shares of the Company's
common stock, the forgiveness of a note payable in the amount of $58,736,
assumption of certain liabilities, the assignment and release of a line of
credit in the approximate amount of $85,000, a 10% Promissory Note in the
aggregate amount of $105,572.27 payable to the Company in installments of $2,000
each month, with the balance due on November 10, 1997.
GOVERNMENT REGULATION
The healthcare industry is subject to extensive federal and state
government regulation. In addition to the referral and reimbursement regulations
discussed below regulations include certificate of need, licensure of healthcare
facilities, services and equipment, and restrictions on physician investments in
health care entities to which they refer patients. Although the Company believes
that its current operations comply with applicable regulations, there can be no
assurance that the subsequent adoption of laws or interpretations of existing
laws will not regulate, restrict or otherwise adversely affect the Company's
business.
The laws and regulations applicable to financial arrangements in
the healthcare industry are complex and may be subject to varying
interpretations. This section summarizes the principal federal and state statues
and regulations which are applicable to the Company's business.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
On August 10, 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993 ("OBRA `93") which contained numerous provisions that
significantly affect healthcare providers who participate in the Medicare and
Medicaid programs. The principal impact of OBRA `93 in the healthcare area is
(i) to expand the existing prohibition against the referral of patients to
entities with which the referring physician has a financial relationship
(self-referral), and (ii) to curtail the cost of the Medicare program by
limiting reimbursement.
SELF-REFERRAL. OBRA `93 expanded the then existing prohibition against
"self-referral" for clinical laboratory services to eleven (11) "designated
health services." The designated health services" for which self-referral is
prohibited are: (a) clinical laboratory, (b) physical therapy, (c) occupational
therapy, (d) radiology or other diagnostic services, (e) radiation therapy, (f)
durable medical equipment, (g) parenteral and enteral nutrients, equipment and
supplies, (h) prosthetics, orthotics, and prosthetic devices, (i) home health
services, (j) outpatient prescription drugs, and (k) inpatient and outpatient
hospital services.
A significant exception to the self-referral prohibition is the
exception for referrals within a group practice. The rule provides that a
physician in a group practice may be paid a productivity or performance bonus so
long as the bonus is NOT related to the volume or value of referrals by that
physician. This provision appears to be the first attempt by the federal
government to subject compensation payments within a BONA FIDE group practice to
the prohibitions of the Medicare and Medicaid Anti-Fraud and Abuse Amendments
and the self-referral restrictions.
SAFE HARBOR
Recent federal and state legislation has prohibited or severely
restricted ownership of healthcare facilities by physicians who refer their
patients to such facilities. Under OBRA physicians can no longer refer Medicare
beneficiaries to clinical laboratories in which they have an ownership interest
or compensation arrangement. OBRA does, however, provide an exception from this
ownership prohibition for registered securities, acquired on terms generally
available to the public, of a publicly traded company having total assets
exceeding $100,000,000. In addition, the "safe harbor" regulations adopted by
the Office of Inspector General, US Department of Health and Human Services,
provide a safe harbor from the Medicare and Medicaid Anti-Fraud and Abuse
Amendments, Section 1128B(b) of the federal Social Security Act, for investment
interests obtained on terms equally available to the public through trading on a
national exchange or over-the-counter market., in a publicly traded corporation
having in excess of $50,000,000 in underpreciated net tangible assets related to
furnishing healthcare products and services.
Unless the Company can qualify for the applicable public company
exemptions or safe harbor, as described above, the Company's physicians and
other shareholders will not be able to refer patients and other business to the
healthcare businesses operated by the Company. This may materially adversely
impact the Company's clinical care operations..
MEDICARE ANTI-FRAUD AND ABUSE AMENDMENTS. Financial arrangements between
healthcare businesses and physicians or others who make or influence referrals,
furnish products or services, or otherwise generate business which is paid for
in whole or in part by the Medicare and/or Medicaid programs are the subject of
increasing federal scrutiny. Section 1128B(b) of the Social Security Act, the
Medicare and Medicaid Anti-Fraud and Abuse Amendments ("Section 1128B(b)")
prohibits the offer, solicitation or acceptance of any form of remuneration as
an inducement to refer patients, products or services that are paid for in whole
or in part by the Medicare or Medicaid program. Violation of Section 1128B(b)
may be punished by fines, imprisonment and exclusion from participation in the
Medicare and Medicaid programs. In addition to being broadly worded, the
provisions of Section 1128B(b) have been interpreted expansively by the federal
courts.
PENDING FEDERAL LEGISLATION
In July 1992 the "Health Cost Containment and Reform Act of 1992"
sponsored by U.S. Representative Fortney (Pete) Stark cleared a subcommittee of
the United States House of Representatives' Ways and Means Committee for full
committee consideration. The bill prohibits a physician from referring patients
to other healthcare providers who provide certain specified services in which
the referring physician has a financial interest.
The Company anticipates that additional legislation will be proposed,
and ultimately adopted at both the federal and state levels, restricting or
prohibiting physician ownership of healthcare facilities to which they refer
patients.
FLORIDA PATIENT SELF-REFERRAL ACT OF 1992
During its 1992 session, the Florida Legislature passed into law the Patient
Self-Referral Act of 1992 ("Self-Referral Act"). The Self-Referral Act is far
broader than OBRA since it is applicable to all types of healthcare services and
to all patients (not just Medicare and Medicaid beneficiaries).
Under the Self-Referral Act, "designated health services" are defined as
clinical laboratory, physical therapy, comprehensive rehabilitative, diagnostic
imaging and radiation therapy services. The Company plans to purchase and
operate facilities that provide some or all of these designated health services.
All healthcare products and services not enumerated above, are classified as
"other health services."
Under the Self-Referral Act, a physician is prohibited from referring a
patient for designated health services to an entity in which the physician is an
investor.
The Self-Referral Act also prohibits the referral by a physician of a
patient for other health services to an entity in which that physician is an
investor, unless the ownership of the entity meets one of two tests:
1. The physician's investment interest is in the registered securities of a
publicly traded corporation whose shares are traded on a national
exchange or over-the-counter market and which has total assets at the
end of its most recent fiscal quarter in excess of $50,000,000 or
2. For entities that do not qualify under the first test, no more than 50%
of the value of the investment interests in the entity may be held by
investors who are in a position to make referrals to the entity, and the
terms under which an investment interest is offered must be the same for
referring investors and non-referring investors. In addition, the terms
under which an investment interest is offered may not be related to the
investor's volume of referrals to the entity.
Entities that meet either test must also meet two additional tests. First, the
entity may not lend to or guarantee a loan to an investor who is in a position
to make referrals if the investor uses any part of that loan to obtain the
investment interest. Second, distributions of profits and losses to investors
must be directly proportional to their capital investment.
The Self-Referral Act also imposes certain disclosure obligations on the
Company and referring physicians. Under the Self-Referral Act, a physician may
not refer a patient to an entity in which he or she is an investor unless,
before doing so, the patient is given a written statement disclosing, among
other things, the physician's investment interest in the entity to which the
referral is made. The Self-Referral Act also imposes disclosure obligations on
the entities to which physicians refer patients.
Since the Company plans to purchase and operate facilities that provide
some or all of the "designated health services" and intends to network its
medical services, the Self Referral Act, and OBRA will have a significant
adverse impact on the Company's proposed plan of operations and may necessitate
(i) a change in the way the Company acquires its clinical care facilities (ii) a
change in the corporate structure (i.e., a spin-off of the clinical care
companies coupled with an initial public offering in order to qualify for the
federal and state "Safe Harbor Standards"), (iii) a secondary offering for the
Company (in order to qualify for the federal and state "Safe Harbor Standards"
or (iv) a merger with a company with substantially more assets than the Company
(in order to qualify for the "Safe Harbor" standards.
CERTIFICATE OF NEED. Some states, including Florida, require a
"certificate of need" ("CON") prior to the acquisition of medical equipment or
provision of cardiac catheterization services by the Company's hospital
customers. In Florida, a certificate of need is required for cardiac
catheterization services only if the hospital wishes to provide such services to
inpatients. Typically, obtaining a CON approval is a costly and lengthy process,
and may involve adversarial proceedings brought by competing facilities. The
hospital or healthcare provider, rather than the Company, must apply for and
obtain the CON, where required. As a result, the Company is unable to control or
accurately predict whether and how many potential customers will obtain CON's.
The Company's ability to provide cardiac catheterization services to hospitals
and health care providers is dependent upon those entities obtaining a CON for
such services.
LICENSES. Although the Company's cardiac catheterization services
generally are not subject to healthcare licensing requirements, since it
contracts directly with hospitals, the Company must adhere to the same standards
as the hospitals it contracts with including standards for sanitation, safety
and personnel qualifications. The Company is also required to register its X-ray
equipment and pay annual registration fees to state radiation control agencies.
The Company believes that its cardiac catheterization operations are in
compliance with applicable registration and hospital license requirements.
LEGISLATIVE DEVELOPMENTS. There are presently efforts underway on both
the federal and state levels to enact major reforms of the U.S. healthcare
system. Proposals include cost containment measures through healthcare alliances
and improved access to insurance coverage for the working uninsured or
unemployed. The State of Florida has enacted the Health Insurance and Reform Act
of 1993 (the "Florida Health Plan"), which is designed to create a managed
competition model for healthcare delivery in Florida based on quality,
geographic coverage and reduced costs. The Company cannot predict what effect,
if any, the Florida Health Plan or any future federal or state healthcare reform
legislation will have on the Company.
OTHER STATES; OTHER REGULATORY MATTERS. The Company anticipates that it will be
doing business in other states. The Company will be subject to the laws of each
state that it does business in, including among others, the laws regulating the
corporate practice of medicine self-referrals, licensing, and the division of
fees between licensed physicians and non-physicians.
PROFESSIONAL LIABILITY INSURANCE
The Company currently maintains general and professional liability
insurance for its operations in the single limit amount and aggregate annual
limit amount of $5,000,000. There is no assurance that potential claims will not
exceed this limit. While the Company's Mobile Lab Units are at a customer's
facility, they operate only under the direction of licensed physicians on the
customer's staff who direct the procedures, supervise the Company's nurses and
technologists, and interpret the results of the examinations. The Company
requires that its customers carry medical malpractice insurance to cover the
physicians using the Company's Mobile Labs.
COMPETITION
The healthcare industry in general, and the market for medical services
and equipment in particular, is highly competitive.
With respect to the Company's mobile cardiac catheterization services,
the Company competes not only directly with other contract providers, but also
with healthcare providers that have their own equipment and with equipment
manufacturers and leasing companies that sell or lease equipment to healthcare
providers for full-time utilization. Some of the Company's direct competitors
which provide contracted medical services may have access to considerably
greater financial resources than the Company. The Company competes against other
contract providers on the basis of quality of services and equipment, price and
reliability.
The competition for the MIS/HIS division of the Company mainly consists
of five national companies. These five national companies may have access to
considerably greater financial resources than the Company. The Company competes
on the basis of the quality of services and by providing services to hospitals
of 40 to 150 beds which cannot absorb the cost of startup from the major
competitors.
In the South Florida area competition for Clinical Care division is
highly competitive. The Company competes with three companies that are larger in
size than the Company' and may have access to considerably greater financial
resources than the Company. The Company competes by providing more personalized
care to the doctors and the patients they serve as well as providing patient
transportation and pharmaceutical delivery.
The Company is not aware of any competitors for the Talon RMS product.
MARKETING
Currently, the Company's sales efforts related to it's mobile cardiac
catheterization division are being conducted by an independent consultant and
the Company's Vice President of Managed Care. Direct marketing, including
telephone solicitation, receiving referrals from existing customers and
manufacturers of Mobile Labs has played a primary role in acquiring new
contracts and expanding services to a larger geographical area.
The HIS/MIS division to date has performed minimal marketing. Marketing
for this division is performed on a "word of mouth" basis. This "word of mouth"
marketing has enhanced revenues, on an annualized basis, by 25% in 1996.
The Clinical Care division markets through a variety of channels. It has
several contracts with managed care companies in the South Florida area, it's
personnel speak at local functions and the Company supports many local area
events.
EMPLOYEES
As of June, 1996 Heart Labs had 7 full time administrative employees,
including its three officers, 6 full time office and accounting employees, and
27 full time medical and technical personnel who provide services at the
Essential Care Medical Centers. The Company's ability to provide its services is
dependent upon the Company recruiting, hiring and retaining qualified technical
personnel. To date, the Company has been able to recruit and retain sufficient
qualified personnel. None of the Company's employees are represented by a labor
union. The Company has not experienced any work stoppages and considers its
relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 6,000 square feet of office space in
Boynton Beach, Florida for its corporate offices at an average monthly net
rental of $4,966 per month over the term of the lease. The lease expires in
April 2001. The Company believes this space is adequate to meet the current
requirements. The Company also leases two other facilities for its HIS/MIS
division that range from 3,500 to 4,000 square feet and are occupied pursuant to
leases on a month to month basis at an average month net rental of $1,300 and
$2,243 per month. In addition the Company leases space for its Essential Care
Centers. See Item 1. "Description of Business Clinical Care" for a description
of each Center's lease. The Company acquired through the Essential transaction
two buildings located in the South Florida area. One of the buildings houses
both Essential One and Prime Dental is approximately 5,800 square feet. The
mortgage payment is approximately $2,056 per month with 5 years left on the
Note. The other building is approximately 7,000 square feet and has no mortgage.
The Company intends to convert this property to a hospice for AIDS patients. The
Company with consent from its prior landlord, has a letter of intent to sublease
3,300 square feet of office space in Boca Raton, Florida which previously served
as its corporate offices. Until such time as these offices are subleased, the
Company is responsible for a $5,675 monthly lease payment.
ITEM 3. LEGAL PROCEEDINGS
In January 1995, Thera-Kinetics, Inc. ("TK"), a competitor of the
Company's CPM division filed actions against the Company's wholly owned
subsidiary, U.S. BioInnovations, Inc. and three of its employees in the United
States District Court for the Eastern District of Virginia-Alexandria Division.
The complaint, alleged, among other things, violations by the employees (each of
whom was previously employed by TK) of restrictive covenants, tortuous
interference by the Company's subsidiary and misappropriation of trade secrets
and confidential information. In July 1995, the Company settled the lawsuit with
TK by selling substantially all of its Continuous Passive Motion operations to
TK. Consideration for the sale included a promissory note for $250,000 and the
assumption of approximately $400,000 in equipment leases. As of the date of this
report year end, TK had not assumed any of the leases and was in default on its
promissory note. See Note 8 "Consolidated Financial Statements". TK alleges that
the Company failed to deliver certain equipment under this Settlement Agreement.
The Company currently is considering all of the remedies available to enforce
the provisions of the settlement agreement.
In December 1995, Codise, Inc. ("Codise") filed a complaint in the 11th
Judicial Circuit in and for Dade County, Florida. The complaint names HLOA
Diagnostic, Inc., the former name of the Company's neurological testing
subsidiary, Cortex Diagnostic Services, Inc. Codise filed its lawsuit against
the Company for failure to redeem stock issued by the Company as partial
consideration for the purchase of assets of Codise, Inc. The Company contends
that it was mislead in connection with the redemption payment for 1993 and that
Codise is not entitled to any further consideration. Codise is seeking $65,190
in damages. The Company presently has a Motion to Dismiss pending. In the event
that the Motion is denied the Company intends to vigorously defend the lawsuit
and to file a counter claim seeking recovery of the excess paid for 1993.
In February 1996, a lawsuit was filed in the Circuit Court for Broward
County, Florida by Oakmont Financial against the Company alleging default under
an equipment lease and asking for damages in the amount of $50,000, attorney's
fees, and costs. The case is presently in the discovery stage.
In April 1996, suit was filed in the Court of Common Pleas for Somerset,
Pennsylvania against the Company alleging default and conversion under an
equipment lease guarantee relating to its former subsidiary, BioInnovations.
Damages are requested in excess of $25,000, including attorney fees and costs.
The Company has filed an answer and intends to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
is quoted through the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol "HLOA." The following table shows,
for the periods indicated, the high and low closing bid prices of the Company's
Common Stock as reported by NASDAQ:
1995 HIGH LOW
---- ---- ---
First Quarter 1 1/8 7/8
Second Quarter 2 3/8 1
Third Quarter 2 7/8 1 7/8
Fourth Quarter 4 1/16 1 1/2
1994 HIGH LOW
---- ---- ---
First Quarter 4 5/8 3 1/4
Second Quarter 3 5/8 3
Third Quarter 4 5/8 3
Fourth Quarter 3 1/4 1 1/8
As of May 31, 1996, there were approximately 2,038 holders of record of the
Common Stock, not including beneficial owners. The Company did not pay cash
dividends on its common stock in 1995 or 1994 and has no intention of paying
dividends in the foreseeable future.
REGULATION S OFFERING
In fiscal 1996, the Company sold an aggregate of 834,500 shares of
Series C preferred stock (the "Preferred") and 357,143 shares of common stock
pursuant to Regulation S Offerings for gross proceeds in aggregate net amount to
the Company of $7,579,785. The Preferred Stock is convertible into shares of the
Company's common stock at the lesser of (i) 75% of the closing bid price of the
Company's common stock, as reported by NASDAQ on the date of the closing of the
Regulation S Offering or (ii) 65% of the average closing bid price for the five
trading days immediately preceding the date of conversion. During the first and
second quarter the bid price of the Company's common stock fell and the Company
received notices to convert 625,000 shares of Preferred Stock in an aggregate of
16,357,573 shares of common stock. Although , the Company does not have an
adequate number of shares authorized to effectuate the conversion, it has
negotiated a mutually agreeable solution with the Regulation S subscribers
whereby it will issue the remaining authorized shares to the Regulation S
subscribers, pro rata, and seek shareholder approval to increase the number of
authorized shares of common in order to issue the balance of the converted
shares. Since the Regulation S subscribers have not waived any legal remedies
they may have, the Company may be subject to a lawsuit which if not resolved to
the Company's benefit, could materially impact the Company's financial
condition.
S-8 REGISTRATION STATEMENTS
From July 14, 1995 to December 8, 1995 the Company has issued a total of
425,534 shares of common stock to consultants, employees and advisors pursuant
to S-8 Registration Statements. These shares had an aggregate market value of
$1,084,319. Although an opinion of counsel was obtained authorizing the issuance
of shares pursuant to each S-8 Registration Statement, it was later discovered
by the Company that the November 1995 S-8 Registration Statement covering the
registration of 127,200 shares was never filed with the Securities and Exchange
Commission.
POSSIBLE NASDAQ DELISTING
On June 11, 1996 the Company received a notification from NASDAQ that,
due to its delinquency in filing its Form 10-KSB and its March Form 10-QSB, the
Company's securities would be delisted from NASDAQ effective June 21, 1996. The
Company has requested an oral hearing on the delisting which will stay the
delisting. The Company anticipates that the hearing will occur July 9, 1996. The
Company anticipates that the filing of this Form 10-KSB and the Form 10-QSB will
resolve the Company's non-compliance and that NASDAQ will find that the
Company's securities warrant continued listing, however, there can be no
assurances in this regard. If the Company's securities are delisted from NASDAQ
they will continue trading in the over-the-counter market, however, this may
limit market activity in that brokers will not be able to solicit buy orders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following should be read in conjunction with the Financial
Statements and Notes thereto contained herein.
GENERAL
During 1995 and 1994, the Company principally derived its revenue from
its mobile cardiac catheterization division, its continuous passive motion
division, and its healthcare clinics. Since its inception, the Company has been
providing mobile cardiac catheterization services to hospitals. During 1994, the
Company acquired three companies and started one company engaged in the rental
of rehabilitative medical equipment and other home healthcare products,
principally continuous passive motion ("CPM") rehabilitative products. Since
August 1993, the Company has also generated revenue from providing neurological
testing services.
During 1995, the Company sold the assets and operations of its CPM and
Neurological divisions. In August 1995, the Company completed a Share Exchange
Agreement with Technomed, Inc. ("Technomed"). Technomed subsidiaries operate in
the fields of Management Information Systems ("MIS") and Hospital Information
Systems ("HIS") which systems aid in operating hospital and medical office
practices as well as performing billing and collection services for professional
organizations, hospitals, doctors, medical practices and medical networks. Other
Technomed subsidiaries operate in the healthcare clinic environment.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994
Revenues from operations increased 25% to $4,513,167 in 1995 from
$3,582,968 in 1994, principally as a result of revenues from the CPM
acquisitions. Revenues from the Company's Mobile Units decreased 23% to
$1,247,584 (27% of total revenue from operations in 1994) from $1,609,645 (44%
of total revenue from operations in 1995). This decrease is primarily due to the
expiration in February 1994 of one of the Company's fixed-fee contracts. This
contract and the continued use of the mobile labs accounted for $363,147 in 1994
compared to $89,395 in 1995. Also contributing to the loss is the expiration of
a contract that accounted for $151,000 in 1994. Revenues from the Company's
neurological testing division decreased 61% to $225,488 for 1995 compared to
$563,789 for the same period in 1994. This decrease is due to the sale of this
division in July 1995. Revenues generated by the CPM division accounted for 56%
of total revenue from operations or $2,571,553 compared to $1,409,534 in 1994.
This increase is primarily due to the fact that three of the four CPM operations
were still operational during the period January 1, 1995 through July 19, 1995.
During 1995 the Company sold all of its CPM subsidiaries. The MIS/HIS division
accounted for 6% or $314,982 of revenue from operations for the period August
23, 1995 through December 31, 1995. The Clinical Care division accounted for 3%
or $153,560 of total revenue from operations.
Cost of services, which includes medical supplies, technical and sales
personnel salaries and benefits and other expenses directly associated with the
Company's services were the same, to $2,149,180 in 1995 from $2,149,251 in 1994.
As a percentage of revenues from operations, cost of services decreased to 47%
in 1995 from 59% in 1994, resulting from the sale of the CPM division during
1995.
General and administrative expenses increased 101% to $4,362,394 in 1995
from $1,946,151 in 1994 This increase is primarily due to the issuance of common
stock pursuant to Form S-8 Registration Statements in connection with several
consulting agreements and also consulting agreements for unregistered shares.
The aggregate value of those shares was $1,345,682 or 61% of the increase in
General and Administrative expenses between 1995 and 1994. The remaining
increases are primarily due to increases in payroll and professional fees.
Depreciation and amortization increased 15% to $927,061 in 1995 from
$805,925 in 1994. This increase is primarily due to having 7 1/2 months of
depreciation and amortization for the CPM division and the addition of the
Technomed division.
Provision for bad debts decreased 27% to $542,525 in 1995 from $745,051
in 1994. This decrease is due primarily to the sale of CPM division in 1995.
During August 1995, the Company acquired Technomed, Inc. The Company
believes that based on current technology, its computer software has lost
substantial value necessitating a $3,961,885 write-off. In addition, with the
sale of U.S. BioInnovations, the Company has written off $81,312 of good will.
See Note 6 to the Notes to the Consolidated Financial Statements.
Subsequent to year end, the Company decided either to sell or
discontinue its neurological testing division. As a result, the Company recorded
a write-off of $560,482 in goodwill associated with this division in 1994.
Other income (expense) increased 11% to an expense of $1,133,946 for
1995 from of $1,019,820 for 1994.
As a result of the foregoing factors, the Company had a loss before
income taxes of $8,843,343 in 1995 compared to a loss before income taxes of
$3,622,827 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
In 1995 and 1994, the Company financed its operating and investment
activities through a combination of cash flow from operations, the proceeds from
life insurance received after the death of the Company's founder and president
and several Regulation S transactions. Net cash used by operating activities in
1995 was $715,542 primarily due to the Company's 1995 net loss, compared to net
cash used by operating activities of $1,347,026 in 1994. Net cash provided by
investing activities was $798,968 in 1995, principally as a result of the
purchase of the Westmark investment and increase in 1994 of $2,075,040 primarily
from the sale of investments. (See Note 4 of Notes to Consolidated Financial
Statements).
At December 31, 1995, the Company had a working capital deficiency of
$3,015,714 compared to a working capital deficiency of $1,180,906 at December
31, 1994.
During the first quarter of 1996, the Company was able to raise a total
of $7,579,785 less expenses through Regulation S transactions. The Company may
continue to receive working capital from the exercise of additional stock
options, private placements, long term debt and operations. If the Company's
working capital is insufficient to fund its operations, it would have to explore
additional sources of financing. No assurances, however, can be given that
future financing would be available or if available, that it could be obtained
at terms satisfactory to the Company. The Company's ability to effectuate its
plan of and continue operations is dependent upon its ability to restructure its
organization, reduce expenditures, attract additional competent outside
directors and management, implement transactional and financial controls,
generate additional revenue through its new Clinical Care Division and its
ability to raise additional capital.
Capital expenditures for fiscal 1995 were approximately $1,921,557 as
compared to approximately $828,561 for fiscal 1994. These expenditures were a
direct result of purchases of medical equipment, real estate, computer software
(Sysdacomp) and other fixed assets. The Company has had $800,000 in capital
commitments for the first two quarters of 1996. The Company anticipates that its
total capital needs for Fiscal 1996 will be approximately $2,000,000. In
addition to equity and debt financing and additional revenue discussed above,
the Company intends to sell a portion of its investment in Westmark in order to
meet its working capital needs.
As of June 27, 1996, the Company advanced to Westmark Group Holdings,
Inc. $2,453,000 on a short term basis. Of the $2,453,000 advanced, $1,768,000 is
in the form of Promissory Notes. These Notes are secured by Preferred Class C
stock of Westmark. The Promissory Notes are due in one year at various times,
and bear interest at a rate of 10%.
During the second quarter of 1996, the Company purchased a healthcare
clinic in Fort Lauderdale, Florida. Consideration for the sale included 256,293
shares of the Company's common stock. Also, during the second quarter of 1996,
the Company opened several clinics in the South Florida area and on the West
Coast of Florida.
The Company's ability to continue operations is dependent on its ability
to structure a profitable business, raise capital and generate revenues. If the
Company is unable to support its operations and its continued growth, the
Company may have to divest itself of certain assets and/or businesses.
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements and the report of
independent accountants thereon appear beginning on Page F-2. See index to
consolidated financial statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 10, 1996, McGladrey and Pullen, LLP ("McGladrey") resigned as
the Company's independent auditors and advised the Company that it lacked the
internal controls necessary for the development of reliable financial statements
and that McGladrey was no longer willing to rely on Management's
representations.
McGladrey based this statement on the fact that there was a material
weakness in the internal control structure of the Company relating to the
documentation of agreements and decisions made by the Board of Directors and
that written documentation that had been furnished to it during the course of
the audit had been subsequently modified and that some events had occurred that
had not been documented at all. Due to the modifications and new information
provided by management, McGladrey was required to reevaluate the accounting for
a significant transaction which could have materially impacted the fairness of
reliability of the financial statements. This also required them to extend their
subsequent event audit procedures to the new audit date and required updated
responses to legal confirmation.
Despite the Company's best efforts to furnish additional information
that would allow McGladrey to resolve the inconsistencies and complete the
audit, McGladrey was not able to reconcile the evidential matter obtained during
the course of their audit with management's representations concerning certain
events and transactions and the manner in which those events and transactions
had been reflected in the Company's financial statements.
The Company does not agree with McGladrey's findings or the reason for
its resignation.
During the 1995 audit, there were no disagreements between the
Registrant and McGladrey on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of McGladrey and Pullen, LLP,
would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
Since McGladrey and Pullen, LLP was retained in February 1996 and never
completed an audit for the Company, they did not issue any reports on financial
statements for either of the past two years and therefore no report contained an
adverse opinion or disclaimer of opinion, or was modified as to uncertainty,
audit scope, or accounting principles.
The Registrant has received from McGladrey and Pullen, LLP a letter
addressed to the Commission stating that it agrees with the statements made by
the Company in response to Item 304 (a) of Regulation S-K. The Company has filed
this letter as an exhibit to Form 8-K/A dated June 18, 1996.
On June 13, 1996, the Registrant engaged the services of Grant-Schwartz
Associates, CPA's. The Registrant has authorized McGladrey and Pullen, LLP to
fully to respond to any and all inquires of the successor accountant.
On January 15, 1996, the Board of Directors of Heart Labs of America,
Inc. (the "Company") voted to dismiss its prior independent accountants, Ernst
and Young, LLP. Ernst & Young's report on the Company's financial statements
during the two most recent fiscal years contained no adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles except that Ernst & Young's report dated
March 17, 1995, on the Company's financial statements for the two fiscal years
ended December 31, 1994 was modified for uncertainties about (1) the Company's
ability to continue as a going concern, and (2) the ultimate outcome of
litigation.
During the last two fiscal years, and the subsequent period to January
15, 1996, there were no disagreements between the Company and Ernst & Young on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Ernst and Young would have caused it to make a reference
to the subject matter of the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) occurred
with respect to the Company within the last two fiscal years except as follows:
In connection with their planning of the 1994 audit of the Company,
Ernst & Young considered the internal control structure of KVM Rehabilitation,
Inc. (KVM), a subsidiary acquired by the Company in 1994, in order to determine
the nature, timing and extent of their audit procedures. In connection with
their review, Ernst & Young issued a letter to the Company which identified
certain weaknesses, primarily involving a lack of segregation of duties, within
KVM.
Ernst & Young provided the Company with a letter addressed to the
Commission stating it agreed with the statements above. A copy of that letter,
dated January 25, 1996 was filed as Exhibit 1 to the Form 8-K/A dated January
24, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of June 18, 1996 except for Ms.
Johnstone who resigned June 7, 1996.
NAME AGE POSITION WITH COMPANY TERM
---- --- --------------------- ----
Norman J. Birmingham 41 Director, President and November 1995-Present
Chief Executive Officer
Harry Kobrin 60 Director November 1995-Present
Executive Vice President January 1996-Present
Edwin F. Russo 70 Director May 1996-Present
Jean Johnstone 75 Chairman of the Board August 1995-June 1996
Dawn M. Drella 29 Chief Financial Officer April 1995 - Present
and Secretary
Mr. Birmingham has been the president and chief executive officer of the
Company since November 1995. He has also served as President of Westmark since
November 1995 and a director of Westmark since April 1996. Since 1986, Mr.
Birmingham has served as president and sole shareholder of Budget Services,
Inc., an accounting, financial planning and payroll and trust administrative
service company providing services for 2,800 tax clients, 60 bookkeeping clients
and many payroll tax accounts. On June 27, 1996, Mr. Birmingham tendered his
resignation as the Company's President and will no longer be employed by the
Company, effective upon the filing of this Report, however, Mr. Birmingham still
serves as a Director to the Company.
Mr. Kobrin has been a director of the Company since November 1995 and in
January 1996 was appointed the Company's Executive Vice President. Mr. Kobrin
was a founder of Essential Care Medical Centers, Inc. and Chairman of the Board
since 1994. From 1992 to 1994 Mr. Kobrin was the owner of Century Twenty One
Target Realty, located in Lauderhill, Florida. From 1991 to 1994, Mr. Kobrin was
the chief executive officer of Prime Medical Centers, Inc.
Mr. Russo has served as a director since June 1995. From August through
November 1995, he served as interim president and chief executive officer of the
Company. Mr. Russo also serves as director to Shells Seafood Restaurants. Prior
to his involvement with the Company, Mr. Russo served in an "of counsel"
capacity to the law firm of Edwards and Angell, a Providence, Rhode Island law
firm with offices in Palm Beach, Florida from June 1994 to April 1995 and served
in a similar capacity with Fine, Jacobson, Schwartz, Nash & Block, P.A., a
Miami, Florida law firm from January 1991 to May 1994.
Ms. Johnstone was a director and the Chairman of the Board from August
1995 to June 1996 when she resigned. Ms. Johnstone has been the president and
chief executive officer of A/R Mediquest since its inception in 1975.
Ms. Drella has been chief financial officer for the Company since April
1995 and was Chief Financial Officer for Westmark from February 1996 to June
1996. She was the controller of the Company from June 1993 until April 1995. Ms.
Drella served as a staff accountant at Jones & Hall, PA from 1992 to 1993. From
1991 through 1992, Ms. Drella served as controller of RCC Associates, Inc., a
general contracting firm that specialized in high end retail stores. Ms. Drella
is a certified public accountant.
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board. The Company's directors hold office
until the next annual meeting of shareholders and until their successors have
been duly elected and qualified.
OTHERS
The following individuals play a significant role in the Company's
operations.
Mr. Morton Floch joined the Company as senior vice president of managed
care in February 1996. From 1995-1996, Mr. Floch was the vice president of
market development of Physicians Healthcare Plans, Inc. From 1991 to 1995, Mr.
Floch was employed by CareFlorida, Inc., for three years as the vice president
of Medicare operations, then as the vice president of market development.
Mr. Bradley T. Ray has been a consultant promoting the Company since
August 1995. Mr. Ray consults on market making and public relations. For the
past 5 years, Mr. Ray has operated his own consulting business and handled his
personal investments. Mr. Ray is the son of the former Chairman of the Board,
Jean Johnstone. In 1991, Mr. Ray pled guilty to a single count of uttering a
misstatement to a Grand Jury in the United States District Court in Seattle,
Washington. Mr. Ray received a sentence of two years probation. See Item 12.
"Certain Relationships and Related Transactions."
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission ("SEC") the initial reports of ownership and reports of changes in
ownership and reports of changes in ownership of Common Stock, Officers,
Directors and greater than 10 percent shareholders are required by SEC
regulation to furnish the company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with during the year ended December 31, 1995 except that
the Company has no Reports on Form 3, Form 4 or Form 5 for Jean Johnstone, the
former Chairman of the Board and director of the Company and Reports on Form 4
for Harry Kobrin and Edwin F. Russo are delinquent.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and other executive officers for
services rendered to the Company during 1995. No other person, who, during 1995
served as an executive officer of the Company, had a total annual salary and
bonus in excess of $100,000.
<TABLE>
<CAPTION>
OTHER LTIP
NAME & PRINCIPAL SALARY ANNUAL OPTIONS PAYOUTS
POSITION(1)(2)(3)(4) YEAR ($) BONUS($) COMPENSATION /SARs(#) ($)
-------------------- ---- ------- -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Cornelius F. Wit (1) 1995 $83,043 0 0 0 0
Edwin F. Russo (2) 1995 17,308 0 0 0 0
Norman J. Birmingham (3)(5) 1995 21,461 0 0 0 0
Dawn Drella(5) 1995 61,185 0 0 0 0
</TABLE>
- -------------------------
1. Mr. Wit resigned from the Company as chief executive officer in August
1995, director in January 1996.
2. Mr. Russo was chief executive officer from August 1995 through November
1995. Does not include the use of a 1994 Sunbird valued at $150 per month.
Mr. Russo still has use of.
3. Mr. Birmingham was chief executive officer from November 1995 to the
present. Does not include approximately $6,195 in airfare to and from Mr.
Birmingham's home in Michigan.
4. Does not include approximately $10,000 earned by Ms. Johnstone, the
Company's former Chairman of the Board, serving as President of C.J.
Holding, Inc., a wholly owned subsidiary of the Company.
5. Does not include the use of a 1995 Mercedes Benz and a 1995 BMW /840Ci
provided to Mr. Birmingham and Ms. Drella, respectively by Westmark. The
cost to Westmark for use of these automobiles is $1,200 and $1,300 per
month respectively. Also does not include annual compensation from Westmark
of $87,500 and $20,000 for Mr. Birmingham and Ms. Drella, respectively and
$13,000 in compensation for Mr. Birmingham from Greenworld. Ms. Drella
resigned as Chief Financial Officer of Westmark in June 1996 and Mr.
Birmingham resigned as President and will no longer be employed by the
Company, effective with the filing of this Report.
EMPLOYMENT AGREEMENTS
In April 1996 the Company entered into 3 year employment agreements with
Harry Kobrin, as Executive Vice President and Dawn Drella, Chief Financial
Officer, pursuant to which they will receive base salaries of $120,000 and
$60,000 respectively. In addition, the Company provides Mr. Kobrin and
Ms. Drella with automobiles for a cost to the Company of $550 and $1,300 per
month, respectively.
COMPENSATION OF DIRECTORS
Pursuant to the Company's Director's Stock Option Plan, the Company's
independent directors (directors who are not employees of the Company) receive
an automatic grant of options to purchase 5,000 shares of the Company's Common
Stock upon election as director and an automatic grant of options to purchase an
additional 1,000 shares of common stock for each year of service thereafter, in
both instances at an exercise price equal to the fair market value of the
Company's Common Stock at the date of grant.
OPTION GRANTS DURING 1995 AND AGGREGATED FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS/SARS
OPTIONS/ GRANTED TO
SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
- ---- ----------- ----------------- ---------------- ----------
<S> <C> <C> <C> <C>
CORNELIS F. WIT 20,000 $1.50 03/13/00
100,000 $1.125 04/10/00
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE MONEY
FY-END (#) OPTIONS/SARS AT
FY-END ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------------ ------------------- -------------
CORNELIS F. WIT 20,000 $ 7,400 -- --
15,000 $13,050 85,000 (EXERCISABLE) $ 73,950
</TABLE>
LONG-TERM INCENTIVES PLANS
The Company does not have any long-term incentive plans.
EMPLOYEE STOCK OPTION PLAN
In May 1992, the Company adopted a Stock Option Plan (the "Plan") under
which 200,000 shares of common stock are reserved for issuance upon exercise of
options. The plan is designed to serve as an incentive for retaining qualified
and competent employees. The Company's Board of Directors or a Committee thereof
(the "Committee") administers and interprets the Plan and is authorized to grant
options thereunder to all eligible employees of the Company, including officers
and directors.
The Plan provides for the granting of both incentive Stock Options and
non-qualified stock options. Options are granted under the Plan on such terms
and at such a price as determined by the Committee, except that the per share
exercise price of incentive stock options cannot be less than the fair market
value of the Common Stock on the date of grant and the per share price of
non-qualified stock options will not be less than 85% of the fair market value
on the date of grant. Options granted under the Plan are not transferable other
than by will or interstate distribution and no option can be exercised until six
months after the date of grant or after the expiration of 10 years from the date
of grant. To date 125,000 options have been granted under the Plan.
DIRECTOR STOCK OPTION PLAN
In May 1992, the Company adopted a Director Stock Option Plan (the
"Director Plan") under which 20,000 shares of common stock are reserved for
issuance upon exercise of options. In July 1995, the shareholders approved to
increase the plan to 60,000 shares. The Director Plan is designed to serve as an
incentive for attracting and retaining qualified and competent Directors.
Pursuant to the Director Plan, each eligible Director is granted 5,000
shares when they are elected or appointed to the Board and on each Annual
Shareholders Meeting date thereafter, provided that on the annual grant date
there is still a director of the Company. The exercise price per share of the
options is the Fair Market Value of the shares underlying the Options on the
date of grant. Options granted under the Directors Plan are not transferable,
other than by will or interstate distribution and no option can be exercised
until six months after the date of grant or after 5 years from the date of
grant. In the event that the grantee ceases to be a Director due to (I) cause,
the options immediately expire; (ii) death, the option expires one year for the
Director's death; and any other reason, the option expires three months from the
date the grantee ceases to act as a Director. To date 35,000 options have been
granted under the Directors Plan.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company maintains a $3,000,000 Director and Officer and Company
Reimbursement Insurance Policy ("the Policy"). The Policy will pay the
judgments, damages, settlement and defense costs ("loss") of each director or
officer of the Company and reimburse the Company for any loss due to any alleged
breach of duty, neglect, error misstatement, misleading statement, omissions or
act by the Directors or Officers of the Company except losses arising out of or
in connection with, among other things (I) gaining personal profit or advantage;
(ii) criminal or deliberate fraudulent acts; (iii) self dealing; (iv) violations
of Section 16 (b) of the Securities Exchange Act of 1934 and amendments thereto
or similar state laws; (vi) certain corporate takeover transaction; (vii)
failure to maintain insurance; (viii) pending or prior litigation or actions
derived from the same facts as the pending or prior litigation (ix) violations
of the Environmental Protection Act or similar laws and, (x) violations of the
Employee Retirement Income Security Act of 1974 or amendments thereto or any
similar state or common law.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as of June 26,1996 as to each
person known by the Company to be the beneficial owner of more than 5% of the
Common Stock of the Company and as to the beneficial ownership of the Company's
Common Stock by each director of the Company and by all directors and executive
officers of the Company as a group:
SHARES OF PERCENTAGE
NAME AND BUSINESS ADDRESS COMMON STOCK OF CLASS
- ------------------------- ------------ ----------
Norman J. Birmingham
1903 S. Congress Avenue, Ste. 400 165,000(1) *
Boynton Beach, FL, 33426
Edwin F. Russo
1903 S. Congress Ave. Ste. 400 25,000(2) *
Boynton Beach, Florida 33426
Harry Kobrin
1903 S. Congress Ave. Ste. 400 682,829(3) 3.5%
Boynton Beach, Florida 33426
Dawn Drella 20,000(4) *
1903 S. Congress Ave. Ste. 400
Boynton Beach, Florida 33426
All Directors and Executive
Officers as a Group 892,829(1)(2)(3)(4) 4.6%
- -------------------------
* less than 1%
(1) Includes options to purchase 5,000 shares of common stock at $2.875 per
share.
(2) Includes options to purchase 5,000 shares of common stock at $1.312 per
share.
(3) Includes options to purchase 5,000 shares of common stock at $2.875 per
share. Also includes options to purchase 264,000 shares at $.375 per
share granted June 26, 1996.
(4) Includes options to purchase 10,000 shares of common stock at $3.25 per
share and 10,000 shares at $1.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION OF DIRECTORS
During October 1995, the Company issued a Form S-8 granting shares of
the Company's common stock to the following directors and former directors for
services rendered as advisors and consultants: Edwin F. Russo - 75,000 shares,
Frank Dolney - 75,000 shares, Budget Services (Mr. Birmingham is the sole
shareholder of Budget Services) - 25,000 shares, and Medical Industries
Consulting, Inc. (Jean Johnstone is a majority shareholder), 75,000 shares.
These shares were valued at $159,375, $159,375, $53,125 and $159,375. Mr.
Birmingham was not an officer or Director at the time that the Budget Services
shares were issued. These shares were issued for services rendered to Technomed.
Subsequent to year end, Mr. Dolney returned his shares to the Company.
WESTMARK GROUP HOLDINGS, INC.
In November 1995, the Company signed a Share Exchange Agreement with
Westmark, a publicly traded company (NASDAQ-WGHI), pursuant to which the Company
received a 49% interest or 1,298,388 shares of Westmark common stock in exchange
for $1,210,000 in cash and cash equivalents, a note payable in the amount of
$315,000 and 200,000 shares of the Company's Series B preferred stock, with a
stated value of $10. The Share Exchange Agreement provides that the Company's
49% interest will be maintained and that Westmark is obligated to issue
additional shares to maintain such ownership position.
The then officers of Westmark, Mr. Morrell and Ms. Linda Moore resigned
as officers and Mr. Morrell resigned as a director. Mr. Morrell was issued a
Heart Labs promissory note in the principal amount of $415,000, bearing interest
at a rate of 12% per annum, to repay a $415,000 advance previously made to
Westmark. Mr. Morrell has the right to convert all or a portion of this loan
into shares of the Company's common stock at a rate equal to 50% of the closing
bid price on the day preceding such conversion. The Company granted certain
registration rights in connection therewith. Ms. Moore was issued a Promissory
Note by the Company in the principal amount of $60,000, bearing interest at a
rate of 12% per annum, to repay a $60,000 advance previously made to Westmark.
Mr. Morrell and Ms. Moore presently act as consultants to the Company.
In the first and second quarter of 1996, the Company advanced to
Westmark additional financing of $2,143,000 to be used for Westmark's operations
and financing activities. The financing was to be provided in the form of short
term advances which the Company may, at its option, convert to equity. As of
the date of this Report, $700,000 has been converted to 10% convertible
preferred stock of Westmark.
In addition, Norman J. Birmingham, the Company's President, by contract,
devoted 50% of his time to the Company, served as Westmark's President and
operated Budget Services, Inc.. Mr. Birmingham's annual compensation from the
Company was $100,000, $87,500 from Westmark and $13,000 from Greenworld.
Effective with the filing of this Report, Mr. Birmingham will resign as the
Company's President.
Dawn M. Drella, the Company's Chief Financial Officer also devoted time
and served as Westmark's Chief Financial Officer until June 1996 when she
resigned.
ESCROW AGREEMENT
In September 1992, the Company's Pre-Initial Public Offering, the
("Escrow Holders")IPO shareholders, entered into an Escrow Agreement whereby an
aggregate of 950,000 shares of their Common Stock (903,450 of which are owned by
Marilyn Zinns, 722,690 are owned by the Acquiring persons and 46,550 of which
are owned by Milton H. Barbarosh) are being held in escrow until the date all
such shares are released to escrow holders or transferred to the Company in
accordance with the provisions described below (which provisions were amended
pursuant to shareholder approval in August 1994). The following number of shares
will be released to the escrow holders based on the level of the Company's
pre-tax earnings (with giving effect to any changes in earnings resulting from
the release of the shares) during 1996, with a maximum of 475,000 shares being
released:
IF PRE-TAX CUMULATIVE
EARNINGS EXCEED NO. OF SHARES RELEASED
--------------- ----------------------
1996 2,900,000 118,750
3,200,000 237,500
3,500,000 475,000
Alternatively, if the bid price at any time during 1996 exceeds $12.50 for a
minimum of thirty days, 475,000 shares will be released. Since the Company's
1994 and 1995 pre-tax earnings and the Company's common stock bid prices did not
reach the criteria levels necessary for return to the escrow holders, 475,000
are to be returned to the Company as treasury stock. Pending release of the
escrowed shares, (i) the escrow holders will retain all voting rights with
respect to such shares and (ii) dividends, if any, payable on such shares will
be held in escrow and be paid to the escrow holders and the Company in
proportion to the number of shares released to them. Any shares of Common Stock
that are not released pursuant to the foregoing provisions will be delivered to
the Company and such shares shall become treasury stock.
CHANGE IN CONTROL OF REGISTRANT
In May 1995, Edwin F. Russo, Edwin F. Russo II, Bradley T. Ray (the son
of Jean Johnstone, the former Chairman of the Company) and Frank Dolney (the
"Acquiring Persons") acquired an aggregate of 998,550 shares of common stock
from Marilyn Zinns. The Acquiring Persons reported the transaction on Form 13D.
The 13D also indicated that they acquired from Ms. Zinns the right to receive,
on a pro-rata basis, up to 722,690 of the Escrowed Shares, if and when such
shares are released under the terms of the Escrow Agreement and the immediate
right to vote 903,450 of the Zinn's escrowed shares. (See Escrow Agreement
above) Mr. Edwin F. Russo was then elected to the Company's Board of Directors.
Mr. Dolney and Mrs. Johnstone were later elected to its Board of Directors in
July 1995
In May 1996, the Acquiring Persons amended the Form 13D deleting the
previously asserted right to acquire the 722,690 additional shares and stating
that the proxy had been determined to be invalid.
TECHNOMED ACQUISITION
In August 1995, the Company completed a Share Exchange Agreement with
Technomed shareholders to acquire 100% ownership (7,422,500 shares of common
stock) of Technomed, Inc. for 2,739,00 3 unregistered shares of the Company's
common stock.
Three of the Company's directors at the time of the transaction, Edwin
F. Russo, Jean Johnstone and Frank Dolney directly or indirectly had an interest
in Technomed. Mr. Russo held 50,000 shares (.6%), Ms. Johnstone, personally and
through Medical Industries Consulting, Inc. and family members held 1,950,000
shares (26%) and Frank Dolney's wife D. Ann Jassen held 750,000 shares (10.1%)
of Technomed common stock. The transaction was approved by a majority of
unaffiliated directors of the Company.
JEAN JOHNSTONE AGREEMENT
In June 1996, the Company entered into an Agreement with Jean Johnstone,
the Company's Chairman of the Board and a director of the Company, whereby among
other things, the Company would facilitate, through a third party the purchase
of 400,000 shares of the Company's common stock from Ms. Johnstone at the
closing bid price per share of the Company's common stock as reported by NASDAQ
on the day prior to purchase. If the purchase price is not at least $284,000.71
the Company will issue Johnstone a convertible debenture in an amount equal to
the shortfall. The Company has agreed to register the shares underlying the
debenture. If a third party purchase cannot be facilitated in 120 days, the
Company will repurchase the shares at the price set forth above by issuance of a
Senior Promissory Note bearing interest at the rate of 8% per annum, paying
interest only, quarterly in arrears, with a balloon payment due June 7, 1997. In
addition, the Company purchased 21,000 shares from Ms. Johnstone at the purchase
price of $.87 for a total purchase price of $18,270.
The Company also granted Ms. Johnstone a five-year option to purchase
200,000 shares of the Company's common stock at $1.00 per share. The parties
executed mutual general releases and Ms. Johnstone resigned as Chairman of the
Board and a Director of the Company.
In April 1996, the Company issued a check to Ms. Johnstone in the amount
of $400,000. This sum was for the following: (i) partial payment for the
repurchase of stock, $13,851; (ii) AR Mediquest accrued salary, $33,603; and
(iii) repayment of her loan to C.J. Holding/AR/Mediquest , $352,546.
BRADLEY RAY AGREEMENT
In June 1996, the Company entered into an Agreement with Bradley Ray, as
consultant to the Company and the son of Ms. Johnstone whereby, among other
things, the Company would facilitate, through a third party the purchase of
300,000 shares of the Company's common stock from Mr. Ray at the closing bid
price per share of the Company's common stock as reported by NASDAQ on the day
prior to purchase. If the purchase price is not at least $214,285.71, the
Company will issue a one-year Convertible Debenture in the amount of the
shortfall. The Company has agreed to register the shares underlying the
Debenture. If a third party purchase cannot be facilitated in 120 days, the
Company will repurchase the shares as the price set forth above by the issuance
of a Senior Promissory Note, bearing interest at the rate of 8% per annum,
paying interest only, quarterly in arrears, with a balloon payment due June 7,
1997.
In addition the Company also granted one-year options to purchase
600,000 and 200,000 shares of the Company's common stock at $.34 per share and
$.40 per share, respectively. The Company agreed to register the shares
underlying the options.
The Company also issued Mr. Ray a one-year promissory note in the amount
of $700,000 for payment of commissions Mr. Ray earned as a consultant. The Note
will be reduced by the difference between the exercise price of the options and
the bid price as reported by NASDAQ on the day of exercise.
The parties also executed mutual general releases.
CONSULTING AGREEMENT
In June 1996, the Company entered into a 50-month consulting agreement
with Mr. Ray for a monthly consulting fee of $5,713 per month.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBITS DESCRIPTION
-------- ------------------
3.1 Amended and Restated Articles of Incorporation*
3.2 Amended and Restated Bylaws*
4.1 Form of Common Stock Certificate*
4.2 Form of Warrant Certificate*
4.3 Form of Underwriter's Warrant*
4.4 Form of Warrant Agreement*
10.1 Form of Indemnification Agreement between the Registrant* and
each of its directors and certain executive officers*
10.2 Form of agreement between the Company and its client* hospitals*
10.3 Master Lease Agreement, dated October 16, 1991, between the
Registrant and Comdisco Medical Leasing Group, Inc.*
10.4 Agreement between the Registrant and Northwest Broward Invasive
Cardiology Associates*
10.5 Promissory Note, dated December 9, 1992, executed by Joseph S.
Zinns, M.D. and Marilyn Zinns in favor of Northern Trust Bank of
Florida, N.A. (the "Bank"), Guaranty, dated December 9, 1992,
executed by and between the Registrant and the Bank. **
10.6 Financial Consulting Agreement *
10.7 Escrow Agreement, effective as of September 1, 1992, by and
among the Company, Joseph S. Zinns, M.D., Marilyn Zinns, Milton
Barbarosh and Broad and Cassel*
10.8 Technomed, Inc. Share Exchange Agreement***
10.9 Westmark Group Holdings, Inc. Agreement
10.10 Greenworld Technologies, Inc. Agreement
10.11 Employment Agreement -Harry Kobrin
10.12 Employment Agreement - Dawn M. Drella
10.13 Essential Care Share Exchange Agreement
10.14 Amendment to Essential Care Share Exchange Agreement
22 Subsidiaries of Heart Labs of America, Inc.
- --------------------------------------
* Incorporated by reference from the Exhibit with the same reference
number in the Company's Registration Statement.
** Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1992.
*** Previously filed as an exhibit to the Company Form 8-K dated August 23,
1995.
(b) Report on Form 8-K
None
<PAGE>
Heart Labs of America, Inc.
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheet
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
(Capital Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
GRANT-SCHWARTZ ASSOCIATES, CPA'S
40 Southeast 5th Street
Suite 500
Boca Raton, FL 33432
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Heart Labs of America, Inc.
We have audited the accompanying consolidated balance sheet of Heart Labs of
America, Inc. and Subsidiaries as of December 31, 1995 and the related
consolidated statements of income, shareholders' 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 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 financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates by management,, as well as evaluating the overall
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 Heart
Labs of America, Inc. and Subsidiaries as of December 31, 1995 and the results
of its consolidated operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from operations and currently has a shortage of working
capital. These raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ GRANT-SCHWARTZ ASSOCIATES, CPA's
Boca Raton, Florida
June 27, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Heart Labs of America, Inc.
We have audited the accompanying consolidated balance sheet of Heart Labs of
America, Inc. and subsidiaries as of December 31, 1994 and the related
consolidated statements of operations, shareholders' 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 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 financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
by management,, as well as evaluating the overall 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 Heart
Labs of America, Inc. and subsidiaries as of December 31, 1994 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 2 to the consolidated financial statements, the Company incurred operating
losses and has negative working capital at December 31, 1994. In addition, the
Company is in default on approximately $1.1 million of debt and capital lease
obligations for nonpayment of principal and interest. These conditions 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 2. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that might result from the outcome
of this uncertainty.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
March 17, 1995
<PAGE>
HEART LABS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
ASSETS
1995 1994
----------- -----------
CURRENT ASSETS
Cash and Cash Equivalents ...................... $ 24,431 $ 216,348
Accounts Receivable - Trade, Net of
Allowance for Doubtful Accounts
1995 $50,000; 1994 $1,220,000 ................. 456,361 421,311
Accounts Receivable - Other .................... 246,152 -0-
Current Maturities of Notes Receivable ......... 145,676 -0-
Inventories of Medical Supplies ................ 15,030 66,210
Refundable Income Taxes ........................ 80,198 137,316
Prepaid Expenses and Other Current Assets ...... 56,437 75,103
----------- -----------
Total Current Assets ....................... 1,024,285 916,288
----------- -----------
PROPERTY AND EQUIPMENT
Mobile Cardiac Catheterization
Laboratories and Medical Equipment ............ 2,805,124 4,123,727
Computer Software .............................. 824,719 -0-
Building and Building Improvement .............. 556,399 -0-
Furniture and Office Equipment ................. 325,971 271,808
Less: Accumulated Depreciation
and Amortization .............................. (2,561,937) (2,152,849)
----------- -----------
Total Property and Equipment ............... 1,950,276 2,242,686
----------- -----------
OTHER ASSETS
Investment in Westmark Group Holdings, Inc. .... 2,290,743 -0-
Notes Receivable, Less Current Maturities ...... 70,305 -0-
Goodwill, Net of Accumulated Amortization
1995 $15,712; 1994 $7,126 ..................... 926,990 202,670
Patent Rights, Net of Accumulated
Amortization 1994 $23,482 ..................... -0- 249,001
Other Assets ................................... 74,517 61,327
----------- -----------
Total Other Assets ......................... 3,362,555 512,998
----------- -----------
TOTAL ASSETS .......................... $ 6,337,116 $ 3,671,972
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
HEART LABS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
------------ -----------
CURRENT LIABILITIES
Notes Payable - Primarily to Related Parties .. $ 1,834,986 $ 75,472
Current Maturities of Long-Term Debt .......... 337,092 1,149,284
Current Maturities of Capital
Lease Obligations ............................ 617,103 49,335
Accounts Payable .............................. 825,090 659,054
Accrued Expenses .............................. 425,728 164,049
------------ -----------
Total Current Liabilities ................ $ 4,039,999 $ 2,097,194
------------ -----------
Long-Term Debt, Less Current Maturities ....... 349,511 9,952
------------ -----------
Capital Lease Obligation, Less
Current Maturities ........................... 247,418 94,792
------------ -----------
Minority Interest ............................. 31,880 33,157
------------ -----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred Stock, Authorized 5,000,000 shares:
Issued and Outstanding:
445,520 Series A Convertible Shares ........ -0- -0-
200,000 Series B Convertible Shares,
$10 stated value, less 98,000 shares
minority interest ......................... 1,020,000 -0-
Common Stock, No Par Value, Authorized
20,000,000: Issued and Outstanding
1995 9,136,898 Shares; 1994 3,144,702
Shares, Including 950,000 Escrow
Shares in 1995 and 1994 ..................... 12,518,733 4,463,959
Accumulated (Deficit) .......................... (11,870,425) (3,027,082)
------------ -----------
Total Shareholders' Equity ................. 1,668,308 1,436,877
------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ................... $ 6,337,116 $ 3,671,972
============ ===========
See Notes to Consolidated Financial Statements
<PAGE>
HEART LABS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31,
1995 1994
------------ -----------
REVENUE
Revenue from Operations ..................... $ 4,513,167 $ 3,582,968
Interest Income ............................. 4,868 120,562
Other Revenue ............................... -0- 20,303
------------ -----------
Total Revenue ........................... 4,518,035 3,723,833
------------ -----------
COST AND EXPENSES
Cost of Services ............................ 2,149,180 2,149,251
General and Administrative Expenses ......... 4,362,394 1,946,151
Depreciation and Amortization ............... 927,061 805,925
Provision for Bad Debts ..................... 542,525 745,051
Write-Off of Goodwill ....................... 4,043,197 560,482
Interest Expense ............................ 203,075 119,980
------------ -----------
Total Cost and Expenses ................. 12,227,432 6,326,840
------------ -----------
OTHER INCOME (EXPENSE)
Loss on Sale of Investments ................. -0- (92,360)
Loss on Disposal of Fixed Assets ............ (1,044,035) -0-
Write-Off of Notes Receivable and
Investment ................................. -0- (927,460)
Other ....................................... (89,911) -0-
(1,133,946) (1,019,820)
------------ -----------
(Loss) Before Income Tax Benefit ........ (8,843,343) (3,622,827)
------------ -----------
Provision for Income Tax Benefit .............. -0- (59,000)
Net (Loss) .............................. (8,843,343) (3,563,827)
(Loss) Per Common Share ....................... $ (2.08) $ (1.67)
============ ===========
Weighted Average Common Shares Outstanding,
Excluding Contingently Issuable Shares ...... 4,237,328 2,131,467
============ ===========
See Notes to Consolidated Financial Statements
<PAGE>
HEART LABS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK EARNINGS
SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL
-------- ---------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ........................ 668,280 $ -0- 2,050,000 $ 4,158,223 $ 509,494 $ 4,667,717
Shares issued in connection with acquisitions . -0- -0- 132,614 304,481 -0- 304,481
Shares issued in lieu of commissions .......... -0- -0- 12,090 34,909 -0- 34,909
Redemption of shares .......................... (222,760) 192,026 -0- -0- -0- 192,026
Redemption payment ............................ -0- (192,026) -0- -0- -0- (192,026)
Dividends on preferred stock .................. -0- -0- -0- (33,654) -0- (33,654)
Change in unrealized losses on investments
available for sale .......................... -0- -0- -0- -0- 27,251 27,251
Net (loss) .................................... -0- -0- -0- -0- (3,563,827) (3,563,827)
-------- ---------- --------- ------------ ------------ -----------
Balance, December 31, 1994 ...................... 445,520 -0- 2,194,704 4,463,959 (3,027,082) 1,436,877
Acquisition of Technomed, Inc. ................ -0- -0- 2,739,003 4,313,930 -0- 4,313,930
Shares issued in connection with investment
in Westmark Group Holdings, Inc. - Net of
minority interest ........................... 102,000 1,020,000 -0- -0- -0- 1,020,000
Shares issued for services .................... -0- -0- 1,318,676 1,416,132 -0- 1,416,132
Shares issued upon the exercise of options .... -0- -0- 205,000 280,000 -0- 280,000
Shares of common stock ........................ -0- -0- 901,857 806,800 -0- 806,800
Dividends on preferred stock .................. -0- -0- -0- (44,958) -0- (44,958)
Conversion of Technomed, Inc. preferred stock
into common stock of Heart Labs ............. -0- -0- 827,658 1,282,870 -0- 1,282,870
Net (loss) .................................... -0- -0- -0- -0- (8,843,343) (8,843,343)
-------- ---------- --------- ------------ ------------ -----------
Balance, December 31, 1995 ...................... 547,520 $1,020,000 8,186,898 $ 12,518,733 $(11,870,425) $ 1,668,308
======== ========== ========= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
HEART LABS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31,
1995 1994
----------- -----------
Cash Flows From Operating Activities
Net income (loss) ............................... $(8,843,343) $(3,563,827)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization ................. 927,061 805,925
Equity loss on investments .................... 61,863 -0-
Minority interest ............................. (1,277) (19,868)
Write-off of note receivable .................. -0- 300,000
Write-off of patent ........................... 249,001 -0-
Write-off of goodwill ......................... 4,043,197 560,482
Loss on disposition of property and equipment . 795,034 22,283
Common stock issued in lieu of commissions .... 1,416,132 34,909
Provision for bad debts ....................... 542,525 745,051
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable .................... (267,670) (588,630)
Inventories of medical supplies .............. 51,180 24,099
Prepaid expenses and other current assets .... 18,666 17,186
Refundable income taxes ...................... 57,118 (44,316)
Increase (decrease) in:
Accounts payable ............................. 32,210 373,412
Accrued expenses ............................. 202,761 (13,732)
----------- -----------
Net cash provided by (used in)
operating activities ..................... (715,542) (1,347,026)
----------- -----------
Cash Flows From Investing Activities
Disbursements for property and equipment ........ -0- (501,998)
Purchases of investments ........................ -0- (1,288,607)
Proceeds from sale of property and equipment .... 50,000 -0-
Purchase of Managed Home Recovery, Inc.,
U.S. BioInnovations, Inc. and KVM
Rehabilitation, Inc. .......................... -0- (326,563)
Decrease in other assets ........................ (13,190) 10,090
Purchase of investment in Westmark .............. (835,778) -0-
Sale of investments ............................. -0- 4,182,118
Net cash provided by (used in)
investing activities ...................... (798,968) 2,075,040
----------- -----------
Cash Flows From Financing Activities
Proceeds from long-term debt .................... -0- 41,450
Repayments on long-term debt and
capital lease obligations ...................... (589,902) (795,691)
Proceeds from notes payable ..................... 870,653
Payment of preferred dividends .................. (44,958) (33,654)
Redemptions payments ............................ -0- (192,026)
Issuance of notes receivable .................... -0- -0-
Proceeds from issuance of common stock .......... 1,086,800 -0-
----------- -----------
Net cash provided (used in)
financing activities ...................... 1,322,593 (979,921)
----------- -----------
Increase (decrease) in cash ................ (191,917) (251,907)
Cash and cash equivalents:
Beginning ....................................... 216,348 468,255
----------- -----------
Ending .......................................... $ 24,431 $ 216,348
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
HEART LABS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31,
1995 1994
-------- ---------
Supplemental Disclosure of Cash Flow Information
Cash payments for interest .......................... $154,689 $ 125,037
======== =========
Assets acquired and related obligations incurred
in connection with capital lease obligations ........ $ 411,665
=========
Noncash aspects of the acquisition of
KVM Rehabilitation, Inc.
Fair value of assets acquired ..................... $ 681,335
Liabilities assumed ............................... (703,414)
Fair value of common stock issued
at acquisition ................................... (304,481)
----------
Cash paid at acquisition .......................... $(326,560)
=========
On October 24, 1995, the Company exchanged 827,658 common shares of the Company
valued at $1,282,870 to acquire assets totaling $834,678 and certain liabilities
totaling $494,510 of Essential Care Medical Centers and Prime Dental Centers.
The excess of the purchase price over the fair value of net assets acquired has
been recorded as goodwill.
On August 23, 1995, the Company exchanged 2,739,003 common shares of the Company
valued at $4,313,930 to acquire assets totaling $961,716 and liabilities of
$609,669 of Technomed. The excess of the purchase price over the fair value of
net assets acquired has been recorded as goodwill.
In December 1995, the Company acquired a 49% interest in the common stock of
Westmark Holdings, Inc. for $1,525,000 in cash and note payable and 200,000
shares of Class B convertible preferred stock with a stated value of $10.00 per
share.
HEART LABS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Heart Labs of America, Inc. ("Heart Labs" or the "Company"), incorporated in the
State of Florida on September 29, 1989 and commenced operations on February 27,
1990. The Company's primary business is providing mobile cardiac catheterization
services to hospitals on a shared-user basis and managed care centers (1995).
During 1994 and for the first seven months of 1995, the Company provided
neurological testing services through its wholly-owned subsidiary, Cortex
Diagnostic Services, Inc. ("Cortex") and the rental of Continuous Passive Motion
("CPM") units through its wholly-owned subsidiaries, HLA Acquisition Corp. d/b/a
KVM Rehabilitation, Inc. ("KVM"), U.S. BioInnovations, Inc. ("BIO") and Managed
Home Recovery, Inc. ("MHR"). During the third quarter of 1995, the Company sold
its CPM and neurological testing operations (See Note 8).
In August 1995, the Company acquired Technomed, Inc., a company which provides
management and hospital information systems through its wholly-owned
subsidiaries, CJ Holdings, Inc. ("CJH")and Sysdacomp, Inc. ("Sysdacomp"). In
October 1995, the Company acquired Essential Care Medical Centers, Inc.
("Essential") and Prime Dental Centers, Inc. ("Prime"). Essential and Prime
specialize in managed care (See Note 4).
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Heart Labs, CJH,
Sysdacomp, Essential, Prime,Cortex, BIO, KVM, MHR and Northwest Broward Invasive
Cardiology Associates, a 95%-owned partnership. All intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid debt instruments
with a maturity of three months or less.
ESTIMATES
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORIES OF MEDICAL SUPPLIES
Inventories of medical supplies are stated at the lower of cost, determined on
the first-in, first-out method, or market.
INVESTMENT IN WESTMARK GROUP HOLDINGS, INC.
The Company is accounting for its investment in Westmark Group Holdings, Inc.
("Westmark"), a 49%-owned affiliate, by the equity method of accounting under
which the Company's share of the net income (loss) of Westmark is recognized as
income (loss) in the Company's statement of operations and added (subtracted) to
the investment account, and dividends received from Westmark are treated as a
reduction of the investment account (see Note 5).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Amortization
of property held for lease is included in depreciation and amortization expense
and is provided using the straight-line method over the shorter of the lease
term or estimated useful lives of the assets. Mobile cardiac catheterization
laboratories and medical equipment at December 31, 1995 and 1994 consists of the
following:
1995 1994
---------- ----------
Property and equipment owned ...................... $1,464,430 $2,168,100
Property and equipment held under capital leases .. 1,340,694 1,955,627
---------- ----------
$2,805,124 $4,123,727
========== ==========
INTANGIBLE ASSETS
Goodwill and patents right are recorded at cost and are amortized using the
straight-line method over ten years.
The Company periodically evaluates the recovery of the carrying amount of
intangibles by determining if any impairment indicators are present. These
indicators include management's plans for the division, income derived from
business acquired and other factors. If this review indicates that intangibles
will not be recoverable, as principally determined based on the estimated
undiscounted cash flows of the entity over the remaining amortization period,
the Company's carrying value of the intangibles is reduced by the estimated
shortfall of cash flows.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforward and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
LOSS PER COMMON SHARE
Loss per common share is calculated by dividing net loss by the weighted average
common shares outstanding, excluding contingently issuable shares. Contingently
issuable shares (950,000 common shares associated with the Escrow Agreement -
see Note 3) are considered common stock equivalents and have been excluded from
the primary loss share computation since the conditions for their issuance have
not been met. The effect of contingently issuable shares on fully diluted loss
per common share is antidilutive. Also, stock purchase warrants underlying
710,000 common shares, Directors Stock Options underlying 60,000 common shares,
Employee Stock Options underlying 400,000 common shares and other stock options
(not issued under either the director or employee plans) underlying 150,000
common shares have been excluded from the primary (loss) earnings per share
computation since the conditions for common stock issuance have not been met and
their effect on primary and fully diluted loss per common share are made on the
same basis.
REVENUE
The Company has agreements with hospitals for the hospitals' use of mobile
cardiac catheterization units and staff, and receives revenue based upon
contracted prices. Terms of the agreements vary and range from periods of
approximately four months to five years.
Cortex, BIO, KVM and MHR report net patient service revenue at the estimated net
realizable amounts from the third-party and others for services rendered.
Changes in the estimated reimbursement are reported in operations in the year of
settlement.
Essential and Prime have contracts with Health Maintenance Organizations ("HMO")
and also receive revenue from fee for service patients.
Sysdacomp and CJH have agreements with hospitals to purchase and support the
software that they sell to the hospitals.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 financial statements to
conform with the 1995 presentation.
2. CONTINUING OPERATIONS
The Company's consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company reported net losses
of $8,843,343 and $3,563,827 for the years ended December 31, 1995 and 1994,
there is a significant negative working capital deficiency at December 31, 1995
and 1994 and negative cash flows from operating activities for the years ended
December 31, 1995 and 1994. In addition, at March 17, 1995, the Company was in
default on $1.1 million of debt and capital lease obligations for nonpayment of
principal and interest.
Under the current circumstances, the Company's ability to continue as a going
concern depends on its ability to implement stringent cost controls, increase
marketing efforts in forder to increase revenue, to obtain profitable operations
through acquisitions and its ability to raise sufficient capital. There can be
no assurance that the Company's efforts will be successful. If the Company is
unsuccessful in its efforts, it may be unable to meet its obligations, making it
necessary to undertake such other actions as may be appropriate to preserve
asset values.
3. ESCROW AGREEMENT
On September 1, 1992, all the shareholders of the Company entered into an escrow
agreement whereby an aggregate of 950,000 of the 2,000,000 common shares then
outstanding (the Escrow Shares) were placed in escrow, on a pro rata basis
commencing on the effective date of the initial public offering (IPO) of the
Company's common stock. During 1994, the Company's shareholders approved
extending the escrow agreement through 1996. These shareholders will continue to
vote the Escrow Shares which shall not be assignable or transferable.
The Escrow Shares will be released to the shareholders only if either of the
following conditions are met: (1) the Company's income before income taxes
during 1994, 1995 and 1996 exceed certain defined levels. The following number
of shares will be released to the shareholders based on the level of the
Company's income before income taxes (without giving effect to any changes in
earnings resulting from the release of the shares) during each of calendar years
1994, 1995 and 1996, with a maximum of 475,000 shares being released in any such
year:
IF INCOME
BEFORE CUMULATIVE
INCOME NUMBER
TAXES OF SHARES
EXCEEDS RELEASED
------------ ------------
1996 $2,900,000 118,750
3,200,000 237,500
3,500,000 475,000
or (2) if the bid price of the common stock exceeds $12.50 at any time prior to
December 31, 1996, 475,000 escrow shares will be released to the shareholders.
If neither of the foregoing conditions are met for December 31, 1996, all Escrow
Shares will be forfeited and contributed to the capital of the Company.
Release of the Escrow Shares is not considered compensatory since all
shareholders have placed shares in escrow on a pro rata basis, voting rights are
retained, accumulation of dividends during the escrow period is permitted and
return of Escrow Shares is not contingent upon or related to future employment
or association with the Company. In the event of the Company's future
profitability or upon release of the shares from escrow due to an increase in
the market price levels of the common stock, the Escrow Shares will be
considered in the calculation of earnings per share with appropriate restatement
of prior periods.
No shares were released in 1995 and 1994, as the conditions for release were not
met.
4. BUSINESS ACQUIRED
On October 24, 1995, the Company exchanged 827,658 shares of the Company's
common stock in exchange for all of the assets and business operations of
Essential Care Medical Centers, Inc. ("Essential") and Prime Dental Care, Inc.
("Prime"). The acquisition has been accounted for using the purchase method of
accounting and the net assets and results of operations for Essential and Prime
are included in the Company's consolidated financial statements from the date of
acquisition. The excess of the purchase price over the fair market value was
$942,702.
On August 23, 1995, the Company acquired, through a share exchange agreement,
Technomed, Inc., a Florida corporation. The Company issued 2,739,003 shares of
the Company's common stock in exchange for 7,422,500 shares of Technomed common
stock. The acquisition has been accounted for using the purchase method of
accounting, and the net assets and results of operations of Technomed are
included in the Company's consolidated financial statements from the date of
acquisition. The excess of the purchase price over the fair market value of the
net assets acquired of approximately $3,961,885 was recognized as goodwill (See
Note 6).
Effective February 15, 1994, the Company acquired substantially all of the
assets and liabilities of KVM Rehabilitation, Inc. of Houston, Texas, an
original equipment supplier of durable medical equipment, for $300,000
(excluding acquisition costs of $27,000) in cash and 64,240 shares of the
Company's common stock, valued at approximately $185,000. As part of the
acquisition, the Company acquired the exclusive right and license to a
Temporomandibular joint device that is patented under United States Patent No.
4,883,046. Pursuant to a License Agreement, as amended and assigned to the
Company, the Company is obligated to pay 5% of the net revenues received by the
Company for each device sold and/or rented and any patented attachments sold
and/or rented by the Company, with minimum royalties set for the year 1994. The
acquisition has been accounted for using the purchase method of accounting, and
the net assets and results of operations are included in the Company's
consolidated financial statements beginning February 15, 1994. The excess of the
aggregate purchase price over the fair market value of the net assets acquired
of approximately $291,000 was recognized as an increase in the value of the
patent right acquired. KVM was sold in 1995 (see Note 8).
In addition, the Company completed two smaller acquisitions during 1994, BIO in
May 1994 and MHR in October 1994. The acquired companies rent continuous passive
motion devices to individuals. These two acquisitions were purchased for
approximately $208,000 consisting of $59,000 of notes payable and 68,374 shares
of the Company's common stock valued at approximately $149,000. The acquisitions
have been accounted for using the purchase method of accounting, and the net
assets and results of operations are included in the Company's consolidated
financial statements from the dates of acquisition. The excess of the aggregate
purchase price over the fair market value of the net assets acquired for these
acquisitions of approximately $212,000 was recognized as goodwill. Both BIO and
MHR were sold during 1995 (see Note 8).
The following unaudited pro forma summary presents the consolidated results of
operations as if all acquisitions had occurred on January 1, 1994, after giving
effect of certain adjustments, including amortization of goodwill and related
income tax effects. The pro forma financial information does not purport to be
indicative of the results of operations that would have occurred had the
transactions taken place at the beginning of the periods presented or of future
results of operations.
1995 1994
----------- -----------
Net Revenue .......................... $ 5,741,976 $ 5,692,264
Net loss ............................. (9,033,057) (4,718,887)
Loss per common share ................ $ (.98) $ (.81)
5. INVESTMENT IN WESTMARK GROUP HOLDINGS, INC.
In December 1995, the Company acquired a 49% interest in the common stock of
Westmark Group Holdings, Inc. for $1,525,000 in cash and notes payable and
200,000 shares of Class B convertible preferred stock with a stated value of
$10.00 per share.
Condensed financial information of Westmark Group Holdings, Inc. as of and for
the year ended December 31, 1995 is as follows:
ASSETS
Current Assets
Cash and cash equivalents ............................... $ 311,916
Mortgage loans held for sale ............................ 19,480,029
Note receivable, Heart Labs ............................. 374,222
Other current assets .................................... 10,206
------------
Total Current Assets ............................. 20,176,373
Property and Equipment, Less Accumulated
Depreciation of $434,411 .................................. 402,654
Investment in Real Estate ................................. 2,115,000
Investment in Preferred Stock of Heart Labs ............... 2,000,000
Other Assets, Primarily Goodwill .......................... 816,131
------------
$ 25,510,158
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Warehouse Line-of-credit ................................ $ 18,625,866
Other notes payable and
convertible debentures ................................. 717,818
Settlement liability .................................... 419,348
Accounts payable and other
current liabilities .................................... 2,457,599
------------
Total Current Liabilities ........................ 22,220,631
------------
Total Long-Term Liabilities ............................... 1,698,323
------------
Stockholders' Equity
Common stock, no par value,
3,333,333 shares authorized;
2,632,772 shares issued and outstanding ................... 23,165,937
Additional paid-in capital from
outstanding options and warrants ....................... 1,153,688
Accumulated (deficit) ................................... (22,728,421)
------------
1,591,204
------------
$ 25,510,158
============
Revenues .................................................. $ 3,081,900
Expenses .................................................. 10,569,960
------------
Net Loss ......................................... $ (7,488,060)
============
The carrying value of the Company's investment exceeded its share of the
underlying equity in the net assets of Westmark Group Holdings, Inc. by
$2,736,285 at December 31, 1995. This amount is being amortized over 10 years by
the straight-line method. Amortization in 1995 was $9,025 and is included as an
adjustment to the Company's equity in the earnings of Westmark Group Holdings,
Inc.
As of December 31, 1995, the net assets of Westmark Group Holding, Inc. included
$2,000,000 of the Class B convertible preferred stock of Heart Labs and a
$374,222 note receivable from Heart Labs. The investment in Westmark Group
Holdings, Inc. as of December 31, 1995 has been adjusted to eliminate Heart Labs
49% interest in these net assets. A summary of the investment at December 31,
1995 is as follows:
Equity in net assets ....................................... $ 717,827
Unamortized excess of purchase price over
equity in net assets ..................................... 2,736,285
Elimination of interest in note receivable ................. (183,369)
Elimination of interest in Heart Labs Class B
convertible preferred stock .............................. (980,000)
-----------
Investment in Westmark Group Holdings, Inc. ................ $ 2,290,743
===========
6. WRITE-OFF OF GOODWILL
In connection with the Company's acquisition of Technomed, due to operating
losses and estimated shortfalls of cash flows, management believes that the
recoverability of goodwill is questionable. Consequently, unamortized goodwill
of approximately $3,961,885 has been charged to expense during the year ended
December 31, 1995.
Additionally during 1995, unamortized goodwill of $81,312 has been charged to
expense as a result of the sale of BIO (see Note 8).
In January 1995, due to its continuing operating losses, management determined
that the recoverability of goodwill relating to Cortex was questionable.
Consequently, unamortized goodwill of approximately $560,000 has been charged to
expense during the year ended December 31, 1994. Cortex was sold in 1995 (see
Note 8).
7. CUSTOMERS AND CREDIT CONCENTRATION
The Company has a contract with one hospital that accounts for approximately 16%
and 20% of revenue in 1995 and 1994, respectively and will expire in February
1997. During 1995 and 1994, the Company derived its revenue primarily in
Florida, Texas, Ohio and Pennsylvania. At December 31, 1994, approximately 10%
and 9% of accounts receivable was due from Blue Cross and Medicare,
respectively.
8. BUSINESS DISPOSED
In July 1995, the Company settled the lawsuit brought by Thera-Kinetics by
selling to TheraKinetics, substantially all of its CPM operations (including
KVM, BIO and Acrotronics Rehabilitation Services, Inc.). Consideration for the
sale included a note in the amount of $250,000 for the purchase of all medical
assets, except accounts receivable, and the assumption of certain equipment
leases. The note is currently in default and the Company is pursuing all
available legal remedies to enforce the collection of the note. As the leases
were not assignable, the Company has recorded a lease obligation and a
receivable due from Thera-Kinetics for such leases. A loss on the sale of
$554,359 was recognized during the year ended December 31, 1995.
Additionally, during July 1995 the Company sold the assets of Cortex to
Neurological Diagnostic Centers, Inc. Consideration for the sale included, but
was not limited to, a note in the amount of $25,000. Loss on the sale of $25,938
was recognized during the year ended December 31, 1995, in addition to the
goodwill write-off of $560,000 in 1994.
In September 1995, the Company sold the business operations of MHR to Victoria
Hawley. Consideration for the sale included, but was not limited to, notes in
the approximate amount of $138,000. This figure is netted with an allowance of
approximately $57,000 due to contingencies written in the notes. Loss on the
sale of $197,529 was recognized during the year ended December 31, 1995.
9. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt as of December 31, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Notes payable, related party:
Notes payable to officers and directors, noninterest-
bearing, due on demand .................................................................... 561,046 -0-
Notes payable to a trust administered by an officer,
noninterest-bearing, due on demand ........................................................ 19,000 -0-
Notes payable to a trust administered by an officer,
payable interest only at 12%, with balloon payments
of $50,000 due in February 1996 and $100,000 due
in March 1996 ............................................................................. 150,000 -0-
Note payable to a trust administered by an officer,
principal and interest at 10%, due in April 1996 .......................................... 13,000
Note payable, net to Westmark Group Holdings, Inc., principal
and interest at 10%, due in January 1996 (see Note 4) ..................................... 190,853 -0-
Note payable to a stockholder, principal and interest at
10%, due in March 1996 .................................................................... 253,750 -0-
Note payable to an affiliated company, principal and
interest at 10%, due March 1996 ........................................................... 50,000 -0-
Notes payable to a stockholder, interest payable at
10%, with balloon payments of $90,000 plus interest due
in February 1996 and $55,903 plus interest due in
March 1996 ................................................................................ 145,903 -0-
8% note payable to a former owner of MHR ............................................ 58,737
Notes payable, other:
Note payable in default at December 31, 1995, principal and interest at 18%,
due on demand, collateralized by accounts receivable, leaseholds, chattel
paper, general intangibles
and contract rights ....................................................................... 300,000 -0-
Note payable in default at December 31, 1995, cured
subsequent to year-end, principal and interest
at 10%, due on demand ..................................................................... 73,811 -0-
Note payable, noninterest -bearing, due on demand .......................................... 60,000 -0-
Other ...................................................................................... 17,623 16,735
---------- ----------
$1,834,986 $ 75,472
========== ==========
Long-term debt, related party:
Note payable to a stockholder, payable interest only at 12%, with balloon
payments ranging for $50,000 to $115,000 due between January 1996 and
December 1997, convertible to unregistered common stock of Westmark at a
price of 50% of the closing bid price on the day preceding the conversion,
exchangeable into common stock of Heart Labs on a share-for-
share basis ............................................................................... $ 415,000 $ -0-
NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt, other:
Note payable to a bank, payable in monthly installments of $1,420 including
interest at the bank's prime rate (8.5% as of December 31, 1995) plus 2%
balance due in November 2001,
collateralized by building ................................................................ 92,369 -0-
Note payable, payable in monthly installments of $636 including
interest at 12%, balance due in December 1998, collateralized
by building ............................................................................... 48,895 -0-
Other ...................................................................................... 23,245
Note payable in default at December, 1995 and 1994, payable in monthly
installments of $589 including interest at 12.172%,
balance due in July 2004 .................................................................. 38,201 39,112
$75,000 revolving credit agreement in default at December 31, 1994, repaid
in 1995, interest at the bank's prime rate plus 2% (10.5% at December 31, 1994)............ -0- 62,500
9.5% note payable in default at December 31, 1994, assigned in 1995
as part of sale of MHR .................................................................... -0- 93,333
Other ...................................................................................... 92,138 -0-
Capital lease obligations in default ....................................................... -0- 941,046
---------- ----------
686,603 1,159,236
Less current maturities and debt and capital leases in default................................ 337,092 1,149,284
---------- ----------
$ 349,511 $ 9,952
========== ==========
</TABLE>
Aggregate maturities required on long-term debt as of December 31, 1995 are as
follows:
YEAR ENDED
DECEMBER 31, AMOUNT
------------ --------
1996 $337,092
1997 202,965
1998 69,966
1999 18,294
2000 17,457
Thereafter 40,829
--------
$686,603
========
10. LEASES
AS LESSEE:
The Company has capital leases for a mobile cardiac catheterization laboratory
and other medical equipment with a cost of $1,340,694 and $1,770,830 as of
December 31, 1995 and 1994, respectively. Accumulated depreciation on these
assets totaled $1,013,295 and $795,659 as of December 31, 1995 and 1994,
respectively. In 1995, the Company also has capital leases for medical equipment
which it is subleasing to former affiliates under direct-financing leases. The
Company's net investment in these subleases is $246,152 as of December 31, 1995.
In consideration of entering into the mobile laboratory lease, the Company
agreed that the monthly rentals under the lease have priority over any
withdrawals of funds, other than regular salaries, by the stockholders of the
Company. The Company's service agreements and accounts receivable are collateral
under the lease. Additionally, a pre-IPO stockholder has pledged shares in the
common stock of the Company and is a guarantor under the lease.
Capital lease obligations in default amounted to $777,205 and $941,046 at
December 31, 1995 and 1994, respectively. All such defaults have been cured
subsequent to December 31, 1995.
The Company leases one of its premises under an operating lease. The lease
expires in June 1999 and requires monthly payments of $3,030. The Company has
the option to renew the lease for an additional five years. The Company leases
two other premises under month-to-month operating leases.
Future minimum payments, under the capital leases and noncancelable operating
leases with terms of one year or more consisted of the following as of December
31, 1995:
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- ------------ -------- --------
1996 ............................................... $712,003 $ 36,366
1997 ............................................... 193,417 36,366
1998 ............................................... 35,889 36,366
1999 ............................................... 21,936 18,183
2000 ............................................... 6,559 -0-
-------- --------
Total lease payments ............................... 969,804 $127,281
========
Less amounts representing interest ................. 105,283
--------
Present value of net minimum lease payments ........ $864,521
========
Rent expense for the years ended December 31, 1995 and 1994 totaled $121,925 and
$88,060, respectively.
AS LESSOR
The Company leases medical equipment to former affiliates accounted for as
direct-financing leases. The leases expire in various dates through June 2000.
The following is an analysis of the components of the leases included in
accounts receivableother net investment in direct-financing leases as of
December 31, 1995.
Total minimum lease payments to be received ................... $301,769
Less unearned income .......................................... 55,617
--------
Net investment in direct-financing leases ..................... 246,152
Less current portion of net investment ........................ 82,705
--------
Long-term net investment ...................................... $163,447
========
Future minimum payments to be received under the direct-financing leases consist
of the following as of December 31, 1995:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
1996 $108,176
1997 129,134
1998 35,889
1999 21,936
2000 6,634
--------
$301,769
========
11. INCOME TAXES
The income tax benefit credit to continuing operations for the years ended
December 31, 1995 and 1994 was as follows:
1995 1994
-------- ------
Current:
Federal .................................. -0- $ (59,000)
State .................................... -0- -0-
----- --------
-0- (59,000)
----- --------
Deferred:
Federal .................................. -0- -0-
State .................................... -0- -0-
-----
-0- $ (59,000)
========
The amounts shown for income taxes for 1994 differ from the amount that would be
derived from computing income taxes attributable to operations at the U.S.
Federal Statutory tax rates as follows:
1994
----
Tax at U.S. Federal Statutory rates on pretax income ....... (34.0)%
Effect of alternative minimum tax .......................... --
Excess loss carryforwards .................................. --
Nontaxable insurance proceeds .............................. --
State income taxes ......................................... (4.0)
Valuation allowance adjustment ............................. 36.0
-----
Effective income tax rate .................................. (2.0)%
=====
At December 31, 1994, the Company had net operating loss carryforwards of $2.7
million that will expire in the years 2008 and 2009. A portion of these net
operating loss carryforwards have been used to reduce deferred income taxes
which will be reinstated upon utilization of the net operating loss
carryforwards. The components of deferred income taxes for the year ended
December 31, 1994 is as follows:
Deferred tax assets:
Benefit of net operating losses ............ $1,113,000
Bad debt allowance ......................... 307,000
Difference in basis of goodwill ............ 251,000
Difference in basis of fixed assets ........ 49,000
----------
1,720,000
Valuation allowance .............................. (1,709,000)
Deferred tax liabilities:
Other ...................................... (11,000)
----------
$ -
----------
The Company has capital loss carryforwards of approximately $1,002,000 as of
December 31, 1995 which expire in 2000. These capital losses can only be
deducted against future capital gains of the Company.
As of the date of the report, the Company has not filed its 1994 U.S. federal
income tax return. No tax liability is anticipated.
The net change in the valuation allowance for the year ended December 31, 1994
was $1,592,000.
12. STOCK OPTION AND WARRANT PLANS
The Company has two stock option plans, an Employee Stock Option Plan (Employee
Plan) and a Director Stock Option Plan (Director Plan). The Compensation
Committee of the Company's Board of Directors administers and interprets the
plans and is authorized to grant options thereunder to all eligible employees of
the Company, including officers and directors (whether or not employees) of the
Company. The Company intends to grant to each of its outside directors 1,000
shares for each year of service, exercisable at the fair market value of the
common stock on the date of the grant. Transactions involving the stock option
plans are summarized as follows:
EMPLOYEE DIRECTOR
PLAN PLAN
-------- -------
Shares under option:
Outstanding, January 1, 1994 ...................... 30,000 18,000
Granted ........................................... 30,000 7,000
Terminated ........................................ (15,000) -0-
-------- -------
Outstanding, December 31, 1994 .................... 45,000 25,000
Granted ........................................... 110,000 60,000
Exercised ......................................... (15,000) (25,000)
Terminated ........................................ (15,000) (25,000)
-------- -------
Outstanding, December 31, 1995 .................... 125,000 35,000
======== =======
Options available to grant at December 31, 1995 ..... 275,000 25,000
======== =======
EMPLOYEE DIRECTOR
PLAN PLAN
------------ ----------
Average option price per share:
At December 31, 1994 ................ $ 4.14 $ 4.58
At December 31, 1995 ................ 1.825 2.67
Options exercisable:
At December 31, 1994 ................ 35,000 18,000
At December 31, 1995 ................ 125,000 25,000
Average price of options exercised:
At December 31, 1994 ................ -- --
At December 31, 1995 ................ $ 1.125 $ 1.45
During 1995, the Company amended its Director Plan to increase the number of
shares available for grant from 20,000 shares to 60,000 shares.
During 1993, the Company granted to three directors options to purchase an
aggregate of 150,000 shares of the Company's common stock. These options were
not granted in connection with either of the two plans described above. The
options are exercisable through April 23, 1998 at an exercise price of $5.00 per
share.
The Company also has outstanding warrants to purchase 710,000 common shares as
of December 31, 1995 and 1994 at an exercise price varying between $4.44 and
$6.50 per share.
Warrants representing 650,000 common shares were granted in connection with the
Company's IPO and are exercisable through September 24, 1996. These warrants are
redeemable in total by the Company commencing March 24, 1994 (18 months from the
effective date of the IPO) at such time as the market price of the common stock
has exceeded the warrant exercise price by 20% for a period of 20 consecutive
business days. The redemption price is $.01 per warrant upon 30 days' written
notice. The warrants may be exercised any time prior to the expiration of the
30-day redemption notice period. During 1995, the Company lowered the exercise
price on these warrants from $6.50 to $3.00.
Warrants representing 60,000 common shares are exercisable through May 1, 1996,
at a price of $5 per share.
No warrants were granted in 1995 or 1994.
Shares of common stock reserved for future issuance at December 31, 1995 are as
follows:
Employee Plan ......................................... 400,000
Director Plan ......................................... 60,000
Other options ......................................... 150,000
Warrants .............................................. 1,360,000
---------
1,970,000
=========
The shares of common stock reserved for future issuance above do not include any
amounts reserved for future conversion of preferred stock.
13. PROFESSIONAL LIABILITY INSURANCE
The Company maintains its professional liability insurance with an independent
commercial insurance company. Professional liability coverage is on a
claims-made basis. The Company has not experienced any historical professional
liability losses.
14. MINORITY INTEREST
The minority interest represents the 5% interest of an unrelated third party who
purchased a 5% interest of one of the Company's mobile cardiac catheterizations
units for $75,000.
15. RELATED PARTY TRANSACTIONS
During October 1995, the Company issued a Registration Statement issuing an
aggregate of 250,000 shares to directors of the Company and certain corporations
owned by certain directors.
JEAN JOHNSTONE
In June 1996, the Company entered into an Agreement with Jean Johnstone, the
Company's Chairman of the Board and a director of the Company, whereby among
other things, the Company would facilitate, through a third party the purchase
of 400,000 shares of the Company's common stock from Ms. Johnstone at the
closing bid price per share of the Company's common stock as reported by NASDAQ
on the day prior to purchase. If the purchase price is not at least $284,000.71
the Company will issue Johnstone a convertible debenture in an amount equal to
the shortfall. The Company has agreed to register the shares underlying the
debenture. If a third party purchase cannot be facilitated in 120 days, the
Company will repurchase the shares at the price set forth above by issuance of a
Senior Promissory Note bearing interest at the rate of 8% per annum, paying
interest only, quarterly in arrears, with a balloon payment due June 7, 1997. In
addition, the Company purchased 21,000 shares from Ms. Johnstone at the purchase
price of $.87 for a total purchase price of $18,270.
The Company also granted Ms. Johnstone a five-year option to purchase 200,000
shares of the Company's common stock at $1.00 per share. The parties executed
mutual general releases and Ms. Johnstone resigned as Chairman of the Board and
Director of the Company.
In April 1996, the Company issued a check to Ms. Johnstone in the amount of
$400,000. This sum was for the following; (i) partial payment for the repurchase
of stock, $13,851; (ii) AR Mediquest accrued salary, $33,603; and (iii)
repayment of her loan to C.J. Holding/AR/Mediquest, $342,546.
In June 1996, the Company entered into an Agreement with Bradley Ray, as
consultant to the Company and the son of Ms. Johnstone whereby, among other
things, the Company would facilitate, through a third party the purchase of
300,000 shares of the Company's common stock from Mr. Ray at the closing bid
price per share of the Company's common stock as reported by NASDAQ on the day
prior to purchase. If the purchase price is not at least $214,285.71, the
Company will issue a one-year Convertible Debenture in the amount of the
shortfall. The Company has agreed to register the shares underlying the
Debenture. If a third party purchase cannot be facilitated in 120 days, the
Company will repurchase the shares as the price set forth above by the issuance
of a Senior Promissory Note, bearing interest at the rate of 8% per annum,
paying interest only, quarterly in arrears, with a balloon payment due June 7,
1997.
In addition, the Company also granted one-year options to purchase 600,000 and
200,000 shares of the Company's common stock at $.34 per share and $.40 per
share, respectively. The Company agreed to register the share underlying the
options.
The Company also issued Mr. Ray a one-year promissory note in the amount of
$700,000 for payment of commissions Mr. Ray earned as a consultant. The Note
will be reduced by the difference between the exercise price of the options and
the bid price as reported by NASDAQ on the day of exercise.
The parties also executed mutual general releases.
CONSULTING AGREEMENT
During 1995, the Company incurred professional fees, paid in the form of common
stock, $50,000 to a company owned by an officer of the Company.
The Company has an agreement with a consultant to provide certain financial
advisory services on a month-to-month basis of $5,000 per month. Such payments
are charged to expense as incurred and totaled $59,000 in 1994. This agreement
was terminated in 1994.
During 1994, the Company invested $621,000, including principal and interest, in
a company in which the former chief executive officer and director of the
Company was also a shareholder and director. In 1994, the Company determined
that the recovery of this investment was doubtful and charged this amount to
expense. In February 1996, the Company received $75,126 as full and final
satisfaction of this investment.
16. LITIGATION AND CONTINGENCIES
In January 1995, Thera-Kinetics, Inc. ("TK"), a competitor of the Company's CPM
division filed actions against the Company's wholly owned subsidiary, U.S.
BioInnovations, Inc. and three of its employees in the United States District
Court for the Eastern District of Virginia-Alexandria Division. The complaint,
alleged, among other things, violations by the employees (each of whom was
previously employed by TK) of restrictive covenants, tortuous interference by
the Company's subsidiary and misappropriation of trade secrets and confidential
information. In July 1995, the Company settled the lawsuit with TK by selling
substantially all of its Continuous Passive Motion operations to TK.
Consideration for the sale included a promissory note for $250,000 and the
assumption of approximately $400,000 in equipment leases. As of the date of this
report year end, TK had not assumed any of the leases and was in default on its
promissory note. The Company currently is seeking all remedies available to
enforce the provisions of the settlement agreement.
In December 1995, the Company was named as defendant in a lawsuit which contends
that HLOA Diagnostic, Inc., the former name of the Company's neurological
testing subsidiary, Cortex Diagnostic Services, Inc. failed to redeem stock
purchased by the plaintiff as partial consideration for the purchase of certain
assets. The Company contends that the price of the redemption was excessive .
The Company has a motion to dismiss pending. In the event that the motion is
denied, the Company intends to vigorously defend the lawsuit.
In February 1996, the Company was named as defendant in a lawsuit which alleges
default under an equipment lease. The case is presently in the discovery stage.
During June 1996, the Company was advised of its possible delisting from its
NASDAQ listing for delinquencies in its filings with the SEC. The Company
believes it will retain its listing.
In November 1995, the Company prepared an S-8 Registration Statement to issue
127,200 shares, in which a legal opinion was obtained. It was later discovered
by the Company that the registration was never filed. The Company cannot
determine what, if any, impact this will have.
17. COMMITMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
employees. These agreements specify, among other things, salary and/or
commissions, car allowance, stock incentives and expense reimbursement. The
contracts range in length from one year to three years. Future minimum payments
committed by the Company under these contracts amounted to $164,230 and $40,625
for the years ended December 31, 1996 and 1997, respectively.
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH, TRADE ACCOUNTS RECEIVABLE, NOTES RECEIVABLE, EXCESS OF OUTSTANDING CHECKS
OVER BANK BALANCE, ACCOUNTS PAYABLE: The carrying amounts approximate fair value
because of the short maturity of those instruments.
NOTES PAYABLE AND LONG TERM DEBT: The carrying amounts approximate fair value
due to the length of the maturities and the interest rates not being
significantly different from the current market rates available to the Company.
The estimated fair values of the Company's financial instruments as of December
31, 1995 and 1994 are as follows:
1995 1994
CARRYING FAIR CARRYING FAIR
AMOUNT AMOUNT AMOUNT AMOUNT
---------- ---------- ---------- ----------
Cash and cash equivalents .. $ 24,431 $ 24,431 $ 216,348 $ 216,348
Trade accounts receivable .. 456,361 456,361 421,311 421,311
Notes receivable ........... 215,981 215,981 -- --
Notes payable .............. 1,834,986 1,834,986 75,472 75,472
Accounts payable ........... 825,090 825,090 659,054 659,054
Long-term debt ............. 686,603 686,603 1,224,756 1,224,756
218,190 218,190
19. SUBSEQUENT EVENTS
The Company sold 834,500 shares of Series B convertible preferred stock in
January through March 1996 at $10 per share in a private placement of its
securities to offshore investors under Regulation S. The Company raised
$8,345,000 less costs associated with the raise of $1,122,400 for a net of
$7,222,600. In 1996, certain of the shares have been converted.
In February 1996, the Company sold 357,143 shares of its common stock to
offshore investors in a private placement. Net proceeds to the Company were
$357,185.
In March 1996, the Company converted $700,000 of its advances to Westmark Group
Holdings, Inc. to 10% convertible preferred stock. Subsequent to year end, the
Company advanced Westmark $2,453,000.
In April 1996, the Company acquired 100% of the outstanding common stock of
Greenworld Technologies, Inc. ("Greenworld"). Greenworld is the owner of
world-wide licensing rights to the Talon RMS product, a product which lowers
emergency and operating room temperatures while, at the same time, reducing
energy costs. Consideration for the purchase included (1) the funding of 4
lawsuits involving the Talon Refrigerant Management System ("Talon RMS");
(2)issue to seller, ECS International, Inc. ("ECS")50,000 shares of the
Company's preferred stock ($250,000 par value) and 100,000 shares of the
Company's common stock; (3) provide $100,000 to Greenworld for operating
capital; (4) provide up to $300,000 to establish the Talon RMS patent worldwide;
(5) grant ECS options to purchase 900,000 shares of the Company's common stock
at $1.50 per share and (6) cancel a bridge loan note in the amount of $100,000
In addition, the Company agrees that once Greenworld gross sales exceeded
$100,000,000, it would transfer 51% of Greenworld back to ECS and distribute the
other 49% to its shareholders as a dividend.
In May 1996, the Company acquired the assets and business operations of Donn
Wells, M.D. healthcare clinic. Consideration for the sale included the issuance
of 256,293 shares of the Company's common stock.
Subsequent to year end, the Company entered into an agreement to purchase
medical equipment aggregating $756,000.
In May and June 1996, the Company started up three healthcare clinics in the
South Florida area and one on the west coast of Florida.
In June 1996, the Company was informed by certain shareholders of a subsidiary
that the purchase agreement had been breached. The Company is presently
discussing these assertions and does not believe there will be any material
adverse impact on the Company's financial condition.
20. PREFERRED STOCK
In connection with the December 1995 investment in Westmark, the Company issued
200,000 shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock") which accrue dividends at a rate of 7% per annum. The shares of Series B
Preferred Stock are convertible, at the option of the holder, for a period of
ten years from the date of issuance, exercisable by giving written notice to the
Company not less than thirty days prior to such conversion date into shares of
common stock at a price which is fixed at an average of the bid and ask price as
listed by NASDAQ for the thirty days prior to the conversion date.
The Company has the right, in its sole discretion, upon receipt of a notice of
conversion, or earlier without receipt of any notice of conversion, to redeem,
in whole or in part any shares of Series B Preferred Stock submitted for
conversion, immediately prior to conversion, or otherwise outstanding and
subject to a right of conversion. The redemption payment per share for each
redemption of the Series B Preferred Stock shall be at a stated value of $10.00
per share. If less than all of the outstanding shares of the Series B Preferred
Stock are redeemed at any time, then the shares of Series B Preferred Stock held
by such holder, subject to such adjustment as may be equitably determined by the
Company in order to avoid the redemption of fractional shares.
In connection with the August 1993 acquisition of Cortex, the Company issued
668,280 shares of Series A Convertible Preferred Stock which accrues dividends
at a rate of 7% per annum. The preferred stock is subject to mandatory
redemption on three redemption dates (March 31, 1994, 1995 and 1996) contingent
upon Cortex achieving a specified amount of income before income taxes. 222,760
shares of the outstanding preferred stock was redeemed in 1994 for $192,000 and
recorded as additional goodwill. In 1995, Cortex did not meet the necessary
earnings criteria and no redemption payment was made. The company is currently
in negotiations with the former owners of Cortex regarding the 1995 and 1996
dividend payments.
In February 1996, pursuant to a Regulation S agreement the Company issued a
total of 834,500 shares of Company's 7% Series C Convertible Preferred Stock
with a stated value of $10 per share. The preferred shares are convertible at
the lesser of (1) 75% of the closing bid at date of closing or (2) 65% of the 5
trading day average bid immediately preceding the date of conversion.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HEART LABS OF AMERICA, INC.
/s/ NORMAN J. BIRMINGHAM
Norman J. Birmingham
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
June 28, 1996 /s/ NORMAN J. BIRMINGHAM
Norman J. Birmingham
President, Chief Executive Officer & Director
June 28, 1996 /s/ EDWIN F. RUSSO
Edwin F. Russo
Director
June 28, 1996 /s/ HARRY KOBRIN
Harry Kobrin
Director
June 28, 1996 /s/ DAWN M. DRELLA
Dawn M. Drella
Chief Financial Officer
Exhibit 10.9
STOCK PURCHASE AGREEMENT
This Agreement is entered into on the 21st day of November, 199S by and
between Heart Labs of America, Inc., a Florida Corporation ("HLOA") and Westmark
Group Holdings, Inc., a Colorado Corporation ("WGHI"). HLOA and WGHI mutually
covenant and agree as follows:
ARTICLE I
ACQUISITION DATES AND PERFORMANCE EVENTS
1.1 STOCK PURCHASE. HLOA covenants and agrees to purchase 1,298,388
shares of unregistered common stock of WGH1 on or before November 27,1995
("Closing Date").
1.2 CONSIDERATION. Prior to the Closing Date HLOA will convey, assign
and tranfer to WGHI the following:
(a) $150,000 in certified funds on November 21, 1995.
(b) $200,000 in certified funds on November 22, 1995.
(c) $200,000 in certified funds on November 27,1995.
(d) HLOA medical laboratory with a value of $160,000 more
paticularly described in Exhibit "A" which is attached hereto and by this
reference made a part hereof.
(e) HLOA warrants for the benefit of WGHI shareholders more
particularly described in Exhibit "B" which is attached hereto and by this
reference made a part hereof.
(f) Promissory Note from HLOA to WGHI in the sum of $500,000
payable in certified funds no later than December 31, 1995. Said note shall be
secured by rea] property owned by HLOA and more paticularly described in Exhibit
"C" which is attached hereto and by this reference made a part hereof.
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(g) Two Hundred Thousand (200,000) shares of $10.00 par value
unregistered convertible preferred stock of HLOA. Said shares shall be deemed to
be validly issued, fully paid and non-assessable. Said preferred shares may be
converted to common stock of HLOA at any time within ten years after issuance,
valuing each preferred share at $10.00 for puposes of conversion into shares of
common stock of HLOA at a price per share based on the average of the bid and
asked closing prices of HLOA common stock for the thirty days prior to the
election to convert as certified by NASDAQ. In the event of the liquidation of
HLOA prior to conversion of the preferred shares, said preferred shares will
have preference over all common shares of HLOA.
1.3 CLOSING DATE. Upon receipt of the consideration herein above set
forth WGHI shall convey, transfer and assign to HLOA 1,298,388 shares of
unregistered WGHI common stock. Said shares shall be validly issued, fully paid
and non-assessable.
1.4 REGISTRATION. HLOA and WGHI covenant and agree that each will
diligently pursue the registration of all shares including the common shares
underlying the warrants and the preferred stock to be conveyed by one party to
the other so that the registration of said shares will be effective by April 30,
1996. Each party shall file all required documentation with the Securities and
Exchange Commission including, but not limited to, a registration statement
within 30 days after the Closing Date.
1.5 TERMINATIONS, RESIGNATIONS AND BOARD MEMBERSHIP. Upon the timely
completion of the performance events set forth in paragraphs 1.1, 1.2, and 1.3,
Michael F. Morrell, Albert Gardner and Linda Moore will execute termination
agreements including severance compensation and resignations as officers of
WGHI. ln addition thereto, Michael F. Morrell will resign as Chairman and as a
member of the Board of Directors of WGHI. Each resignation shall be expressly
conditioned upon the execution of termination agreements between WGHI and
Michael F. Morrell, Albert Gardner and Linda Moore. HLOA covenants and agrees to
guarantee the performance of each termination agreement. Said termination
agreements shall be attached hereto marked Exhibits "D", "E", and "F" and by
this reference made a part hereof. WGHI agrees to appoint two interim members of
the Board of Directors of WGHI selected by HLOA including a
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replacement for Michael F. Morrell. The interim directors shall serve until the
next annual meeting of shareholders of WGHI together with Albert Gardner and Roy
Cox.
1.6 ANTI-DILUTION. From and after the closing dates herein set forth,
HLOA shall be entitled to a share adjustment in the event of the issuance of
additional shares of WGHI stock, stock dividends, stock splits or any merger or
consolidation causing the dilution of outstanding shares of common stock of
WGHI. The purpose of said share adjustment shall be to provided HLOA with the
same percentage of the issued shares both before and after an event as described
hereinabove. No share adjustment shall occur with respect to the stock issuances
set fort in Exhibit "G" which is atached hereto and by this reference made a
part hereof.
1.7 CONFIDENTIALITY. Except as may be required by law, the parties will
not disclose or use, and will cause their respective officers, directors,
employees, representatives and agents not to disclose or use, any information
concerning either WGHI or HLOA furnished by or on behalf of the parties in
connection with the Acquisition Agreement except disclosure and use among
themselves for the purpose of evaluating the Acquisition Agreement.
1.8 RELATED PARTY TRANSACTIONS. WGHI and HLOA acknowledge that certain
principles of each party have been and now are jointly involved in various
business transactions. Said related party transactions are more particularly
described in Exhibit "H" which is attached hereto and by this reference made a
part hereof.
ARTICLE II
COVENANTS, REPRESENTATIONS AND WARRANTIES OF
HEART LABS OF AMERICA
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2.1 LEGAL STATUS OF CORPORATION. HLOA is a corporation fully organized,
validly existing and in good standing under the laws of the State of Florida
with corporate power to own property and carry on its business as it is now
being conducted.
2.2 QUALIFICATION. HLOA is duly qualified to transact business as a
foreign corporation in all jurisdictions where the failure to so qualify would
have a material adverse effect on its business or properties.
2.3 LICENSES. HLOA has all franchises, licenses, permits, certificates
and other governmental approvals necessary to enable it to carry on its business
in all material respects as presently conducted.
2.4 AUTHORITY OF HLOA. All necessary corporate action has been taken by
HLOA to authorize the execution, delivery and performance by HLOA of this
Agreement. This Agreement is the legal, valid and binding obligation of HLOA,
enforceable against HLOA in accordance with its terms subject as to enforcement
only as to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application relating to or affecting the rights of
creditors generally and to general equitable principles.
2.5 CORPORPATE DOCUMENTS. Copies of the Articles of lncorporation, all
amendments thereto and Bylaws of HLOA certified by its secretary as true,
correct and complete copies will be delivered to WGHI upon writen request.
2.6 ACQUISITION FOR INVESTMENT. HLOA is acquiring the shares of capital
stock of WGHI for investment and not with a view to or for sale in connection
with any distribution thereof.
2.7 TITLE OF ASSETS AND AUTHORITY. On the date(s) of closing, HLOA will
be the owners of all interest, both legal and equitable, of the assets to be
transferred to WGHI free and clear of any liens, restrictions, encumbrances,
charges, claims and rights of others except as set forth in Exhibit "I" which is
attached hereto and incorporated herein, with full power, right and authority to
sell and deliver the assets to WGHI pursuant to this Agreement. Upon delivery of
said assets, Westmark will receive title
4
thereto free and clear of all liens, encumbrances, restrictions, charges, claims
and rights whatsoever except as set forth above. All requisite corporate action
has been taken by HLOA to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby. This Agreement is the
legal valid and binding obligation of HLOA.
2.8 COMPLIANCE WITH APPLICABLE LAWS. The business of HLOA is not being
conducted in violation of any statute, regulation, ordinance or other law
applicable to HLOA, except for violations which would not either individually,
or in the aggregate, result in a material adverse change in the financial
condition or business of HLOA.
2.9 LITIGATION. HLOA warrants that there are no:
(a) Claims made or pending or threatened against or affecting
HLOA.
(b) Actions, proceedings or investigations pending or threatened
against or affecting HLOA in any court or before or by any federal, state,
municipal or any other govemmental agency or instrumentality.
(c) Orders, writs, injunctions or decrees of any court or any
govemmental agency or instumentality against or affecting HLOA which might
result in any material adverse changes in its assets, business operation or
conditions, financial or otherwise. HLOA is in compliance with all laws and
regulations and all orders and decrees applicable to it or its business or
assets.
2.10 MATERIAL ADVERSE CHANGE. HLOA warrants that there have not been any
material adverse changes in the financial condition or business of HLOA since
the date of the September 30, 1995 financial statements.
2.11 FINANCIAL STATEMENTS. HLOA hereby acknowledges that it has received
and reviewed current financial statements of WGHI including but not limited to
December 31, 1993 1OK, December 31, 1994 1OK, March 31, 1995 10Q, June 30, 1995
10Q and September 30, 1995 10Q. WGHI
5
warrants that said financial statements are true and correct and have been
prepared in conformity with generally accepted accounting principles. WGHI
further warrants that the book values of the assets shown on the aforementioned
financial statements correspond substantially to the value of such assets for
federal income tax purposes.
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES OF
WESTMARK GROUP HOLDlNGS, INC.
3.1 LEGAL STATUS. WGHI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado with corporate
power to own property and carry on its business as it is now being conducted.
3.2 QUALIFICATION. WGHI is duly qualified to transact business as a
foreign corporation in all jurisdictions where the failure to so qualify would
have a material adverse effect on its business or properties.
3.3 LICENSES. WGHI has all franchises, licenses, permits, certificates
and other governmental approvals necessary to enable it to carry on its business
in all material respects as presently conducted.
3.4 AUTHORITY OF WGHI. All necessary corporate action has been taken by
WGHI to authorize the execution, delivery and performance by WGHI of this
Agreement. This Agreement is the legal, valid and binding obligation of WGHI,
enforceable against WGHI in accordance with its terms subject as to enforcement
only as to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application relating to or affecting the rights of
creditors generally and to general equitable principles.
3.5 CORPORATE DOCUMENTS. Copies of the Articles of Incorporation, all
amendments thereto and Bylaws of WGHI certified by its
6
secretary as true, correct and complete copies will be delivered to HLOA upon
written request.
3.6 ACQUISITION FOR INVESTMENT. WGHI is acquiring the shares of capital
stock of HLOA for investment and not with a view to or for sale in connection
with any distribution thereof.
3.7 TITLE TO SHARES AND AUTHORITY. On the date of closing, WGHI will be
the owners of all interest, both legal and equitable, of the shares to be
transferred to HLOA free and clear of any liens, restictions, encumbrances,
charges, claims and rights of others, with full power, right and authority to
sell and deliver the shares to HLOA pursuant to this Agreement. Upon delivery of
said shares, HLOA will receive title thereto free and clear of all liens,
encumbrances, restictions, charges, claims and rights whatsoever. All requisite
corporate action has been taken by WGHI to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby. This
Agreement is the legal valid and binding obligation of WGHI.
3.8 COMPLIANCE WITH APPLICABLE LAWS. The business of WGHI is not being
conducted in violation of any statute, regulation, ordinance or other law
applicable to WGHI, except for violations which would not either individually,
or in the aggregate, result in a material adverse change in the financial
condition or business of Westmark.
3.9 FINANCIAL STATEMENTS. WGHI hereby ackowledges that it has received
and reviewed current financial statements of HLOA including but not limited to
December 31, 1993 1OK, December 31, 1994 1OK, March 31, 1995 10Q, June 30, 1995
10Q and September 30, 1995 10Q. HLOA warrants that said financial statements are
true and correct and have been prepared in conformity with generally accepted
accepted accounting principles. HLOA further warrants that the book values of
the assets shown on the aforementioned financial statements correspond
substantially to the value of such assets for federal income tax purposes.
3.10 LITIGATION. WGHI warrants that other than as disclosed in current
filings with the Securities and Exchange Commission, there are no:
7
(a) Claims made or pending or threatened against or affecting
WGHI.
(b) Actions, proceedings or investigations pending or threatened
against or affecting WGHI in any court or before or by any federal, state,
municipal or any other governmental agency or instrumentality.
(c) Orders, writs, injunctions or decrees of any court or any
governmental agency or instrumentality against or affecting Westmark which might
result in any material adverse change in its assets, business operations or
conditions, financial or otherwise. WGHI is in compliance with all laws and
regulaions and all orders and decries applicable to it or its business or
assets.
3.11 MATERIAL ADVERWSE CHANGE. WGHI warrants that there have not been
any material adverse changes in the financial condition or business of WGHI
since the date of the September 30, 1995 10Q except as follows:
(a) The proposed Greentree acquisition did not close on November
7, 1995 but ongoing discussions regarding the acquisition will continue between
WGHI and Greentree Mortgage Company.
(b) WGHI has received but not responded to additional comments
from the Securities and Exchange Commission but anticipates filing a second
amendment to the registration statement currently on file with the Securties and
Exchange Commission.
(c) WGHT entered into a consulting agreement ("Fixaris
Consulting Agreement") to commence on January 1, 1996.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATlONS OF WESTMARK
8
4.1 The Obligations of WGHI to deliver its shares of common stock
hereunder shall be subject to the following conditions precedent, the
non-occurrence of which, unless waived by WGHI, shall relieve it from all
performance under this Agreement:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
The representations and warranties made by HLOA in this Agreement shall be true
and correct in all material respects on the Closing Date(s) with the same force
and effect as if they have been made on and as of such date(s), subject only to
changes contemplated by this Agreement, and there shall have been no material
adverse change in the financial condition of HLOA from that reflected on
September 30, 1995 financial statements or the schedules attached thereto. HLOA
has performed all covenants and obligations and observed all conditions in all
material respects herein required to be performed or observed by them on or
prior to the Closing Date(s).
(b) CERTIFICATE OF OFFICER. HLOA shall have furnished WGHI with
a Certificate of its respective President or Vice President to evidence
compliance with the conditions set forth hereinabove.
(c) OPINION OF COUNSEL. Westmark shall have received an opinion
from counsel for HLOA dated the Closing Date(s) in a form acceptable to WGHI.
(d) CONSENTS, WAIVERS AND AUTHORIZATIONS. All consents, waivers
and authorizations including government consents, waivers or authorizations
necessary or appropriate for the consummation of the transactions contemplated
by this Agreement shall have been obtained and shall be in form and substance
satisfactory to WGHI.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATION OF HEART LABS OF AMERICA
9
5.1 The obligations of HLOA to perform this Agreement are subject to the
fulfillment, to its reasonable satisfaction, on or prior to the Closing Date(s)
of the conditions hereinafter set forth:
(a) REPRESENTATIONS AND WARRANTIES: PERFORMANCE OF OBLIGATIONS.
The representations and waranties made by WGHI in this Agreement delivered
hereunder shall be true and correct in all material respects on the Closing
Date(s) with the same force and effect as if they have been made on and as of
such date, subject only to changes contemplated by the Agreement.
(b) CERTIFICATE OF OFFICER. WGHI shall have furnished a
certificate of its President or a Vice President to evidence compliance with the
conditions set forth hereinabove.
(c) OPINION OF COUNSEL. HLOA shall have received an opinion of
counsel to WGHI, dated the Closing in a form acceptable to WGHI.
(d) CONSENTS, WAIVERS AND AUTHORIZATIONS. All consents, waivers
and authorizations including any govemmental consents, waivers and
authorizations shall be form and substance satisfactory to HLOA necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement.
ARTICLE VI
CONSUMMATION OF TRANSACT1ON
6.1 CONSIDERATION. On or before the closing date the parties shall cause
the delivery of the assets provided for herein.
6.2 EXPENSES. Each of the parties hereto shall pay that parties own
expenses incident to the preparation of this Agreement and the consummation of
the transaction contemplated hereby.
10
ARTICLE VII
ACKNOWLEDGEMENTS AND UNDERSTANDINGS
7.1 RECEIPT OF INFORMATION. WGHI and HLOA mutually acknowledge that each
company has received all information necessary or appropriate for determining
whether to acquire assets in the other company. HLOA and WGHI acknowledge that
they have had an opportunity to ask questions and receive answers from the other
company and its officers and employees regarding the terms and conditions of the
Acquistion Agreement and regarding the business, financial affairs and other
aspects of the other company and further have had the opportunity to obtain any
information (to the extent either company possesses or can acquire such
information without unreasonable effort or expense) which each company deems
necessary to evaluate the investment and to verify the accuracy of information
otherwise provided.
7.2 INVESTMENT FOR OWN ACCOUNT. WGHI and HLOA mutually acknowledge that
the acquisition as hereinabove set forth will be solely for the account of the
company so acquiring and not for the account of any other person or with a view
toward any resale, fractionalized division or distribution thereof.
7.3 RESTRICTIONS ON TRANSFERABILITY. WGHI and HLOA mutually acknowledge
and understand that the shares acquired by each company are subject to
restrictions on transferability and resale and may not be transferred or resold
except as permitted under the Securities Act of 1933, as amended, and the
applicable State Securities Laws, pursuant to registration or exemption
therefrom. WGHI and HLOA are aware that each company may be required to bear the
financial risks of this investment for an indefinite period of time. The shares
provided for herein have not been registered or qualified for sale or resale
under the Securities Act of 1933 or under the Securities Laws of certain states.
Accordingly, the shares are not
11
freely tradable and must be held indefinitely or until such time, if ever, as
such shares are either registered or qualifed under applicable law or transfer
may be made, in the opinion of the counsel to the company, pursuant to an
exemption therefrom.
7.4 INVESTMENT EXPERIENCE. WGHI and HLOA represent that each has
sufficient knowledge and experience in financial and business matters to
evaluate the merits and risks of the proposed Acquisition Agreement and each
company represents that it has invested in or had experience with investing in
high yield/high risk investment vehicles and private placements of securities.
WGHI and HLOA further achowledge that each company understands that an
investment in securties may involve substantial risk of loss on the investment
and each company is able to bear the full economic risk of the investment
including the loss of the entire investment. WGHI and HLOA further acknowldge
that each company understands that the shares acquired by each company are not
freely tradeable and may not be transferred without compliance with Federal and
State Securities Laws and that said shares are also subject to resale
restrictions due to the fact that said shares are not registered with any State
Securities Commission or United States Securities and Exchange Commission.
ARTICLE VIII
INTERPRETATlON AND ENFORCEMENT
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained herein, in the exhibits or in any
certificates or other documents delivered pursuant hereto, shall not be deemed
to be waived or otherwise affected by any prior knowledge of, or any
investigation made by or on behalf, any party hereto. Each and every
representation and warranty contained herein shall survive the Closing Date for
a period of twelve months. Each covenant and each indemnification provision
contained herein shall survive Closing and remain in full force and effect in
accordance with its terms untill the obligaions arising thereunder have been
fully performed and discharged.
12
8.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be deemed to be properly given at the time of receipt if
delivered personally or three (3) days after mailing if mailed in the United
States by certified or registered mail postage prepaid, return receipt
requested, provided such communication is addressed as follows:
(a) If to WGHI:
Westmark Group Holdings, Inc.
355 NE 5th Avenue, Suite 4 Delray
Beach, Florida 33483
and
Harry C. Coollidge
Attorney at Law
1260 41st Avenue, Suite N
Capitola, California 95010
(c) If to HLOA:
Heart Labs of America
2650 North Military Trail, Suite 230
Boca Raton, Florida 33431
In the event any party shall designate a different address by notice to
the other parties given as above provided at least five (5) days prior to the
mailing of a notice by the other, said communication shall be forwarded to the
last address so designated.
8.3 ENTIRE AGREEMENT AND COUNTERPARTS. This Agreement contains the
entire Agreement between the parties with respect to the transaction
contemplated hereby. It may be executed in any number of
13
counterparts, each of which shall be deemed an original but such counterparts
together constitute only one and the same instrument.
8.4 CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to any
choice or conflict of law provision or rule that would cause the application of
the laws of any jurisdiction other than the State of Florida.
8.5 WAIVER OR MODIFICATION. This Agreement may be modified, amended,
superseded or canceled, and compliance with any of the terms, provisions,
covenants, representations, warranties and commissions thereof may be waived
only by written instrument executed by all parties hereto, or, in the case of a
waiver, by the party waiving compliance. Such waivers or warranties and
commissions shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
8.6 SUCCESSORS AND ASSIGNEES. This Agreement shall be binding upon and
inure to the benefit of WGHI and its successors and permitted assigns and HLOA
and their successors and permitted assigns. No party may assign either this
Agreement or any of his or its rights, interests or obligations hereunder
without the prior written approval of the other party.
8.7 PUBLICITY. No press release or public disclosure, written or oral,
of the transactions contemplated by this Agreement shall be made by any of the
parties hereto without the written consent of both parties and until the parties
have issued a press release or otherwise publicly disclosed the transactions.
This prohibition shall not apply to any disclosure required by law.
8.8 ATTORNEY'S FEES. ln the event of any action or proceeding arising
out of or pertaining to this Agreement or the enforcement thereof, the
prevailing party shall be entitled to reasonable attorneys' fees in addition to
any other relief provided by law.
14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Westmark Group Holdings,Inc. Heart Labs of America, Inc.
By: NEED NAME By: NEED NAME
Name: Name:
Title: Title:
15
Exhibit 10.10
INTEGRATED AGREEMENT
FOR SALE OF STOCK
This Agreement is made this 19th day of April , 1996 by and among ECS
International, Inc. (Seller), Green World Technologies, Inc., a Nevada
corporation (Corporation), and Heart Labs of America, Inc., a Florida
corporation (Purchaser).
RECITALS
This Agreement is made with reference to the following facts:
1. The Seller owns all of the issued and outstanding shares of common stock
of the Corporation.
2. Seller has been appointed as the sole officers and directors of the
Corporation and have, in fact, been acting in that capacity.
3. Seller wishes to divest themselves of all Seller's interest in the
Corporation pursuant to the terms and Conditions of this Agreement.
4. Seller desires to sell to Purchaser and the Purchaser desires to
purchase all of the outstanding shares of common stock of the Corporation.
5. Purchaser is willing and able to acquire Seller's interest in the
Corporation pursuant to the terms hereof.
AGREEMENT
1. SUBJECTS OF AGREEMENT. The subjects of this Agreement are the purchase of
Seller's common stock in the Corporation; indemnification between Seller and
Purchaser; and consulting services made available by Seller to Purchaser.
2. SALE OF STOCK. On the Closing Date (which shall be simultaneous with the
execution of this Agreement unless another date is agreed on by the parties in
writing), the Seller shall transfer to the Purchaser stock certificates
representing 100% of the shares of common stock of the Corporation, free and
clear of all liens, encumbrances, equities, and claims, together with written
resignations of all officers and directors of the Corporation.
3. OBLIGAITONS OF PURCHASER. In partial consideration for the purchase of stock
as contemplated herein, the Purchaser is obligated to do the following:
(a) Purchaser agrees to provide the funds necessary to resolve the
following legal disputes the cost of which is estimated
1
as follows:
(1) enforcement of ECS' rights under the ASSI Settlement
Agreement ($20,000);
(2) payment of ECS' attorneys' fees for the ASSI case ($25,000);
(3) defense of the GOULD lawsuit and enforcement of Settlement
Agreement ($125,000 to $215,000);
(4) defense of the CAMPOS lawsuit ($5,000 to $125,000);
and
(5) defense of the HAMEDANI claim ($5,000);
(b) Purchaser shall issue to ECS International, Inc. Lenders shares of
Heart Labs of America. Inc. preferred stock which is estimated to have a value
of $250,000 at a price of $5.00 per share and may be converted to common stock
at 85% of the then market value of such common stock. Seller shall provide
Purchaser with the names and respective number of preferred shares to be issued
to each Lenders;
(c) Purchaser shall issue to ECS International, Inc., 100,000 shares of
Heart Labs of America, Inc. common stock with the following restrictions: ECS
International, Inc, may not sell any portion of the 100,000 shares of common
stock issued pursuant to this Paragraph at a rate greater than (i) 5,000 shares
per month; or (ii) 10% of the prior day's volume not to exceed 20,000 shares per
month.
4. CASH CONSIDERATION FOR TRANSFERRED SHARES. In payment for the shares
transferred under Paragraph 2, the following shall delivered to thc Seller on
the Closing Date:
(a) A bank wire in the amount of one Hundred Thousand Dollars
($100,000.00) payable to Greenworld Technologies, Inc. and extinguishment of the
Bridge Loan and Security Agreement dated February 2, 1996 attached hereto as
Exhibit A.
(b) Payment of the liabilities described in Paragraph 3(a) and funding
of operating capital, independent of any other funding obligations set forth in
this Agreement, i.e. the approximate $200,000.00 estimated expense of
establishing world-wide patents for the Talon, as needed during the calendar
year: 1996 in an amount no less than Three Hundred Thousand Dollars
($300,000.00).
5. SELLER'S REPRESENTATIONS AND WARRANTIES: The Seller represents and warrants
to the Purchaser that as of the date of the closing:
2
(a) The Corporation is a Corporation duly organized, validly existing,
and in good standing under the laws of the state of Nevada.
(b) The authorized capital stock of the Corporation consists of 25,000
shares of no par value common stock, of which 1 share is issued and outstanding
to ECS International, Inc,; all the outstanding common stock have been validly
issued and is fully paid and non-assessable; and there are no outstanding
options, warrants, or commitments of any nature relating to the issued or
unissued common stock of the Corporation.
(c) The Corporation has no subsidiaries.
(d) The Seller is the record and beneficial owner of all of the
outstanding common stock, has full right, power, authority, and capacity to
sell, transfer, and deliver the common stock in accordance with the terms of
this Agreement; and upon delivery thereof as herein contemplated, the Purchaser
and the Corporation will receive good and marketable title to the shares
delivered, free and clear of any claims, liens, pledges, and encumbrances of any
kind.
(e) The consummation of the transactions contemplated by this Agreement
will not breach the Articles of Incorporation or Bylaws or any resolution of the
board of directors or stockholders of the Corporation, or breach, constitute a
default in, or result in the acceleration of any obligation under any loan
agreement, indenture, lease or other agreement to which the corporation is a
party.
6. RESIGNATION OF RETIRING SHAREHOLDERS FROM CORPORATE OFFICE. This will
acknowledge that, upon the effective date of this agreement, the Seller's
principals shall resign from the board of directors of the Corporation and shall
further resign as officers and employees of the Corporation. Purchaser shall
immediately reemploy Gary Phillippe as Engineer/Technical Advisor, Ted Bristow
as President/Chief Executive Officer, and Tom Stoermer as Secretary/Chief
Financial Officer consistent with the terms of the Employment Agreements
attached hereto as Exhibit D.
7. PURCHASER'S OBLIGATIONS AT CLOSING. At closing, the Purchaser shall deliver
or cause to be delivered to Seller the following
A. An immediate wire transfer in the amount of One Hundred Thousand
Dollars ($1O0,000.00) made payable to Green World Technologies, Inc.;
B. The original Bridge Loan Note and Security Agreement endorsed "paid
in full" and conforming U.C.C. releases;
C. A validly executed Stock Option Agreement between
3
Purchaser and ECS International, Inc. authorizing ECS International, Inc. the
option to purchase 900,000 shares of common stock of Purchaser at $1.50 per
share attached hereto as Exhibit "B";
D. A validly executed Independent Contractor Agreement between Purchaser
and ECS International, Inc. attached hereto as Exhibit "C";
E. Purchaser's acknowledgement of the Employment Contracts for Gary
Phillippe, Ted Bristow and Tom Stoermer with Green World Technologies, Inc.
attached hereto as Exhibit "D";
F. Purchaser's acknowledgement of acceptance of the Patent License
Agreement between ECS International, Inc. and Green World Technologies, Inc.
attached hereto as Exhibit "E";
G. Purchaser's execution of the Distribution Agreement attached hereto
as Exhibit "F"; and
H. Certified copies of corporate resolutions authorizing the execution
of documents described in Paragraphs 7 A, B, C, D, E, F and G.
8. SELLERS'S OBLIGATION AT CLOSING. At closing, Seller shall
deliver or cause to be delivered to the corporation the following:
A. The certificates representing the shares, duly endorsed by Seller for
transfer; and
B. Seller's resignation as directors and officers of the corporation.
9. PURCHASER'S RIGHTS SUBJECT TO DISTRIBUTION AGREEMENT.
Following the execution of this Agreement, when the aggregate gross sales of the
corporation exceed One Hundred Million Dollars ($100,000,000.00), Purchaser
agrees to transfer all of the issued common stock in the Corporation as follows:
50.1% to ECS International, Inc. as deferred payment for entering into the
Patent License Agreement with the corporation on terms favorable to the
Purchaser, and 49.9% to the then existing shareholders of the Purchaser as a
dividend, pursuant to the terms of the conditions of the Distribution Agreement
attached hereto as Exhibit "F".
10. DUTY TO PERFORM ALL OBLIGATIONS. The parties agree to do all
things necessary to consummate this transaction.
11. AUTHORITY AND CONCERNS. Each of the respective parties have the right,
power, legal capacity, and authority to enter into, and to perform their
respective obligations under this Agreement, and no approvals or consents of any
persons other than as specified herein are necessary in connection with it. The
execution and delivery of this Agreement by the parties has been duly authorized
as appropriate. To the extent required, this Agreement will constitute a meeting
of the shareholders and board of directors of the Corporation, notice being
waived, approving all of the terms and conditions set forth herein and in the
attached documents.
12. CORPORATE BOOKS AND RECORDS. Prior to the execueion of this Agreement, all
books, records, ledgers, check registers and other financial records, and the
Articles of Incorporation, Bylaws, Minutes and other corporation records, have
been delivered to the Corporation.
13. EMPLOYMENT AGREEMENTS. The attached Exhibit "D" sets forth the terms and
conditions in which Gary Phillippe, Ted Bristow and Tom Stoermer will be
employed for the benefit of the Corporation. The Corporation and Purchaser
acknowledge the need to retain Seller given Seller's vast knowledge and
experience in the management and development of the Talon.
14. EXPENSES. Each party shall pay all costs and expenses incurred
or to be incurred by it in negotiating and preparing this Agreement
and in closing and carrying out the transactions contemplated by
this Agreement.
15. EFFECT OF HEADINGS. The subject headings of the paragraphs of
this Agreement are included for convenience only and shall not
affect the construction or interpretation of any of its provisions.
16. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations
and understandings of the parties. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all the parties.
No waiver shall be binding unless executed in writing by the party making the
waiver.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
18. PARTIES IN INTEREST. Nothing in this Agreement, whether express or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.
19. ASSIGNMENT. This Agreement shall be binding on, and shall inure to the
benefit of, the parties to it and their respective heirs, legal representatives,
successors and assigns. It is contemplated that the Corporation may be
reorganized by way of a change in name and that said successor entity shall be
bound by this Agreement. Except as provided for herein, no party may asign this
Agreement without the written consent of the other party.
20. ATTORNEY'S FEES AND COSTS. If any action or other other proceeding is
brought for the enforcement or the interpretation of this Agreement or because
of an alleged dispute, default or misrepresentation in connection with any of
its provisions, the successful or prevailing party shall be entitled to recover
reasonable attorney's fees and other costs incurred in any action or proceeding,
in addition to any relief to which it may be entitled.
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements of the parties contained in
this Agreement or in any instrument or other writing provided for in
it shall survive the Closing.
22. NOTICES. Any notice to the parties required or permitted under this
Agreement shall be given in writing. The notice shall be deemed to have been
given at ths following times: (a) on the date of service if served personally on
the party to whom notice is to be given; (b) on the first day after transmission
if transmitted by telex or electronic facsimile; (c) on the second day after
deposit if deposited with an overnight express courier service; or (d) on the
second day after mailing if mailed to the party to whom notice is to be given by
first class mail, postage prepaid, addressed to the parites as follows:
Corporation: Green World Technologies, Inc.
a Nevada corporation
P.O. Box 989
Valley Springs, CA 95252
Seller: Gary Phillippe
2263 Larchment Dr.
Mo. Highlands, CA 95660
Ted Bristow
6130 McAllie
Valley Springs, CA 95252
Purchaser: Heart Labs of America, Inc.
a Florida corporation
2650 N. Military Trail Ste 230
Boca Raton, FL 33431
With copy to: J. Russell Cunningham
Desmond, Miller & Desmond
1006 Fourth St., 10th floor
Sacramento, Ca 95814
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
23. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California.
24. SEVERABILITY. If any provision of this Agreement shall be invalid, illegal
or unenforceable in any respect, such provision shall be deemed ineffective to
the extent of such invalidity, illegality or unenforceability without
invalidating or impairlng the remainder of such provision of the remaining
provisions of this Agreement.
25. RECITALS AND EXHIBITS. The recitals and exhibits contained in and
attached to this Agreement are hereby made a part of this
Agreement.
26. NEGOTIATIONS AND CONSTRUCTION. This Agreement has been prepared
after negotiations between the parties with assistance of counsel
of their choice. No rule of construction pertaining to intepretation
of the provisions herein against the drafter hereof shall apply.
28. VENUE. This Agreement may be enforced in the Superior Court of
the State of California for the County of Sacramento or in the U.S.
District Court, Eastern District of the State of California.
SELLER: ECS International, Inc.
By
Title:
Acknowledged by:
PURCHASER: Green World Technologies, Inc.
a Nevada corporation
By
Title:
Heart Labs of America, Inc.
a Florida corporation
By
Title:
<PAGE>
INCORPORATED UNDER THE LAWS OF THE
STATE OF NEVADA
GREEN WORLD TECHNOLOGIES, INC.
NUMBER
1
SHARES
1
This Corporation is authorized to issue 25,000 Common Shares at No Par Value
THIS CERTIFIES THAT ECS International, Inc., a Nevada corporation is the owner
of One (1) fully paid and nonassessable shares of the above Corporation
transferable only on the Books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 12th day of April A.D. 1996
/s/ TED R. BRISTOW
Ted R. Bristow
President
/s/ NEED NAME
Secretary/Treasurer
BRIDGE LOAN AND SECURITY AGREEMENT
This agreement between Heart Labs of America and Greenworld Technologies, Inc.
is entered for the purposes of providing a $100,000 bridge loan from HLOA to
Greenworld pending finalization of a transaction based upon the letter of intent
executed by Gary Phillippe and Norman Birmingham on behalf of RMS, ECS
International, Inc. and Heart Labs of America with respect to the patent
commonly known as the Talon, as well as modifications discussed between the
parties up to and including the date of entry into this agreement.
The bridge loan shall be payable immediately upon execution of this agreement by
both Heart Labs and Greenworld. The loan shall become due and payable on June 1,
1996. Repayment of the loan shall be the sole obligation of Greenworld
Technologies, Inc. Interest shall run on the unpaid principal balance at the
rate of ten percent (10%) per annum. The loan shall be secured under California
law. Any action to enforce the terms of the loan must be maintained in the
Superior Court for the County of Sacramento, California. The prevailing party
shall be entitled to reasonable attorneys' fees and costs incurred in connection
with said action.
DATED:
NORMAN BIRMINGHAM, President
HEART LABS OF AMERICA
DATED:
2-2-96
/s/ TED BRISTOW
Ted Bristow, President
GREENWORLD TECHNOLOGIES, INC.
Exhibit 10.11
EMPLOYMENT AGREEMENT
This Emplopment Agreement (the "Agreement"), entered into as of the 31st
day of March, 1996 by and between HEART LABS OF AMERICA, INC., a Florida
corporation (hereinafter referred to as "Employer"), and HARRY R. KOBRIN
("Employee").
WITNESSETH:
WHEREAS, Employer desires to employ Employee as provided herein; and
WHEREAS, Employee desires to accept such employment,
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agrees as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee
hereby accepts employment with Employer upon the terms and conditions
hereinafter set forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee will serve Employer as its Vice President
Marketing and will faithfully and diligently perform the services and functions
relating to such offices or otherwise reasonably incident to such offices,
provided that all such services and functions will be reasonable and within
Employee's area of expertise. Employee will, during the terms of this Agreement
(or any extension thereof), devote his full business time, attention and skills
and best efforts to the promotion of the business of Employer. The foregoing
will not not be construed as preventing Employee from making investments in
other businesses or enterprises provided that (a) Employee agrees not to become
engaged in any other business activity that interferes with his ability to
discharge his duties and responsibilities to Employer and, (b) Employee does not
violate any other provision of this Agreement.
3. TERM. The term of this Agreement will commence as of the date hereof
and will end on that date in the year 1999, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred to
herein as the "Term". Assuming all conditions of this Agreement have been
satisfied and there has been no breach of the Agreement during its initial term,
Employee may extend the term for an additional one (1) year term at his election
("Extended Term"), written notice of which must be given at least sixty (60)
days prior to the end of such preceding term.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) SALARY. Commencing upon the date of this Agreement, Employee
will be paid a minimum annual salary of $120,000, payable in accordance with the
then current payroll policies of Employer or as otherwise agreed to by the
parties (the "Salary"). At any time and from time to time the Salary may be
increased for the remaining portion of the term if so determined by the Board of
Directors of Employer after a review of Employee's performance of his duties
hereunder.
(b) OPTIONS. Commencing on the date of this Agreement, Employee
shall be issued a five (5) year option to purchase 30,000 shares of common stock
of the Company, all of which shares shall vest immediately and will be
exercisable throughout the term at a price of $1.00 per share. Employee shall be
issued an option to purchase an additional 15,000 shares per year at $0.25 per
share over bid price at the date of the grant, and such shares shall vest
immediately.
(c) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Employer will reimburse Employee in the same manner as
other executive officers for all reasonable and necessary or appropriate
out-of-pocket travel and other expenses incurred by Employee in rendering
services required under this Agreement.
(d) BENEFITS, INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Employee and his dependents will be entitled to receive such group
medical, dental and vision benefits as Employer may provide to its other
employees, provided such coverage is reasonably available, or be reimbursed if
Employee is carrying his own similar insurance.
(ii) BENEFIT PLANS. The Employee will be entitled to
participate in any benefit plan or program of the Employer which may currently
be in place or implemented in the future.
(iii) OTHER BENEFITS. During the Term, Employee will be
entitled to receive, in addition to and not in lieu of base sale, bonus or other
compensation, such other benefits and normal perquisites as Employer currently
provides or such additional benefits as Employer may provide for its officers in
the future.
(e) VACATION. Employee will be entitled to two (2) weeks
vacation per year.
5. CONFIDENTIALITY. In the course of the performance of Employee's
duties hereunder, Employee recognizes and acknowledges that Employee may have
access to cenain confidential and proprietary information of Employer or any of
its affiliates. Without the prior written consent of Employer, Employee shall
not disclose any such confidential or proprietary information to any person or
firm, corporation, association or other entity for any reason or purpose
whatsoever, and shall not use such information, directly or indirectly, for
Employee's own behalf or on behalf of any other party. Employee agrees and
affirms that all such information is the sole property of Employer and that at
the termination and/ or expiration of this Agreement, at Employer's written
request, Employee shall promptly return to Employer any and all such information
so requested by Employer.
The provisions of this Section 5 shall not, however, prohibit Employee from
disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Employee;
(b) has been furnished or made known to Employee by third parties (other
than those acting directly or indirectly for or on behalf of Employee) as a
matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of this Agreement;
or,
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted
by law indemnify, defend and hold harmless Employee from and against any and all
claims. Demands, liabilities, damages, losses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by her or his duties hereunder except in the case of his willful misconduct.
7. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may terminate
the Employee's employment pursuant to the terms of this Agreement without cause
by written notice to the Employee. Such termination will become effective upon
the date specified in such notice, provided that such date is at least sixty
(60) days from the date of such notice. In the event of such termination, the
Company shall pay the Employee an amount equal to twelve (12) months salary and
all stock options shall vest immediately.
B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement at any time for
cause by giving written notice of termination, and termination will become
effective upon the giving of such notice. However, Employee will not be deemed
to have been terminated "for just cause" unless at least two-thirds of the
members of the Board of Directors of Employer so determine. Upon any such
termination for cause for any period subsequent to the effective date of
termination, the Employee shall have no right to compensation or stock options
under Section 4 or participate in any employee benefit programs which may then
be in effect.
For purposes of Section 7(B), "just cause" means (i) Employee has
willfully, intentionally and continuously failed to substantially perform his
duties as specified under this Agreement, after a demand for substantial
performance is delivered to the Employee by the Employer which specifically
identifies the manner in which Employer believes Employee has not substantially
performed his duties; (ii) Employee has willfully engaged in gross misconduct
materially and demonstrably injurious to the Employer; (iii) the Employee
commits acts of dishonesty or disloyalty to Employer of misappropriates Company
funds or otherwise defrauds the Company; (iv) the Employee materially breaches
any provision of Section 5 of this Agreement; (v) material failure by Employee
to comply with applicable laws or government regulations; or (vi) Employee's
criminal conviction by any state or federal court of a felony.
In the case of termination for items (i), (ii) or (iii) of the preceding
paragraph, Employee shall be given at least one (1) written notice describing in
reasonably detail the perceived deficiencies in Employee's performance, and
Employee shall be given at least thirty (30) days' opportunity to correct such
perceived deficiencies prior to any termination.
C. DEATH OR DISABILITY. This Agreement and the obligations hereunder
will terminate upon the death or disability of the Employee. For purposes of
this Section 7(C), "Disability" shall mean for a period of three months in any
twelve month period the Employee is incapable of substantially fulfilling the
duties set forth in Section 2 of this Agreement because of physical, mental or
emotional incapacity resulting from an injury, sickness or disease. Upon any
such termination upon death or disability, the Employer will pay the Employee or
his legal representative, as the case may be, his annual salary at such time
pursuant to Section 4 through the date of such termination of employment.
D. CONTINUING EFFECT. Notwithstanding any termination of the Employee's
employment as provided in this Section 7, the provisions of Section 5 shall
remain in full force and effect.
E. CONSIDERATION. The payments (if any) required to be paid by the
Employer to Employee pursuant to Section 7 shall be in full and complete
satisfaction of any and all obligations owing to Employee under this Agreement.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, demands, requests approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or within two (2) days if sent by mail, registered or certified,
postage prepaid with return receipt requested as follows:
If to Employer: Heart Labs of America, Inc.
2650 North Military Trail, Suite 230
Boca Raton, Florida 33431
If to Employee: Harry R. Kobrin
8013 N.W. 83rd Terrace
Tamarac, Florida 33312
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the suject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13. GOVERNING LAW. This Agreement and the rights and obligations of the
parties will be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Florida.
14. CAPTIONS. The captions in this Agreement are for the convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter and the number
of all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need to be
produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYER:
Heart Labs of America, Inc.
By: /s/ NORMAN J. BIRMINGHAM
Name: Norman J. Birmingham
Title: President
EMPLOYEE:
/s/ HARRY R. KOBRIN
Harry R. Kobrin
Exhibit 10.12
EXPLOYMENT AGREEMENT
This Employment Agreement (the ""Agreement''), entered into as of the
31st day of March, 1996 by and between HEART LABS OF AMERICAN, INC., a Florida
corporation (hereinafter referred to as "Employer"), and DAWN DRELLA
("Employee").
WITNESSETH :
WHEREAS, Employer desires to employ Employee as provided herein; and
WHEREAS, Employee desires to accept such employment,
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receiipt and sufficiency of which are hereby acknowledged, the parties hereto
agrees as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employment upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee will serve Employer as its Chief Financial
Officer and will faithfully and diligently perform the services and functions
relating to such offices or otherwise reasonably incident to such offices,
provided that all such services and functions will be reasonable and within
Employee's area of expertise. Employee will, during the term of this Agreement
(or any extention thereof), devote his full business time, attention and skills
and best efforts to the promotion of the business of Employer. The foregoing
will not be construed as preventing Employee from making investments in other
businesses or enterprises provided that (a) Employee agrees not to become
engaged in any other business activity that interferes with his ability to
discharge his duties and responsibilities to Employer and, (b) Employee does not
violate any other provision of this Agreement.
3. TERM. The term of this Agreement will commence as of the date hereof
and will end on that date in the year 1999, unless earlier terminated by either
party pursuant to the terms hereof. The term of this Agreement is referred to
herein as the "Term". Assuming all conditions of this Agreement have been
satisfied and there has been no breach of the Agreement during its initial term,
Employee may extend the term for an additional one (1) year term at his election
("Extended Term"), written notice of which must be given at least sixty (60)
days prior to the end of such preceding term.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) SALARY. Commencing upon the date of this Agreement, Employee
will be paid a minimum annual salary of $60,000, payable in accordance with the
then current payroll policies of Employer or as otherwise agreed to by the
parties (the "Salary"). At any time and from time to time the Salary may be
increased for the remaining portion of the term if so determined by the Board of
Directors of Employer after a review of Employee's performance of his duties
hereunder.
(b) OPTIONS. Commencing on the date of this Agreement, Employee
shall be issued a five (5) year option to purchase 20,000 shares of common stock
of the Company, all of which shares shall vest immediately and will be
exercisable throughout the term at a price of $1.00 per share. Employee shall be
issued an option to purchase an additional 10,000 shares per year at $0.25 per
share over bid price at the date of the grant, and such shares vest immediately.
(c) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Employer will reimburse Employee in the same manner as
other executive officers for all reasonable and necessary or appropriate
out-of-pocket travel and other expenses incurred by Employee in rendering
services required under this Agreement.
(d) BENEFITS, INSURANCE.
(i) MEDICAL, DENTAL AND VISION BENEFITS. During this
Agreement, Employee and his dependents will be entitled to receive such group
medical, dental and vision benefits as Employer may provide to its other
employees, provided such coverage is reasonably available, or be reimbursed if
Employee is carrying his own similar insurance.
(ii) BENEFIT PLANS. The Employee will be entitled to
participate in any benefit plan or program of the Employer which may currently
be in place or implemented in the future.
(iii) OTHER BENEFITS. During the Term, Employee will be
entitled to receive, in addition to and not in lieu of base salary, bonus or
other compensation, such other benefits and normal perquisites as Employer
currently provides or such additional benefits as Employer may provide for its
officers in the future.
(e) VACATION. Employee will be entitled to two (2) weeks
vacation per year.
5. CONFIDENTIALITY. In the course of the performance of Employee's
duties hereunder, Employee recognizes and acknowledges that Employee may have
access to certain confidential and proprietary information of Employer or any of
its affiliates. Without the prior written consent of Employer, Employee shall
not disclose any such confidential or proprietary information to any person or
firm, corporation,
2
association or other entity for any reason or purpose whatsoever, and shall not
use such information, directly or indirectly, for Employee's own behalf or on
behalf of any other party. Employee agrees and affirms that all such information
is the sole property of Employer and that at the termination and/or expiration
of this Agreement, at Employer's written request, Employee shall promptly return
to Employer any and all such information so requested by Employer.
The provisions of this Section 5 shall not, however, prohibit Employee
from disclosing to others or using in any manner information that:
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Employee;
(b) has been furnished or made known to Employee by third parties (other
than those acting directly or indirectly for or on behalf of Employee) as a
matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of this Agreement;
or,
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent permitted
by law indemnify, defend and hold harmless Employee from and against any and all
claims. Demands, liabilities, damages, losses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by her or his duties hereunder except in the case of his willful misconduct.
7. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may terminate
the Employee's employment pursuant to the terms of this Agreement without cause
by written notice to the Employee. Such termination will become effective upon
the date specified in such notice, provided that such date is at least sixty
(60) days from the date of such notice. In the event of such termination, the
Company shall pay the Employee an amount equal to twelve (12) months salary and
all stock options shall vest immediately.
B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may terminate the
Employee's employment pursuant to the terms of this Agreement at any time for
cause by giving written notice of termination, and termination will become
effective upon the giving of such notice. However, Employee will not be deemed
to have been terminated "for just cause" unless at least two-thirds of the
members of the Board of Directors of Employer so determine. Upon any such
termination for cause for any period
3
subsequent to the effective date of termination, the Employee shall have no
right to compensation or stock options under Section 4 or participate in any
employee benefit programs which may then be in effect.
For purposes of Section 7(B), "just cause" means (i) Employee has
willfully, intentionally and continuously failed to substantially perform his
duties as specified under this Agreement, after a demand for substantial
performance is delivered to the Employee by the Employer which specifically
identifies the manner in which Employer believes Employee has not substantially
performed his duties; (ii) Employee has willfully engaged in gross misconduct
materially and demonstrably injurious to the Employer; (iii) The Employee
commits acts of dishonesty or disloyalty to Employer of misappropriates Company
funds or otherwise defrauds the Company; (iv) the Employee materially breaches
any provision of Section 5 of this Agreement; (v) material failure by Employee
to comply with applicable laws or government regulations; or (vi) Employee's
criminal conviction by any state or fedeal court of a felony.
In the case of termination for items (i), (ii) or (iii) of the preceding
paragraph, Employee shall be given at least one (1) written notice describing in
reasonably detail the perceived deficiencies in Employee's performance, and
Employee shall be given at least thirty (30) days' opportunity to correct any
such perceived deficiencies prior to any termination.
C. DEATH OR DISABILITY. This Agreement and the obligations hereunder
will terminate upon the death or disability of the Employee. For purposes of
this Section 7(C), "Disability" shall mean for a period of three months in any
twelve month period the Employee is incapable of substantially fulfilling the
duties set forth in Section 2 of this Agreement because of physical, mental or
emotional incapacity resulting from an injury, sickness or disease. Upon any
such termination upon death or disability, the Employer will pay the Employee or
his legal representative, as the case may be, his annual salary at such time
pursuant to Section 4 through the date of such termination of employment.
D. CONTINUING EFFECT. Notwithstanding any termination of the Employee's
employment as provided in this Section 7, the provisions of Section 5 shall
remain in full force and effect.
E. CONSIDERATION. The payments (if any) required to be paid by the
Employer to Employee pursuant to Section 7 shall be in full and complete
satisfaction of any and all obligations owing to Employee under this Agreement.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
4
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, demands, requests approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or within two (2) days if sent by mail, registered or certified,
postage prepaid with return receipt requested as follows:
If to Employer: Heart Labs of America, Inc.
2650 North Military Trail, Suite 230
Boca Raton, Florida 33431
If to Employee: Dawn Drella
4601 Roxberry Court
Lantana, Florida 33462
Notices delivered personally will be deemed communicated as of actual receipt.
11. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the suject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
12. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision there will be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13. GOVERNING LAW. This Agreement and the rights and obligations of the
parties will be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Florida.
14. CAPTIONS. The captions in this Agreement are for the convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
5
15. GENDER AND NUMBER. When the context requires, the gender of all words used
herein will include the masculine, feminine and neuter and the number of all
words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original and all of which will constitute one
and the same instrument, but only of which need to be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
EMPLOYER:
Heart Labs of America, Inc.
By: /s/ NORMAN S. BIRMINGHAM
Name: Norman S. Birmingham
Title: President
EMPLOYEE:
/s/ DAWN DRELLA
Dawn Drella
Exibit 10.13
EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "Agreement"), made and executed as of
June 5, 1995 by and between TechnoMED, Inc. a Florida corporation ("TechnoMED")
and ESSENTIAL CARE MEDICAL CENTERS, INC., and PRIME DENTAL CENTERS, INC., both
Florida Corporations (herein collectively "Essential-Prime"), all of the shares
of which are equally owned by two shareholders, as set forth on Exhibit "A"
attached hereto and made a part hereof (the "Shareholders") and herein,
collectively the "Parties".
WITNESSETH:
RECITALS
WHEREAS, the Parties hereto believe it is in their mutual best interest
to join together and conduct their businesses in a complimentary manner in the
healthcare and related fields; and
WHEREAS, to accomplish such goal, TechnoMED will exchange its
convertible preferred shares with Essential-Prime and its Shareholders, and
Shareholders are willing to accept such shares subject to the terms and
conditions hereinafter set forth; and
WHEREAS, as an inducement for Essential-Prime to enter this Agreement
TechnoMED represents that its principals have negotiated and have taken control
of Heart Labs of America, Inc. ("HLOA"), a company whose common shares are
publicly traded on the NASDAQ over the counter market; and that within a
reasonable time thereafter, HLOA and TechnoMED will merge such that all
TechnoMED shareholders (preferred and common) will ultimately become
shareholders of a publicly entity; and
WHEREAS, Essential-Prime would not participate in this Exchange
Agreement but for the fact that TechnoMED will merge into HLOA and the shares to
be ultimately received by Essential-Prime Shareholders will be shares in the
public company; and
WHEREAS, the two principal shareholders are willing to enter into
management contracts with Essential-Prime to manage and supervise the managed
care operations of Essential-Prime; and
WHEREAS, the Parties hereto, TechnoMED and Essential-Prime and their
principals as a result of such a share exchange will operate in a unified merged
corporate structure;
NOW, THEREFORE, in consideration of the premises and the mutual
promises, warranties, covenants, and agreements made in this Agreement, the
Parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Ancillary Agreements" shall mean Employment Agreements with the
shareholders dated as of the date of this Agreement including management
agreements entered into by certain of the stockholders of Essential-Prime.
1.2 "TechnoMED Convertible Preferred Stock" shall mean the Convertible
Preferred Stock of TechnoMED, par value $1.00 per share.
1.3 "Closing" shall mean the completion of the transactions contemplated
by Article V of this Agreement to be consummated on the Closing Date.
1.4 "Closing Date" shall mean the date established pursuant to Section
5.1.
1.5 "Agreement" shall mean this Share Exchange Agreement. Each reference
in this Agreement to a Schedule or Exhibit, unless otherwise indicated, shall
mean a Schedule or Exhibit attached to this Agreement and incorporated into this
Agreement by such reference.
1.6 "Financial Statements" shall mean the unaudited balance sheets of
and income statements of Essential-Prime as of December 31, 1994 and income
statement for the three months ended March 31, 1995.
1.7 "Knowledge" shall mean actual knowledge or such knowledge that a
reasonable person in such circumstances would have reason to know.
2
ARTICLE II
EXCHANGE OF STOCK
2.1 THE SECURITIES. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, Essential-Prime and the Shareholders
shall exchange and deliver to TechnoMED certificates for shares of Common Stock
representing 100% of the outstanding shares of the corporations making up
Essential-Prime, as set forth on Exhibit "A" hereto, free and clear of all
liens, security interests, encumbrances, pledges, charges, claims, voting trusts
and restrictions on transfer of any nature whatsoever, other than restrictions
on transfer of a general nature arising under federal and state securities laws
and as fully set forth in Paragraph 2.2 herein. In return therefore, TechnoMED
shall deliver to Essential-Prime, One Million Seven Hundred Fifty Thousand
(1,750,000) shares of Convertible Preferred Stock par value One Dollar ($1.00)
per share of TechnoMED (the "Convertible Preferred"), each share of which shall
be entitled to one (1) vote at any meeting at which the Common Shares are
entitled to vote and which shall be allocated among the Shareholders as set
forth in Exhibit "A" hereto; subject to all restrictions as to sale of the
shares of the TechnoMED Common Stock by the Shareholders as set forth
hereinafter. Each Shareholder's Convertible Preferred shall at his discretion be
convertible into Common Shares of a publicly traded HLOA or TechnoMED or its
successors all at once within five (5) years from the date of its issuance, at
the rate Eighty-Five Percent (85%) of the market value of the shares into which
the Convertible Preferred shares are to be converted, based on the average of
the bid price of the said common shares for a ten (10) day period prior to the
announcement to convert by the Shareholder. By way of example: if the ten (10)
day Average price of HLOA shares is $1.00 then each share of Convertible
Preferred would be converted into HLOA Common Stock by multiplying the Preferred
Stock par value; One Dollar by 85%; thus, 85% of the $1.00 market price equals a
conversion price of HLOA shares of $.85, so each share of Convertible Preferred
would be converted into 1.17647 shares HLOA Common Stock, and, if all 2,500,000
of the $1.00 par value Converted Preferred were converted at the $.85 price, the
result would be 1.17647 shares x 2,500,000 or 2,941,176 common shares of HLOA.
3
In addition, Seven Hundred Fifty Thousand shares (750,000) of $1.00 par
value Convertible Preferred shares shall be placed in Escrow with Charles
Chillingworth, Esq. of West Palm Beach, Florida and, thereafter, shall all be
released to the Essential-Prime shareholders, if, within one year beginning
August 1, 1995 and ending July 31, 1996 pre-tax earnings of the Essential-Prime
division or companies, if operated as a separate corporate entity, including all
operating expenses on a fully allocated basis earn at least Three Hundred Fifty
Thousand Dollars ($350,000). Should the Essential-Prime companies earn less than
$350,000 for the year ending July 31, 1996, the Essential-Prime shareholders
shall receive common shares calculated by a fraction, the numerator of which is
the actual earnings of the division or corporate entity and the denominator of
which is 350,000 to be multiplied by 750,000 to arrive at the actual number of
shares to be received and shall have the right to make up the shortfall, if any,
in the next fiscal year ending July 31, 1997 and to receive the release of
additional shares of the TechnoMED (or its successor) Convertible Preferred
stock at the rate of and in the same manner as the prior fiscal year based upon
pre-tax net earnings of Essential-Prime are in excess of Three Hundred Fifty
Thousand Dollars ($350,000). That is, for example, if Essential-Prime earns
$300,000 the first fiscal year, it would result in the Shareholders receiving a
combined total of 642,857 shares. If $400,000 is earned the second fiscal year,
the Shareholders would receive 107,143 additional shares of Convertible
Preferred and such shares to be received wold not exceed the maximum of 750,000
additional shares as contemplated herein. 2.2 Delivery of Stockholders'
Shares. On the Closing Date, Essential-Prime and Shareholders, to the extent not
previously delivered, will deliver to TechnoMed the certificates representing
100% of the outstanding shares of Essential-Prime's capital stock duly endorsed
(or with duly executed stock powers attached) so as to make TechnoMED the sole
owner thereof, free and clear of all liens, claims and encumbrances. Except as
previously indicated, the exchange of shares between Essential-Prime and
TechnoMED shall not be effected unless certificates representing not less than
100% of the shares of Essential-Prime's outstanding capital stock have been
previously delivered to TechnoMed or are delivered to TechnoMED on the Closing
Date, free and clear of all liens, claims, and encumbrances. After delivery of
Essential-Prime's share certificates to TechnoMED, Essential-Prime shall become
a wholly owned subsidiary of TechnoMED in compliance with Seciton 368(a)(i)(B)
of the Internal Revenue Code and the said shares
4
of Essential-Prime shall contain a legend referencing this Agreement and the
fact that such shares may not be transferred or encumbered until TechnoMed has
merged with HLOA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TECHNOMED
TechnoMED hereby represents and warrants to Essential-Prime and to its
Shareholders that:
3.1 CORPORATE ORGANIZATION. TechnoMED is a corporation duly organized,
validly existing and in good standing under the laws of State of Florida and has
all requisite corporate power and authority to execute and deliver this
Agreement and each Ancillary Agreement to which it is a party, to perform its
respective obligations hereunder and thereunder, and to consummate the
respective transactions contemplated hereby and thereby.
3.2 AUTHORIZATION. All necessary and appropriate corporate action has
been or will be taken by TechnoMED prior to the Closing with respect to the
execution and delivery of this Agreement and each Ancillary Agreement, if any,
to which it is a party and the performance by TechnoMED of its rspective
obligations hereunder and thereunder, and approval by the members or holders of
any class of securities of TechnoMED of the execution and delivery of this
Agreement or any Ancillary Agreement to which TechnoMED is a party or the
consummation of the respective transaction is contemplated hereby and thereby is
not required. This Agreement and each Ancillary Agreement to which TechnoMED is
a party constitute valid and binding obligations of TechnoMED enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other such laws concerning the rights
of creditors generally and the application of equitable principles. The
consummation by TechnoMED of the transactions contemplated by this Agreement and
each Ancillary Agreement to which TechnoMED is a party do not and shall not
conflict with any applicable foreign, federal, state or local law rule,
regulation, writ, decree or order to which TechnoMED is subject, nor shall
5
they conflict with or violate any term, provision or covenant of any agreement,
mortgage, contract, indenture or judgment applicable to TechnoMED.
3.3 BROKERS AND FINDERS. No finder, broker, agent or other intermediary
has acted on behalf of TechnoMED or is entitled to a commission or finder's fee
in connection with the negotiation or consummation of this Agreement.
3.4 GOVERNMENTAL APPROVALS AND FILINGS. TechnoMED is not required to
obtain any consent, approval or authorization of, or to make any declaration or
filing with, any governmental authority for the valid execution and delivery of
this Agreement or any Ancillary Agreement to which it is a party, the
performance of its obligations hereunder or the consummation of the transactions
contemplated hereby or thereby.
3.5 CAPITALIZATION OF TECHNOMED.
(a) The authorized capital stock of TechnoMED consists of Twenty
Million (20,000,000) shares of common stock having a par value of .001c per
share, and Ten Million (10,000,000) shares of convertible preferred stock as of
the Closing Date including the shares to be issued hereunder, there will be
approximately Seven Million (7,000,000) shares of common stock, validly issued
and outstanding and Two Million Five Hundred Thousand shares of $1.00 par value
convertible preferred stock including the shares of Convertible Preferred
subject to this Agreement.
(b) All of the shares of TechnoMed Stock, common shares which
are issued and outstanding have been duly authorized and validly issued and are
fully paid and non-assessable. There are no outstanding warrants, subscriptions,
rights, call, puts, privileges, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the purchase,
issuance or sale of any shares of the capital stock or any other securities of
TechnoMED, including, without limitation, any securities (debt or equity)
outstanding which are convertible into or exchangeable for any shares of the
capital stock of TechnoMED.
3.6 FINANCIAL CONDITION. Attached is a pro-forma balance sheet of
TechnoMED based as of April 30, 1995.
6
3.7 TAXES. Since TechnoMED is a new entity federal, state and local tax
returns and reports have not as yet been required to be filed. As such, there
are no tax audits or investigations, local, state, or federal, concerning or
related to TechnoMED pending or are there any required taxes, fees, assessments
and governmental charges of any type which are due and/or are unpaid.
3.8 COMPLIANCE WITH LAW: LICENSES. TechnoMED conducts its business in
compliance in all material respects with all applicable laws, governmental
regulations, and judicial and administrative decisions, and no notice stating or
asserting the lack of such compliance has been received. All licenses or permits
issuable by any governmental authority which are necessary for the operation of
the business of TechnoMED have been obtained and are currently in full force and
effect.
3.9 PROPERTIES. TechnoMED has good and marketable title to all of its
assets, and properties of every kind, nature and description, tangible or
intangible, whereever located, free and clear of all mortgages, pledges, liens,
security interests, encumbrances and restrictions of any nature whatsoever,
except for title defects which, when considered in the aggregate, do not impair
the continued operation of TechnoMED or the use by TechnoMed of its properties
and assets as presently used, or affect the amounts allows to be stated in
respect thereof on the Financial Statements in any material respect.
3.10 LITIGATION. There is no suit, claim, action, litigation or
proceeding, administrative or judicial, or any governmental investigation
pending or, to the knowledge of TechnoMED, threatened against TechnoMED or
involving any of its properties and assets, including without limitation any
claim, proceeding or litigation for the purpose of challenging, enjoining or
preventing the execution and delivery of this Agreement or any Ancillary
Agreement to which TechnoMED is a party, the performance of the respective terms
and conditions hereof or thereof or the consummation of the respective
transactions contemplated hereby or thereby. To the knowledge of TechnoMED, it
is not subject to or in default under any order, writ, injunction or decree of
any court or governmental authority.
7
3.11 OTHER GOVERNMENTAL APPROVALS AND FILINGS. TechnoMED is not required
to obtain any consent, approval or authorization of, or to make any declaration
or filing with, any governmental authority for the valid execution and delivery
of this Agreement or any Ancillary Agreement to which TechnoMED is a party, the
exchange of the Shares, or the performance or consummation of the respective
transactions contemplated by this Agreement or such Ancillary Agreement.
3.12 PENDING ACQUISITIONS. The principals of TechnoMED have completed
the purchase of a controling interest in a company known as Heart Labs of
America, Inc. ("HLOA"), the shares of which are traded on the "over-the-counter"
market. This acquisition closed on May 2, 1995. Once the controlling shares of
HLOA have been acquired by the principals of TechnoMED, a special shareholders
meeting will be promptly called to vote on the merger of HLOA with TechnoMED,
and once completed, the name of HLOA will be changed to TechnoMED as soon as
possible.
3.13 INVESTMENT REPRESENTATIONS. The Investment Representations made by
Essential-Prime and the Shareholders shall be deemed to be restated herein and
shall apply, and with the same force and effect, as if TechnoMED had made such
representations to Essential-Prime and Shareholders. TechnoMED has also had free
and complete access to the books and records of Essential-Prime.
3.14 RENEWAL SURVIVAL: Each of the representations and warranties set
forth in Article V shall survive the Closing.
8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ESSENTIAL-PRIME AND SHAREHOLDERS
Essential-Prime and its Shareholders hereby represent and warrant to TechnoMED
that:
4.1 CORPORATE ORGANIZATION. Essential-Prime (which shall be deemed to
include any and all of its subsidiaries) are corporations duly organized and
validly existing and in good standing under the laws of the State of Florida and
have all requisite corporate power to execute and deliver this Agreement and
each Ancillary Agreement to which it is a party, to perform its respective
obligations hereunder and thereunder and to consummate the respective
transactions contemplated hereby and thereby.
4.2 AUTHORIZATION. Essential-Prime and Shareholders have all requisite
power and authority to execute and deliver this Agreement and each Ancillary
Agreement to which they are a party, perform their respective obligations
thereunder, and consummate the respective transactions contemplated hereby and
thereby. All necessary action has been taken by Essential-Prime and Shareholders
with respect to the execution, delivery and performance of this Agreement and
each Ancillary Agreement to which they are a party.
4.3 INVESTMENT RESTRICTIONS.
(a) Shareholders are acquiring the Shares of TechnoMED for
purposes of investment and not with a view to resale.
(b) Shareholders have not had access to TechnoMED's books and
records, but have received all documents requested and have had an opportunity
to ask questions of and receive answers from management level personnel of
TechnoMED and are satisfied as to the status of TechnoMED.
(c) Shareholders are "Accredited Investors" as such term is
defined in Rule 501(a) of Regulation D under the 1933 Act and Shareholders
recognize and understand the risk
9
factors related to an investment in the Shares or, have evaluated the risk of
accepting the Shares of TechnoMED and have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of an investment in the TechnoMED Shares.
(d) The Shareholders acknowledge that shares of TechnoMED
Convertible Preferred Stock to be received pursuant to Section 2.1 will NOT be
registered under the 1933 Act and may not be sold, transferred, assumed or
hypothecated unless registered under the 1933 Act and applicable state
securities laws or, are exempt therefrom. Notwithstanding the foregoing,
TechnoMED herein represents and warrants unto Shareholder(s) that, upon demand
by each such Shareholder, after the conversion of the Convertible Preferred into
Common Shares, it will register with the Securities and Exchange Commission and
applicable States, the underlying shares of Common Stock to the extent of
twenty-five percent (25%) of each Shareholder's shares of publicly traded Common
Stock of HLOA (or TechnoMED), such registration shall occur no earlier than six
(6) months following the Closing of the transaction, whereby TechnoMED is merged
with HLOA, as herein contemplated, and no later than six (6) months from such
Shareholder's demand. Thereafter, the balance of the shares of their HLOA of
TechnoMED Common Stock shall, at the option of Shareholder(s), be registered not
later than two (2) years following the TechnoMED/HLOA merger upon written
request made on or before the filing of TechnoMED's Report on Form 10K starting
with the calendar year 1996.
4.4 ENFORCEABILITY. This Agreement and the Ancillary Agreements to which
Shareholders are a party constitute valid and binding obligations of
Shareholders enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other such laws concerning the rights of
creditors generally and the application of equitable principles. The execution
and delivery of this Agreement and the Ancillary Agreements to which
Shareholders are a party, the consummation of the respective transactions
contemplated hereby or thereby, and the performance or satisfaction of the
respective terms and conditions hereof or thereof do not constitute and will not
constitute a breach or default (or an event which, with the lapse of time or the
giving of a notice, or both, would constitute a breach or default) under
conflict with, any Agreement, deed, writ, order, decree, or judgment, to which
Shareholders are a party or by which Shareholders are bound, and do not and
shall not violate or conflict with any applicable
10
federal, state or local law, rule, or regulation to which the Sellers are
subject. The delivery to TechnoMED of all of the Essential-Prime Shares pursuant
to the provisions of this Agreement will transfer to TechnoMED valid title
thereto, free and clear of all liens, except as stated herein, security
interests, encumbrances, pledges, charges, claims, voting trusts and
restrictions of any nature whatsoever, other than restrictions on transfer of a
general nature arising under federal and state laws and will include two parcels
of real estate, namely 2601 N.E. 2nd Avenue, Miami, Florida (the "Miami
Property") and 420 North State Road 7, Plantation, Florida (the "Plantation
Property") (more fully described on Exhibit 4.4) subject to two (2) mortgages
having approximately a combined principal balance on the Miami Property of
$150,000 (which shall be assumed by TechnoMED) occupied by Essential-Prime and
used in the business of Essential-Prime. The Plantation Property has
approximately Twenty Thousand Dollars ($20,000) of outstanding and delinquent
real estate taxes against it. Notwithstanding anything to the contrary, the
deeds to the aforementioned properties, exact copies of which shall be delivered
to TechnoMED on demand, shall be held in Escrow by Learner and Pearce, P.A.,
attorneys of Fort Lauderdale, Florida until the proposed exchange of shares by
TechnoMED with Heart Labs of America, Inc. is completed.
4.5 SUBSIDIARIES. Essential-Prime has no subsidiaries.
4.6 BROKER, FINDERS. No finder, broker, agent or other intermediary has
acted on behalf of Essential-Prime or its Shareholders, or is entitled to a
commission or a finder's fee in connection with the negotiation or consummation
of the Agreement or any of the transactions contemplated thereby.
4.7 LITIGATION. Other than the litigation set forth in Schedule 4.7
hereof, there is no suit, claim, action, litigation or proceeding,
administrative or judicial, or any governmental investigation pending or, to
the knowledge of the Shareholders, threatened against Essential-Prime or
involving any of its properties and assets, including without limitation any
claim, proceeding or litigation for the purpose of challenging, enjoining or
preventing the execution and delivery of this Agreement or any Ancillary
Agreement to which the Shareholders are a party, the performance of the
respective terms and conditions hereof or thereof or the consummation of the
respective transactions contemplated hereby or thereby. In the event of an
adverse result in the litigation
11
referred to on Schedule 4.7, TechnoMED shall have the option to reduce the
number of shares exchanged on the basis of one (1) share for each one (1) dollar
adverse result against Essential-Prime.
4.8 OTHER GOVERNMENTAL APPROVALS AND FILINGS. Other than as set forth
herein, Essential-Prime or the Shareholders are not required to obtain any
consent, approval or authorization of, or to make any declaration or filing with
any governmental authority as a prerequisite to the valid execution and delivery
of this Agreement or any Ancillary Agreement to which Essential-Prime or the
Shareholders are parties, the purchase and sale of the Shares, or the
performance or consummation of the respective transactions contemplated by this
Agreement or such Ancillary Agreement.
4.9 COMPLIANCE WITH LAW LICENSES. Essential-Prime conducts its business
in compliance in all material respects with all applicable laws, governmental
regulations, and judicial and administrative decisions, and no notice stating or
asserting the lack of such compliance has been received. All licenses or permits
issuable by any governmental authority which are necessary for the operation of
the business of Essential-Prime and subsidiary have been obtained and are
currently in full force and effect.
4.10 PROPERTIES. Essential-Prime has good and marketable title to all of
its assets, and properties, as set forth on Schedule 4.10 hereto, of every kind,
nature and description, tangible or intangible, whereever located, free and
clear of all mortgages, pledges, liens, security interests, encumbrances and
restrictions of any nature whatsoever, except for title defects which, when
considered in the aggregate, do not impair the continued operation of
Essential-Prime or the use by Essential-Prime of its properties and assets as
presently used, or affect the amounts allowed to be stated in respect thereof on
the Financial Statements in any material respect.
12
4.11 MATERIAL CONTRACTS. As set forth on Exhibit 4.11(a) hereto is a
list of the clients of Essential-Prime. Further, Essential-Prime is not party
to, and the properties or assets of Essential-Prime are not subject to or bound
under, any Agreement of the following kind:
(a) Any lease of real or personal property, either as lessor or
as lessee, which is not terminable by Essential-Prime without penalty within 30
days after notice.
(b) Any Agreement with or obligation to any director, officer or
shareholder of Essential-Prime.
(c) Any Agreement or instrument for or relating to the borrowing
of money, either as borrower or lender.
(d) Any Agreement with or legal obligation to any salesmen,
representatives, agents, dealers or distributors;
(e) Any franchise or franchise Agreement; or
(f) Any other Agreement of any kind which is material to the
operations, business, financial condition, property or assets of
Essential-Prime.
All agreements, if any, disclosed in this Agreement to which
Essential-Prime is party, or by which it or any of its properties or assets is
bound, are in full force and effect and are valid, binding and enforceable in
accordance with their respective terms, and Essential-Prime is not in material
default or breach, nor, to the knowledge of the Essential-Prime and its
Shareholders, has there occurred an event or condition which, with the passage
of time or the giving of notice (or both), would constitute a material default
or breach, by Essential-Prime with respect to the payment or performance of any
obligation thereunder and no claim of such a default has been asserted and there
is no basis upon which such a claim could validly be made.
4.12 FINANCIAL CONDITIONS. Attached is a balance sheet dated December
31, 1994 and income statement for Essential-Prime for the twelve (12) months
ended December 31, 1994 and an income statement for the three (3) months ended
March 31, 1995.
4.13 RENEWAL: SURVIVAL. Each of the representations and warranties set
forth in Article IV shall survive the Closing.
13
ARTICLE V
CLOSING
5.1 PLACE, TIME AND EFFECTIVE DATE. The Closing shall take place on
Tuesday, June 6, 1995 at 10:00 P.M. EST (local time) at the offices of Lerner
and Pearce, Fort Lauderdale, Florida or at such other time or place as the
Parties may agree, but no later than the close of regular business on June 7,
1995.
5.2 DELIVERIES OF SHAREHOLDER AT CLOSING. At the Closing,
Essential-Prime and/or the Shareholders shall deliver to TechnoMED if not
previously delivered (in addition to any other deliveries required under this
Agreement) of the following:
(a) Certificate(s) evidencing all Shares of Essential-Prime with
appropriate executed stock powers attached to permit transfer on the books of
Essential-Prime.
(b) Executed stock powers fully endorsed;
(c) Copies of Essential-Prime Board of Directors' Minutes
approving the Exchange Agreement and transaction contemplated thereby and all of
the corporate books and records of Essential-Prime; and
(d) Such other available documentation as may be reasonably
requested in WRITING by TechnoMED.
5.3 DELIVERIES OF TECHNOMED AT CLOSING. At the Closing, TechnoMED shall
deliver to TechnoMED and/or Shareholders (in addition to any other deliveries
required under this Exchange Agreement).
(a) Executed counterparts of the Exchange Agreement and Release
to which it is a party.
(b) One Million Seven Hundred Fifty Thousand Restricted Shares
(1,750,000) of TechnoMED Convertible Preferred par value One Dollar ($1.00) made
out in the names of each of the Shareholders as set forth on Exhibit "A"
together with appropriate investment letters applicable thereto; and a receipt
from the escrow agent for an additional Seven Hundred Fifty Thousand shares of
convertible preferred stock, par value One Dollar ($1.00) per share.
14
(c) Such other relevant documentation as may be reasonably
requested in writing by counsel to Essential-Prime at lest two days prior to the
Closing Date.
ARTICLE VI
INDEMNIFICATIONS
6.1 INDEMNITY.
(a) Essential-Prime agrees to hold harmless and indemnify
TechnoMED and its shareholders, directors, officers, employees, representatives,
agents, successors, consultants and assigns from and against any claim, loss,
damage, liability, expense or cost of any kind or amount whatsoever (including,
without limitation, reasonable attorney's fees and expenses) which results from
or arises out of any breach of or default under any representation, warranty,
covenant or agreement made by Essential-Prime in this Agreement, in any Schedule
or Exhibit to this Agreement, in any Ancillary Agreement or in any if
certificate or other agreement or document furnished or to be furnished by or on
behalf of Essential-Prime under this Agreement or in connection with the
respective transactions contemplated hereby or thereby.
(b) TechnoMED agrees to indemnify and hold Essential-Prime, the
Shareholders, directors, officers, representatives, agents, successors,
consultants and assigns harmless from and against any claim, damage, loss,
liability, expenses or cost of any kind or amount whatsoever (including, without
limitation, reasonably attorney's fees and expenses) which results from or
arises out of the breach of any representation, warranty, covenant or agreement
made by TechnoMED in this Agreement, in any Schedule or Exhibit to this
Agreement, in any Ancillary Agreement or in any certificate or other agreement
or document furnished or to be furnished by or on behalf of TechnoMED under this
Agreement or in connection with the respective transactions contemplated hereby
or thereby.
15
6.2 NOTICE OF CLAIM. Subject to Section 6.3, in the event that any party
hereto asserts a claim for indemnification hereunder, such party seeking
indemnification (the ""Indemnified Party"") shall give written notice to the
other party (the ""Indemnifying Party"") specifying the facts constituting the
basis for such claim and the amount, if known, of the claim asserted.
6.3 RIGHT TO CONTEST CLAIMS OF THIRD PARTIES. If an Indemnified Party
asserts a claim for indemnification hereunder because of a claim made by any
claimant not a party to this Agreement, the Indemnified Party shall give the
other party or parties reasonably prompt notice thereof, but in no event more
than three (3) business days after said assertion is actually known to the
Indemnified Party; failure to give such notice shall be deemed a waiver of such
claim for indemnification and breach of the Indemnifying Party is materially
prejudiced thereby. The Indemnifying Party shall have the right, upon written
notice to the Indemnified Party, and using counsel reasonably satisfactory to
the Indemnified Party, to investigate, secure, contest or settle the claim
alleged by such third party (hereinafter called a ""Third-Party Claim""),
provided that the Indemnified Party mail participate voluntarily, at its own
expense, in any such Third-Party Claim through representatives and counsel of
its own choice. Except as expressly provided otherwise in this Section 6.3, the
Indemnified Party shall not settle or compromise any Third-Party Claim for which
it seeks indemnification hereunder without he prior written consent of the
Indemnifying Party (which shall not be unreasonably withheld) unless suit shall
have been instituted against it and the Indemnifying party shall not have taken
control of the defense of such Third-Party Claim after notification thereof as
provided in this Section 6.3.
Except as provided otherwise in the immediately preceding sentence, the
Indemnifying Party shall bear all costs of such Third-Party Claim and shall
indemnify and hold the Indemnified party harmless against and from all costs,
fees and expenses of such Third-Party Claim. Unless and until the Indemnifying
Party elects to defend the Third-Party Claim the Indemnified Party shall have
the full right, at its option, to do so and to look to the Indemnifying Party
under the provisions of this Agreement for the amount of the costs, if any, of
defending the Contest. The failure of the Indemnifying Party to respond in
writing to the aforesaid notice of the Indemnified Party with respect to such
Third-Party Claim within twenty (20) days after receipt thereof shall be deemed
an election not to defend the same. If the Indemnifying Party does not assume
the defense of any such Third-Party Claim, including any litigation resulting
therefrom, (a) the
16
Indemnified Party may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not to control) the defense of
such action, with its own counsel at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified Party defended
such Third-Party Claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such Third-Party
Claim in a reasonably prudent manner.
The parties hereto shall make mutually available to each other all
relevant information in their possession relating to any such Third-Party Claim
and shall cooperate in the defense thereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 NOTICE. All notices, requests, demands and other communications
required or permitted under this Agreement shall be deemed to have been duly
given and made if in writing upon being served either by personal delivery or by
telecopier to the party for whom it is intended or two business days after being
deposited, postage prepaid, certified or registered mail, return receipt
requested (or such form of mail as may be substituted therefore by postal
authorities), in the United States mail, bearing the address shown in this
Section 7.1:
If to Essential Health Care, Inc.:
c/o Harry Kobrin
8013 N.W. 83rd Terrace
Tamarac, Florida 33321
17
WITH A COPY TO:
Allan M. Lerner, Esq.
Lerner and Pearce
2888 East Oakland Park Boulevard
Fort Lauderdale, Florida 33306
Fascimile: (305) 563-8522
If to TechnoMED:
Bradley T. Ray
330 Business Parkway
Suite #101
Royal Palm Beach, Florida 33411
WITH A COPY TO:
Edwin F. Russo, Esq.
1896 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33409
Facsimile: (407) 683-0562
7.2 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits
hereto embody the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understanding relative to subject matter.
7.3 BINDING EFFECT: ASSIGNMENT: This Agreement and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon TechnoMED its successors and permitted assigns and Essential-Prime; its
successors and permitted assigns. Neither the Agreement nor any of the rights,
interests or obligations hereunder shall be transferred or assigned (by
operation of law or otherwise) by any of the parties hereto without the prior
written consent of the other party (which consent shall not be unreasonably
withheld).
7.4 NO THIRD-PARTY BENEFICIARIES: Nothing in this Agreement, expressed
or implied, is intended or shall be construed to confer upon or give to any
person, firm, corporation or legal entity, other than the parties hereto, any
rights, remedies or other benefits under or by reason of this Agreement.
7.5 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
7.6 CAPTIONS. The section headings of this Agreement are inserted for
convenience only and shall not constitute a part of this Agreement in construing
or interpreting any provision hereof.
7.7 EXPENSES AND TRANSACTIONS. Each party hereto shall pay all costs and
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, including without limitation, the fees and expenses of his
or its counsel and certified public accountants.
7.8 AMENDMENT. This Agreement may not be changed, amended, terminated,
augmented, rescinded or discharged (other than in accordance with its terms), in
whole or in part, except by a writing executed by the parties hereto.
7.9 OTHER AND FURTHER COVENANTS. The parties shall, in good faith,
execute such other and further instruments, assignments or documents as may be
necessary for the consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the parties hereto
shall assist and cooperate with each other in connection with these activities.
7.10 GOVERNING LAW. This Agreement shall in all respects be construed in
accordance with and governed by the laws of the State of Florida (without giving
effect to conflict-of-laws principles).
7.11 PUBLICITY. The parties hereto agree to cooperate in determining the
contents and the manner of presentation and publication of any press releases or
public statements with respect to the transactions contemplated hereby, but each
party may make any public disclosure required, in its judgment, by law or
regulation.
7.12 TERMINATION. Notwithstanding anything to the contrary herein
contained, should any of the shares of common stock of TechnoMED not be in the
hands of the public as "freely tradeable" on or before October 31, 1995,
Essential-Prime shall have the right to, by written notice to TechnoMED at the
address set forth herein at Section 7.1, terminate and cancel its obligations
under this Agreement, and immediately receive its shares back and end any
relationship with TechnoMED.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first above written.
ATTEST: TechnoMED, Inc.
/s/ BRADLEY T. RAY By: NEED NAME
Bradley T. Ray Name:
Title: President
ATTEST: Essential M.S. Care Medical Centers, Inc.
NEED NAME & Prime Dental Centers, Inc.
By: NEED NAME
Name:
Title: President
EXHIBIT A
Shareholders of Essential M.S. Care Medical Centers, Inc.
& Prime Dental Centers, Inc.
who are receiving shares of TechnoMED Convertible Preferred Stock
Harry Kobrin - 875,000 shares of TechnoMED Convertible Preferred
Mort Schnessel - 875,000 shares of TechnoMED Convertible Preferred
SCHEDULE 5.1(a)
Shareholders
Harry Kobrin
Mort Schnessel
Exhibit 10.14
AMENDMENT OF THAT EXCHANGE AGREEMENT MADE AS OF JUNE 5, 1995, BY AND
BETWEEN TECHNOMED, INC., a Florida corporation, (Technomed), and ESSENTIAL CARE
MEDICAL CENTERS, INC., a Florida corporation, (Essential), and PRIME DENTAL
CENTERS, INC., a Florida corporation (Prime)
This Amendment is entered into by and between TechnoMed, Essential and
Prime this 8th day of May, 1996, to reflect events after June 5, 1995. The
parties agree as follows:
1. Article 2.1 hereby amended to read: Harry Kobrin and Morton Schnessel
were each entitled to receive 287,763 shares of Heart Labs of America, Inc.,
common stock for a total of 575,526 shares. Those shares were actually received
on or about December 27, 1995. The second paragraph of Article 2.1 is unchanged.
2. Article 3.12 is hereby deleted.
3. Article 4.4 is hereby amended to delete all provisions after the
words "state laws" on line 6, page 11.
4. Article 5.1 is hereby amended to read: The closing date for this
transaction was October 24, 1995.
5. Article 5.3 is amended by removing the words "Technomed and/or" from
the second line of the Article.
6. Article 5.4 is added as follows:
5.4 CONDITIONS TO BE RESOLVED PRIOR TO CLOSING. Before the closing of
this transaction, the following matters had to be resolved to the satisfaction
of all of the parties
(i) The shareholders must continue to advance funds as needed to
Prime and Essential until closing.
(ii) The claims of Drs. Victor Ferran and his wife must be settled
in such a way as to maintain all necessary permits and licenses from all
regulatory agencies so that the business of Prime and Essential will continue
without unacceptable interruption.
(iii) All other claims and litigation made or threatened against
Essential or Prime must be settled.
(iv) All parties must have 120 days to conduct all necessary
investigations and inquisitions concerning the other companies, unless notice
was given that additional time was needed, in which case the period could have
been extended.
TECHNOMED, INC.
By: /s/ NORMAN J. BIRMINGHAM
Norman J. Birmingham, President
ESSENTIAL MEDICAL CENTERS, INC.
By: /s/ MORTON SCHNESSEL
Morton Schnessel, President
PRIME DENTAL CENTERS, INC.
By: /s/ MORTON SCHNESSEL
Morton Schnessel, President
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
Essential Care Medical Centers, Inc. #1
Essential Care Medical Centers, Inc. #2
Essential Care Medical Centers, Inc. #3
Essential Care Medical Centers, Inc. #5
Essential Care Medical Centers, Inc. #6
Essential Care Medical Centers, Inc. #7
DBA Health Labs
C. J. Holdings, Inc. DBA A/R Mediquest
Sysdacomp, Inc.
Greenworld Technologies, Inc.
Heart Labs of America, Inc.
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