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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-89439
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COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
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(Name of small business issuer in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0353816
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(I.R.S. Employer Identification No.)
32 Nassau Street, Second Floor, Princeton, NY 08542
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 609-924-1001
F/K/A AMERICAN RISK MANAGEMENT GROUP, INC.
Former address: 4700 Ashwood Drive, Ste 300, Cincinnati, OH 45241
Securities registered under Section 12(b) of the Exchange Act:
none not applicable
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(Title of each class) Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
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Common Stock, par value $.001 per share
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 than that registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the 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. [x]
The issuer's revenues for the fiscal year ended June 30, 2000 were $0.
As of September 29, 2000, Comprehensive Medical Diagnostics Group, Inc. had
9,721,369 shares of $.001 par value common stock outstanding. Of this amount,
approximately 9,521,369 shares were held by non-affiliates with an aggregate
market value of approximately $12,853,849.
Transitional Small Business Disclosure Form (check one):
Yes [ ] No [ x ]
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PART I
Item 1. Description of Business
Comprehensive Medical Diagnostics Group, Inc. formerly known as American Risk
Management Group, Inc., Coventry Industries Corp. and Workforce Systems Corp.
(the "Company"), is a Florida corporation formed on August 17, 1992.
The Company's board of directors unanimously consented to change the Company's
name to Comprehensive Medical Diagnostics Group, Inc. on August 2, 2000.
The Company's address is 32 Nassau Street, Second Floor, Princeton, New Jersey,
08542. Its telephone number is 609-924-1001.
The Company was originally formed to seek acquisitions or business
opportunities, to the extent permitted by its assets, in various business
sectors throughout the United States. Pursuant to this strategy, the Company
bought and sold several businesses over the last few years.
The Company has changed its focus and strategy and will concentrate on becoming
a provider of medical treatment, diagnostic testing and ancillary services to
the long-term health care business sector and the medical community at large.
The Company will also attempt to position itself to become an internet provider
of health care content and services.
In order to implement its focus and strategy, the Company recently closed
three transactions with Comprehensive Medical Group, Ltd. ("CMG"),
Cardiovascular Laboratories LLC ("CLI"), and CAT ECG LLC ("CAT"),
respectively. The Company also discontinued the operations of PeopleFirst,
LLC ("PF"), and Lester Gann, a former Director and Secretary of the Company,
exercised his contractual right to reacquire a subsidiary of the Company,
Industrial Fabrication and Repair, Inc. ("IFR"). The Company has also
liquidated Federal Supply Inc. and Federal Fabrication, Inc. (collectively
"Federal") which are subsidiaries of the Company.
CARDIOVASCULAR LABORATORIES HOLDING, INC.
As of July 27, 2000 the Company, through its wholly owned subsidiary,
Cardiovascular Laboratories Holding, Inc. ("CLH"), a Delaware corporation
formed on July 24, 2000, acquired the assets and assumed the liabilities of
CLI which, on May 31, 2000, acquired the assets (including inventory,
equipment, machinery, contractual and other rights, and certain accounts
receivable) and assumed certain liabilities of Cardiovascular Laboratories
Inc. of PA. ("CLP"). The transaction between CLI and CLP closed in escrow
pending the assignment and assumption of certain equipment leases and
financing contracts by CLI. The escrow was maintained after the closing
between CLH and CLI. CLH is in the process of satisfying the lease and
equipment financing contracts through refinancing programs with new lenders,
and expects to complete the process within 90 days.
As consideration for the acquisition of CLI, CLH assumed CLI's obligations under
a
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seller note to CLP ("CLP Note") to pay $684,000 over a period of three years.
CLH also assumed CLI's obligations under certain leases, financing agreements
and other balance sheet items which CLI had undertaken from CLP. The CLP Note
is subject to adjustment in the event the level of monthly revenues from the
accounts of CLP as of the closing with CLI are not maintained, and in the
event that CLP's closing date accounts payable exceed CLP accounts receivable
actually collected in the future. The Company also issued 104,819 shares of
its common stock to entities which had made working capital loans to CLI
aggregating $87,000. The shares of common stock were issued to satisfy in
full CLI's obligations under the working capital loans.
The Company's Board of Directors determined to proceed with the acquisition
in order to gain entry into the field of medical diagnostics and testing. CLP
had been in business for nine years prior to the asset purchase transaction
with CLI.
CLH specializes in the provision of non-invasive cardiovascular imaging and
the turnkey management of fixed site vascular and echocardiographic
ultrasound laboratories. CLH provides services with the highest clinical
quality possible, and strives to maintain those clinical standards. CLH's
business historically focused on fixed-site imaging within community
hospitals, although it currently operates in, and intends to expand into
additional independent fixed-site imaging locations as well as into new
community hospitals. CLH presently operates diagnostic imaging sites in nine
fixed-site locations in Pennsylvania, New Jersey and New York. CLH performs a
scope of services that can include one or more of the following: hiring,
training and clinical management of ultrasound technologists, management and
administration of laboratory operations, and selection, leasing and
deployment of ultrasound equipment.
CLH's business is presently being managed by a medical services management
company under a management agreement dated as of June 1, 2000 which has a
term of two years. CLH pays its manager, Phoenix Cardiovascular, Inc., a
management fee of $30,000 per month which includes the cost of billing and
administrative services, plus 33% of the net income from newly created and
managed businesses.
Locations
Currently, CLH operates within the following community hospitals, providing
services that range from clinical staff and consulting to complete turnkey
management and administration of the imaging operation within the hospital.
Muhlenburg Hospital Allentown, Pa.
St. Lukes Hospital Bethlehem, Pa.
Penn State - Geisinger Wilkes Barre, a.
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Tyler Memorial Hospital Tunkhann, Pa.
Beth Israel Hospital Passaic, N.J.
Westchester Square Medical Center Bronx, N.Y.
In addition to hospital-based locations, CLH operates several independent site
based labs, which perform services independently from a hospital through its
Independent Diagnostic Testing Facilities ("IDTF(s)"). Presently, CLH operates
the following locations:
3219 Tremont Avenue, Bronx New York
14 Harwood Court, Scarsdale New York
Throgg's Neck, Bronx, New York
At present, CLH does not have its own IDTF Medicare provider number. The IDTFs
are operating under a Technological Services Agreement and billing arrangement
with CLP, which was executed at the closing with CLI, pending approval by each
state in which CLH operates. CLH expects to obtain a provider number in 120
days.
Market
Cardiovascular disease is responsible for nearly half of all deaths in the
United States. The aging process itself predisposes human beings to
cardiovascular disease. Approximately 65% of CLH's patients are covered by
Medicare, with the balance having commercial insurance or being included in a
managed care contract. Cardiovascular disease can often be effectively treated
if detected early. Diagnostic ultrasound is the most cost effective, least
painful and least invasive method available for diagnosing vascular disease. It
produces no side effects. Because the incidence of cardiovascular disease has
been increasing steadily in the United States on an annual basis, CLH believes
its imaging revenues are not subject to the ebb and flow of the economic cycle.
Diagnostic ultrasound imaging helps doctors see inside the human body by
bouncing sound waves off of anatomy and blood flow. It works without the use of
dyes, injections, or catheters. These sound waves are received by the ultrasound
machine, interpreted by sophisticated imaging software and displayed on a video
monitor. The test results are captured on a videotape machine built into the
unit. After the technical component of the diagnostic tests has been performed
by a technologist, an interpreting physician views the videotape and establishes
test findings. Although most competing diagnostic imaging techniques provide the
physician a frozen-in-time snapshot image, ultrasound imaging enables the
diagnostician to study real-time blood flow non-invasively. A dynamic tool, it
allows the physician to make more accurate diagnoses at earlier stages of the
disease. This increases the possibility of successful treatment.
Diagnostic ultrasound testing is broken into two components: technical and
professional. The technical component is the technologist's use of the
ultrasound equipment within strict clinical protocols, recording the visual and
auditory information onto videotape. The professional component consists of an
experienced physician reading the videotape, making a diagnosis of the patient's
condition, and dictating the diagnosis into a formal interpretation. The
critical difference in the two components is that the technologist does not
practice
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medicine, but performs a service for the physician who does practice medicine.
Testing Process
The testing process begins when a patient's physician orders a test and refers
the patient to one of CLH's labs. A specially trained and registered
technologist performs the test according to rigorously disciplined protocols
using sophisticated equipment, costing approximately $150,000 to $200,000 per
unit. Tests are then interpreted by an interpreting physician and a course of
treatment can be prescribed.
Ultrasound is a Well Established Diagnostic Imaging Technology
Ultrasound is a well accepted diagnostic tool for assessing the progression of
cardiovascular disease. As a dynamic medium using simple sound waves, ultrasound
technology is uniquely suited for the diagnoses of cardiovascular disease. It
offers important advantages in cost effectiveness over other diagnostic methods.
Despite advances in other imaging areas, ultrasound is likely to continue to be
an important diagnostic modality due to advances in hardware, software, and the
prospective use of ultrasound in conjunction with non-toxic contrast agents. CLH
believes that these advances, plus the inherent non-invasive nature of
ultrasound make its obsolescence as a diagnostic modality unlikely in the near
future.
Studies Performed
An example of a study performed by CLH is a cerebrovascular test. This procedure
examines blood flow to the brain to detect conditions which could lead to
stroke. The diagnosing physician uses the data produced by the technologist to
find plaque or stenosis in the carotid artery. This is a powerful and cost
effective first step to preventing stroke. The most common cardiovascular
imaging studies performed by CLH include:
o Cerebrovascular evaluation
o Transcranial doppler procedures
o Lower arterial studies
o Lower venous studies
o Echocardiography
o Abdominal aorta studies
o Dialysis access site assessment
o Visceral vascular studies
o Graft surveillance
o Venous mapping
Emphasis On Clinical Quality
CLH is dedicated to the delivery of a superior level of quality in all of its
diagnostic testing.
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CLH concentrates on high-end ultrasound diagnostics, providing tests that are
usually available only through university hospitals in major metropolitan
centers. CLH insists on employing strict protocols and self-policing auditing
methods, which require technologists to spend more time evaluating patients than
current industry standards dictate. When the comprehensive nature of these
testing protocols are coupled with highly trained technologists, diagnostic
accuracy is measurably improved; and, when sophisticated tests are executed with
painstaking care, they become more cost effective in diagnosing disease at an
early stage, thereby reducing the cost of treatment.
Clinical Training Program
Cardiovascular ultrasound is a diagnostic imaging modality that is highly
dependent on the training and experience of the technologist performing the
procedure. Unlike many other types of diagnostic imaging, the technologist must
act as a clinician, and not merely the operator of a machine. This places a
premium on the technologist's skills. Historically, CLH has recruited its
technologists through contacts it has in the technologist community as well as
through the use of professional medical recruiting services. However, CLH is
embarking on a program to align itself with a major cardiovascular
ultrasound educational institution to create a more assured source for training
technologists, and remove one constraint to growing the business. Additionally,
as CLH expands its operations into new areas, with new interpreting physicians,
it will become more difficult to maintain interpretations at the consistently
high level of clinical quality it has come to expect in the past. Accordingly,
discussions have begun with prominent educational institutions in diagnostic
ultrasound to form an alliance to help train new interpreting physicians and
provide an ongoing program of clinical quality assurance.
Business Strategy
Historically, CLH has concentrated on operation of imaging labs within community
hospitals. CLH currently has six such hospital contracts to operate imaging
facilities on-site. These contracts range from a full turn-key management of an
entire lab to the provision of specialized personnel to perform diagnostic
imaging within the hospital's own lab. These services benefit a hospital by
expanding the scope of services, increasing outpatient referrals, creating
positive cash flow and increasing surgery and ancillary procedures. CLH gives
the hospital access to a higher quality pool of technologists than might
otherwise be possible because it can hire, train and compensate its employees
without the institutional personnel constraints present in many hospitals.
Hospitals have a built-in source of referrals and thus a predictably high level
of volume. CLH invoices hospitals directly for imaging services. Hospital
receivables are generally easier to manage than receivables owed directly to CLH
from Medicare carriers and other insurers.
In addition to hospital-based locations, CLH operates several independently-
owned site labs. Independently sited locations perform services independently
from a hospital, and invoice insurance carriers for studies through the IDTF
entities. The Company is responsible for establishing clinical protocols and
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maintaining quality control, leasing and maintaining equipment, hiring, training
and employing technologists, scheduling patients and general lab administration,
and billing and collection activity.
Changing Regulations in Ultrasound Imaging
Beginning in 1999, Medicare carriers and intermediaries in many states,
(including Pennsylvania and New Jersey) discontinued reimbursing vascular
ultrasound imaging service providers who either provide services in a lab
that has not met the stringent accreditation standards set forth by the
Intersocietal Commission for the Accreditation of Vascular Laboratories
("ICAVL"), or provide services that are not performed or directly supervised
by a Registered Vascular Technologist ("RVT"). CLH estimates that fewer than
40% of vascular laboratories currently comply with ICAVL accreditation
standards. The reason for this non-compliance centers on the level of
training of the average technologist and the level of diligence and
sophistication of the average laboratory. CLH has always operated as if ICAVL
standards were in effect. All of CLH's technologists are Registered Vascular
Technologist (or registry eligible). All of its facilities currently meet, or
in the case of new labs, are on track to meet the new ICAVL standards. There
may be additional changes in regulations that have a material negative impact
on the imaging business as currently performed by CLH. These changes may have
to do with the acceptable means of structuring relationships with hospitals
and physicians, or there may be adverse changes in the reimbursement
regulations that govern CLH's operations.
Technology
CLH uses laboratory imaging and other equipment supplied by a number of
different equipment manufacturers. The equipment is typically acquired on an
operating lease basis, and CLH believes it will be able to upgrade its fleet of
diagnostic machines on an as-needed basis to accommodate new technology as it
becomes available. Notwithstanding the belief that the CLH will be able to
upgrade its equipment on an as-needed basis, CLH does enter into multi-year
lease agreements that may not be able to be modified should new technology
emerge.
Competition
CLH faces substantial competition in its imaging business from numerous
competitors. The most significant competitor is usually the community hospital
within CLH's immediate market areas. The facilities operated by these hospitals
vary widely in terms of the quality and training of their personnel, equipment
and clinical protocols. Notwithstanding these potential negative attributes,
however, it is often difficult to compete with established patterns of medicine
evident between a hospital's lab and the physicians who practice in that
hospital and refer patients into the lab. Other competition comes from
physicians and group practices of physicians who have set up ultrasound
diagnostic imaging capabilities within their own practices. While these imaging
locations may have some of the same drawbacks presented by the hospital labs,
the physicians who operate their own labs will not refer any of
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their patients to a CLH lab. CLH competes with hospital-based and physician
practice-based labs by offering a superior clinical service, and by being a
non-aligned third party provider of services that is not necessarily affiliated
with either a hospital or a specific physician.
Seasonality
CLH's results of operations may vary significantly from quarter to quarter, for
reasons particular to each quarter. For instance, hospital admissions and doctor
visits (and, therefore, CLH's imaging revenues) are typically lower during
holiday periods, and at other times when physicians traditionally take their own
vacations.
Suppliers
Although CLH has historically acquired most of its imaging and related equipment
from a small number of suppliers, CLH does not believe it is dependent upon any
one supplier or group of suppliers. While CLH has a preference for the equipment
manufactured by certain manufacturers, there are a number of manufacturers of
imaging equipment adequate for CLH's purposes, and an even greater number of
companies from whom such equipment can be leased. CLH believes that alternate
sources for its equipment and supply needs are readily available at comparable
costs, and that its relationships with its equipment suppliers are satisfactory.
Patents Or Trademarks
Although CLH relies upon sophisticated equipment, instrumentation and
technology, CLH does not own, license or otherwise rely upon any patents or
trademarks for the operation of its business. Other than corporate names, CLH
does not own or utilize any trade names in its business.
Low Exposure to Malpractice
Because CLH does not practice medicine, or perform any invasive procedures, CLH
believes it carries a relatively low exposure to malpractice liability. Even so,
CLH maintains professional liability insurance for the company and its
employees, and does not foresee any difficulty in obtaining insurance in the
future.
Governmental Regulation
Many aspects of the health care industry in the United States are presently
subject to extensive federal and state governmental regulation. Certain of these
laws and regulations are applicable to CLH's business. CLH believes that its
operations are in material compliance with all applicable laws.
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Federal Kickback Law
Federal law prohibits the offer, solicitation, payment or receipt of any
remuneration (direct or indirect, overt or covert, in cash or in kind) which is
intended to induce, or is in return for, the referral of patients for, or the
ordering of, items or services reimbursable by Medicare or Medicaid. The law
also prohibits remuneration intended to induce the purchasing of, or arranging
for, or recommending the purchase or order of any item, good, facility or
service for which payment may be in whole or in part under those programs. Under
this statute, known as the "kickback law," an offense may be punished by
criminal prosecution or by excluding any of the parties to the transaction or
arrangement from participation in Medicare and Medicaid. The law is very broad
and has been interpreted to apply to otherwise legitimate investment interests
if one purpose of the offer of an opportunity to invest is to induce referrals
from the investors. Regulations implemented under the kickback law provide
certain "safe harbors" giving protection for certain categories of
relationships. The breadth of the kickback law is such that virtually any
financial relationship between a practitioner and a health care provider, such
as an independent physiological laboratory or an IDTF, involving the offering of
Medicare and Medicaid services may trigger the application of the law. A portion
of CLH's business arrangements involves the management and staffing of in-house
diagnostic laboratories at hospitals. CLH does not bill Medicare or Medicaid for
the technical services provided at the hospitals' laboratories and is in
compliance with the Federal kickback law.
Federal Stark Laws
Federal law also prohibits physicians from ordering or prescribing certain
designated health care services or items if the service or item is reimbursable
by Medicare or Medicaid and is provided by an entity with which the physician
has a financial relationship (including investment interests and compensation
arrangements). Payment for a service provided in violation of these laws, known
as the "Stark Laws," may be denied, or money paid may be recouped. The services
specified by the Stark Laws include ultrasound procedures and other designated
services, which are provided by CLH as the result of referrals from physicians
who purchase the tests from CLH. CLH believes that its relationships with
referring physicians are in compliance with the Stark Laws. A number of states,
including states in which CLH does business, have laws and regulations similar
to the federal kickback laws and Stark Laws. CLH believes that it is in
compliance with all of such laws, although, as is the case with federal law,
there can be no assurance that changes in such laws or the interpretation or
enforcement of such laws will not have a material effect on CLH.
IDTFs
CLH must satisfy certain rules set forth by the Health Care Financing
Administration ("HCFA") relating to the payment of services to Medicare or
Medicaid beneficiaries. These rules state that the carriers will pay for
services under the Medicare fee schedule only when performed by a physician, a
group practice of physicians, an approved supplier of portable x-ray services,
or an IDTF. CLH believes that its services provided outside of the hospital
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environment are provided according to the rules and specifications of an IDTF.
Potential National Health Care Reform
Both the Clinton Administration and the Congress have periodically asserted a
need to overhaul or reform the nation's health care system. Such legislative
initiatives, if enacted, could impose pressures on the pricing structures
applicable to CLH's services. In particular, there is a possibility that an even
greater portion of health care services will be rendered and administered
through "managed care" systems, which could have the effect of forcing pricing
concessions and reductions on the part of service providers such as CLH.
Moreover, health care reform could also entail a greater analysis of each
patient's need for diagnostic testing, with the aim of reducing the total volume
of testing and the overall cost of medical care. CLH is unable to predict
whether, when or to what extent any new laws or regulations may be enacted, or
existing laws or regulations may be modified, any of which could have a material
adverse effect on CLH's revenues, operating margins and profitability.
Environmental Matters
CLH's existing operations do not entail the handling, storage, use, transport or
disposal of any hazardous substances or hazardous materials within the meaning
of any environmental laws. Should CLH enter into nuclear cardiology imaging
services, it will be required to implement a radioactive waste disposal program
consistent with state and federal regulations. In this event, CLH intends to
contract with a nuclear medicine physicist to develop a full compliance program
for the proper handling and disposal of any waste generated in the performance
of nuclear cardiology studies.
Employees
CLH has sixteen full time employees and two part time employees. None of
CLH's employees are represented by a labor union, and CLH has never
experienced a work stoppage. CLH believes its relationship with its employees
is good.
COMPREHENSIVE MEDICAL GROUP
As of July 25, 2000, the Company entered into an Agreement and Plan of
Reorganization with Comprehensive Medical Group, Ltd., a New Jersey
corporation ("CMG"). The Company issued 3,000,000 shares of its Series A
Convertible Preferred Stock ("Preferred Stock") to CMG's shareholders in
exchange for 100 shares of CMG's Series A Common Stock, which was all of the
issued and outstanding stock of CMG. The Preferred Stock has full voting
rights and each share is convertible into one share of the Company's common
stock. The Company also issued 738,554 shares of its common stock to entities
which had made working capital loans to CMG aggregating approximately
$613,000. The shares of common stock were issued to satisfy CMG's obligations
in full under the working capital loans. The CMG transaction was intended to
qualify as a tax-free reorganization under section
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368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. As a result of
the reorganization, CMG became a wholly owned subsidiary of the Company.
The Company agreed to grant "piggyback" registration rights for the shares of
common stock converted from the shares of the Company's Preferred Stock. The
common stock convertible from the 3,000,000 shares of the Company's Preferred
Stock are subject to a lock up agreement on resale.
Subsequent to the CMG transaction, James H. Clingham, Sr., CMG's president, also
became the president of the Company and chairman of the Board of Directors at an
annual salary of $250,000, and received 100,000 shares of the Company's
Preferred Stock as incentive compensation. Ms. Christine Fares- Walley, an
executive with CMG, became a vice president of the Company responsible for
mobile diagnostic testing and telemedicine. Brian T. Nugent, a CMG executive,
became the chief information officer of the Company.
CMG provides health and wellness management services for employee assistance
programs, human resource departments and labor unions; designed and operates
a kiosk based point of purchase medical marketing program called "The
Wellness Shop"; and designed an operating website called "Leaseonlife.com"
which provides interactive health and wellness analysis, treatment content
and management tools.
The Wellness Shop exhibit contains state of the art diagnostic testing
equipment, including bone density testing, body fat testing, blood pressure
and eye testing. CMG is considering other non-invasive diagnostic tests which
it intends to offer in the near future.
The Leaseonlife.com website provides encyclopedic health information, user
health data storage, interactive stress reduction, daily health and wellness
advice and counseling and health tips. Leaseonlife.com offers a comprehensive
suite of healthcare information services to consumers and other healthcare
industry participants delivered over the internet.
Marketing
Through The Wellness Shop, a participant-data interface exhibition kiosk, CMG
markets its services to employee assistance programs, corporate human resource
departments and labor unions. The Wellness Shop experience is intended to
attract institutional subscribers to contact on a monthly basis with CMG's
website Leaseonlife.com.
Leaseonlife.com is marketing in cooperation with The Wellness Shop to
employee assistance programs, corporations and labor unions. The website can
be incorporated into an existing intranet as well as accessed through the
internet.
Business Strategy
Through The Wellness Shop, CMG plans to generate revenue by
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- obtaining sponsors interested in purchasing advertising space on the
kiosks
- providing marketing channels to strategic on-line and traditional
business partners
- obtaining contracts that generate fees derived from employee
assistance programs, corporate human resource departments and labor
unions
- sale of stress related products
- selling the health and demographic data of its participants to end
users.
To date, CMG has derived no revenue from its businesses. CMG has done over 50
demonstrations of The Wellness Shop on a cost-sharing basis with hospital,
corporate and labor union co-sponsors. CMG is negotiating with several
companies and labor unions for the purpose of entering into long term
agreements for access to The Wellness Shop and Leaseonlife.com.
Leaseonlife.com's website is in the development stage. CMG also is developing
certain telecommunication and telemedicine equipment which its plans to use in
connection with its businesses which are in the development stage. CMG is
seeking vendors and suppliers to develop its planned telecommunication and
telemedicine equipment.
Competition
The Wellness Shop faces competition from ad hoc wellness and health fairs and
from clinics operated in conjunction with the provision of flu shots, other
inoculations, blood pressure testing, and other services in corporate and
community environments. CMG will focus on attracting subscribers to
Leaseonlife.com through The Wellness Shop and its established relationships with
employee assistance programs, corporate human resource departments and labor
unions rather than general advertising on the internet and other media.
The market for healthcare information services is intensely competitive,
rapidly evolving and subject to rapid technological change. Many of CMG's
competitors have greater financial, technical, product development, marketing
and other resources than CMG has. These organizations may be better known and
have more customers than CMG has. Many of CMG's competitors have also
announced or introduced internet strategies that will compete with CMG's
applications and services. CMG may be unable to compete successfully against
these organizations. CMG has many competitors, including: healthcare
information software vendors, healthcare electronic data interchange
companies, large information technology consulting service providers, online
services or web sites targeted to the healthcare industry, physicians and
healthcare consumers generally, publishers and distributors of traditional
offline media, including those targeted to healthcare professionals, many of
which have established or may establish web sites, general purpose consumer
online services and portals and other high-traffic web sites which provide
access to healthcare-related content and
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services, public sector and non-profit web sites that provide healthcare
information without advertising or commercial sponsorships, vendors of
healthcare information, products and services distributed through other
means, including direct sales, mail and fax messaging. CMG expects that major
software information systems companies and others specializing in the
healthcare industry will offer competitive applications or services. Some of
CMG's customers and strategic partners may also compete with CMG. CMG's
reputation and brand name could be adversely affected if CMG experiences
difficulties in introducing new services, if CMG is required to discontinue
existing services or if CMG's services do not offer desirable features or
function properly.
Government Regulation and Legal Uncertainties
CMG's business is and will continue to be subject to government regulation.
Existing and new laws and regulations could adversely affect CMG's business.
Laws and regulations may be adopted with respect to the internet or other
online services covering issues such as: user privacy and patient
confidentiality, pricing, content, copyrights and patents, distribution,
characteristic and quality of products and services. CMG cannot predict
whether these laws will be adopted and how they will affect CMG's business.
Regulation Regarding Privacy and Patient Confidentiality
Internet user privacy has become an issue both in the U.S. and abroad.
Whether and how existing privacy or consumer protection laws in various
jurisdictions apply to the Internet is uncertain and may take years to
resolve. Any legislation or regulations of this nature could affect the way
CMG conducts its business, particularly in CMG's collection or use of
personal information, and could harm CMG's business. Further, activities on
or using the internet have come under increased scrutiny, including increased
investigation in the healthcare arena by the Federal Trade Commission and
heightened media attention. Numerous state and federal laws govern the
collection, dissemination, use, access to and confidentiality of patient
health information. Many states have laws and regulations that protect the
confidentiality of medical records or medical information. In addition, the
federal Department of Health and Human Services has proposed regulations
implementing the Health Insurance Portability and Accountability Act of 1996,
or HIPAA, concerning standards for electronic transactions, security and
electronic signatures and privacy of individually identifiable health
information. The proposed regulations, among other things, would require
companies to develop security standards for all health information that is
used electronically. The proposed regulations would impose significant
obligations on companies that send or receive electronic health information.
The application of these laws to the personal information CMG collects could
create potential liability under these laws. CMG believes
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that its services comply with these proposed regulations. However, CMG
cannot predict when these proposed regulations will be finalized and whether
they will be changed before they are finalized. Additional legislation
governing the distribution of medical records exists and has been proposed at
both the state and federal levels. CMG may be subject to extensive regulation
relating to the confidentiality and release of patient records, and it may be
expensive to implement security or other measures to comply with new
legislation and final regulations. Further, CMG may be restricted or
prevented from maintaining or delivering patient records electronically. Such
a restriction may have an adverse effect on CMG's business.
Professional regulation
The practice of most healthcare professions requires licensing under applicable
state law. In addition, the laws in some states prohibit business entities
from practicing medicine, which is referred to as the prohibition against the
corporate practice of medicine. CMG has attempted to structure its web site,
strategic relationships and other operations to avoid violating these state
licensing and professional practice laws. A state, however, may determine
that some portion of CMG's business violates these laws and may seek to have
CMG discontinue those portions or subject CMG to penalties or licensure
requirements. CMG does not maintain professional liability insurance because
CMG believes it is not a healthcare provider. Any determination that CMG is a
healthcare provider and acted improperly as a healthcare provider may result
in liability for which CMG
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is not insured.
Intellectual Property
CMG has filed federal trademark applications for listing on the Principal
Register of the United States patent and Trademark Office of the names "Your
Wellness Shop" and "Leaseonelife.com.". The Wellness Shop uses equipment
which measures body-fat on a non-invasive basis which is licensed by the
State of New Jersey. In any jurisdiction where common law rights are acquired
by being the first entity to adopt, use and continue to use a particular mark
in connection with certain goods or services, CMG will be able to assert its
common law rights against any third-party infringer until such time as CMG
can also assert its national registration, if at all. In addition to CMG's
service mark applications, CMG has also registered the domain name
"leaseonlife.com". CMG's inability to protect its marks adequately would hurt
CMG in establishing and maintaining its brand. The steps CMG has taken to
protect proprietary rights may not be adequate, and CMG may not be able to
secure trademark or service mark registrations for marks in the U.S. or in
foreign countries.
Suppliers
For Leaseonlife.com, CMG uses existing off the shelf software and hardware
products. The primary content of the Leaseonlife.com website is licensed from
mydailyhealth, Inc. a North Carolina company. After an initial affiliation
subscription payment of $50,000, which has been made by CMG, the license
agreement is paid on a per member, per month basis.
Employees
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CMG employs five full time employees and one part time employee. None of
CMG's employees are represented by a labor union, and CMG has never
experienced a work stoppage. CMG believes its relationship with its employees
is good.
DIAGNOSTIC MANAGEMENT GROUP HOLDINGS, INC.
As of August 2, 2000 the Company, through its wholly owned subsidiary,
Diagnostic Management Group Holdings, Inc. ("DMG"), a Delaware corporation which
was formed on August 1, 2000, acquired the assets of CAT, a New York limited
liability company, which manages the operations of medical diagnostic
cardiological and neurological testing services and telemedicine of CAT-ECG PC,
a New York professional corporation ("CAT PC"). DMG was formed by the Company to
acquire the assets of CAT and to own other mobile testing service businesses
which may be acquired in the future.
DMG manages services rendered to forty long term care facilities and
hospitals, and over three hundred medical offices in New York state from its
Lynbrook, New York clinic and laboratory pursuant to a Management Services
Agreement with CAT PC which it assumed from CAT ("MSA"). The MSA has a term
of ten years.
The purchase price for CAT's assets was $1,100,000 in cash and 2,500,000
shares of the Company's Preferred Stock. An escrow was established for
250,000 of the 2,500,000 shares of Preferred Stock for a period of 6 months
to secure the payment to DMG after the closing of any deficiency between the
amount of CAT's accounts receivable collected by DMG and the amount of CAT's
accounts payable assumed by DMG. The assets acquired included all inventory,
equipment, machinery, contractual and other rights, and certain accounts
receivables. As part of the acquisition, the MSA and certain related
documents between CAT and CAT-ECG PC and certain of CAT's equipment leases
were assumed. The term of the MSA was extended in conjunction with its
assumption by DMG. The Preferred Stock issued to CAT has "piggyback"
registration rights.
The Company's Board of Directors determined to proceed with the acquisition in
order to expand its entry into the field of medical diagnostics and testing, and
telemedicine.
In connection with the acquisition, as of August 2, 2000, DMG entered into a
one-year
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employment agreement with Mark Gray, a former vice president of CAT at an annual
salary of $110,000 and an annual incentive bonus of 10,000 shares of the
Company's common stock for each year Mr. Gray's employment agreement is
extended. Mr. Gray will serve as DMG's director of cardiac testing services. As
of August 2, 2000, DMG also entered into a ten year consulting agreement with
Robert Goodman, M.D., the principal shareholder of CAT-ECG PC, at an annual fee
of $25,000 and a one-time payment of 250,000 shares of the Company's Preferred
Stock. Dr. Goodman will act as a consultant to DMG in the area of elder care and
internal medicine. As of August 2, 2000, DMG also entered into a two year
consulting agreement with The August Group, L.L.C. at an annual fee of $125,000
which is only payable as the cash flow of DMG permits. The August Group will act
as a consultant to DMG to identify and negotiate the possible acquisition of
other diagnostic testing companies and facilities.
CAT was founded in 1969 by Dr. Sterling Jonas, a noted cardiologist and pioneer
in the field of telemedicine. CAT has been providing ambulatory monitoring
services to physicians, nursing homes and hospitals with professional cardiac
and neurological services.
Business Strategy
Telemedicine utilizes modern telecommunications, medical computer science, and
information technologies to provide clinical care to individuals at a distance
and transmit information essential to the provision of medical care. These
advantages are having a significant impact on diagnostic services that utilize
this technology. Initially developed to track the cardiac output of astronauts
on space missions, the applications have the potential to span virtually every
echelon of health care, from first responder/emergency medical systems to
tertiary medical specialty consultations, medical maintenance, and hospital
care.
Some of the most advanced and effective telemedicine procedures affect the world
of cardiac diagnostic procedures, including Ambulatory Cardiac Event Monitoring,
Twelve-Lead EKG transmissions, and Pacemaker Polling. Industry focus promises to
mushroom to include many new applications using both digital voice and video
transmissions to send real-time medical data while performing medical procedures
from remote off-site locations.
The inevitable rapid growth of telemedicine is due to two major features of
primary concern to the health delivery system: Its favorable cost maintenance
factor, and its ability to improve effectiveness and efficiency in the delivery
of medical services. Some benefits include:
o Home monitoring post-operative procedures will decrease hospital
stays
o Ambulatory monitoring will accelerate the rehabilitation process
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o Ongoing monitoring leads to earlier and more accurate diagnosis and
therefore more effective medical intervention
o Telemedicine monitoring in the home will decrease unnecessary visits
to emergency rooms
o Physicians direct and review procedures performed by colleagues and
assistants at remote locations
o Patients requiring the constant monitoring available at critical
care units can now be monitored in their homes
o Independent centralized services, such as DMG, which specialize in
telemedical data, serve numerous hospitals and physicians leading to
better service at lower costs.
o Patients participate in diagnostic procedures by transmitting data
themselves from remote locations
o Hospitals and long-term-care facilities monitor medical procedures
at off-site locations, reducing the cost of both personnel and
equipment purchases.
DMG focuses on delivering quality ambulatory cardiac, x-ray and neurological
services to nursing homes, hospitals, and private physicians.
Technology
DMG's technological and professional services include the following:
Halter Monitoring
Halter monitoring is a continuous, 24-hour EKG reading used for patients with
fast heart rates, dizziness, and shortness of breath. The patient takes home a
recorder, connected via wired patches, which reads heart rate and rhythm. The
patient also keeps a diary to correlate symptoms and heart activity. When the
patient returns to the office, the tape is read by a computerized scanner.
Ambulatory Cardiac Event Monitoring
Cardiac event monitoring is a transtelephonic service used to aid in the
diagnosis of transient arrhythmia symptoms such as palpitations or dizziness.
The Cardiac Event Monitor is a beeper-sized device, which a patient wears on a
belt or in a pocket. When a cardiac event is experienced, the patient pushes a
button, which activates the memory of the monitor and records the event. The
patient then transmits the digital information over a standard phone line to the
DMG 24-hour receiving center. The brief EKG strip is sent on to the referring
physician for
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evaluation and diagnosis. The monitor is usually worn for a period of two to
four weeks.
Ambulatory Blood Pressure Monitoring
A non-invasive monitor is programmed to sample approximately 200 systolic and
diastolic pressure readings from a patient over a 24-hour period. The procedure
is useful in evaluating hypertensive and hypotensive patients, defining "white
coat" hypertension, and assessing clinical response to anti-hypertensive
medication by demonstrating the actual degree of reduction in abnormal readings.
Signal-Averages EKG Monitoring
This is a method of analyzing EKG's for the presence or absence of "late
potentials," which are used in identifying patients at high risk for subsequent
serious ventricular arrhythmia, especially those with a history of hear attacks.
Ambulatory EEG Monitoring
A 24-hour tape-recorded electroencephalogram is used in the differential
diagnosis of epilepsy versus often clinically indistinguishable spells of non-
epileptiform origin, such as cardiac arrhythmia, TIA, hypoglycemia, narcolepsy,
and pseudo-seizures.
12-Lead Electrocardiogram
A standard diagnostic procedure in virtually every long-term health care
facility, 12-lead EKG's are performed bedside, with minimum disruption to
patient and staff, by highly trained technicians. All recordings are made with
hospital grade equipment and all tracings are interpreted promptly by board-
certified cardiologists.
Pacemaker Polling
Patients who have pacemakers implanted need to have these devices checked
frequently. DMG serves as an outlet for transtelephonic transmission of this
data, and provides trained technicians for those long-term care patients who
require assistance in performing the procedure and transmitting its results.
These various services have established DMG as a respected telemedicine and
mobile diagnostic laboratory and have permitted DMG to maintain its market
share.
However, the long term health care market increasingly has come to demand a
single source for all mobile diagnostic services. DMG has been restricted in its
growth by its inability to provide radiological services and has been compelled
to refer its radiology work to a local mobile radiology providers with no
economic benefit to DMG.
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DMG plans to seek other acquisitions in order to expand into a full service
diagnostic program and meet industry demands in New England, New Jersey,
Pennsylvania, Ohio and Florida. Services which DMG plans to provide in the
future are radiology and ambulatory bone density scanning.
Radiology plays a vital role in patient-care management in long-term health care
facilities. X-ray services are used to screen patients for both illness and
injury, and include such requisite items as complete skull series, spinal
studies, and flat plate abdomen.
Ambulatory bone density scanning provides an important service to the aging
nursing home population. There are presently 25 million Americans suffering from
this disease, of which 80 % are women over the age of 50. Diagnosis will enable
medical staff to identify at-risk patients and offer the prescribed therapeutic
regimen.
In order to remain competitive, DMG plans has targeted strategic acquisitions in
the near future to provide radiological and ambulatory bone density services to
its customer base which will assure a full complement of mobile diagnostic
services, and maintain and increase its existing market share. However, there
can be no assurance that DMG will be able to raise sufficient capital in order
to accomplish its planned acquisition transactions nor that DMG will be able to
make acquisitions which are suitable to its planned objectives.
Technology
DMG uses laboratory and other equipment supplied by a number of different
equipment manufacturers. The equipment is typically acquired on an operating
lease or purchase-finance basis, and DMG believes it will be able to upgrade
its fleet of diagnostic machines on an as-needed basis to accommodate new
technology as it becomes available.
Competition
As a general matter, mobile diagnostic testing businesses are highly
competitive. The restructuring of the nation's healthcare system is leading
to a rapid consolidation of the existing fragmented healthcare delivery
system into larger and more organized groups and networks of healthcare
providers. DMG expects competition to increase as a result of this
consolidation and ongoing cost containment pressures, as well as other
factors. DMG competes with management services organizations, for-profit and
non profit hospitals, HMOs and other competitiors that are seeking to form
strategic alliances with long term care facilities, physicians or provide
management services to physicians or to diagnostic and therapeutic facilities
owned by such physicians. In operating its business, DMG encounters
competition from physician groups, general acute care hospitals and
freestanding and hospital-based cardiac are facilities located in the same
markets.
DMG's cardiac monitoring and testing programs compete with a number of smaller,
regional commercial entities as well as hospitals, clinics and physicians who
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generally provide these services as an adjunct to their primary practice.
Principal competitive factors are the availability and quality of service. DMG
believes that it competes favorably with most of its smaller competitors based
on its 24-hour-a-day, 7-day-a-week service, specialized technical staff and
sophisticated billing and collection system. Certain of its competitors,
including local physicians and hospitals, may have certain competitive
advantages over DMG based upon their direct relationships with patients.
Cardiac diagnostic and diagnostic imaging procedures are performed in hospitals,
private physicians' offices, clinics operated by group practices of physicians
and independent catheterization facilities. Principal competitors in DMG's
markets are hospital and physician affiliated facilities, some of which may have
greater financial and other resources than DMG and greater name recognition than
the local mangers and physicians associated with the DMG's diagnostic facilities
and mobile diagnostic operations, or better ties to the local medical community.
Successful competition for referrals is a result of many factors, including
quality and timeliness of test results, type and quality of equipment, facility
location, convenience of scheduling and, increasingly, relationships with
managed care programs. Other independent companies (including some which have
substantially greater financial and operating resources than DMG) are in the
business of establishing facilities in which DMG has or may obtain interests and
providing management services to such facilities.
Seasonality
DMG's results of operations may vary significantly from quarter to quarter, for
reasons particular to each quarter. For instance, hospital admissions and doctor
visits (and, therefore, DMG's imaging revenues) are typically lower during
holiday periods, and at other times when physicians traditionally take their own
vacations.
Suppliers
DMG is not dependent upon any one supplier or group of suppliers.
Patents Or Trademarks
Although DMG relies upon sophisticated equipment, instrumentation and
technology, DMG does not own, license or otherwise rely upon any patents or
trademarks for the operation of its business. Other than its corporate names,
DMG does not own or utilize any trade names in its business.
Low Exposure to Malpractice
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Because DMG does not practice medicine, or perform any invasive procedures, DMG
believes it carries a relatively low exposure to malpractice liability. Even so,
DMG maintains professional liability insurance for the company and its
employees, and does not foresee any difficulty in obtaining insurance in the
future.
Governmental Regulation
Many aspects of the health care industry in the United States are presently
subject to extensive federal and state governmental regulation. Certain of these
laws and regulations are applicable to DMG's business. DMG believes that its
operations are in material compliance with all applicable laws.
Federal Kickback Law
Federal law prohibits the offer, solicitation, payment or receipt of any
remuneration (direct or indirect, overt or covert, in cash or in kind) which
is intended to induce, or is in return for, the referral of patients for, or
the ordering of, items or services reimbursable by Medicare or Medicaid. The
law also prohibits remuneration intended to induce the purchasing of, or
arranging for, or recommending the purchase or order of any item, good,
facility or service for which payment may be in whole or in part under those
programs. Under this statute, known as the "kickback law," an offense may be
punished by criminal prosecution or by excluding any of the parties to the
transaction or arrangement from participation in Medicare and Medicaid. The
law is very broad and has been interpreted to apply to otherwise legitimate
investment interests if one purpose of the offer of an opportunity to invest
is to induce referrals from the investors. Regulations implemented under the
kickback law provide certain "safe harbors" giving protection for certain
categories of relationships. The breadth of the kickback law is such that
virtually any financial relationship between a practitioner and a health care
provider involving the offering of Medicare and Medicaid services may trigger
the application of the law. DMG's business arrangements involves the
management of CAT PC's clinical and laboratory business. DMG does not bill
Medicare or Medicaid for its own account for the technical services provided
at long term care facilities and the hospitals' laboratories and is in
compliance with the Federal kickback law.
Federal Stark Laws
Federal law also prohibits physicians from ordering or prescribing certain
designated health care services or items if the service or item is reimbursable
by Medicare or Medicaid and is provided by an entity with which the physician
has a financial relationship (including investment interests and compensation
arrangements). Payment for a service provided in violation of these laws, known
as the "Stark Laws," may be denied, or money paid may be recouped. The services
specified by the Stark Laws include the tests, procedures and other designated
services which are managed for CAT PC. DMG believes that its relationship with
CAT PC is in compliance with the Stark Laws. There can be no assurance that
changes in the law or the interpretation or enforcement of such laws will not
have a material effect on DMG.
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Potential National Health Care Reform
Both the Clinton Administration and the Congress have periodically asserted a
need to overhaul or reform the nation's health care system. Such legislative
initiatives, if enacted, could impose pressures on the pricing structures
applicable to DMG's services. In particular, there is a possibility that an even
greater portion of health care services will be rendered and administered
through "managed care" systems, which could have the effect of forcing pricing
concessions and reductions on the part of service providers such as DMG.
Moreover, health care reform could also entail a greater analysis of each
patient's need for diagnostic testing, with the aim of reducing the total volume
of testing and the overall cost of medical care. DMG is unable to predict
whether, when or to what extent any new laws or regulations may be enacted, or
existing laws or regulations may be modified, any of which could have a material
adverse effect on DMG's revenues, operating margins and profitability.
Environmental Matters
DMG's existing operations do not entail the handling, storage, use, transport or
disposal of any hazardous substances or hazardous materials within the meaning
of any environmental laws.
Employees
DMG has thirty-eight full time employees. None of DMG's employees are
represented by a labor union, and DMG has never experienced a work stoppage.
DMG believes its relationship with its employees is good.
PEOPLEFIRST LLC
The Company founded PF to function as an administrative services organization to
provide small to medium sized businesses with comprehensive, fully integrated
outsourcing solutions to human resource needs, including payroll management,
workers' compensation risk management, benefits administration, unemployment
services and human resource consulting services.
As a result of the Company's inability to secure funding and as a result of
uncertainties in the health care market, the Company determined that it was
not in its best interests to convert PF from an administrative services
organization ("ASO") to a professional employment organization ("PEO"), which
was a necessary step in insuring survival of PF. A PEO actually hires
employees who are leased to other companies and is responsible for payroll
and collection of payroll from client companies. The Company decided the
financial risk of converting to a PEO, which entailed carrying and financing
large receivables, was beyond the financial capability of the Company.
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Additionally, the Company decided to change its focus and concentrate on
compatible acquisitions in the telemedicine and mobile diagnostics fields.
Therefore, on June 29, 2000, the Company discontinued the operations of PF.
INTERNATIONAL FABRICATION AND REPAIR, INC.
The manufacturing division of the Company consisted solely of IFR. For the
fiscal year ended June 30, 2000, the manufacturing division accounted for most
of the company's revenues on a consolidated basis.
IFR provides machining, welding, specialty design and fabrication for custom
applications to clientele from various industries, including wood, lumber and
paper, steel mills, stone and asphalt companies, utilities, excavation
contractors, reclamation operations, electronic and automobile manufacturers,
coal mining applications and bottling facilities and is also an authorized
distributor for a variety of component products, including engineering and
roller chain, conveyor pulleys and idlers, gear and motor drives, bearings and
industrial v-belts.
On March 31, 2000, Lester Gann, president of IFR, exercised his contractual
right to reacquire IFR in exchange for all of his shares of the Company's
common stock. The Company and Gann concurrently exchanged mutual releases.
FEDERAL SUPPLY INC. AND FEDERAL FABRICATION INC.
Federal was a fabricator and distributor of custom-designed fire sprinkler
systems and components for use in both commercial and residential
application. Its customer base was located in South Florida. Federal's
principal products included pipe, valves, screwed and grooved fittings,
sprinkler head and hanger materials. Due to the continuing losses incurred by
Federal and adverse market conditions, on June 30, 2000, the Company decided
to close down and liquidate Federal in order to curtail its losses. The
Company has completed the liquidation of Federal.
Item 2 Description of Properties
On September 1, 1999, CMG entered into a twenty-one month sublease with
Galaxis USA, Inc., for the term, September 1, 1999 through June 30, 2001 for
4,500 square feet of office space at 32 Nassau Street, Princeton, New Jersey.
The rent is $4,200 per month and is not subject to further increases. James
H. Clingham, Sr. is the vice-chairman of Galaxis USA, Inc. but holds no
ownership or proprietary interest in that company, which is privately held by
non-U.S. interests.
On March 10, 1999, CAT entered into an amended ten year lease for the term
March 10, 1999 through March 31, 2009, for 7,000 square feet of laboratory
and office space at 55
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Atlantic Avenue, Lynbrook, New York. The rent is $4,612 per month. The
amended lease is subject to regular annual increases in rent. The rent for
the final year of the lease will be $7,295 per month.
Item 3 Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during fiscal 2000.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
On August 26, 1994, the Company's common stock began trading on the Over The
Counter Bulletin Board ("OTCBB"). On April 4, 1997, simultaneously with a one
for four common stock split, the Company's common stock began trading on the
OTCBB under the symbol "WSFY." On November 12, 1997, the Company's common
stock began trading on the NASDAQ SmallCap Market under the symbol "COVN." On
May 7, 1999, the common stock was delisted from the NASDAQ SmallCap Market
and resumed trading on the OTCBB. On September 7, 1999, the Company changed
its name to American Risk Management Group, Inc. and the common stock began
trading on the OTCBB under the symbol "ARMM.". On June 29, 2000, the
directors of the Company consented to a one for twenty-five reverse stock
split, effective July 13, 2000. ("Reverse Split"). Prior to the July 2000
reverse split there were 6,700,168 shares of the Company's common stock
issued and outstanding. Upon the effective date of the July, 2000 reverse
split there were 268,007 shares of common stock issued and outstanding. On
August 7, 2000, the common stock began trading on the OTCBB under the symbol
"CMDI."
Prior to the Reverse Split of the Company's common stock which was
effective on July 13, 2000, there were 6,700,168 shares of the Company's
common stock issued and outstanding. Of this amount, 5,000,000 shares of
common stock, approximately 74.6%, were beneficially owned, directly or
indirectly, by Ronald Wilheim, the Company's CEO, and Steven Rosedale, a
director. Upon completion of the Reverse Split, there were approximately
268,007 shares of common stock issued and outstanding, allowing for the
rounding up of fractional shares, 200,000 shares of which Mr. Wilheim and Mr.
Rosedale owned beneficially.
A change in control of the Company has occurred since Ronald Wilheim and
Steven Rosedale no longer beneficially own or have investment power over
74.6% of the voting securities of the Company. Through the sale of securities
issued in connection with the CLI, CMG and CAT acquisitions and other
transactions, the Company has an aggregate of 15,571,369 shares of voting
securities issued and outstanding. Of this amount, there are 9,721,369 issued
and outstanding shares of common stock, and 5,850,000 issued and outstanding
shares of Preferred Stock.
Holders of common stock are entitled to receive dividends if and when declared
by the Board of Directors out of legally available funds. The Company has not
paid any cash dividends on common stock since its inception. It has been the
Company's policy to retain future earnings, if any, to finance the growth of its
business and accordingly, the Company does not anticipate that any cash
dividends will be paid in the foreseeable future. Future dividend policy will
depend on our earnings, capital requirements, expansion plans, financial
condition and other relevant factors.
The following table sets forth the high and low bid prices of the Company's
common stock as reported on the OTCBB for fiscal 2000 and fiscal 1999.
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<TABLE>
<CAPTION>
Year ended June 30, 2000 High Bid Low Bid
<S> <C> <C>
First Quarter 96.875 89.063
Second Quarter 90.625 7.8125
Third Quarter 28.125 9.375
Fourth Quarter 19.531 10.938
Year ended June 30, 1999
First Quarter 38.00 4.50
Second Quarter 100.00 3.00
Third Quarter 7.00 2.00
Fourth Quarter 5.375 3.125
</TABLE>
On September 29, 2000, the closing bid price for the common stock as reported on
the OTCBB was $1.35. As of September 29, 2000, the approximate number of record
holders of the Company's common stock was 231. Because many of such shares
are held by brokers and other institutions on behalf of stockholders, we are
unable to estimate the total number of stockholders represented by these
record holders.
The market price of our common stock has fluctuated and is likely to fluctuate
in the future. Factors that may have a significant effect on the market price of
our common stock include:
- actual or anticipated quarterly variations in our operating results
- changes in expectations of future financial performance or changes
in estimates of securities analysts
- announcements of technological innovations
- announcements relating to strategic relationships and acquisitions -
customer relationship developments
- perceived changes in our business strategy
- conditions affecting the internet or healthcare industries, in
general
The trading price of our common stock may continue to be volatile. The stock
market in general, and the market for technology and internet-related
companies in particular, has experienced extreme volatility that often has
been unrelated to the operating performance of particular companies. These
broad market and industry fluctuations many adversely affect the trading
price of our common stock, regardless of our actual operating performance. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. If
this were to happen to the Company, litigation would be expensive and would
divert management's attention from the day to day operation of the Company's
business.
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Within the past three years, the Company has sold the following securities
without registering the securities under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
Date Title Amount Purchaser Exemption
$ (Section/Rule)
<S> <C> <C> <C> <C>
March 3, 1999 Convertible Promissory Notes 819,000 ProFutures Special Equity Fund, LP 4(2)
March 3, 1999 Promissory Note 81,000 ProFutures Special Equity Fund, LP 4(2)
July 17, 2000 Common Stock 12,500 David Mizrachi 4(2) (services)
July 17, 2000 Common Stock 12,500 Abe Wagschal 4(2) (services)
July 17, 2000 Common Stock 5,000 Andrew Zimmerman 4(2) (services)
July 17, 2000 Common Stock 7,500 D.W. Doc Weiner 4(2) (services)
July 17, 2000 Common Stock 6,250 Victor Schmeltzer 4(2) (services)
July 17, 2000 Common Stock 625,000 Yucatan Holding Co. 4(2) (services)
July 17, 2000 Common Stock 62,500 Edward H. Burnbaum 4(2) (services)
July 17, 2000 Common Stock 18,750 Harry Levinson 4(2) (services)
July 17, 2000 Common Stock 50,000 Market Voice, Inc. 4(2) (services)
July 17, 2000 Common Stock 250,000 Novack Bunbaum Crystal LLP 4(2) (services)
July 17, 2000 Common Stock 750,000 Vargrowth Corp. 4(2) (services)
July 17, 2000 Common Stock @$.83/share 2,461,053 Various Purchasers 4(2)
Sept. 11, 2000 Common Stock 127,500 Market Voice, Inc. 4(2) (services)
Sept. 11, 2000 Common Stock 531,250 Redwood Capital Partners Inc. 4(2) (services)
Sept. 19, 2000 Common Stock @$.01/share 1,500 Eurofinance, Inc. 4(2)
Sept. 20, 2000 Common Stock 409,875 David Michael LLC 4(2) (services)
</TABLE>
Item 6 Management Discussion and Analysis of Financial Condition
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of
Private Securities Litigation Reform Act 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon
or comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The Company does
not have a policy of updating or revising forward-looking statements and thus
it should not be assumed that silence by management of the Company over time
means that actual events are bearing out as estimated in such forward looking
statements.
The following discussion should be read in conjunction with the consolidated
financial statements and notes appearing elsewhere in this report.
OVERVIEW
Comprehensive Medical Diagnostics Group, Inc. ("Company") was
originally incorporated in Florida on August 17, 1992 as American Risk
Management Group, Inc. (the name American Risk Management Group, Inc. was
changed to Comprehensive Medical Diagnostics Group, Inc. on August 2, 2000).
The Company is a publicly traded company that was formed as a holding
company for the purpose of acquiring other operating businesses. It has
acquired and disposed of several businesses since it was formed. Prior to the
exchange of shares and business combination in September 1999 further
described below the Company was a holding company whose continuing
operations were being conducted by its wholly-owned subsidiary, IFR.
IFR was providing machining, welding, specialty design and fabrication for
custom applications to clientele from various industries. IFR was also
operating as an authorized distributor for a variety of component products
for other manufacturers.
PF was a limited liability company that was formed in the State of Ohio on
October 2, 1998 to function as an ASO in order to provide small-to-medium
sized businesses with comprehensive, fully integrated outsourcing solutions
to human resource needs, including payroll management, workers' compensation
risk management, benefits administration, unemployment services and human
resource consulting services. PF commenced its administrative services
operations during July 1999.
On September 7, 1999, the Company and PF consummated certain transactions
pursuant to a Share Exchange Agreement whereby the Company, which had,
effectively, 48,508 shares of common stock outstanding, with a par value of
$.001 per share, and 1,000,000 Class A warrants and 1,000,000 Class B
warrants outstanding, issued 200,000 shares of common stock in exchange for
100% of the equity interest in PF (the "Exchange").
<PAGE>
As a result of the Exchange, PF became a wholly-owned subsidiary of the
Company and the former members of PF became the owners of approximately 80%,
and the stockholders of the Company prior to the Exchange became the owners
of approximately 20%, of the 248,508 shares of common stock of the Company
outstanding upon the consummation of the Exchange. Therefore, the Exchange
was treated for accounting purposes as a "purchase business combination"
effective as of September 1, 1999 in which the Company was the legal acquirer
and PF was the accounting acquirer.
The accompanying consolidated statement of operations reflects the results of
the continuing and discontinued operations of PF from July 1, 1999 and the
results of the continuing and discontinued operations of the Company from
September 1, 1999, the date of acquisition, through June 30, 2000. Since July
1, 1999 was the effective date of the commencement of PF's operations,
financial statements for periods prior to July 1, 1999 have not been
presented.
Plan of Operations
On April 1, 2000, the Company discontinued its manufacturing operations by
selling IFR back to its former owner Lester Gann, who had the contractual
right to reacquire IFR, and, on June 29, 2000, the Company
initiated a plan to discontinue and liquidate PF effectively June
30, 2000. Accordingly, the Company had no revenues or expenses from
continuing operations for the year ended June 30, 2000 other than the
$580,814 of general and administrative expenses related to its continuing
corporate activities. General and administrative expenses were comprised
mainly of professional, consulting and other fees paid, of which $481,279
arose through the issuance of common stock, a non-cash charge.
In connection with the exchange, the Company allocated $1,399,075 of the
total cost of the acquisition to deferred debt financing costs as the fair
value of beneficial conversion rights. This amount was amortized as interest
expense during the year ended June 30, 2000.
The revenues and the loss from discontinued operations for the year ended
June 30, 2000 was comprised as follows:
<TABLE>
<CAPTION>
PeopleFirst IFR Total
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 585,878 $ 2,796,866 $ 3,382,744
=========== =========== ===========
Income (loss) from operations $ 51,179 $ (597,724) $ (546,545)
Loss on disposal -- (7,152,839) (7,152,839)
----------- ----------- -----------
Income (loss) from discontinued operations $ 51,179 $(7,750,563) $(7,699,384)
=========== =========== ===========
</TABLE>
As a result of the above, the Company incurred a net loss of $8,196,294 for
the year ended June 30, 2000, of which $6,612,383 were from discontinued
operations. This loss equates to $33.15 per share of which $26.74 per share
relates to discontinued operations. The loss per share has been computed on a
weighted average number of common shares of 247,279. The loss per share and
weighted average number of common shares outstanding has been restated for
the 1-for-25 reverse stock split affected July 13, 2000.
<PAGE>
Liquidity and Capital Resources
At June 30, 2000, the Company had a working capital deficiency of
approximately $476,000. In addition, the Company was in default on its 8%
notes payable. On July 14, 2000, the Company renegotiated and reformed these
notes whereby the reformed 8% Note in the amount of $930,000 included the
original principal balance, as well as accrued and unpaid interest. The
interest on the reformed 8% Note is payable quarterly commencing September
30, 2000 with the entire note becoming due on July 20, 2003. In addition, the
conversion terms of the reformed 8% note has been modified in order to reduce
the purchase price of the Company's common stock upon conversion and to
limit, upon conversion, the holders beneficial ownership in the Company to no
more than 4.99% of the outstanding shares of common stock.
Private Placement
On July 17, 2000, the Company entered into subscription agreements with
fifteen accredited investors under a private placement, which is exempt from
registration under Regulation D of the Securities Act of 1933, as amended.
The Company has agreed to sell to these accredited investors 5,000,000 shares
of its common stock at a per share price of $.83 for an aggregate purchase
price of $4,150,000. As of September 29, 2000, the Company has received or
accounted for $2,461,053 of these subscriptions.
Acquisition of Health and Wellness Management Company
On July 25, 2000, the Company consummated an agreement whereby it acquired
100% of the equity interest in CMG in exchange for 3,000,000 shares of
Preferred Stock. The aforementioned agreement was intended to qualify as a
tax-free reorganization as defined in the Internal Revenue Code of 1986, as
amended. As a result of the reorganization, CMG became a wholly-owned
subsidiary of the Company. In conjunction with this acquisition, the Company
also issued 738,554 shares of unregistered common stock to entities, which
had made working capital loans to CMG aggregating approximately $613,000.
These shares were used to satisfy CMG's obligations in full under its working
capital loans.
CMG provides health and wellness management services for employee assistance
programs, corporate human resource programs and labor unions; designed and
operates a Kiosk-based point of purchase medical marketing program called
"The Wellness Shop"; and, designed an operating website called
"Leaseonlife.com" which provides interactive health and wellness analysis,
treatment content and management tools.
Other Acquisitions
Cardiovascular Laboratories, L.L.C.:
On July 24, 2000, the Company formed CLH, a wholly-owned subsidiary, for the
purpose of acquiring certain assets and assuming certain liabilities of CLI.
On May 31, 2000, CLI acquired certain assets and assumed certain liabilities
of CLP in a transaction which closed in escrow pending the assignment and
assumption by CLH of certain CLI obligations. CLH provides noninvasive
cardiovascular testing services in hospitals and through independent
diagnostic testing facilities. The Company determined to proceed with the CLI
acquisition in order to gain entry into the field of medical diagnostics and
testing. CLH's business focuses on high end testing services
<PAGE>
through cardio and vascular laboratories in nine independent hospitals and
through independent diagnostic testing facilities located in New York, New
Jersey and Pennsylvania.
As consideration for the acquisition of CLI, CLH assumed CLI's obligations
under a seller note to CLP (the "Seller Note") requiring it to pay $684,000
over a three year period plus the assumption of certain other operating
liabilities. The Seller Note is subject to adjustment in the event revenues
are not maintained, and in the event that CLP's closing date accounts payable
exceed CLP's accounts receivable actually collected in the future. In
conjunction with this acquisition, the Company also issued 104,819 shares of
common stock to entities which had made working capital loans to CLP
aggregating approximately $87,000. These shares were used to satisfy in full
the obligations under these loans.
CAT-ECG, LLC and CAT-ECG PC
On August 2, 2000, the Company formed DMG, a wholly-owned subsidiary, for the
purpose of managing the Company's mobile diagnostic business, acquiring
certain assets and assuming certain liabilities of CAT and to manage the
operations of medical diagnostic cardiological and neurological testing
services and telemedicine pursuant to a management service agreement. CAT
currently manages services rendered to forty facilities and hospitals and
over three hundred medical offices. The Company determined to proceed with
the acquisition in order to expand its entry into the field of medical
diagnostics and testing, and telemedicine.
As consideration for the acquisition of CAT, DMG assumed certain operating
liabilities of CAT, issued 2,500,000 shares of the Company's Preferred Stock
and paid $1,100,000 in cash.
The Company anticipates that its working capital, as a result of the
subsequent private placement, together with anticipated cash flow from the
recently acquired companies, will be sufficient to satisfy the Company's cash
requirements for at least twelve months. In the event the Company's plan
changes (due to unanticipated expenses or difficulties of integrating these
acquisitions), or if the working capital and projected cash flow otherwise
prove insufficient to fund operations, the Company could be required to seek
additional financing sooner than currently anticipated. The Company has no
current arrangements with respect to, or sources of, additional financing.
Accordingly, there can be no assurance that additional financing will be
available to the Company when needed, or at all, on commercially reasonable
terms. The Company's inability to obtain such additional financing could have
a material adverse effect on the Company's liquidity. The Company believes
that it will be able to obtain financing, if needed, although there can be no
assurances of such.
During the year ended June 30, 2000, the Company completed its Year 2000
assessment. The costs of such assessment were not significant. In addition,
it experienced no problems in the operations of its business as a result of
Year 2000 effect on its computer systems, or those of its customers or
vendors.
* * *
CMDG Final
Page 29
<PAGE>
PART III
Item 7 Financial Statements
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
(formerly American Risk Management Group, Inc.)
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 F-3
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000 F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED JUNE 30, 2000 F-5
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2000 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7/19
* * *
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Comprehensive Medical Diagnostics Group, Inc.
We have audited the accompanying consolidated balance sheet of COMPREHENSIVE
MEDICAL DIAGNOSTICS GROUP, INC. (formerly American Risk Management Group, Inc.)
AND SUBSIDIARIES as of June 30, 2000, and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 financial position of Comprehensive
Medical Diagnostics Group, Inc. and Subsidiaries as of June 30, 2000, and their
results of operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
J.H. Cohn LLP
Roseland, New Jersey
September 20, 2000
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 10,017
Net assets of discontinued operations 43,477
-----------
Total $ 53,494
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities - accrued expenses and other current liabilities $ 529,403
8% convertible notes payable 930,000
-----------
Total liabilities 1,459,403
-----------
Minority interest --
-----------
Contingencies
Stockholders' deficiency:
Preferred stock, par value $.001 per share; 5,000,000 shares authorized;
none issued --
Common stock, par value $.001 per share; 50,000,000 shares authorized;
263,493 shares issued * 263
Additional paid-in capital 6,855,063
Accumulated deficit (8,196,294)
Less treasury stock - 3,325 shares of common stock, at cost * (64,941)
-----------
Total stockholders' deficiency (1,405,909)
-----------
Total $ 53,494
===========
</TABLE>
* As adjusted for the 1-for-25 reverse stock split affected July 13, 2000.
See Notes to Consolidated Financial Statements.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
Revenues $ --
General and administrative expenses 580,814
-----------
Operating loss (580,814)
Interest expense, including amortization of beneficial conversion rights 1,399,075
-----------
Loss from continuing operations before minority interest (1,979,889)
Loss from continuing operations applicable to minority interest 395,978
-----------
Loss from continuing operations (1,583,911)
-----------
Discontinued operations:
Loss from operations (546,545)
Loss on disposal (7,152,839)
-----------
Loss from discontinued operations before minority interest (7,699,384)
Loss from discontinued operations applicable to minority interest 1,087,001
-----------
Loss from discontinued operations (6,612,383)
-----------
Net loss $(8,196,294)
===========
Basic net loss per common share *:
Loss from continuing operations $ (6.41)
Loss from discontinued operations (26.74)
-----------
Net loss $ (33.15)
===========
Basic weighted average common shares outstanding * 247,249
===========
</TABLE>
* As restated for the 1-for-25 reverse stock split affected July 13, 2000.
See Notes to Consolidated Financial Statements.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Members' ------------------------- -------------------------- Paid-in
Equity Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1999 $ 100
Common stock issued in connection with:
Reverse acquisition (100) 6,212,708 $ 6,213 $ 6,367,834
Compensation of employees
and payments for other
services 143,750 143 190,169
Settlement of claims 230,867 231 290,736
Common stock received as con-
sideration for sale of business
Effect of 1-for-25 reverse stock
split affected July 13, 2000 (6,323,832) (6,324) 6,324
Net loss
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 $ -- $ -- $ -- 263,493 $ 263 $ 6,855,063
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
Accumulated --------------------------
Deficit Shares Amount Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, July 1, 1999 $ 100
Common stock issued in connection with:
Reverse acquisition 6,373,947
Compensation of employees
and payments for other
services 190,312
Settlement of claims 290,967
Common stock received as con-
sideration for sale of business (83,125) $ (64,941) (64,941)
Effect of 1-for-25 reverse stock
split affected July 13, 2000 79,800 --
Net loss $(8,196,294) (8,196,294)
----------- ----------- ----------- -----------
Balance, June 30, 2000 $(8,196,294) 3,325 $ (64,941) $(1,405,909)
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
Operating activities:
Net loss $(8,196,294)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation, other services and claims paid through
issuance of common stock 481,279
Amortization of debt issuance costs 1,399,075
Loss from continuing operations attributable to minority interest (395,978)
Net adjustments attributable to loss from discontinued operations 6,590,919
Changes in operating assets and liabilities - accrued expenses
and other current liabilities 130,916
-----------
Net cash provided by operating activities 9,917
Financing activities - capital contribution 100
-----------
Increase in cash 10,017
Cash, beginning of year --
-----------
Cash, end of year $ 10,017
===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1- Reverse acquisition and business activities:
Reverse acquisition:
Comprehensive Medical Diagnostics Group, Inc. ("Medical
Diagnostics") was originally incorporated in Florida on August 17,
1992 as American Risk Management Group, Inc. (the name American Risk
Management Group, Inc. was changed to Comprehensive Medical
Diagnostics Group, Inc. on July 18, 2000). Medical Diagnostics is a
publicly traded company that was formed as a holding company for the
purpose of acquiring other operating businesses. It has acquired and
disposed of several businesses since it was formed. Prior to the
exchange of shares and business combination in September 1999
further described below, Medical Diagnostics was a holding company
whose continuing operations were being conducted by its wholly-owned
subsidiary, Industrial Fabrication & Repair, Inc. ("IFR"). IFR was
providing machining, welding, specialty design and fabrication for
custom applications to clientele from various industries. IFR was
also operating as an authorized distributor for a variety of
component products for other manufacturers.
PeopleFirst Staffing LLC ("PeopleFirst") was a limited liability
company that was formed in the State of Ohio on October 2, 1998 to
function as an administrative services organization in order to
provide small-to-medium sized businesses with comprehensive, fully
integrated outsourcing solutions to human resource needs, including
payroll management, workers' compensation risk management, benefits
administration, unemployment services and human resource consulting
services. PeopleFirst commenced its administrative services
operations during July 1999.
On September 7, 1999, Medical Diagnostics and PeopleFirst
consummated certain transactions pursuant to a Share Exchange
Agreement whereby Medical Diagnostics, which had, effectively,
48,508 shares of common stock outstanding, with a par value of $.001
per share, and 1,000,000 Class A warrants and 1,000,000 Class B
warrants outstanding (see Note 9), issued 200,000 shares of common
stock in exchange for 100% of the equity interest in PeopleFirst
(the "Exchange"). The numbers of shares and prices per share in
these notes and, where appropriate, in the accompanying consolidated
financial statements, have been retroactively restated for the
effects of a 1-for-25 reverse stock split affected on July 13, 2000
(see Note 11).
As a result of the Exchange, PeopleFirst became a wholly-owned
subsidiary of Medical Diagnostics and the former members of
PeopleFirst became the owners of approximately 80%, and the
stockholders of Medical Diagnostics prior to the Exchange became the
owners of approximately 20%, of the 248,508 shares of common stock
of Medical Diagnostics outstanding upon the consummation of the
Exchange. Therefore, the Exchange was treated for accounting
purposes as a "purchase business combination" and a "reverse
acquisition" effective as of September 1, 1999 in which Medical
Diagnostics was the legal acquirer and PeopleFirst was the
accounting acquirer.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1- Reverse acquisition and business activities (concluded):
Reverse acquisition (concluded):
Accordingly, the assets and liabilities of the accounting acquirer,
PeopleFirst, continued to be accounted for at their historical
carrying values as of September 1, 1999. As further explained in
Note 3 herein, the fair value of the 48,508 shares deemed to have
been issued to the stockholders of Medical Diagnostics prior to the
Exchange was included in the total cost of the acquisition of
Medical Diagnostics, the acquired company, and the total cost was
then allocated to the fair values of the assets and liabilities of
Medical Diagnostics deemed to have been acquired or assumed and the
excess of the cost over the fair value of the net assets acquired
was allocated to goodwill. The accompanying consolidated statement
of operations reflects the results of the continuing and
discontinued operations of PeopleFirst from July 1, 1999 and the
results of the continuing and discontinued operations of Medical
Diagnostics from September 1, 1999, the date of acquisition, through
June 30, 2000. Since July 1, 1999 was the effective date of the
commencement of PeopleFirst's operations, financial statements for
periods prior to July 1, 1999 have not been presented.
As used herein, the "Company" refers to Medical Diagnostics and its
subsidiaries.
Business:
On April 1, 2000, the Company discontinued its manufacturing
operations by selling IFR back to its former owner and, on June 29,
2000, the Company initiated a plan to discontinue and liquidate
PeopleFirst effectively June 30, 2000 (see Note 4). Accordingly, the
Company had no revenues or expenses from continuing operations for
the year ended June 30, 2000 other than the general and
administrative expenses related to its continuing corporate
activities.
As further explained in Note 10, as a result of the acquisitions
that were agreed to in July and August 2000, the Company will
concentrate on becoming a provider of medical treatment,
diagnostic testing and ancillary services to the long-term health
care business sector and the medical community at large.
Note 2 - Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Medical Diagnostics and its subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Cash equivalents:
Cash equivalents include all highly liquid debt investments with a
maturity of three months or less when acquired.
Revenue recognition:
Revenues from discontinued operations were generally recognized at
the time products were shipped or services were provided.
Property and equipment:
Property and equipment used in discontinued operations were carried
at cost and depreciated using the straight-line method over
estimated useful lives that ranged from five to 15 years.
Goodwill:
Goodwill, which was comprised of costs in excess of net assets of
discontinued acquired businesses, was being amortized on a
straight-line basis over an estimated useful life of the related
assets of 20 years.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). Under SFAS 121, impairment losses on long-lived
assets, such as equipment and goodwill, are recognized when events
or changes in circumstances indicate that the undiscounted cash
flows estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such carrying
value may not be recoverable. Impairment losses are then measured by
comparing the fair value of assets to their carrying amounts.
Deferred debt financing costs:
Deferred debt financing costs, which were comprised primarily of the
value of beneficial conversion rights which arose as a result of the
exchange of convertible notes for outstanding shares of preferred
stock in 1999 (see Note 5), were amortized to interest expense over
the original term of the convertible notes using a constant
effective yield method.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities to be computed annually for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The
income tax provision or credit is the tax payable or refundable for
the period plus or minus the change during the period in deferred
tax assets and liabilities.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Earnings (loss) per share:
The Company presents "basic" earnings (loss) per common share and,
if applicable, "diluted" earnings per common share pursuant to the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share". Basic earnings (loss) per common share is
calculated by dividing net income or loss applicable to common stock
by the weighted average number of common shares outstanding during
each period. The calculation of diluted earnings per common share is
similar to that of basic earnings per common share, except that: (i)
the denominator is increased to include the number of additional
common shares that would have been outstanding if all potentially
dilutive common shares, such as those issuable upon the assumed
exercise of stock options and warrants and the conversion of notes
or preferred shares had been issued during the period and (ii) the
numerator is adjusted to eliminate interest on convertible notes and
convertible preferred dividend requirements.
Diluted per share amounts have not been presented in the
accompanying consolidated statements of operations because the
Company had a net loss in 2000 and, accordingly, the effects of the
assumed conversion of all of the Company's outstanding convertible
notes, and the assumed exercise of all of the Company's outstanding
warrants and the application of the treasury stock method, would
have been anti-dilutive.
Stock options:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), the Company will recognize compensation costs as a result of
the issuance of stock options to employees based on the excess, if
any, of the fair value of the underlying stock at the date of grant
or award (or at an appropriate subsequent measurement date) over the
amount the employee must pay to acquire the stock. Therefore, the
Company will not be required to recognize compensation expense as a
result of any grants of stock options to employees at an exercise
price that is equivalent to or greater than fair value. The Company
will also make pro forma disclosures, as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), of net income or loss as if a fair value
based method of accounting for stock options had been applied
instead if such amounts differ materially from the historical
amounts.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of Certified
Public Accountants had issued certain accounting pronouncements as
of June 30, 2000 that will become effective in subsequent periods;
however, management of the Company does not believe that any of
those pronouncements would have significantly affected the Company's
financial accounting measurements or disclosures had they been in
effect during the year ended June 30, 2000, and it does not believe
that any of those pronouncements will have any significant impact on
the Company's consolidated financial statements at the time they
become effective.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Purchase business combinations:
The Company acquired its approximate 80% interest in Medical
Diagnostics through the Exchange described in Note 1 herein that has
been accounted for as a purchase business combination and a reverse
acquisition in which PeopleFirst was the accounting acquirer and
Medical Diagnostics was the legal acquirer. Accordingly, the
accompanying historical consolidated financial statements include the
results of operations of Medical Diagnostics and its subsidiaries from
September 1, 1999, the effective date of the acquisition, through June
30, 2000 (see Note 4). The cost of the acquisition of Medical
Diagnostics aggregated $6,373,947 and was comprised as follows:
<TABLE>
<S> <C>
Deemed issuance of 48,508 shares of common stock with
an estimated fair value of $93.75 per share based on the
market value of Medical Diagnostics' shares at the date
of the Exchange $4,547,655
Fair value of shares issued to consultants by Medial Diagnostics
prior to the Exchange for services related to the Exchange 1,811,292
Accrued estimated legal, accounting and other costs related
to the Exchange 15,000
----------
Total cost to be allocated $6,373,947
==========
</TABLE>
Pursuant to the purchase method of accounting, the initial cost of
acquiring Medical Diagnostics and its subsidiaries was allocated to
the identifiable tangible and intangible assets acquired, including
$1,399,075 allocated to beneficial conversion rights (see Note 5), and
liabilities assumed on the basis of their fair values. The excess of
the cost over the fair value of the net assets acquired of $7,043,322
was allocated to goodwill and was being amortized initially over 20
years. The remaining balance was written off in connection with the
Company's adoption of its plan to discontinue and liquidate
PeopleFirst.
In addition, the Company initially allocated $1,482,979 to the 20%
minority interest in Medical Diagnostics. Losses applicable to the
minority interest during the period from September 1, 2000 to June 30,
2000 totaled approximately $1,936,000. Since the amount allocable
exceeded the amount of minority interest initially recorded, the
Company reflected losses applicable to the minority interest of only
$1,482,979 in the accompanying consolidated statement of operations
(of which $395,978 was applicable to continuing operations and
$1,087,001 was applicable to discontinued operations). The remaining
balance of the losses applicable to the minority interest of
approximately $453,000 was absorbed by the Company in accordance with
generally accepted accounting principles.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Purchase business combinations (concluded):
Unaudited pro forma information showing the Company's results of
operations for the year ended June 30, 2000 assuming the acquisition
of PeopleFirst had been consummated at the beginning of the year has
not been presented since such assumption would have no effect on the
results of the Company's continuing operations.
Note 4 - Discontinued operations:
On April 1, 2000, the Company discontinued its manufacturing
operations by agreeing to sell IFR back to its previous owner in
exchange for 3,325 shares of the Company's common stock with a fair
value of approximately $64,941 (or $19.53 per share). The shares
reacquired have been reflected as treasury stock in the accompanying
consolidated balance sheet. On June 29, 2000, the Board of Directors
and a majority of the stockholders of the Company approved the
adoption of a plan to effectively (i) discontinue the administrative
services operations of PeopleFirst through the return of the right to
operate its business to its previous owners in exchange for their
agreement to relieve the Company of all obligations arising from such
operations and (ii) liquidate the remaining assets and liabilities of
PeopleFirst. Accordingly, the results of the Company's manufacturing
and administrative services operations have been retroactively
reclassified and comprise the loss from discontinued operations in the
accompanying consolidated statement of operations.
The revenues and the loss from discontinued operations for the year
ended June 30, 2000 was comprised as follows:
<TABLE>
<CAPTION>
PEOPLEFIRST IFR TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 585,878 $ 2,796,866 $ 3,382,744
=========== =========== ===========
Income (loss) from operations $ 51,179 $ (597,724) $ (546,545)
Loss on disposal -- (7,152,839) (7,152,839)
----------- ----------- -----------
Income (loss) from discontinued operations $ 51,179 $(7,750,563) $(7,699,384)
=========== =========== ===========
The net assets of discontinued operations reflected in the
accompanying consolidated balance sheet as of June 30, 2000 were
comprised as follows:
Current assets - accounts receivable $448,788
Current liabilities:
Liabilities to acquirers of PeopleFirst $353,723
Accrued expenses 51,588 405,311
-------- --------
Net assets of discontinued operations $ 43,477
========
</TABLE>
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - 8% convertible and nonconvertible notes payable:
As of June 30, 2000, the Company had outstanding 8% convertible notes
and 8% nonconvertible notes payable (collectively, the "8% Notes")
with an aggregate principal balance of $900,000, of which $819,000 and
$81,000 was attributable to the convertible and nonconvertible notes,
respectively. As of June 30, 2000, the Company had not made certain
payments when due and the 8% Notes were in default and due on demand.
As further explained in Note 11, the Company and the noteholders
entered into an agreement on July 14, 2000 which, among other things,
effectively revised certain terms of the loan agreements related to
the 8% Notes. Pursuant to the terms of the agreement, $30,000 of
accrued interest on the 8% Notes was added to the principal balance of
the 8% nonconvertible notes, thereby increasing the aggregate
principal balance of the 8% Notes to $930,000. In addition, interest
on the 8% Notes will be payable in quarterly installments commencing
September 30, 2000 and the entire principal balance will be payable on
July 20, 2003. In accordance with generally accepted accounting
principles, the carrying value of the 8% Notes was retroactively
increased to $930,000 and shown as a noncurrent liability in the
accompanying consolidated balance sheet as of June 30, 2000.
Convertible notes in the principal amount of $273,000 and $546,000
were convertible into shares of common stock at $22.75 per share and
$34.00 per share, respectively, and, accordingly, a total of 28,059
shares of common stock were reserved for possible future issuance upon
conversion as of June 30, 2000.
The 8% Notes were issued by Medical Diagnostics on March 10, 1999,
which was prior to its acquisition by PeopleFirst, as part of the
consideration for the redemption of shares of preferred stock. The
fair value of Medical Diagnostics' common stock on that date was
$131.25 per share which exceeded the conversion prices for the
convertible notes of $22.75 and $34.00 per share. Pursuant to
interpretations issued by the staff of the Securities and Exchange
Commission, such excess constitutes a beneficial conversion feature or
right for which the value is measured by the difference between the
aggregate conversion price and the fair value of the common stock into
which the securities are convertible, multiplied by the number of
shares into which the securities are convertible. Accordingly, Medical
Diagnostics initially recorded beneficial conversion rights in
connection with the issuance of the convertible notes with a fair
value of approximately $2,864,000, which equaled the excess of (i) the
aggregate proceeds the noteholders would have received of
approximately $3,683,000 if they had converted the notes into 28,059
shares of common stock and sold the shares at the fair market value of
$131.25 per share on March 10, 1999 and (ii) the aggregate exercise
price of approximately $819,000 for 12,000 shares that are exercisable
at $22.75 per share and 16,059 shares that are exercisable at $34.00
per share.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - 8% convertible and nonconvertible notes payable (concluded):
In connection with its acquisition of Medical Diagnostics (see Note
3), the Company allocated $1,399,075 of the total cost of the
acquisition to deferred debt financing costs as the fair value of
beneficial conversion rights and recorded the 8% Notes at the
principal amount of $900,000, which were equal to Medical Diagnostics'
historical net carrying values for the beneficial conversion rights
and the 8% Notes as of September 1, 1999, the effective date of the
Exchange. The amount allocated to beneficial conversion rights was
fully amortized during the year ended June 30, 2000.
Note 6 - Contingencies:
Litigation:
In the ordinary course of business, the Company is both a plaintiff
and defendant in various legal proceedings. In the opinion of
management, the resolution of these proceedings will not have a
material adverse effect on the consolidated financial position or
results of operations of the Company in subsequent years.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash balances.
The Company maintains its cash in deposit accounts with banks and
other financial institutions. At times, cash balances may exceed
Federal insurance limits. Exposure to credit risk is reduced by
placing such deposits with major financial institutions and
monitoring their credit ratings.
Note 7 - Income taxes:
As of June 30, 2000, the Company had net operating loss carryforwards
of approximately $26,000,000, of which approximately $17,800,000 arose
primarily from the operations of Medical Diagnostics prior to the
Exchange. These net operating loss carryforwards are available to
reduce future Federal taxable income and will expire at various dates
through 2020. The Company had no other material temporary differences
as of that date. Due to the uncertainties related to, among other
things, the changes in the ownership of the Company, which could
subject those loss carryforwards to substantial annual limitations,
and the extent and timing of its future taxable income, the Company
offset the deferred tax assets attributable to the potential benefits
of approximately $10,400,000 from the utilization of those net
operating loss carryforwards by an equivalent valuation allowance as
of June 30, 2000.
The Company had also offset the potential benefits of approximately
$7,000,000 from net operating loss carryforwards by an equivalent
valuation allowance as of September 1, 1999, the effective date of the
Exchange. As a result of the increases in the valuation allowance of
$3,400,000 during the period from September 1, 1999 to June 30, 2000,
no credit for income taxes are included in the accompanying
consolidated statement of operations for the year ended June 30, 2000.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Fair value of financial instruments:
The Company's material financial instruments at June 30, 2000 for
which disclosure of estimated fair value is required by certain
accounting standards consisted of cash, accounts receivable and
accrued expenses attributable to the Company's discontinued operations
and the 8% Notes. In the opinion of management, (i) cash, accounts
receivable and accrued expenses were carried at values that
approximated their fair values because of their liquidity and/or their
short-term maturities and (ii) the 8% Notes payables were carried at
values that approximated their fair values because they had interest
rates equivalent to those currently prevailing for financial
instruments with similar characteristics.
Note 9 - Stockholders' equity:
Authorized shares:
As of June 30, 2000, the Company was authorized to issue 5,000,000
shares of preferred stock with a par value of $.001 per share and
50,000,000 shares of common stock with a par value of $.001 per
share. The numbers of authorized shares of preferred and common
stock were further increased in August 2000 (see Note 11).
No shares of preferred stock had been issued as of June 30, 2000.
Under the Company's Articles of Incorporation, the Board of
Directors, within certain limitations and restrictions, can fix or
alter preferred stock dividend rights, dividend rates, conversion
rights, voting rights and terms of redemption including price and
liquidation preferences (see Note 10).
Issuances of common shares:
During the year ended June 30, 2000, the Company recorded charges to
expense for issuances of 5,750 shares of common stock with a fair
market value of $190,312 for compensation of employees and other
services and 9,325 shares of common stock with a fair market value
of $290,967 for the settlement of various claims made by vendors and
other parties. The issuances of common stock to pay for services and
the settlement of claims were noncash transactions and, accordingly,
they are not reflected in the accompanying consolidated statement of
cash flows.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Stockholders' equity (concluded):
Stock options:
On July 30, 1999, the Company adopted an Employee Stock Option Plan
(the "1999 Plan") which provides for grants of incentive stock
options ("ISOs"), nonqualified stock options ("NSOs") and reload
options to the Company's employees, directors, consultants and
advisors for the purchase of up to 1,000,000 shares of the Company's
common stock. The option price per share for ISOs granted under the
Plan may not be less than the fair market value of a share of the
Company's common stock on the date of grant, provided that the
exercise price of any ISO granted to an employee owning more than
10% of the outstanding common shares of the Company may not be less
than 110% of the fair market value of the shares on the date of
grant. The option price per share for NSOs granted under the Plan
may not be less than the par value of the Company's common stock.
Options will vest and be exercisable over periods determined by the
Board of Directors provided that no option may be exercisable more
than ten years from the date of grant. The 1999 Plan will terminate
on July 30, 2009. As of June 30, 2000, no options had been granted
under the 1999 Plan.
As of June 30, 1999, there were options to purchase 1,038 shares of
common stock outstanding that had been granted pursuant to Medical
Diagnostics' 1997 stock option plan. All of those options were
canceled prior to the date of the Exchange.
Warrants:
As of June 30, 2000, the Company had 1,000,000 Class A warrants and
1,000,000 Class B warrants outstanding. Each Class A and each Class
B warrant will enable the holder to purchase one share of common
stock at $37.50 and $43.75 per share, respectively, at any time
through March 10, 2002. No warrants were exercised during the year
ended June 30, 2000 and, accordingly, 80,000 shares of common stock
were reserved for issuance upon exercise of the warrants as of June
30, 2000.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10- Subsequent acquisitions:
Acquisition of medical management operations:
On July 25, 2000, the Company acquired a 100% equity interest in
Comprehensive Medical Group, Ltd. ("CMG") in exchange for 3,000,000
shares of preferred stock. CMG provides health and wellness
management services for employee assisted programs, human resource
operations and labor unions; operates a Kiosk-based point of
purchase medical marketing program and operates "Leaseonlife.com," a
website that provides users with interactive health and wellness
analysis, treatment content and management tools. The acquisition
will be accounted for as a purchase. The preferred stock was
designated by the Board of Directors as Series A convertible
preferred stock ("Series A Stock"). Each share of Series A Stock is
convertible into one share of the Company's common stock at any
time. The holders of Series A Stock are entitled to cast the number
of votes equal to the number of shares of common stock into which a
share of Series A Stock is convertible on each matter submitted to
the Company's stockholders for voting and have other rights,
preferences and limitations similar to those of the holders of
common stock.
The Company also issued to its president and chairman of the Board
of Directors 100,000 shares of its Series A Stock in connection with
his agreement to become the president of the Company. The president
of the Company was CMG's chief executive officer prior to the
acquisition.
Acquisition of cardiovascular testing operations:
On July 27, 2000, Cardiovascular Laboratories Holding, Inc.
("CLH"), a newly-formed, wholly-owned subsidiary of the Company,
agreed to acquire the business of Cardiovascular Laboratories
L.L.C. ("CLI"). CLI provided noninvasive cardiovascular testing
services through hospitals and independent diagnostic testing
facilities. CLI had acquired its business operations from
Cardiovascular Laboratories, Inc. of PA ("CLP") on May 31, 2000.
The Company acquired CLI by assuming certain liabilities of the
seller, including the seller's obligation to pay $684,000 to CLP
over a three year period. The amount payable is subject to
adjustment based primarily on the revenues generated by the
acquired operations over a specified period. The acquisition of
CLI is subject to the assignment and assumption of certain CLH
equipment leases and financing contracts by CLI and will be
accounted for by the Company as a purchase.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10- Subsequent acquisitions (concluded):
Acquisition of medical testing management operations:
On August 2, 2000, Diagnostic Management Holding Group, Inc.
("DMG"), a newly-formed, wholly-owned subsidiary of the Company,
acquired the business of CAT-ECG, LLC ("CAT"), a New York limited
liability company that manages the operations of medical diagnostic,
cardiological and neurological testing services of a professional
corporation pursuant to a management services agreement. CAT manages
services rendered to 40 facilities and over 300 medical offices from
its Lynbrook, New York clinic and laboratory. DMG was formed by the
Company to acquire the assets of CAT and manage the Company's mobile
diagnostic business. The Company acquired CAT by assuming certain of
its liabilities and by paying a total of $1,100,000 in cash and
issuing a total of 2,500,000 shares of Series A Stock to CAT's
members. The acquisition of CAT will be accounted for by the Company
as a purchase.
Note 11- Other subsequent events:
Reverse stock split:
On June 29, 2000, the Board of Directors and a majority of the
Company's stockholders approved a 1-for-25 reverse split of the
Company's common stock that became effective on July 13, 2000. The
numbers of shares and prices per share in these notes and, where
appropriate, in the accompanying consolidated financial statements,
have been retroactively restated for the effects of a 1-for-25
reverse stock split.
Change in authorized shares:
On August 2, 2000, the Board of Directors and a majority of the
Company's stockholders approved an amendment to the Company's
Articles of Incorporation whereby the number of shares of preferred
stock authorized for issuance increased from 5,000,000 to 30,000,000
shares.
Revisions of terms of 8% Notes:
On July 14, 2000, the Company and the holders of the 8% Notes
entered into an agreement which, among other things, effectively
revised certain terms of the loan agreements related to the 8% Notes
and resulted in the addition of $30,000 of accrued interest to the
principal balance of the 8% nonconvertible notes and the extension
of the due date for the payment of the entire principal balance of
the 8% Notes to September 30, 2003 (see Note 5). In addition, the
terms related to the conversion of the 8% convertible notes were
modified whereby the noteholders are limited as to the amount of
principal that can be converted into common stock. A noteholder
cannot convert any amount of principal that would result in the
noteholder becoming a beneficial owner of more than 4.99% of the
outstanding shares of common stock of the Company.
<PAGE>
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11- Other subsequent events (concluded):
Private placement:
On July 17, 2000, the Company received subscriptions from accredited
investors for the purchase of a total of 5,000,000 shares of common
stock at an aggregate purchase price of $4,150,000, or $.83 per
share, through a private placement intended to be exempt from
registration under Regulation D of the Securities Act of 1933. As of
September 20, 2000, subscribers for the purchase of a total of
843,373 shares of common stock had agreed to pay for those shares
through the cancellation of outstanding loans to CMG and CLI
totaling $700,000. In addition, the Company had received cash
payments totaling $1,761,053 for the purchase of a total of
2,121,750 shares, and cash payments totaling $1,906,717 for
the subscriptions for the purchase of the remaining 2,034,877
shares were still receivable.
* * *
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (A) of the Exchange Act
On July 17, 2000, Steven Rosedale resigned as Director and Chairman of the
Board of Directors of the Company and Simon Groner resigned as Director and
Secretary of the Company. On July 17, 2000, the remaining Director of the
Company and its CEO, Ronald Wilheim, consented to accept each of these
resignations and appointed James H. Clingham, Sr. as Director and Chairman of
the Board of Directors, and Jay Gottlieb, William O'Connor and David
Stefansky as Directors. On July 18, 2000, the Board of Directors unanimously
consented to appoint James H. Clingham, Sr. as president of the Company.
Ronald Wilheim remains the Company's CEO. Christine M. Fares-Walley was
appointed vice president in charge of mobile diagnostics testing and
telemedicine, and Brian T. Nugent was appointed as chief information officer
and comptroller.
The following table sets forth, as of September 30, 2000, the names, ages and
positions held with respect to each director and executive officer of the
Company.
<TABLE>
<CAPTION>
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
James H. Clingham, Sr 58 Director, President July, 2000
Ronald Wilheim 31 CEO, Director, Ass't Secretary September, 1999
Jay Gottlieb 47 Director July, 2000
William M. O'Connor 45 Director, Secretary July, 2000
David Stefansky 28 Director July, 2000
Christine M. Fares-Walley 34 Vice President July, 2000
Brian T. Nugent 37 Chief Information Officer, July, 2000
Comptroller
</TABLE>
CMDG Final
Page 30
<PAGE>
JAMES H. CLINGHAM, SR., is an attorney and president and chairman of the board
of directors of the Company and its division CMG and subsidiary DMG. Mr.
Clingham is presently vice chairman of Galaxis USA, Ltd., a German company
involved in worldwide research and formerly served as president of Galaxis USA.
He also chairs a management-consulting firm with offices in Princeton, New
Jersey and Orlando, Florida. Mr. Clingham is of counsel to the Princeton, New
Jersey law firm Stark and Stark. Until December 1995, Mr. Clingham was vice
president of corporate affairs at David Sarnoff Research Center (now Sarnoff
Corp.), in Princeton, New Jersey. Prior to that, he was corporate counsel and a
manager with RCA, and after RCA was acquired by General Electric, for over 10
years. Additionally, he has practice law in the public and private sectors in
Washington, D.C., New York, and Rhode Island.
RONALD WILHEIM, CEO, was elected as director in August 1999. Mr. Wilheim has
been corporate counsel of CommuniCare Health Services, a health care management
firm, since August 1995. Prior to that time, Mr. Wilheim graduated from Benjamin
Cardozo School of Law in New York.
JAY L. GOTTLIEB, director, serves as senior manager of the research and
development in coal futures development on the New York Mercantile Exchange, and
served as associate director at the Chicago-based Mid-America Institute (for
public policy analysis). In 1988 and 1989, he served as business planning
director of the Atlanta-based Grain Services, Inc. Prior to that he was the
general/risk manager to the Erkes Trading Group, overseeing and managing the
group's traders in options on the Chicago Board of Trade. From 1981 through
1988, Mr. Gottlieb served as advisory economist to the Chicago Board of Trade.
From 1979 through 1981, Mr. Gottlieb worked for Resource Planning Associates,
consulting on energy and environmental issues, and prior to that he served as an
ecologist for the Washington State Game Department.
WILLIAM M. O'CONNOR, director, is an attorney and shareholder of the law firm
Buchanan Ingersoll. He is a member of the firm's Financial Institutions Group,
which is based in New York. Mr. O'Connor also heads a creditors' rights
department that represent leading financial institutions. Mr. O'Connor was
formerly the managing partner of the New York office of a major Rochester firm.
Mr. O'Connor was a past editor-in-chief for the Westchester Bar Journal. He is a
member of the Creditor's Rights Committee of the New York Bar Association's
Commercial and Federal Litigation Section, and of the Professional Ethics
Committee of the Westchester Bar Association. He is an elected council member
for the town of Pelham, New York.
DAVID STEFANSKY, director, is a managing director of the private equity group at
Robb Peck McCooey Institutional Services, a division of Robb Peck McCooey
Clearing Corp. He specializes in advising and financing emerging growth
companies. From September 1997 through May 1999, Mr. Stefansky was employed in a
similar capacity at Trautman Kramer & Co., where he was active in advising and
CMDG Final
Page 31
<PAGE>
financing emerging growth companies. From May 1994 through September 1997, Mr.
Stefansky was employed as an account executive at various securities brokerage
firms.
CHRISTINE M. FARES-WALLEY, vice president, was director of operations for CMG
prior to its acquisition by the Company. Ms. Fares-Walley was formerly director
of operations for Capitol Health Care and managed a physician hospital
organization ("PHO") and independent physician organization consisting of over
160 physicians and a large teaching hospital. In addition to her
responsibilities with the PHO, she coordinated the consolidation of all managed
care contracts for the merged entity of two large hospitals. Ms. Fares-Walley
also worked at New Jersey CURE, an automobile insurance reciprocal exchange,
developing their sales and marketing operation. Ms. Fares-Walley obtained a BS
degree from The College of New Jersey (formerly Trenton State College) with a
major in economics and an MBA from Rider University. She now serves as president
of The College of New Jersey Alumni Association and is active in The School of
Business Alumni Chapter.
BRIAN T. NUGENT, chief information officer, has been a consultant in connection
with information technology strategy, software development and implementation,
process improvement, organizational design, Y2K, and technology procurement. He
was formerly a principal of Hillwood Group, Inc., which performed various
services in connection with systems implementation, Y2K consulting and general
information technology, from 1998 through early 2000. He was a manager in the
consulting department of KPMG Peat Marwick in Fort Lauderdale, Florida from 1995
to 1998. Mr. Nugent was a consultant with the Systems Consulting Group, Inc. in
Miami, Florida specializing in information technology from 1993 to 1995. Mr.
Nugent was a financial analyst with Shearing Plough Research Institute in
Kennilworth, New Jersey in 1992. Mr. Nugent received a BS degree cum laude in
finance from The College of New Jersey, and an MBA degree from Rutgers
University. He holds a CPA certification, and has served as an advisor and guest
speaker at The College of New Jersey School of business, where he is an active
member of the Alumni Association. Mr. Nugent also served in the US Coast Guard
Reserve, earning certification to command patrol boat operations.
Item 10: Executive Compensation
The following table discloses the annual and long term compensation earned for
services rendered in all capacities by the Company's Chairman of the Board and
president, and each other executive officer having annual compensation exceeding
$100,000. Directors of the Company do not presently receive compensation for
serving in such capacity.
Summary Compensation Table
Securities
CMDG Final
Page 32
<PAGE>
<TABLE>
<CAPTION>
Underlying
Name and Principal Position Year Salary Other Options
($) ($)
<S> <C> <C> <C> <C>
James H. Clingham, Sr 2000 250,000(1) (1)
Board Chairman and President
Ronald Wilheim
Director and CEO 2000 0
1999 0 0
1998 0 0
Robert Hausman
President, CEO and Director 2000 0 0
1999 129,100 18,000 0
1998 120,000 87,839(2) 938
Lester Gann
Director and Secretary 2000 98,000
1999 104,000 0
1999 96,000 118,125(3) 938
</TABLE>
(1) Mr. Clingham was appointed as Chairman and President in July 2000 after the
end of the Company's fiscal year. The salary stated is prospective only based on
Mr. Clingham's employment contract with CMG. In July, 2000, Mr. Clingham
received 100,000 shares of Preferred Stock as incentive compensation in
connection with his duties and responsibilities as Board Chairman and President.
There is no present fair market value of the Preferred Stock. The Preferred
Stock is convertible into the Company's common stock on a one for one basis. The
fair market value of the common stock on the date of issuance of the Preferred
Stock to Mr. Clingham was $2.75.
(2) On July 22, 1998, Mr. Hausman received 2,298 shares of common stock in
accordance with the terms of an Amendment to Management Agreement dated November
1, 1997 between Mr. Hausman and the Company. The fair market value of the shares
on the date of issuance was $31.50 resulting in an aggregate value of $72,371.
The balance of other compensation was received as a car allowance.
(3) On July 22, 1998, Mr. Gann received 3,750 shares of common stock as a
signing bonus in accordance with the terms of an Employment Agreement between
Mr. Gann and the Company dated May 1, 1998. The fair market value of the shares
on the date of issuance was $31.50 resulting in an aggregate value of $118,125.
Employment, Management and Consulting Agreements
CMDG Final
Page 33
<PAGE>
On July 16, 2000, the Company, Ronald Wilheim and Steve Rosedale (as officers,
directors and principal shareholders of the Company) entered into an Agreement
with Connie Steinmetz ("Steinmetz"), Strategic Capital Holdings ("Strategic"),
Yucatan Holding Company ("Yucatan"), Arizona Development Corporation ("Arizona")
and Atlas Perlman, P.A. ("Escrow Agent") ("Steinmetz Agreement") terminating
certain agreements with and obligations of the Company and forgiving certain
debts and obligations owed by the Company. Specifically (a) Yucatan forgave the
sum of $175,000 which the Company owed Yucatan; (b) Arizona forgave $250,000
which the Company owed Arizona; (c) the Company's obligation under the terms of
a consulting agreement with Steinmetz to cover any shortfall of Steinmetz' sale
of the Company's common stock which had been issued as payment for $145,000 in
value of services to be rendered by Steinmetz was abrogated; and (d) the
Company's obligation under the terms of a consulting agreement with Strategic to
cover any shortfall in Strategic's sale of the Company's common stock which had
been issued as payment for $250,000 in value of services to be rendered by
Strategic was abrogated. Under the Steinmetz Agreement, Wilheim and Rosedale
agreed to deposit 200,000 of their shares (after the Reverse Split) of the
Company's common stock into an escrow account maintained by the Escrow Agent
with irrevocable instructions to the Escrow Agent to sell the stock and deliver
50% of the proceeds to Steinmetz, Strategic, Yucatan and Arizona as
consideration for their performance under the Steinmetz Agreement. Steinmetz,
Strategic, Yucatan and Arizona were also issued 300,000 shares of common stock
from the Company as additional consideration.
On July 17, 2000, the Company entered into an agreement with Robert Hausman, the
Company's former CEO and president ("Hausman") in which Hausman waived all
claims against the Company, including (a) $1.1 million the Company owed him for
loans guaranteed by Hausman on behalf of the Company with Chase Manhattan Bank;
(b) $100,000 owed to Hausman by the Company under a note assumed by the Company
in connection with settlement of a disputed consulting agreement; (c) $100,000
advanced by Hausman for the Company's benefit; (d) $300,000 in management fees,
car allowance and dividends accrued but not previously paid to Hausman; and (e)
other obligations arising out of the termination of Hausman's employment with
the Company and termination of his management agreement. In consideration for
Hausman's release, Company agreed to transfer to Hausman $300,000 worth of
certain prepaid advertising. The Company and Hausman exchanged mutual general
releases.
On August 2, 2000, in connection with the acquisition of the assets of CAT, DMG
entered into a one year employment agreement with Mark Gray, a former vice
CMDG Final
Page 34
<PAGE>
president of CAT, at an annual salary of $110,000 and an annual incentive bonus
of 10,000 shares of the Company's common stock for the first year of Mr. Gray's
employment agreement and for each year the agreement is extended.
On August 2, 2000, in connection with the acquisition of the assets of CAT, DMG
entered into a ten year consulting agreement with Robert Goodman, M.D., the
principal shareholder of CAT PC, at an annual fee of $25,000 and a one time
payment of 250,000 shares of the Company's common Preferred Stock. Dr. Goodman
will act as a consultant to DMG in the area of elder care and internal medicine.
On August 2, 2000, in connection with the acquisition of the assets of CAT, DMG
entered into a two year consulting agreement with The August Group, L.L.C. at an
annual fee of $125,000 which is payable as the cash flow of DMG permits. The
August Group will act as a consultant to DMG to identify and negotiate the
possible acquisition of other diagnostic testing companies and facilities.
On July 8, 2000, the Company assumed 2000 CMG entered into a two year
employment agreement with James H. Clingham, Sr. at an annual salary of
$250,000.
Item 11 Security Ownership of Certain Beneficial Owners and Management
As of September 29, 2000, there were 9,521,369 shares of common stock issued and
outstanding. The following table sets forth, as of the close of business on
September 29, 2000 (a) the name, address and number of shares of each person
known by the Company Risk to be the beneficial owner of more than 5% of the
Company's common stock and (b) the number of shares owned by each director, each
director nominee and all officers and directors as a group, together with their
respective percentage holdings of such shares before and after the exchange.
Name of Beneficial Owner Number of Shares Percentage of Class
Steven Rosedale 200,000 2.1
Item 12 Certain Relationships and Related Transactions
As of July 27, 2000, CLH assumed the obligations of a Management Services
Agreement with Phoenix Cardiovascular, Inc. to provide management services to
CLH's vascular laboratories for a management fee of $30,000 per month plus
33% of the net income of newly established business that Phoenix creates and
manages.
On July 2, 1999, the Company sold the building owned by its Workforce Properties
subsidiary to Lester and Glenda Gann. Mr. Gann was, at the time, the president
of the Company's IFR subsidiary. The building was sold for $450,000 plus the
assumption of certain liabilities. A portion of the proceeds from the sale was
utilized
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to pay off the existing mortgages in full and satisfies all outstanding tax
liens on the property. The Company no longer has any liabilities associated
with the property. The Company leased the building for its IFR subsidiary
from Mr. Gann on a month-to-month basis at a cost of approximately $7,500 per
month until Mr. Gann reacquired IFR from the Company on April 1, 2000. The
Company no longer has any liability or responsibility under this building
lease.
On July 2, 1999, Wilheim exchanged 75,000 shares of the Company for all of
the issued and outstanding stock of RCS, Inc. and RCS Subacute, Inc., which
are wholly owned subsidiaries of BSD Healthcare, Inc. as a result of the lack
of viability of RCS, Inc. and RCS Subacute resulting from the changes in
Medicare reimbursement.
On July 16, 2000, in contemplation of the sale of common stock under a July 17,
2000, Stock Purchase agreement, and as a condition precedent to that
transaction, the Company, Ronald Wilheim and Steve Rosedale (as officers,
directors and principal shareholders of the Company) entered into an Agreement
with Connie Steinmetz ("Steinmetz"), Strategic Capital Holdings ("Strategic"),
Yucatan Holding Company ("Yucatan"), Arizona Development Corporation ("Arizona")
and Atlas Perlman, P.A. ("Escrow Agent") ("Steinmetz Agreement") terminating
certain agreements with and obligations of the Company and forgiving certain
debt and obligations owed by the Company. Specifically (a) Yucatan forgave the
sum of $175,000 which the Company owed Yucatan; (b) Arizona forgave $250,000
which the Company owed Arizona; (c) the Company's obligation under the terms of
a consulting agreement with Steinmetz to cover any shortfall of Steinmetz' sale
of the Company's common stock which had been issued as payment for $145,000 in
value of services to be rendered by Steinmetz was abrogated; and (d) the
Company's obligation under the terms of a consulting agreement with Strategic to
cover any shortfall in Strategic's sale of the Company's common stock which had
been issued as payment for $250,000 in value of services to be rendered by
Strategic was abrogated.
Under the Steinmetz Agreement, Wilheim and Rosedale agreed to deposit 200,000
of their shares of the Company's common stock into an escrow account
maintained by the Escrow Agent with irrevocable instructions to the Escrow
Agent to sell the stock and deliver 50% of the proceeds to Steinmetz,
Strategic, Yucatan and Arizona as consideration for their performance under
the Steinmetz Agreement. Steinmetz, Strategic, Yucatan and Arizona were also
issued 250,000 shares of common stock from the Company as additional
consideration.
On July 17, 2000, the Company entered into an agreement with Robert Hausman, the
Company's former CEO and president ("Hausman") in which Hausman waived all
claims against the Company, including (a) $1.1 million the Company owed him for
loans guaranteed by Hausman on behalf f the Company with Chase Manhattan Bank;
(b) $100,000 owed to Hausman by the Company under a note assumed by
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the Company in connection with settlement of a disputed consulting agreement;
(c) $100,000 advanced by Hausman for the Company's benefit; (d) $300,000 in
management fees, car allowance and dividends accrued but not previously paid to
Hausman; and (e) other obligations arising out of the termination of Hausman's
employment with the Company and termination of his management agreement.
On July 3, 2000, the Company, ProFutures Special Equity Fund, LP ("ProFutures")
and D.L. Cromwell, Inc. entered into a Termination and Settlement Agreement
("Settlement Agreement") of all claims which each party had or may have had
against the other arising from any and all past agreements of any nature
involving ProFutures, D.L. Cromwell, Inc. other than certain warrants to
purchase common stock of the Company which are held by D.L. Cromwell.
ProFutures held three of the Company's 8% Convertible Promissory Notes, dated
March 3, 1999, each having a principal face value of $273,000 and an aggregate
principal value of $819,000 ("Convertible Notes") and the Company's 8%
Promissory Note having a principal face value of $81,000 ("Non-Convertible
Note"). The Convertible Notes are convertible into shares of the Company's
common stock. The Company failed to make payments when due under the Convertible
Notes and the Non-Convertible and was in default. Accrued and unpaid interest on
the Convertible Notes aggregated $111,000 and the total principal and interest
due under the Convertible Notes as of the date of the Termination and Settlement
agreement was $930,000. In order to effectuate the Settlement Agreement with
ProFutures and D.L. Cromwell, the terms and conditions of the Convertible Notes
were amended and restated in a Note Reformation Agreement dated as of July 14,
2000, and a new Convertible Note was issued to ProFutures reflecting the
aggregate principal and interest balance of $930,000 and amending and modifying
the conversion terms of the Convertible Notes. Additionally, ProFutures agreed
to cancel the Non-Convertible Note. Subsequent to the execution of the Note
Reformation Agreement, ProFutures sold the amended and restated Convertible
Notes to a group of investors.
On July 17, 2000, the Company entered into a Stock Purchase Agreement ("Stock
Purchase Agreement"), and in a private placement exempt from registration
under Regulation D promulgated under the Securities Act of 1933, as amended,
agreed to sell 5,000,000 shares of the Company's common stock to 15
accredited investors at a per share price of $.83 and an aggregate purchase
price of $4,150,000 of which $2,461,053 was fully paid or accounted for as of
September 29, 2000. Of the private placement investors, 13 have closed with
the Company and the remaining 2 investors have contracted to purchase
2,034,877 shares of common stock, for an aggregate purchase price of
$1,688,947, but have not closed their transactions with the Company.
Investors who had made working capital loans aggregating approximately
$700,000 to each of CLI and CMG, respectively, were issued an aggregate of
843,373 shares of the Company's common
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stock in connection with the private placement, and the working capital loans to
CLI and CMG were cancelled in exchange.
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Item 13 Description of Exhibits
(a) The following Exhibits are filed pursuant to Item 601 of Regulation S-B.
Exhibit No. Description
----------- ----------------------------------------------------------
2.6 Agreement dated as of May 29, 1997 by and between Workforce
Systems Corp. and Robert Hausman and John Murray as Sole
Shareholders of Federal Supply, Inc. and Robert Hausman as
Sole Shareholder of Federal Fabrication, Inc. is
incorporated by reference to the Report on Form 8-K as filed
with the Securities and Exchange Commission on June 4, 1997
2.7 Agreement dated as of May 29, 1998 by and between Coventry
Industries Corp. and American Group, Inc. is incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 30, 1998
2.8 Exchange Agreement among Coventry Industries Corp., BSD
Healthcare Industries, Inc., its shareholders, People First
LLC and its members dated September 30, 1998 is incorporated
By reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on December 22, 1998
3.1 Articles of Incorporation are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange Commission
on January 12, 1993
3.2 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences of
the Series B $5.00 Cumulative Convertible Preferred Stock
are hereby incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission on
July 13, 1994
3.3 Articles of Amendment to the Articles of Incorporation
changing the corporation name are hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
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3.4 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences of
the Series A and Series C Preferred Stock are hereby
incorporated by reference to the Report on Form 10-QSB for
the quarter ended December 31, 1994
3.5 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences of
the Series D Preferred Stock is hereby incorporated by
reference to the Report on Form 10-KSB for the fiscal year
ended June 30, 1996.
3.6 Articles of Amendment to the Articles of Incorporation
increased the amount of authorized common stock and setting
forth the redemption provisions of the Series D Preferred
Stock is hereby incorporated by reference to the
Registration Statement on Form SB-2, File No. 333-11169, as
filed with the Securities and Exchange Commission on August
30, 1996, as amended
3.7 Articles of Amendment to the Articles of Incorporation
decreasing the number of authorized common stock and
effecting a one for four stock split of the common stock is
hereby incorporated by reference to the Registration
Statement on Form SB-2, File No. 333-11169, as filed with
the Securities and Exchange Commission on August 30, 1996,
as amended
3.8 By-Laws of the Company are hereby incorporated by reference
to the Registration Statement on Form SB-2 as declared
effective by the Securities and Exchange Commission on
January 12, 1993.
3.9 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences of
the Series E Cumulative Non-Participating Preferred Stock
are hereby incorporated by reference to the Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997.
3.10 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences of
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the Series F Cumulative Non-Participating Preferred Stock
are hereby incorporated by reference to the Annual Report on
Form 10-QSB for the quarter ended September 30,1997.
3.11 Articles of Amendment to the Articles of Incorporation
Changing the name of the corporation to Coventry Industries
Corp. are hereby incorporated by reference to the Report on
Form 10-QSB for the quarter ended September 30,1997.
3.12 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences of
the 5% Series Convertible Preferred Stock are hereby
incorporated by reference to the report on Form 8-K filed
with the Securities and Exchange Commission on January 29,
1998.
3.13 Articles of Amendment to the Articles of Incorporation
decreasing the number of authorized common stock and
effecting a one-for-eight split is hereby incorporated by
reference to the report on form 10-QSB filed with the
Securities & Exchange Commission on 5/17/99.
3.14 Articles of Amendment to the Articles of Incorporation
Changing the name of the Corporation to American Risk
Management Group, Inc, and increasing the number of
authorized common and preferred stock are hereby
incorporated by reference to the report on Form 8-K filed
with the Securities and Exchange Commission on September 20,
1999
3.15 Amendment to Company Articles of Incorporation changing
name to Comprehensive Medical Diagnostics Group, Inc.
from American Risk Management Group, Inc. incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 6, 2000.
3.16 Certification of Amendment by Florida Secretary of State
effective July 21, 2000 incorporated by reference to the
Report on Form 8-K as filed with the Securities and
Exchange Commission on September 6, 2000.
3.17 Amendment to Company Articles of Incorporation increasing
amount of authorized common stock to 50,000,000 shares
and preferred stock to 30,000,000 shares incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 6, 2000.
3.18 Certification of Amendment by Florida Secretary of State
effective August 7, 2000 incorporated by reference to the
Report on Form 8-K as filed with the Securities and
Exchange Commission on September 6, 2000.
3.19 Rights Statement for holders of Company Series A
Preferred Stock incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on September 6, 2000.
4.1 Investment Banking Warrant Agreement between Coventry
Industries Corp. and Barron Chase Securities, Inc. is hereby
incorporated by reference to the report on Form 10-QSB for
the quarter ended December 31, 1997.
4.2 Termination and Amendment Agreement dated December 9, 1998
between the Company and Barron Chase Securities, Inc. is
hereby incorporated to the Current Report on Form 8-K filed
December 22, 1998
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10.2 Employment Agreement between Industrial Fabrication &
Repair, Inc. and Lester E. Gann is hereby incorporated by
reference to the Registration Statement on Form SB-2, File
No. 333-11169, as filed with the Securities and Exchange
Commission on August 30, 1996, as amended
10.4 Management agreement between Workforce Systems Corp. and
Robert Hausman is hereby incorporated by reference to the
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1997.
10.5 Amended and Restated Consulting Acquisition Management
Agreement between Workforce Systems Corp. and Manny J.
Shulman and Shulman & Associates, Inc. is hereby
incorporated by reference to the registration statement on
Form S-8 as filed with the Securities and Exchange
Commission on September 24, 1997
10.6 Stock Purchase and Sale Agreement dated September 22, 1997
between Workforce Systems Corp., a Florida corporation, and
Darren Apel, Barbara Hausman and Ronna Newman Rutstein, as
shareholders of LPS Acquisition Corp. is incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 22, 1997
10.7 Conversion Agreement dated October 7, 1997 between Workforce
Systems Corp., Federal Supply, Inc. and Robert Hausman and
Barbara Hausman is hereby incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997.
10.8 Conversion Agreement dated September 25, 1997 between
Workforce Systems Corp., LPS Acquisition Corp, and Eric and
Adrienne Deckinger is hereby incorporated by reference to
the Company's to the Report on Form 10-QSB for the quarter
ended September 30,1997 as filed with the Securities and
Exchange Commission on November 7, 1997
10.9 Financial Advisory Agreement between Coventry Industries
Corp. and Barron Chase Securities, Inc. is hereby
incorporated by reference to the report on Form 10-QSB for
the quarter ended December 31, 1997 as filed with the
Securities and Exchange Commission on February 23, 1998.
10.10 Employment Agreement between Industrial Fabrication &
Repair, Inc. and Lester E. Gann is hereby attached as an
exhibit to the Report on Form 10-KSB for the fiscal year
ended June 30, 1998.
10.11 Amendment to the Management Agreement between Coventry
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Industries Corp. and Robert Hausman is hereby attached as an
exhibit to the Report on Form 10-KSB for the fiscal year
ended June 30, 1998.
10.12 Intentionally deleted.
10.13 Amendment dated November 9, 1998 to Employment Agreement
Dated May 1, 1998 Between Industrial Fabrication and Repair,
Coventry Industries Corp., and Lester Gann is hereby
incorporated to the Current Report on Form 8-K filed
December 22, 1998.
10.14 Amendment dated as of December 1, 1998 to Management
Agreement dated July 1, 1997 and amended November 1, 1997
between the Company and Robert Hausman is hereby
incorporated to the Current Report on Form 8-K filed
December 22, 1998.
10.15 Voting Agreement dated December 3, 1998 among Robert
Hausman, Lester Gann, Ronald Wilheim, Stephen Rosedale,
Yucatan Holdings, Connie Steinmetz, Strategic Capital
Holdings, Inc. and Arizona Development Corporation is hereby
incorporated to the Current Report on Form 8-K filed
December 22, 1998.
10.16 Consulting Agreement between the Company and Connie
Steinmetz dated as of November 2, 1998 is hereby
incorporated to the Current Report on Form 8-K filed
December 22, 1998.
10.18 Exchange Agreement dated February 3, 1999 between the
Company and ProFutures Special Equities Fund, L.P. is hereby
incorporated by reference to the report on Form 10-QSB for
the quarter ended December 31, 1998
10.19 Settlement Agreement dated February 4, 1999 among the
Company, M. Shulman & Associates and Robert Hausman is
hereby incorporated by reference to the report on Form
10-QSB for the quarter ended December 31, 1998.
10.20 Amendment dated as of July 30, 1999 to the Management
Agreement dated July 1, 1997 and amended November 1, 1997
and December 1, 1998 between the Company and Robert Hausman.
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10.21 Stock Purchase Agreement among BSD Healthcare Industries,
Inc., Coventry Industries Corp., Stephen Rosedale and Ronald
Wilheim is hereby incorporated by reference to the Form
10-SB of the Company's subsidiary BSD Healthcare Industries,
Inc. filed on August 18,1999.
10.22 Letter of intent among PeopleFirst Staffing LLC and CHS
Homecare Services, Ltd is hereby incorporated by reference
to the information statement on Schedule 14C filed with the
Securities and Exchange Commission on September 13, 1999
10.23 1999 Stock Option Plan is hereby incorporatedby reference
to the information statement on Schedule 14C filed with the
Securities and Exchange Commission on September 13, 1999
10.24 Asset Purchase Agreement between Cardiovascular
Laboratories Holdings, Inc. and Cardiovascular
Laboratories LLC, dated as of July 27, 2000 incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 6, 2000.
10.25 Asset Purchase Agreement between Cardiovascular
Laboratories Inc. of PA and Cardiovascular Laboratories,
LLC., as amended May 31, 2000 incorporated by reference
to the Report on Form 8-K as filed with the Securities
and Exchange Commission on September 6, 2000.
10.26 Agreement and Plan of Reorganization between the Company
and The Comprehensive medical Group, Ltd., dated as of
July 25, 2000 incorporated by reference to the Report on
Form 8-K as filed with the Securities and Exchange
Commission on September 6, 2000.
10.27 Asset Purchase Agreement between CAT-ECG, LLC and
Diagnostic Management Holding Group, Inc., dated as of
August 2, 2000 incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on September 6, 2000.
10.28 Stock Purchase Agreement between the Company and 15
accredited investors, dated July 17, 2000 incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 6, 2000.
10.29 Note Reformation Agreement between ProFutures and the
Company, dated as of July 14, 2000 incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 6, 2000.
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10.30 Steinmetz Agreement between the Company, Steinmetz, et
alia, dated July 16, 2000 terminating certain agreements
and obligations incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on September 6, 2000.
10.31 Settlement Agreement among and between the Company,
ProFutures and D.L. Cromwell, Inc. dated July 3, 2000
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange Commission on
September 6, 2000.
10.32 Agreement between the Company and Robert Hausman dated
July 17, 2000 incorporated by reference to the Report on
Form 8-K as filed with the Securities and Exchange
Commission on September 6, 2000.
10.33 Agreement between Phoenix Cardiovasular Inc. and
Cardiovascular Laboratories LLC, dated as of June 1, 2000.
10.34 Agreement between CAT-ECG, LLC and Lynbrook Cardiac
Testing, P.C. dated as of March 23, 1998.
10.35 Extension Agreement between CAT-ECG-PC and Diagnostic
Management Group Holdings, Inc., dated August 2, 2000.
16.3 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by reference
to the Report on Form 8-K as filed with the Securities and
Exchange Commission on August 6, 1997.
16.4 Letter from BDO Seidman, LLP regarding change in certifying
accountants is hereby incorporated by reference to the
Report on Form 8-K as filed with the Securities and Exchange
Commission on August 6, 1997.
16.4 Letter from BDO Seidman, LLP advising the Company of its
Decision not to renew their engagement with the company as
its principal auditors is hereby incorporated by reference
to the report on Form 8-K as filed with the Securities and
Exchange Commission on June 5, 1998.
16.6 Letter from BDO Seidman, LLP advising the Company of its
Agreement with statements made in response to Item 4 of Form
8-K for the event that occurred on June 1, 1998 is hereby
incorporated by reference to the report on Form 8-K/A as
filed with the Securities and Exchange Commission on June
17, 1998.
16.7 Letter regarding change in certified accountant from
Sweeney, Gates & Co. is hereby incorporated by reference to
the report on Form 8-K as filed with the Securities and
Exchange Commission on June 30, 1999 . 21 Subsidiaries of
the Registrant.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the three months ended June 30, 1999, Registrant filed the following
Reports on Form 8-K with the Securities and Exchange Commission
- On May 11, 1999, the Company filed a Report on Form 8-K disclosing under
Item 5 information relating to the delisting of its common stock from the
Nasdaq SmallCap Market to the OTC Bulletin Board.
- On June 30, 1999, the Company filed a Report on Form 8-K disclosing under
Item 4 information relating to the change of the Company's auditors from
Sweeney, Gates & Co. to J.H.Cohn LLP.
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On September 6, 2000, Registrant filed a Report on Form 8-K with the
Securities and Exchange Commission (A) disclosing under Item 1 a change in
control of the registrant, (B) disclosing under Item 2 (i) the Registrant's
acquisition of the assets of Cardiovascular Laboratories, Inc., (ii) the
agreement and plan of reorganization between the Registrant and Comprehensive
Medical Diagnostics, Ltd., and (iii) the acquisition by the Registrant of the
assets of CAT ECG LLC, (C) disclosing under Item 5 (i) the 1 for 25 reverse
split of the Registrant's common stock, (ii) the Termination and Settlement
Agreement with D.L. Cromwell, Inc. and ProFutures Special Equity Fund, LP,
(iii) the Reformation of the Registrant's Convertible Promissory Notes and
Promissory Note with ProFutures Special Equity Fund, LP, (iv) recent sales
and issuances of unregistered securities, (v) the discontinuation of the
PeopleFirst LLC business; (vi) the termination of certian obligations between
the Registrant and various consultants and officers; (vii) the increase in
the Registrant's authorized shares, and (viii) the Registrant's corporate
name change and trading symbol change of the Registrant's common stock, and
(D) disclosing under Item 6 changes in the Registrant's Board of Directors
and executive officers.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMPREHENSIVE MEDICAL DIAGNOSTICS GROUP, INC.
By: /s/ James H. Clingham
--------------------------------
President
Date: October 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ James H. Clingham, Sr.
James H. Clingham, Sr. President and Chairman of the
Board of Directors
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/s/ Ronald Wilheim
Ronald Wilheim CEO, Assistant Secretary and Director
/s/ William M. O'Connor
William M. O'Connor Secretary and Director
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