<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the period from to
---------------- ----------------
Commission file number 0-25344
----------------------
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 25-1741216
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1315 Greg Street, Suite 103
Sparks, Nevada 89431
(Address of principal (Zip Code)
executive offices)
(702) 356-2315
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Act of 1934 during the past 12
months (or such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
---- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Common Stock, par value $.01
per share, 15,015,316 shares outstanding as of July 31, 1997.
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 1,631,568 $ 2,882,035
Accounts receivable.............................................................. 4,291,901 2,339,093
Notes and interest receivable--related party..................................... 2,706,105 3,428,244
Other assets and prepaid expenses................................................ 148,240 301,738
------------- -------------
Total current assets........................................................ 8,777,814 8,951,110
------------- -------------
Property and equipment, net...................................................... -- 19,118
Intangible assets, net........................................................... 6,223,271 5,780,397
Deferred costs and other assets.................................................. 924,980 800,450
------------- -------------
Total assets $ 15,926,065 $ 15,551,075
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------------- -------------
LIABILITIES
Current liabilities:
Accrued subcontract fees......................................................... $ 640,484 $ 1,074,100
Accounts payable and accrued expenses............................................ 71,296 137,880
Short term debt.................................................................. -- 77,033
------------- -------------
Total current liabilities..................................................... 711,780 1,289,013
------------- -------------
Commitments and contingent liabilities............................................. -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding..................................................... -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 15,015,316 and 14,956,428 shares
issued and outstanding.......................................................... 150,154 149,564
Paid-in capital.................................................................... 11,776,544 11,512,138
Retained earnings.................................................................. 3,287,587 2,600,360
------------- -------------
Total stockholders' equity.................................................... 15,214,285 14,262,062
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Total liabilities and stockholders' equity.................................... $ 15,911,065 $ 15,551,075
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
INCOME STATEMENTS
For the Three Month Periods Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.............................................................................. $ 2,370,733 $ 2,273,872
Subcontract expense................................................................... 1,629,818 1,549,584
------------ ------------
Operating income................................................................. 740,915 724,288
Selling, general and administrative expense........................................... 232,584 183,667
Depreciation and amortization expense................................................. 119,615 75,930
Interest expense (income)............................................................. (82,342) (89,053)
------------ ------------
Income before income taxes............................................................ 471,058 553,744
------------ ------------
Provision for income taxes:
Current............................................................................. 154,800 179,789
Deferred............................................................................ -- --
------------ ------------
154,800 179,789
------------ ------------
Net income....................................................................... $ 316,258 $ 373,955
------------ ------------
------------ ------------
Primary net income per share.......................................................... $ 0.02 $ 0.02
------------ ------------
------------ ------------
Weighted average number of shares
outstanding used in primary calculation............................................. 15,015,316 15,784,588
------------ ------------
------------ ------------
Fully diluted net income per share.................................................... $ 0.02 $ 0.02
------------ ------------
------------ ------------
Weighted average number of shares
outstanding used in fully diluted calculation....................................... 15,184,890 15,784,588
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
INCOME STATEMENTS
For the Six Month Periods Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.............................................................................. $ 4,753,523 $ 4,408,633
Subcontract expense................................................................... 3,284,052 2,929,534
------------ ------------
Operating income................................................................. 1,469,471 1,479,099
Selling, general and administrative expense........................................... 385,426 228,776
Depreciation and amortization expense................................................. 232,508 135,153
Interest expense (income)............................................................. (171,490) (140,967)
------------ ------------
Income before income taxes............................................................ 1,023,027 1,256,137
------------ ------------
Provision for income taxes:
Current............................................................................. 335,800 446,089
Deferred............................................................................ -- 5,422
------------ ------------
335,800 451,511
------------ ------------
Net income....................................................................... $ 687,227 $ 804,626
------------ ------------
------------ ------------
Primary net income per share.......................................................... $ 0.04 $ 0.05
------------ ------------
------------ ------------
Weighted average number of shares
outstanding used in primary calculation............................................. 15,310,496 15,616,908
------------ ------------
------------ ------------
Fully diluted net income per share.................................................... $ 0.04 $ 0.05
------------ ------------
------------ ------------
Weighted average number of shares
outstanding used in fully diluted calculation....................................... 15,310,496 15,616,908
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flow from operating activities:
Net income....................................................................... $ 687,227 $ 804,626
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization expense......................................... 232,508 135,153
Insurance in lieu of cash..................................................... 146,513 --
Changes in assets and liabilities:
(Increase) decrease in receivables.......................................... (1,356,151) (1,115,402)
(Increase) decrease in other assets......................................... 84,985 (39,110)
Increase (decrease) in accounts payable
and accrued expenses...................................................... (500,200) 415,758
Increase in income taxes payable............................................ -- (73,888)
------------- -------------
Net cash provided by (used in) operations..................................... (705,118) 127,137
------------- -------------
Cash flow from investing activities:
Receivables acquired in acquisitions.............................................. (596,657) (361,886)
Origination of notes receivable................................................... (382,248) (5,200,000)
Principal collections of notes receivable......................................... 1,104,387 2,000,000
Deferred costs-contract acquisitions.............................................. (135,409) 943
Purchase of property and equipment................................................ 18,373 (7,496)
Client lists...................................................................... (409,641) (117,706)
Other assets...................................................................... 10,879 (10,879)
------------- -------------
Net cash used in investing activities......................................... (390,316) (3,697,024)
------------- -------------
Cash flow from financing activities:
Initial public offering costs..................................................... -- (7,370)
Payments of short term debt....................................................... (155,033) --
------------- -------------
Net cash used in financing activities......................................... (155,033) (7,370)
------------- -------------
Net decrease in cash.......................................................... ($ 1,250,467) ($ 3,577,257)
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net decrease in cash.............................................................. ($1,250,467) ($3,577,257)
Cash balance, beginning balance..................................................... 2,882,035 6,580,223
------------- -------------
Cash balance, ending balance........................................................ $ 1,631,568 $ 3,002,966
------------- -------------
------------- -------------
Supplemental data:
Cash paid for income taxes......................................................... $ 230,000 $ 513,128
------------- -------------
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Cash paid for interest............................................................. $ 1,973 $ 4,716
------------- -------------
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Non-cash items:
Stock issued for contract acquisitions............................................ $ 264,996 $ 2,450,000
------------- -------------
------------- -------------
Short term debt issued in lieu of insurance....................................... $ 78,000 $ --
------------- -------------
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</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited statements of National Medical Financial Services
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial information. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three month and six
month periods ended June 30, 1997 are not necessarily indicative of the results
of operations that may be expected for the year ending December 31, 1997.
2. ACCOUNTS RECEIVABLE:
Accounts receivables consisted of the following at June 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accounts receivable--billed................................................ $ 3,097,848 $ 1,740,908
Accounts receivable--unbilled.............................................. 1,189,543 592,886
Miscellaneous receivable................................................... 4,510 5,299
------------ ------------
Total...................................................................... $ 4,291,901 $ 2,339,093
------------ ------------
------------ ------------
</TABLE>
3. NOTES RECEIVABLE:
On May 1, 1996, the Company entered into a transaction with First United
Equities Corporation ("First United"), a broker-dealer registered with the
Securities and Exchange Commission. First United is the principal market maker
in the Company's Common Stock. Pursuant to the transaction, the Company loaned
$5,200,000 through a series of advances evidenced by a promissory note bearing
interest at 10%. Such note was due and payable on demand with seven days notice.
The note was collateralized by the guarantees of the principals of First United.
On May 29, 1996, First United repaid $2,000,000 to the Company. Effective
October 1, 1996, the remaining balance on the note and accrued interest was
satisfied through the establishment of an unsecured note due from Russell Data
Services, Inc., a Nevada corporation ("Russell Data"), which was then owned by
the Company's Chairman and principal stockholder (the "Chairman") in the amount
of $3,344,174. The note bears interest at 10% and establishes a payment schedule
of $1,000,000 each at January 15, April 15 and July 15, 1997 plus accrued
interest thereon with the remaining balance and interest thereon due on
September 15, 1997. On February 10, 1997, the Company received $1,104,786 in
principal and accrued interest from Russell Data in accordance with the payment
schedule. The April 15 and July 15 payments have not yet been paid. Effective
April 1, 1997, Russell Data was acquired by Equi-Med, Inc., a Delaware
corporation ("EquiMed"), a publicly-traded company of which the Chairman is the
Chairman, President, Chief Executive Officer and principal stockholder.
7
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS, (CONTINUED)
3. NOTES RECEIVABLE, CONTINUED
On May 23, 1997, the Company loaned $250,000, evidenced by a promissory
note, to EquiMed Pakistan (Private) Limited, a Pakistan company ("EquiMed
Pakistan"), which is a wholly-owned subsidiary of EquiMed. The promissory note
bears interest at 12% and is scheduled to be repaid on September 22, 1997.
4. CONTRACT ACQUISITIONS:
On March 1, 1997, the Company acquired a contract to provide billing and
collection services to certain medical service providers in Rhode Island. The
total consideration paid was $164,998, consisting of $100,000 in cash and 14,444
shares of Common Stock valued at $4.50 per share. In accordance with the
purchase agreement, the Company placed these shares into escrow. Fewer shares
will ultimately be released if certain revenue levels are not maintained.
On March 1, 1997, the Company acquired a contract to provide billing and
collection services to certain medical service providers in the Cleveland, Ohio
area. The total consideration paid was $499,998, consisting of $300,000 in cash
and 44,444 shares of Common Stock valued at $4.50 per share. In accordance with
the purchase agreement, the Company placed these shares into escrow. Fewer
shares will ultimately be released if certain revenue levels are not maintained.
5. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Client lists.......................................................... $ 6,132,546 $5,457,911
Software license...................................................... 700,000 700,000
------------ ------------
6,832,546 6,157,911
Less accumulated amortization......................................... (609,275) (377,514)
------------ ------------
$ 6,223,271 $5,780,397
------------ ------------
------------ ------------
</TABLE>
6. COMMON STOCK:
On February 4, 1997, the Board of Directors of the Company authorized a two
for one stock split and a corresponding increase in the number of authorized
shares of the Company to 40,000,000 shares pursuant to Section 78.207 of the
Nevada General Corporation Law (the "Stock Split"). The stockholders of record
as of February 17, 1997 (the "Record Date") received one additional share of the
Company's common stock for each share of common stock held of record as of the
Record Date. The Stock Split was distributed on February 24, 1997 and all stock
related data in the financial statements reflects the Stock Split for all
periods presented.
On June 30, 1997, in accordance with the Stock Option Plan for Non-Employee
Directors, each of the three eligible directors were automatically granted stock
options to purchase 50,000 shares of Common Stock at an exercise price of $2.75
per share, the fair market value on that date.
8
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS, (CONTINUED)
7. PROSPECTIVE ACCOUNTING CHANGES:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997, and earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented. The Company is currently evaluating the impact, if any, that the
adoption of SFAS No. 128 will have on its financial statements.
8. OTHER MATTERS:
The contracts to provide billing, collection and accounts receivable
management services, as well as certain accounting services, to certain medical
service providers which are owned by, controlled by, or affiliated with the
Chairman are scheduled to expire in September 1997. The Company is in the
process of negotiating with these medical service providers terms under which
the Company will continue to provide services to these entities. There can be no
assurances that the Company will reach agreements with these entities or that
such agreements, if reached, will be on terms as favorable to the Company as the
existing contracts. Failure to successfully renegotiate these contracts could
have a material adverse effect on the Company's results of operations.
9. SUBSEQUENT EVENTS:
On July 1, 1997, the Company granted non-qualified stock options to acquire
500 shares of Common Stock to a consultant of the Company. In addition, the
Company granted incentive stock options to acquire 25,000 shares of Common Stock
to the Company's Vice President, Chief Financial Officer, Secretary and
Treasurer. Both grants were awarded at an exercise price of $2.7188 per share,
the fair market value at the time of the grant, in accordance with the Stock
Option Plan. The Company cancelled non-qualified stock options to acquire 20,000
shares of Common Stock which were previously granted to a consultant.
In order to maintain a competitive compensation package to retain the
current officers and directors of the Company, the Company repriced the stock
options previously granted to those individuals at an exercise price of $2.7188
per share, the fair market value on July 1, 1997.
On August 1, 1997, the Company acquired twelve contracts to provide
billing and collection services to certain medical service providers in
Arizona. The total consideration paid was $1,800,000, consisting of $600,000
in cash, 384,000 shares of Common Stock valued at $1.5625 per share and
promissory notes in the aggregate amount of $600,000. In accordance with the
purchase agreement, the Company placed the shares into escrow. The Common
Stock and promissory notes will be subject to total or partial forfeiture if
certain revenue levels are not maintained.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended December 31, 1996.
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
Some of the information presented in this report constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results of
operations or the results of the Company's marketing and acquisition activities
and will not differ materially from its expectations. Factors which could cause
actual results to differ from expectations include, among others, uncertainty as
to whether the Company's marketing activities will result in an expansion of its
client base or lead to additional acquisitions of contracts and entities,
uncertainties related to state and federal governmental regulation of the
Company's business, uncertainties related to the demand for the services
provided by the Company, uncertainties related to the renewal of the client
contracts of medical service providers owned by, controlled by or affiliated
with the Chairman, and the uncertainty of whether the combination of operating
cash flows, the proceeds of the Company's initial public offering and repayment
of the note receivable will be sufficient to fund the Company's growth and
operations over the next twelve months. Specific reference is made to risks and
uncertainties described in the Company's Registration Statement on Form S-3 and
Registration No. 333-11381.
RESULTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Total revenues for the quarters ended June 30, 1997 and 1996 were
$2,370,723 and $2,273,872, respectively, an increase of approximately 4.3%.
Approximately 47.0% of the 1997 revenues, as compared to 51.4% of the 1996
revenues, were derived from the Company's contracts with medical service
providers owned by, controlled by, or affiliated with the Chairman. The
acquisitions made by the Company during the first, second and third quarters of
1996 and first quarter of 1997 are the primary reasons for the increased
revenues. Revenues earned for the quarter ended June 30, 1997 consisted of
$2,196,247, or 92.6% of revenues, for billing and collection services, $132,064,
or 5.6% of revenues, for accounting services, and $42,422, or 1.8% of revenues,
for late charges and consulting services. Revenues earned for the quarter ended
June 30, 1996 consisted of $2,076,477, or 91.3% of revenues, for billing and
collection services, and $144,039, or 6.3% of revenues, for accounting services,
and $53,356, or 2.4% of revenues, for late charges and consulting services. The
percentage of revenues attributable to billing and collection services as
compared to accounting services has increased as the Company has acquired
additional contracts which provide only for billing and collection services.
During the quarters ended June 30, 1997 and 1996, the Company incurred
subcontract expenses in the amount of $1,629,818 and $1,549,584, respectively,
for services rendered. Substantially all of these costs for both periods
incurred were to Russell Data. The Company reported operating income of
$740,915, income before taxes of $471,058, net income of
10
<PAGE>
$316,258 and primary earnings per share of $0.02 for the quarter ended June
30, 1997. The Company reported operating income of $724,288, income before
taxes of $553,744, net income of $373,955 and primary earnings per share of
$0.02 for the quarter ended June 30, 1996. The reasons for the decreases in
income before taxes and net income for the quarter ended June 30, 1997 as
compared to the same period of 1996 were due to increases in selling, general
and administrative expenses, particularly professional fees and insurance
expense, and depreciation and amortization expense, particularly amortization
related to acquisition costs of client contracts.
The Company incurred selling, general and administrative expenses of
$232,584 and $183,667 for the quarters ended June 30, 1997 and 1996,
respectively. The expenses for 1997 consisted primarily of professional fees
and insurance expense, while the expenses for 1996 consisted primarily of
salaries and related employee benefits and professional fees.
The Company's effective tax rate was 32.8% and 38.2% for the quarters ended
June 30, 1997 and 1996, respectively.
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Total revenues for the six month periods ended June 30, 1997 and 1996 were
$4,753,523 and $4,408,633, respectively, an increase of approximately 7.8%.
Approximately 47.1% of the 1997 revenues, as compared to 52.2% of the 1996
revenues, were derived from the Company's contracts with medical service
providers owned by, controlled by, or affiliated with the Chairman. The
acquisitions made by the Company during the first, second and third quarters of
1996 and first quarter of 1997 are the primary reasons for the increased
revenues. Revenues earned for the six month period ended June 30, 1997
consisted of $4,420,500, or 93.0% of revenues, for billing and collection
services, $271,002, or 5.7% of revenues, for accounting services, and $62,021,
or 1.3% of revenues, for late charges and consulting services. Revenues earned
for the six month period ended June 30, 1996 consisted of $3,904,496, or 88.6%
of revenues, for billing and collection services, and $282,062, or 6.4% of
revenues, for accounting services, and $222,075, or 5.0% of revenues, for late
charges and consulting services. The percentage of revenues attributable to
billing and collection services as compared to accounting services has increased
as the Company has acquired additional contracts which provide only for billing
and collection services.
During the six month periods ended June 30, 1997 and 1996, the Company
incurred subcontract expenses in the amount of $3,284,052 and $2,929,534,
respectively, for services rendered. Substantially all of these costs for both
periods incurred were to Russell Data. The Company reported operating income of
$1,469,471, income before taxes of $1,023,027, net income of $687,227 and
primary earnings per share of $0.04 for the six month period ended June 30,
1997. The Company reported operating income of $1,479,099, income before taxes
of $1,256,137, net income of $804,626 and primary earnings per share of $0.05
for the six month period ended June 30, 1996. The reasons for the decreases in
operating income, income before taxes and net income for the six month period
ended June 30, 1997, as compared to the same period of 1996, were due to a
reduction in late fees and consulting income, and increases in selling, general
and administrative expenses, particularly professional fees and insurance
expense, and depreciation and amortization expense, particularly amortization
related to acquisition costs of client contracts.
11
<PAGE>
The Company incurred selling, general and administrative expenses of
$385,426 and $228,776 for the six month periods ended June 30, 1997 and 1996,
respectively. The expenses for 1997 consisted primarily of professional fees
and insurance expense, while the expenses for 1996 consisted primarily of
salaries and related employee benefits and professional fees.
The Company's effective tax rate was 32.8% and 38.2% for the six month
periods ended June 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 and 1996, the Company had cash and cash equivalents of
$1,631,568 and $3,002,996, respectively. The balance at June 30, 1996 primarily
consisted of proceeds from the Company's initial public offering.
The Company realized net income from operations of $316,258 and $373,955
for the three months ended June 30, 1997 and 1996, respectively, and $687,227
and $804,626 for the six months ended June 30, 1997 and 1996, respectively.
During the six month periods ended June 30, 1997 and 1996, the Company had net
cash provided from (used in) operations of ($705,118) and $127,137,
respectively. The Company had net cash used in investing activities of $390,316
and $3,697,024 for the six months ended June 30, 1997 and 1996, respectively.
The Company used net cash in financing activities of $155,033 and $7,370 for the
six months ended June 30, 1997 and 1996, respectively.
On February 13, 1996, the Company acquired the accounts receivable and
client contracts from Doctors Medical Billing Services, A Limited Liability
Corporation. The client contracts related to this acquisition provide billing
and collection services to approximately 25 medical service providers in the Las
Vegas, Nevada area. The total consideration paid for this acquisition was
$1,800,000, consisting of $150,000 in cash and 388,236 shares of Common Stock
valued at $4.25 per share. In accordance with the purchase agreement, the
Company placed these shares into escrow. Fewer shares will ultimately be
released from escrow if certain revenue levels are not maintained.
On April 1, 1996, the Company acquired the accounts receivable and client
contracts from National Medical Services, Inc. The client contracts related to
this acquisition provide billing and collection services to approximately 19
medical service providers in the Las Vegas, Nevada area. The total
consideration paid for this acquisition was $550,000, consisting of $250,000 in
cash and 60,000 shares of Common Stock valued at $5.00 per share. In accordance
with the purchase agreement, the Company placed these shares into escrow. Fewer
shares will ultimately be released if certain revenue levels are not maintained.
On August 1, 1996, the Company acquired from Rapier Investments, Ltd. seven
additional contracts to provide billing, collection and accounts receivable
management services to certain medical service providers in Massachusetts and
New Hampshire. The total consideration paid was $945,000, consisting of
$750,000 in cash and 42,740 shares of Common Stock valued at $4.56 per share.
In accordance with the purchase agreement, the Company placed these shares into
escrow. Fewer shares will ultimately be released if certain revenue levels are
not maintained.
On March 1, 1997, the Company acquired a contract to provide billing and
collection services to certain medical service providers in Rhode Island.
The total consideration paid was $164,998, consisting of $100,000 in cash and
14,444 shares of Common Stock valued at $4.50
12
<PAGE>
per share. In accordance with the purchase agreement, the Company placed
these shares into escrow. Fewer shares will ultimately be released if
certain revenue levels are not maintained.
On March 1, 1997, the Company acquired a contract to provide billing and
collection services to certain medical service providers in the Cleveland, Ohio
area. The total consideration paid was $499,998, consisting of $300,000 in cash
and 44,444 shares of Common Stock valued at $4.50 per share. In accordance with
the purchase agreement, the Company placed these shares into escrow. Fewer
shares will ultimately be released if certain revenue levels are not maintained.
On August 1, 1997, the Company acquired twelve contracts to provide billing
and collection services to certain medical service providers in Arizona. The
total consideration paid was $1,800,000, consisting of $600,000 in cash, 384,000
shares of Common Stock valued at $1.5625 per share and promissory notes in the
aggregate amount of $600,000. In accordance with the purchase agreement, the
Company placed the shares into escrow. The Common Stock and promissory notes
will be subject to total or partial forfeiture if certain revenue levels are not
maintained.
On May 1, 1996, the Company entered into a transaction with First United, a
broker-dealer registered with the Securities and Exchange Commission. First
United is the principal market maker in the Company's common stock. Pursuant to
the transaction, the Company loaned $5,200,000 in a series of advances evidenced
by a promissory note bearing interest at 10%. Such note was due and payable on
demand with seven days notice. The note was collateralized by the guarantees of
the principals of First United. On May 29, 1996, First United repaid $2,000,000
to the Company. Effective October 1, 1996, the remaining balance on the note
and accrued interest was satisfied through the establishment of an unsecured
note due from Russell Data in the amount of $3,344,174. The note bears interest
at 10% and establishes a payment schedule which will result in the balance being
paid in full by September 15, 1997. On February 10, 1996, the Company received
$1,104,786 of principal and accrued interest from Russell Data representing the
first in the series of scheduled payments. The April 15 and July 15 payments
have not yet been made.
On May 23, 1997, the Company loaned $250,000, evidenced by a promissory
note, to EquiMed Pakistan which bears interest at 12% and is scheduled to be
repaid on September 22, 1997.
As of June 30, 1997, certain medical service providers which are owned by,
controlled by, or affiliated with the Chairman, owed the Company approximately
$2.1 million in fees for services. Since December 31, 1996, an additional
$2,238,000 has been billed to these entities, and the Company has received
approximately $486,000 related to the amounts. As of June 30, 1997,
approximately $1,293,000 has been prepaid to Russell Data.
The contracts to provide billing, collection and accounts receivable
management services, as well as certain accounting services, to certain medical
service providers which are owned by, controlled by, or affiliated with the
Chairman are scheduled to expire in September 1997. The Company is in the
process of negotiating with these medical service providers terms under which
the Company will continue to provide to these entities. There can be no
assurances that the Company will reach agreements with these entities or that
such agreements, if reached, will be on terms as favorable to the Company as the
existing contracts. Failure to successfully renegotiate these contracts could
have a material adverse effect on the Company's results of operations.
The Company's principal sources of liquidity are anticipated to be cash
flows from operations, repayment of notes and the remaining proceeds from its
initial public offering. The
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Company expects to fund future acquisitions of contracts and future acquisitions
of businesses by a combination of funds available through the cash from
operations, proceeds from the initial public offering, repayment of the note
receivable and issuance of Common Stock and promissory notes. A similar funding
strategy is anticipated to be used in its future business growth. The Company
anticipates that cash flow from operations, the proceeds of the initial public
offering and repayment of the note receivable will be adequate to fund its
operations for the next twelve months, although there can be no assurance to
that effect.
PROSPECTIVE ACCOUNTING CHANGES:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997, earlier application is not permitted.
This Statement requires restatement of all prior-period EPS data presented. The
Company is currently evaluating the impact, if any, that the adoption of SFAS
No. 128 will have on its financial statements.
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PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
(No response required)
Item 2: CHANGES IN SECURITIES
(No response required)
Item 3: DEFAULTS UPON SENIOR SECURITIES
(No response required)
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 30, 1997. At
the Annual Meeting, Douglas R. Colkitt, M.D., Robert M. Colkitt and Richard L.
Flickinger were re-elected as Class I directors receiving votes representing 81%
of the Company's 15,015,316 shares of Common Stock outstanding and 100% of the
votes cast at the meeting.
Item 5: OTHER INFORMATION
On August 1, 1997, the Company acquired twelve contracts to provide billing
and collection services to certain medical service providers in Arizona. The
total consideration paid was $1,800,000, consisting of $600,000 in cash, 384,000
shares of Common Stock valued at $1.5625 per share and promissory notes in the
aggregate amount of $600,000. In accordance with the purchase agreement, the
Company placed the shares into escrow. The Common Stock and promissory notes
will be subject to total or partial forfeiture if certain revenue levels are not
maintained.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.13 Contracts Rights Purchase Agreement dated
August 1, 1997 by and between the Company
and Medical Billing Services of Arizona, Inc.
10.14 Form of Escrow Agreement dated August 1,
1997 by and between the Company, Medical
Billing Services of Arizona, Inc. and
Vacovec, Mayotte & Singer.
10.15 Exclusive Services Provider Agreement
dated August 1, 1997 by and between the
Company and Medical Billing Services of
Arizona, Inc.
11.1 Statement Regarding Computation of Per Share Earnings
(Three Months).
11.2 Statement Regarding Computation of Per Share Earnings
(Six Months).
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27.1 Financial Data Schedule.
b. Forms 8-K
1. No reports on Form 8-K were filed during the quarter
for which this report is filed.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
-----------------------------------------------
(Registrant)
By: /s/ Robert W. Horner, Jr.
-----------------------------
Robert W. Horner, Jr., Vice President,
Chief Financial Officer, Secretary
and Treasurer
Signing on behalf of the Registrant
and as Principal Accounting Officer
Date: May 13, 1997
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Exhibit 10.13
CONTRACT RIGHTS PURCHASE AGREEMENT
This Contract Rights Purchase Agreement is made as of August 1, 1997 by
and between Medical Billing Services of Arizona, Inc., a Delaware corporation
("Seller"), and National Medical Financial Services Corporation, a Nevada
corporation ("Purchaser").
WITNESSETH:
1. Sale of Contract Rights; Assumption of Certain Liabilities.
1.1 Sale of Contract Rights. On the terms and for the
consideration hereinafter stated, Seller hereby unconditionally and
irrevocably sells, conveys, transfers and assigns to Purchaser all of
Seller's rights (except Seller's rights to compensation with respect to
payments collected before October 1, 1997) pursuant to the contracts listed
on Exhibit A hereto (the "Contracts"). Such assigned rights are referred to
herein as the "Contract Rights".
1.2 Disclaimer. Purchaser acknowledges that it has been advised
that (a) Seller acquired its rights pursuant to the Contracts (the "Rights")
by assignment from Desert Health Resources, Inc., an Arizona corporation
("DHR"), and Seller has assumed all obligations of DHR expressly set forth in
writing in the Contracts with respect to billing or collecting fees for
medical services on or after August 1, 1997 (the "Assumption") other than
obligations which DHR was obliged to pay, perform or discharge prior to
August 1, 1997; (b) DHR did not obtain the consent of the other parties to
the Contracts to the Assumption or to DHR's assignment of the Rights to
Seller; and (c) Seller has not obtained the consent of any such other party
to Seller's assignment of the Contract Rights to Purchaser or Purchaser's
assumption of the Assumed Obligations (as defined in Section 1.3). Seller is
selling, conveying, transferring and assigning the Contract Rights to
Purchaser "as is", without any warranty of title express or implied.
1.3 Assumption of Liabilities. Purchaser hereby assumes the
obligations of DHR expressly set forth in writing in the Contracts (other
than obligations which DHR was obliged to perform, pay or discharge prior to
the date of this Agreement) with respect to billing or collecting fees for
medical services on or after the date of this Agreement (the "Assumed
Obligations"). Seller will not interfere with NMFSC's performance of the
Assumed Obligations. It is expressly acknowledged and agreed that Purchaser
is not assuming any obligation or liability of Seller or DHR other than the
Assumed Obligations.
1.4 Grant of Security Interest. To the extent that the Uniform
Commercial Code - Secured Transactions applies to Seller's sale of the
Contract Rights to Purchaser, Seller hereby grants a security interest in the
Contract Rights to Purchaser to secure the performance of all of Seller's
obligations under this Agreement.
<PAGE>
2. Amount, Payment and Escrow of Consideration.
2.1 Amount and Payment. In full consideration of Seller's sale,
conveyance, transfer and assignment of the Contract Rights, Purchaser will
(a) pay to Seller on August 1, 1997 the sum of Six Hundred
Thousand Dollars (US$600,000) by check made payable to Seller or by wire
transfer to a bank account designed by Seller;
(b) issue and deliver to Seller, at the office of the Escrow
Agent (as defined in Section 2.2), on or before August 15, 1997 a stock
certificate representing 384,000 duly and validly issued, fully paid and
nonassessable shares of Purchaser's Common Stock, par value $.01 per share,
subject to equitable adjustment for any stock split, stock dividend, reverse
stock split or other capital reorganization with respect to Purchaser's
Common Stock between the date of this Agreement and the date on which such
shares are issued (the "Shares"), free and clear of all liens, encumbrances
and restrictions on transfer except restrictions on transfer under federal or
state securities laws;
(c) issue, execute and deliver to Seller on the date of this
Agreement a promissory note in the principal amount of Two Hundred Fifty
Thousand Dollars (US$250,000) in the form of Exhibit B hereto (the "First
Note");
(d) if the Annual Revenues (as defined in the Escrow Agreement
referred to in Section 2.2) exceed Eight Hundred Fifty Thousand Dollars
(US$850,000) issue, execute and deliver to Seller on or before December 1,
1998 a promissory note (the "Second Promissory Note") substantially in the
form of Exhibit C hereto in the principal amount (the "Principal Amount")
equal to 112.5 % of the remainder of (i) Three Hundred Fifty Thousand Dollars
(US$350,000) minus (ii) the amount, if any, of the Foregone Principal (as
determined pursuant to Section 2.3); and
(e) pay to Seller on or before October 31, 1998, by check made
payable to Seller or by wire transfer to a bank account designated by Seller,
the remainder of (i) the Annual Revenues (as defined in the Escrow Agreement
referred to in Section 2.2) minus (b) One Million Eight Hundred Thousand
Dollars (US$1,800,000).
The First Promissory Note and the Second Promissory Note are referred to
herein collectively as the "Notes".
2.2 Escrow. Simultaneously with the execution and delivery of this
Agreement, Purchaser and Seller are executing and delivering an Escrow
Agreement substantially in the form attached hereto as Exhibit D (the "Escrow
Agreement"). Upon delivery by Purchaser to Seller of a certificate or
certificates representing Shares pursuant
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to Section 2.1 of this Agreement, Seller will immediately deliver to the
escrow agent named in the Escrow Agreement (the "Escrow Agent") all stock
certificates representing Shares, duly indorsed in blank or with duly signed
blank stock transfer powers attached and in either case with such assurance
that Seller's indorsement is genuine and effective (including but not limited
to a guarantee of the signature of the person indorsing on behalf of Seller
and appropriate evidence of the authority of such person to sign on behalf of
Seller) as Purchaser may reasonably require, to be held by the Escrow Agent
in accordance with the Escrow Agreement, and will promptly provide notice to
Purchaser certifying such delivery.
2.3 Second Promissory Note. On or before October 31, 1998,
Purchaser will determine, and will give notice to Seller of its determination
of, the amount of the Annual Revenues. If Purchaser notifies Seller that the
Annual Revenues were more than $850,000, Seller will give notice to Purchaser
on or before November 20, 1998 of the amount of the Foregone Principal.
Seller may determine the amount of the Foregone Principal in its sole
discretion, provided that such amount must be (a) less than or equal to
$350,000 and greater than or equal to $0.00, (b) greater than or equal to the
remainder of $1,200,000 minus the amount of the Annual Revenues and (c) less
than or equal to the remainder of $1,800,000 minus the amount of the Annual
Revenues; and provided further that if the Annual Revenues were $1,800,000 or
more, the Foregone Principal shall be $0.00. Seller's determination in
accordance with this Section 2.3 of the amount of the Foregone Principal
shall be binding upon Purchaser. Purchaser's determination of the amount of
the Annual Revenues shall not be binding unless accepted by Seller. If
Purchaser fails to deliver a duly issued and executed Second Promissory Note
to Seller in accordance with Section 2.1(d) on or before December 1, 1998,
the Principal Amount shall automatically become due and payable in full by
Purchaser to Seller on December 1, 1998 and shall bear interest at the rate
of 1.5% per month and Seller may, in addition to any other remedy available
to Seller, (a) direct any party to any of the Contracts to pay to Seller any
amounts payable by such party pursuant to any Contract and (b) retain any
such payment received by Seller as a set-off against any unpaid portion of
the Principal Amount or interest accrued thereon.
2.4 Exclusive Services Provider Agreement. Simultaneously with the
execution and delivery of this Agreement, Purchaser and Seller are executing
and delivering an Exclusive Services Provider Agreement substantially in the
form attached hereto as Exhibit E (the "ESP Agreement").
2.5 Preservation of Annual Revenues. Purchaser will perform all of
the Assumed Obligations with utmost care and diligence and in utmost good
faith until October 1, 1998. Purchaser will not terminate any of the
Contracts prior to October 1, 1998 or amend or waive any provision of any of
the Contracts with respect to, or take any other action that would reasonably
be expected to reduce, the Annual Revenues without Seller's prior written
consent. Purchaser will use its best efforts to collect promptly all
3
<PAGE>
fees payable to Purchaser prior to October 1, 1998 pursuant to Seller's
assignment of the Contract Rights to Purchaser.
3. Representations and Warranties of Seller.
Seller hereby represents and warrants to Purchaser as follows:
3.1 Seller's Existence, Power and Authority. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Seller has the power to own its property and
to carry on its business as now being conducted. Seller has the power to
execute and deliver this Agreement, the ESP Agreement and the Escrow
Agreement and consummate the transactions contemplated hereby and thereby and
has taken all action required by law or otherwise to authorize such execution
and delivery and consummation of transactions.
3.2 Validity of Agreement. Each of this Agreement, the ESP
Agreement and the Escrow Agreement constitutes the valid and binding
obligation of Seller, enforceable in accordance with its respective terms
(except as enforceability may be restricted, limited, or delayed by
bankruptcy, insolvency, moratorium or similar laws affecting or relating to
the enforcement of creditors' rights in general and except as the
enforceability is subject to general principles of equity, regardless of
whether enforceability is considered in a proceeding at law or in equity).
Neither the execution and delivery by Seller of this Agreement, the ESP
Agreement or the Escrow Agreement nor the consummation by Seller of the
transactions contemplated hereby or thereby (a) violates or will violate any
provision of law or any rule, regulation or order of any court or
governmental agency, (b) violates or will violate, or conflicts with or will
conflict with, or constitutes a default under or will constitute a default
under, any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Seller is a party or by which Seller is
bound (except the Contracts, as to which no representation is made) or (c)
requires any filing by Seller with, or any approval, consent, authorization
or other action with respect to Seller by, any governmental body. This
Agreement, the ESP Agreement and the Escrow Agreement have been duly executed
and delivered by Seller.
3.3 The Contracts. Seller has delivered a true and correct copy of
each of the Contracts to Purchaser.
3.4 Compliance with Laws. Seller is in compliance in all material
respects with all laws, regulations, rules and decrees of all governmental
authorities applicable to Seller.
3.5 Litigation. There is no litigation, action, suit, proceeding
or governmental investigation pending or (to the best of Seller's knowledge)
threatened against Seller or affecting Seller or its business or any of its
assets, at law or in equity or
4
<PAGE>
before any federal, state, municipal, local or other governmental authority,
or before any arbitrator. Seller is not subject to any order, writ or decree
of any court or other governmental authority.
3.6 Solvency. Seller is not insolvent.
3.7 No Finders or Brokers. Seller has not engaged any finder or
broker in connection with the transactions contemplated hereby. Seller will
indemnify and hold Purchaser harmless against claims (and attorneys' fees and
expenses in the defense thereof) of any person or entity for finder's fees,
broker's fees, brokerage commissions, sales commissions or the like alleged
in connection with the transactions contemplated hereby due to acts of Seller.
3.8 Disclosure. No representation or warranty by Seller in this
Agreement, the ESP Agreement or the Escrow Agreement or any document
furnished or to be furnished to Purchaser pursuant to this Agreement contains
or will contain any materially untrue statement or omits or will omit to
state a fact necessary in order to make the statements contained herein or
therein not misleading.
3.9 Bulk Sales. Seller will hold Purchaser harmless from any and
all liability, damages or attorneys' fees suffered or incurred by Purchaser
resulting from any failure by Seller to comply with any applicable bulk sales
law relating to the transactions contemplated hereby.
3.10 Investment Representations.
(a) Seller will make no disposition of the Shares except as
provided in Sections 2.2 and 3.10(d) hereof.
(b) Seller is acquiring the Shares for itself for its own
account and not for any other person, without a view to the distribution of
all or any part of the Shares. Seller has been advised in writing by
Purchaser that the Shares have not been registered under the Securities Act
of 1933, as amended (the "Act"), and, therefore, cannot be resold unless they
are registered under the Act or unless an exemption from registration is
available.
(c) Seller is an entity in which all of the equity owners are
(i) a natural person whose individual net worth, or joint net worth with that
person's spouse, exceeds US$1,000,000 or (ii) a natural person who had an
individual income in excess of US$200,000 in each of the two most recent
years or joint income with that person's spouse in excess of US$300,000 in
each of those years and has a reasonable expectation of reaching the same
income level in the current year. Seller has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and
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<PAGE>
risks of its purchase of the Shares. Seller acknowledges receipt of
Purchaser's definitive proxy statement filed with the Securities and Exchange
Commission in connection with Purchaser's 1997 annual meeting of
stockholders, Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-KSB for the fiscal year ended December 31,
1996 and Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-QSB for the quarter ended March 31, 1997.
(d) Except as provided in Section 2.2, Seller will not offer,
sell, pledge, transfer or otherwise dispose of all or any of the Shares, or
solicit any offer to buy, purchase or otherwise acquire or take a pledge of
any Shares, except in the manner and to the extent described (i) in a
registration statement in effect under the Act covering the Shares and as to
which a prospectus meeting the requirements of the Act is available for
delivery, (ii) in an opinion of counsel to Seller reasonably acceptable to
Purchaser, whose opinion is in form and substance satisfactory to counsel for
Purchaser, to the effect that the proposed offer, sale, pledge, transfer or
other disposition of the Shares may be made without registration and
availability of a prospectus meeting the requirements of the Act or (iii) in
a writing by Seller to the Securities and Exchange Commission, which writing
neither contains any untrue statement nor omits to state any facts necessary
to make the statements made not misleading and with respect to which writing
Seller has received a "no action letter" from the staff of the Securities and
Exchange Commission to the effect that the staff will not recommend that the
Securities and Exchange Commission take any action in connection with the
disposition, offer or solicitation described in such writing.
(e) The offer and sale of the Shares to Seller was made solely
in The Commonwealth of Massachusetts.
(f) All certificates representing the Shares will bear a
legend, in form and substance designated by counsel to the Purchaser,
referring to the investment commitment contained herein, to the effect that
the Shares have not been registered under the Act and stating that no
transfer of the Shares may be made unless the Shares are registered under the
Act or an exemption from such registration is available.
(g) Seller understands that the Shares will not become freely
transferable by reason of any "change of circumstances" whatever, such as
changes in Purchaser, general stock market or economic conditions, or
Seller's financial position. Accordingly, Seller understands that the Shares
will constitute an illiquid investment.
(h) Seller accepts the condition that Purchaser or its
transfer agent(s) will maintain "stop transfer orders" with respect to the
Shares.
4. Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller as follows:
6
<PAGE>
4.1 Organization and Standing of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has full corporate power and authority to
conduct its business as now being conducted.
4.2 Authority. Purchaser has corporate power to execute and
deliver this Agreement, the Escrow Agreement, the Notes and the ESP Agreement
and consummate the transactions contemplated hereby and thereby and has taken
all action required by law, its Articles of Incorporation, its By-Laws or
otherwise to authorize or ratify such execution and delivery and consummation
of transactions.
4.3 No Finders or Brokers. Purchaser has not engaged any finder or
broker in connection with the transactions contemplated hereby. Purchaser
will indemnify and hold Seller harmless against claims (and attorneys' fees
and expenses in the defense thereof) of any person or entity for finder's
fees, broker's fees, brokerage commissions, sales commissions or the like
alleged in connection with the transactions contemplated hereby due to acts
of Purchaser.
4.4 Validity of Agreements. Each of this Agreement, the Notes, the
ESP Agreement and the Escrow Agreement constitutes the valid and binding
obligation of Purchaser and is binding against Purchaser, enforceable in
accordance with its respective terms (except as enforceability may be
restricted, limited, or delayed by bankruptcy, insolvency, moratorium or
similar laws affecting or relating to the enforcement of creditors' rights in
general and except as the enforceability is subject to general principles of
equity, regardless of whether enforceability is considered in a proceeding at
law or in equity). Neither the execution and delivery by Purchaser of this
Agreement, the Escrow Agreement, the Notes or the ESP Agreement nor the
consummation by Purchaser of the transactions contemplated hereby or thereby
(a) violates or will violate any provision of law or any rule, regulation or
order of any court or governmental agency, (b) violates or will violate, or
conflicts with or will conflict with, or constitutes a default under or will
constitute a default under, any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which Purchaser is a
party or by which Purchaser is bound or (c) requires any filing by Purchaser
with, or any approval, consent, authorization or other actions with respect
to Purchaser by, any governmental body. This Agreement, the Escrow
Agreement, the Notes and the ESP Agreement have been duly executed and
delivered by Purchaser.
4.5 Compliance with Laws. Purchaser is in compliance in all
material respects with all laws, regulations, rules and decrees of all
governmental authorities applicable to Purchaser.
4.6 Litigation. There is no litigation, action, suit, proceeding
or governmental investigation pending or (to the best of Purchaser's
knowledge) threatened
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<PAGE>
against Purchaser or affecting Purchaser or its business or any of its
assets, at law or in equity or before any federal, state, municipal, local or
other governmental authority, or before any arbitrator, nor does Purchaser
known of any reasonable basis for any such litigation, action, suit,
proceeding or investigation. Purchaser is not subject to any order, writ or
decree of any court or other governmental authority.
5. Covenants of Seller.
5.1 Revenue Warranty. Seller covenants that the Annual Revenues
will be not less than US$850,000.
5.2 Preservation of Contract Revenues. Seller will perform all
obligations (other than the Assumed Obligations) required by the Contracts to
be performed by Seller with utmost care and diligence and in utmost good
faith. Seller will not terminate or amend any of the Contracts, or waive any
term or condition of any of the Contracts, without the prior written consent
of Purchaser. Seller will not assign or delegate any of its obligations
pursuant to the Contracts (other than the delegation of the Assumed
Obligations pursuant to this Agreement) without the prior written consent of
Purchaser, and Seller will immediately terminate any such assignment or
delegation of obligations upon written notice by Purchaser revoking any
consent given by Purchaser pursuant to this Section 5.2.
5.3 Noncompetition. For a period of three years after the date of
this Agreement, neither Seller nor any person or entity directly or
indirectly controlling Seller as of the date of this Agreement nor any person
then directly or indirectly controlled by Seller will, without the consent of
Purchaser, directly or indirectly through any other person or entity furnish
any billing, collection or accounts receivable management services, or have
any interest in any entity that furnishes any of such services, to any party
(other than DHR or Seller) to any of the Contracts with respect to fees for
medical services performed on or after the date of this Agreement; provided,
however, that the foregoing covenant shall automatically terminate upon the
expiration or termination of the ESP Agreement.
5.4 Notice of Assignment. Upon request by Purchaser, Seller will
give written notice, in form and substance approved by Purchaser, to each
party to each of the Contracts of the assignment of the Contract Rights to
Purchaser and, except as otherwise authorized in Section 2.3, either of the
Notes or the ESP Agreement, directing such party to pay to Purchaser all
amounts payable by such party pursuant to such Contract with respect to
payments for medical services collected after September 30, 1997. In the
event that Seller receives any payment, the right to which was assigned to
Purchaser in this Agreement, Seller will, except as otherwise authorized in
Section 2.3, either of the Notes or the ESP Agreement, promptly deliver to
Purchaser such payment and all endorsements or instruments of transfer
necessary or appropriate to transfer such payment to Purchaser.
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6. Indemnification. Seller will indemnify, defend and hold harmless
Purchaser from and against:
(a) all liabilities of Seller (other than the Assumed
Obligations) and all liabilities arising out of any act
or omission of Seller;
(b) any and all losses, damages, costs or deficiencies
resulting from any and all misrepresentations or
breaches of warranty or failures to perform agreements
or undertakings by Seller contained in or made pursuant
to this Agreement or the Escrow Agreement or in other
documents executed by Seller in connection with this
Agreement; and
(c) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses
(including, without limitation, attorneys' fees,
interest, penalties and amounts paid in settlement of
any such claim) relating to any of the foregoing.
Seller shall pay to Purchaser all amounts owed to Purchaser pursuant to this
Section 6 within thirty (30) days after written demand therefor. In the event
that any third person shall assert any claim or action in excess of $1,000
against Purchaser which, if successful, might result in a claim for indemnity
hereunder, Purchaser shall notify Seller, in writing, of such claim or
action, and Seller may, at its sole expense, assume control over the defense
of such claim or action, but in any event Purchaser shall have the right to
participate in the defense of any such claim or action. If, after notice
thereof, Seller shall not assume the defense of, or if after so assuming such
defense it shall fail to continue to defend, any such claim or action,
Purchaser may defend any such claim or action and Purchaser may then settle
or compromise such claim or action on terms it deems reasonable. Seller
shall promptly satisfy and pay any final judgment rendered with respect to
any such claim or action or any compromise or settlement thereof and shall
pay the reasonable expenses, legal or otherwise, of Purchaser in the defense
of any such claim or action.
7. Miscellaneous.
7.1 Notices. All notices, demands and other communications
hereunder ("Notices") shall be written and shall be deemed to have been duly
given if delivered in person, mailed in the country in which the addressee is
located (registered or certified mail, postage prepaid, return receipt
requested), sent via an internationally recognized courier service or sent by
cable, telex, facsimile transmission or other electronic means of written
communication and confirmed in a writing sent by the close of business on the
next following business day via an internationally recognized courier service
as follows:
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To Purchaser: National Medical Financial
Services Corporation
1315 Greg Street, Suite 103
Sparks, Nevada 89431
Attention: President
To Seller: Medical Billing Services of Arizona, Inc.
925 West Kathleen Road
Phoenix, Arizona 85023
Attention: Christopher J. Asterino, President
with a copy to: Ian M. Starr, Esquire
One International Place, 15th Floor
Boston, Massachusetts 02110-2699
or to such other address as Purchaser or Seller may designate by notice to
the other, except that Notices of change of address shall only be effective
upon receipt.
7.2 Entire Agreement. This Agreement and the other agreements,
instruments and documents delivered pursuant hereto constitute the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersede all prior and contemporaneous agreements, understandings,
letters of intent, negotiations and discussions, whether written or oral, of
the parties, and there are no representations, warranties or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be
bound thereby.
7.3 Governing Law; Jurisdiction. This Agreement shall be governed
by, and construed and enforced in accordance with, the law of the State of
Nevada, without regard to its conflicts-of-law rules. Service of process by
Purchaser in connection with any action brought to enforce this Agreement
shall be binding on Seller if sent to Seller in accordance with the notice
provisions contained in this Agreement.
7.4 Section Headings. The section headings herein are for
reference only and shall not limit or control the meaning of any provision of
this Agreement.
7.5 Waiver. No delay or omission on the part of either party
hereto in exercising any right hereunder shall operate as a waiver of such
right or any other right under this Agreement.
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7.6 Assignment. Purchaser shall not assign any of Purchaser' s
obligations under this Agreement without the prior written consent of Seller.
7.7 Binding on Successors and Assigns. Subject to Section 7.6,
this Agreement shall inure to the benefit of and bind the respective
successors and assigns of the parties hereto.
7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
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In witness whereof, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MEDICAL BILLING SERVICES OF ARIZONA, INC.
By: /s/ Christopher J. Asterino
--------------------------------------
President:
NATIONAL MEDICAL FINANCIAL SERVICES
CORPORATION
By: /s/ Douglas R. Colkitt, M.D.
--------------------------------------
President:
<PAGE>
Exhibit 10.14
ESCROW AGREEMENT
This Escrow Agreement is made and entered into as of August 1, 1997 by
and among Medical Billing Services of Arizona, Inc., a corporation organized
under the laws of the State of Delaware ("MBS-NV"), National Medical
Financial Services Corporation, a Nevada corporation ("NMFSC"), and Vacovec,
Mayotte & Singer (the "Escrow Agent").
Whereas, MBS-NV and NMFSC are entering into a Contract Rights
Purchase Agreement of even date herewith (the "Agreement")
simultaneously with the execution and delivery of this Escrow
Agreement;
Whereas, the Agreement provides that NMFSC may issue and deliver
to MBS-NV on or before August 15, 1997 a stock certificate representing
384,000 shares of NMFSC Common Stock, par value $.01 per share, subject
to equitable adjustment for any stock split, stock dividend, reverse
stock split or other capital reorganization with respect to such Common
Stock between the date of the Agreement and the date on which such
shares are issued (the "Shares "); and
Whereas, the Agreement provides that MBS-NV will deliver
immediately all stock certificates representing the Shares to the
Escrow Agent to be held by the Escrow Agent in accordance with the
terms of this Escrow Agreement.
Now, therefore, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Deposit of the Shares. Upon delivery by NMFSC to MBS-NV of a
stock certificate or certificates representing the Shares, MBS-NV will
immediately deliver to the Escrow Agent all stock certificates
representing the Shares, duly indorsed in blank or with duly signed
blank stock transfer powers attached, in either case with such
assurance that MBS-NV's indorsement is genuine and effective as NMFSC
may require pursuant to Section 2.2 of the Agreement. The Escrow Agent
shall promptly thereafter give notice to NMFSC confirming the deposit
hereunder of such stock certificate or certificates, specifying the
certificate number(s) and the aggregate number of Shares represented by
such certificate or certificates. If MBS-NV does not deposit any stock
certificates with the Escrow Agent hereunder on or before September 15,
1997, this Escrow Agreement shall automatically terminate.
2. Acceptance of the Stock Certificates. The Escrow Agent shall
hold the stock certificates (and any accompanying stock transfer
powers) in escrow hereunder subject to the terms and conditions of this
Escrow Agreement. The Escrow Agent shall not transfer or dispose of
the Shares except in accordance with the provisions of this Escrow
Agreement.
<PAGE>
3. Delivery and Deposit of Additional Shares. MBS-NV hereby
irrevocably authorizes NMFSC to deliver to the Escrow Agent, and MBS-NV
covenants that it will promptly deliver to the Escrow Agent if MBS-NV
shall first receive the same, any certificate or certificates
representing additional or other shares of capital stock distributed
on, in respect of or in substitution for the Shares in the event of any
stock dividend, stock split, reverse stock split or other capital
reorganization with respect to Shares held in escrow hereunder. Such
additional or other stock certificates shall be held in escrow under
the terms and conditions set forth in this Escrow Agreement as if they
were originally deposited with the Escrow Agent by MBS-NV at the time
that MBS-NV delivered the stock certificate or certificates
representing the Shares.
4. Voting. The right to vote the Shares shall remain in MBS-NV
unless and until such Shares are transferred to NMFSC in accordance
with the terms of this Escrow Agreement.
5. Dividends and Distributions. MBS-NV hereby irrevocably
authorizes NMFSC to deliver to the Escrow Agent, and MBS-NV covenants
that it will promptly deliver to the Escrow Agent if MBS-NV shall first
receive the same, to be held hereunder all dividends and other
distributions on or with respect to Shares held in escrow hereunder.
6. Disposition of the Shares.
(a) On or before October 31, 1998, NMFSC will determine, and
will give notice to MBS-NV and the Escrow Agent of its determination
of, the amount of fees (net of refunds and net of a reasonable reserve
for future refunds as determined by NMFSC in good faith) collected by
or for the account of NMFSC from October 1, 1997 through
September 30, 1998 pursuant to MBS-NV's assignment of the Contract
Rights (as defined in the Agreement) to NMFSC (the "Annual Revenues").
If NMFSC notifies the Escrow Agent that the Annual Revenues were
US$1,800,000 or more, the Escrow Agent shall promptly deliver to MBS-NV
all of the Shares and all other property then held by the Escrow Agent
hereunder (and if the Escrow Agent shall have caused any such other
property to be registered in its name, the Escrow Agent shall promptly
transfer record ownership to MBS-NV). If NMFSC notifies the Escrow
Agent that the Annual Revenues were US$850,000 or less, the Escrow
Agent shall, subject to the provisions of Section 6(b), promptly
deliver to NMFSC all of the Shares, with a stock transfer power or
other indorsement assigning the Shares to NMFSC duly completed by the
Escrow Agent as attorney-in-fact for MBS-NV pursuant to Section 7, and
all other property then held by the Escrow Agent hereunder (and if the
Escrow Agent shall have caused any such other property to be registered
in its name, the Escrow Agent shall promptly transfer record ownership
to NMFSC). If NMFSC notifies the Escrow Agent that the Annual Revenues
were less than US$1,800,000 but more than US$850,000, NMFSC shall
include in its notice to the Escrow Agent (and MBS-NV) a statement of
the number of Earned Shares (as defined below). The Escrow Agent shall
promptly thereafter deliver to MBS-NV (i) stock
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certificates representing a number of Shares equal to the number of Earned
Shares and (ii) all dividends or other distributions distributed on, in
respect of or in substitution for the Earned Shares (and all earnings on such
distributions) held by the Escrow Agent hereunder; and the Escrow Agent
shall, subject to the provisions of Section 6(b), promptly deliver to NMFSC
stock certificates representing all Shares other than the Earned Shares (the
"Unearned Shares") and all dividends or other distributions distributed on,
in respect of or in substitution for the Unearned Shares (and all earnings on
such distributions) held by the Escrow Agent hereunder; in each case with
appropriate transfers of record ownership as provided in the second and third
preceding sentences. The number of Earned Shares shall be the number of
whole Shares determined by dividing the remainder equal to (a) the remainder
of (i) the Annual Revenues as determined by NMFSC minus (ii) US$850,000 minus
(b) the remainder of (i) US$350,000 minus (ii) the amount of the Foregone
Principal (as defined in the Agreement), if any, by the stipulated
representative closing price of NMFSC Common Stock, which is hereby
stipulated to be US$1.5625 (the "Closing Price"); provided that the Closing
Price shall be equitably adjusted in the event of any stock split, stock
dividend, reverse stock split or other capital reorganization with respect to
NMFSC Common Stock between the date of the Agreement and the date on which
the Escrow Agent delivers the Earned Shares to MBS-NV. For purposes of this
Section 6(a), earnings on property held by the Escrow Agent hereunder shall
be attributed to distributions on Earned Shares and Unearned Shares,
respectively, in the same ratio as Earned Shares bear to Unearned Shares.
(b) Notwithstanding any other provision of this Escrow
Agreement, if MBS-NV gives notice to the Escrow Agent within thirty
(30) days of the date on which NMFSC gives to the Escrow Agent notice
of its determination of the amount of the Annual Revenues and/or the
number of Earned Shares to the effect that MBS-NV disputes NMFSC's
determination thereof, the Escrow Agent shall promptly send a copy of
such notice to NMFSC and the Escrow Agent shall not deliver any
property held by it hereunder to NMFSC until directed in writing to do
so by MBS-NV or until ordered to do so by final judgment not subject to
further appeal of a court of competent jurisdiction. The Escrow Agent
shall have no duty to determine the accuracy of any determination or
notice furnished to it pursuant to this Agreement.
(c) For purposes of Section 6(a) all compensation collected
by NMFSC or any subsidiary or other affiliate of NMFSC for (i)
providing any billing, collection or accounts receivable management
service to any party to any of the Contracts (as defined in the
Agreement) or any affiliate of any such party or (ii) conveying any
interest in any of the Contract Rights shall be deemed fees collected
by or for the account of NMFSC pursuant to MBS-NV's assignment of the
Contract Rights.
7. Power of Attorney. MBS-NV does hereby revocably constitute
and appoint the Escrow Agent as its attorney-in-fact to execute all
stock transfer powers, assignments and other documents necessary or
appropriate to effect any transfer or delivery of the
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<PAGE>
Shares, or portion thereof, or any other property held by the Escrow
Agent hereunder, in accordance with this Agreement.
8. Termination. Unless earlier terminated as provided in
Section 1 of this Agreement or as hereinafter provided, this Escrow
Agreement shall expire on the first date after September 15, 1997 on
which no Shares or other property are held by the Escrow Agent
hereunder. This Escrow Agreement may be terminated prior to such
expiration date (a) by joint written notice by MBS-NV and NMFSC to the
Escrow Agent, in which case the Escrow Agent shall deliver all property
held by it hereunder in accordance with the joint written instructions
of MBS-NV and NMFSC, or (b) by the Escrow Agent, upon thirty (30) days
prior written notice to MBS-NV and NMFSC, whereupon MBS-NV and NMFSC
will use their best efforts to agree upon a successor Escrow Agent
before the effective date of the termination, in which case the Escrow
Agent shall deliver all property held by it hereunder to the successor
Escrow Agent jointly designated by MBS-NV and NMFSC, or, if MBS-NV and
NMFSC fail to agree upon a successor Escrow Agent within thirty (30)
days after such notice, the Escrow Agent shall be entitled to appoint
its successor and deliver all property held by it hereunder to such
successor.
9. Fees and Expenses. As compensation for its services
hereunder, the Escrow Agent shall receive a fee (the "Escrow Fee") of
$300.00, payable by NMFSC, upon execution of this Escrow Agreement.
Thereafter the Escrow Agent shall be jointly and severally indemnified
by MBS-NV and NMFSC (i) against any out-of-pocket expenses incurred by
the Escrow Agent and (ii) for services provided by its partners and
employees at their usual rates in performing its duties hereunder, and
the party (i.e., MBS-NV or NMFSC) making any such indemnification
payment or any payment pursuant to Section 16 shall be entitled to
contribution of 50% of such payment from the other party.
10. Limitation of Liability. The Escrow Agent shall incur no
liability in respect of any action taken or suffered by it in reliance
upon any notice, direction, instruction, consent, statement or other
paper or document believed by it to be genuine and duly authorized nor
for anything except its own willful misconduct or gross negligence. In
all questions arising out of this Escrow Agreement, the Escrow Agent
may rely on the advice of counsel (including partners and employees of
the Escrow Agent), and for anything done, omitted or suffered in good
faith by the Escrow Agent based on such advice the Escrow Agent shall
not he liable to anyone. The Escrow Agent shall not be required to
take any action hereunder involving any expense unless the payment of
such expense shall be made or provided for in a manner satisfactory to
it. The duties and obligations of the Escrow Agent hereunder shall be
governed solely by the provisions of this Escrow Agreement, and the
Escrow Agent shall have no duties other than the duties expressly
imposed herein and shall not be required to take any action other then
in accordance with the terms hereof.
11. Notices. All notices, requests, demands, and other
communications hereunder ("Notices") shall be in writing and shall be
deemed to have been duly given if
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<PAGE>
delivered, mailed in the country in which the addressee is located
(registered or certified mail, postage prepaid, return receipt requested),
sent via an internationally recognized courier service or sent by cable,
telex, facsimile transmission or other electronic means of written
communication and confirmed in a writing sent by the close of business on the
next following business day via an internationally recognized courier service
as follows:
If to the Escrow Agent:
Vacovec, Mayotte & Singer
255 Washington Street
Suite 340
Newton, Massachusetts 02158
Attention: Stephen P. Koster, Esquire
If to MBS-NV:
Medical Billing Services of Arizona, Inc.
3100 West Sahara Avenue
Suite 209
Las Vegas, Nevada 89102
Attention: President
Copy to:
Ian M. Starr, Esquire
One International Place, 15th Floor
Boston, Massachusetts 02110-2699
If to NMFSC:
National Medical Financial Services Corporation
1315 Greg Street, Suite 103
Sparks, Nevada 89431
Attention: President
or to such other address as any party may have furnished to the others
in writing in accordance herewith, except that Notices of change of
address shall only be effective upon receipt.
12. Governing Law. This Escrow Agreement shall be governed by
and construed in accordance with the law of The Commonwealth of
Massachusetts.
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<PAGE>
13. Benefit. This Escrow Agreement shall be binding upon and
inure to the benefit of the legal representatives, successors and
assigns of the parties hereto.
14. Scope of Agreement. This document constitutes the entire
agreement among the parties concerning its subject matter, and no
representation, condition, understanding or agreement of any kind shall
be binding upon the parties unless incorporated herein. This Escrow
Agreement may not be modified or amended except by an agreement in
writing signed by the party against whom the enforcement of any
modification or change is sought and the Escrow Agent.
15. Indemnification. MBS-NV and NMFSC jointly and severally
shall indemnify and hold harmless the Escrow Agent from and against any
loss, liability, cost or expense incurred by the Escrow Agent and
arising out of the performance or nonperformance of its duties
hereunder (including but not limited to any loss, liability, cost or
expense arising out of any claim or legal action brought against it
arising out of its services hereunder), except to the extent that there
is a final determination by a court of competent jurisdiction that such
loss, liability, cost or expense resulted solely from willful
misconduct or gross negligence of the Escrow Agent.
16. Investments. Any amount of cash held by the Escrow Agent at
any time in excess of US$1,000 shall, to the extent practicable, be
invested in United States government securities, money market mutual
funds or an interest paying savings account in a commercial bank in the
United States.
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<PAGE>
In witness whereof, the parties have executed this Escrow
Agreement under seal as of the day, month and year first above written.
MEDICAL BILLING SERVICES OF ARIZONA, INC.
By:
--------------------------
President:
NATIONAL MEDICAL FINANCIAL SERVICES
CORPORATION
By:
---------------------------
President:
VACOVEC, MAYOTTE & SINGER
By:
---------------------------
Partner
7
<PAGE>
Exhibit 10.15
EXCLUSIVE SERVICES PROVIDER AGREEMENT
This Exclusive Services Provider Agreement is made as of August 1, 1997,
by and between Medical Billing Services of Arizona, Inc., a Delaware
corporation ("MBSN"), and National Medical Financial Services Corporation, a
Nevada corporation ("NMFSC").
Whereas, NMFSC has assumed the obligations of Desert Health Resources,
Inc. ("DHR") with respect to billing and collecting fees for medical services
on or after August 1, 1997 expressly set forth in writing in the contracts
listed on Exhibit A hereto (the "Contracts") other than obligations which DHR
was obliged to perform, pay or discharge prior to August 1, 1997 (the
"Contracted Services");
Whereas, NMFSC desires to retain MBSN to provide the Contracted Services
to the clients designated in the respective Contracts (the "Clients"); and
Whereas, MBSN is willing to provide the Contracted Services on the terms
and subject to the conditions set forth in this Agreement;
Now, therefore, MBSN and NMFSC agree as follows:
1. Billing, Collection and Accounts Receivable Management Services.
1.1 MBSN Services. MBSN will provide the Contracted Services
specified in each of the Contracts to the Client identified in such Contract.
1.2 Exclusivity. NMFSC will not authorize any other entity or
person to provide, and NMFSC will not provide, any of the Contracted Services
to any Client without MBSN's prior written consent.
1.3 Client Data. NMFSC hereby assigns to MBSN all of NMFSC's
rights pursuant to the Contracts to use for the purposes contemplated by this
Agreement any billing data, patient data, insurance data or other data or
information furnished or to be furnished by or on behalf of any Client
("Billing Data"). NMFSC hereby assigns to MBSN all representations,
warranties and covenants of each Client contained in the Contracts with
respect to such Client's Billing Data. NMFSC will promptly deliver to MBSN
all Billing Data in NMFSC's custody or control, and NMFSC will, upon request
by MBSN, direct any Client to deliver to MBSN any Billing Data that such
Client is required to deliver to DHR pursuant to such Client's Contract.
<PAGE>
1.4 Contracts. NMFSC will not, without MBSN's prior written
consent, amend, or waive any provision of, any Contract or assign any
interest in any of NMFSC's rights pursuant to the Contracts to payment for
rendering any of the Contracted Services.
2. Client Obligations. MBSN's obligation to provide Contracted
Services to any Client is subject to the condition that such Client perform
all obligations of such Client contained in such Client's Contract in
accordance with the terms and conditions of such Contract. NMFSC will take
all actions reasonably requested by MBSN to compel the Clients to perform
their obligations in accordance with their respective Contracts.
3. Compensation of MBSN.
3.1 Estimated Payment. NMFSC will pay to MBSN in advance (the
"Estimated Payment") (a) for October 1997 on or before October 1, 1997 the
sum of $105,000 and (b) for each subsequent calendar month during the term of
this Agreement on or before the first business day of each such month an
amount equal to seventy percent (70%) of the amount of fees (net of refunds)
collected by or for the account of NMFSC during the preceding calendar month
for Contracted Services.
3.2 Reconciliation. If the product (the "Product") of (a) seventy
percent (70%) times (b) the amount of fees (net of refunds) collected by or
for the account of NMFSC during any calendar month during the term of this
Agreement for Contracted Services is greater than the Estimated Payment paid
for such month, NMFSC will pay to MBSN the remainder of (i) such Product
minus (ii) such Estimated Payment on or before the fifteenth day of the
following month. If the Product for any such month is less than the
Estimated Payment paid for such month, MBSN will refund to NMFSC the
remainder of (a) such Estimated Payment minus (b) such Product on or before
the fifteenth day of the following month. Sums payable pursuant to this
Section 3.2 shall be subject to a late payment fee of one percent (1%) per
month or the highest legal rate, whichever is lower.
3.3 Breach. In the event NMFSC is more than thirty (30) days late
in paying any amount payable pursuant to Section 3.1 or Section 3.2, MBSN may
cease providing Contracted Services in addition to any other remedy available
to MBSN for such breach.
4. Collection and Disposition of Client Fees. NMFSC authorizes MBSN to
collect for NMFSC's account, and NMFSC will upon request by MBSN direct each
Client to pay to MBSN for NMFSC's account, all fees payable after September
30, 1997 by such Client for Contracted Services pursuant to such Client's
Contract (the "Client Fees"). MBSN will deliver to NMFSC all Client Fees
received by MBSN during October 1997 or any subsequent calendar month during
the term of this Agreement on or before the third business day following the
later of (a) the last day of such month and (b) the date on which MBSN
receives payment in full of the Estimated Payment for the following month.
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5. Taxes. NMFSC agrees to pay any taxes, duties or other assessments
resulting from this Agreement or MBSN's provision of Contracted Services
under this Agreement, including sales, use, ad valorem, business privilege or
similar taxes, except taxes based on MBSN's net income or business privilege
taxes based on transaction of business by MBSN, unless NMFSC furnishes MBSN
with a valid tax exemption certificate. If required by appropriate taxing
authorities, MBSN will collect such taxes from NMFSC. MBSN agrees to give
prompt notice to NMFSC if it receives a formal notice that such taxes are
due, and NMFSC agrees to reimburse MBSN in full if MBSN must make the payment
for any such taxes, including without limitation all penalties and interest.
6. Warranty Disclaimer; Limitation of Remedy; Exclusion and Limitation
of Liability.
6.1 Warranty; Disclaimer of Warranty. MBSN will perform the
Contracted Services with reasonable skill and diligence and in a commercially
reasonable manner. MBSN makes no other warranty with respect to the
Contracted Services to be provided hereunder. ALL WARRANTIES, INCLUDING BUT
NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AND WARRANTIES ARISING FROM COURSE OF DEALINGS OR USAGE OF
TRADE ARE HEREBY EXCLUDED. MBSN does not warrant the amount of collections
that will be achieved based on Contracted Services to be provided hereunder.
6.2 Limitation of Remedy. In the event that MBSN fails to perform,
in conformance with the provisions of this Agreement, any service required to
be provided by MBSN pursuant to this Agreement, NMFSC's exclusive remedy
(except as provided in Section 7.1) for such non-performance or other breach
by MBSn will be that NMFSC may require MBSN to promptly provide such service
in conformance with the provisions of this Agreement; provided, however, that
if such exclusive remedy fails of its essential purpose NMFSC may recover
damages caused by such breach subject to the limitations set forth in Section
6.3 of this Agreement.
6.3 Exclusion and Limitation of Liabilities. MBSN will have no
liability for consequential, incidental or punitive damages in any action
arising out of this Agreement or any service to be provided by MBSN pursuant
to this Agreement, including but not limited to actions for breach of
contract or in tort. If MBSN fails to perform, in conformance with the
provisions of this Agreement, any service that MBSN is required to provide
pursuant to this Agreement, MBSN's liability for damages for such breach will
be limited to the direct damages (excluding loss of profit) actually
resulting to NMFSC from such breach.
7. Termination.
7.1 Termination. Either party may terminate this Agreement
by written notice in the event that the other party breaches any
obligation of such party pursuant to this
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Agreement and such breach is not cured within thirty (30) days after notice
of such breach is given to such other party.
7.2 Return of Materials. Upon the termination of this Agreement
MBSN will promptly return, at NMFSC's expense, all copies of documents, data,
computer tapes and other materials containing Billing Data to NMFSC and
destroy, erase, delete, or otherwise render unusable all cards, tapes, floppy
disks and any other storage medium containing Billing Data.
8. Material Changes. In the event of a significant change in any
insurance, tax, third party reimbursement or other law, regulation, policy or
procedure that materially and adversely affects the feasibility or cost of
MBSN's provision of services pursuant to this Agreement, MBSN may terminate
this Agreement upon sixty (60) days prior notice.
9. Justifiable Delay and Non-Performance. Neither party will be liable
for any failure to perform or delay in performing any obligation of such
party pursuant to this Agreement resulting from any cause beyond the
reasonable control of the non-performing or delaying party, including, but
not limited to, computer malfunction or breakdown. In the event of a delay
in performance due to any such cause, the time for performance will be
extended for a period reasonably necessary to overcome the effect of such
cause.
10. Right to Audit Client Fees.
10.1 Audit by MBSN. MBSN may, at MBSN's expense, on one occasion
during any calendar year have an independent accountant conduct, upon not
less than five (5) business days prior notice to NMFSC and during normal
business hours, an audit of the fees collected by NMFSC for Contracted
Services. MBSN will maintain, and will cause such independent accountant to
agree with NMFSC in writing to maintain, the confidentiality of all
information obtained by such independent accountant in the course of any such
audit.
10.2 Audit by NMFSC. NMFSC may, at NMFSC's expense, on any
reasonable time or times during the term of the Agreement, have an
independent accountant conduct, upon not less than five (5) business days
prior notice to MBSN and during normal business hours, an audit of the Client
Fees collected by MBSN for NMFSC's account pursuant to this Agreement. NMFSC
will maintain, and will cause such independent accountant to agree with MSBN
in writing to maintain, the confidentiality of all information obtained by
such independent accountant in the course of any such audit.
11. Right of First Refusal. If NMFSC or any subsidiary or other
affiliate of NMFSC (the "Offeror") enters into any agreement or other
arrangement with any Client or an affiliate of any Client (other than the
Contracts) during the term of this Agreement pursuant to which the Offeror is
to be compensated for providing any billing, collection or accounts
receivable management services, the Offeror will offer MBSN the option to
provide such services on the
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terms (including but not limited to terms as to compensation of MBSN) and
conditions set forth in this Agreement with respect to MBSN's provision of
the Contracted Services.
12. Arbitration. Any controversy or dispute between NMFSC and MBSN
relating to this Agreement will be finally settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association held in Las Vegas, Nevada. Judgment upon any award made in any
such arbitration may be entered and enforced in any court of competent
jurisdiction.
13. No Publicity. Neither party will disclose the existence or terms of
this Agreement without the prior written consent of the other party, except
to any permitted assignee, permitted delegatee or affiliate of such party or
to any governmental or other regulatory agency to the extent required by
applicable law or regulation.
14. Notice. All notices, demands and other communications hereunder
("Notices") shall be written and shall be deemed to have been duly given if
delivered in person, mailed in the country in which the addressee is located
(registered or certified mail, postage prepaid, return receipt requested),
sent via an internationally recognized courier service or sent by cable,
telex, facsimile transmission or other electronic means of written
communication and confirmed in a writing sent by the close of business on the
next following business day via an internationally recognized courier service
as follows:
To NMFSC: National Medical Financial
Services Corporation
1315 Greg Street, Suite 103
Sparks, Nevada 89431
Attention: President
To MBSN: Medical Billing Services of Arizona, Inc.
925 West Kathleen Road
Phoenix, Arizona 85023
Attention: Christopher J. Asterino, President
or to such other address as NMFSC or MBSN may designate by notice to the
other, except that Notices of change of address shall only be effective upon
receipt.
15. Independent Contractor. MBSN is acting as an independent contractor
with respect to all matters arising out of its performance under this
Agreement, and will not be considered an agent, partner, joint venturer or
"affiliated services group" with or for NMFSC.
16. Nonsolicitation. NMFSC acknowledges that MBSN has made a
significant investment in the development of its business, including the
training of its employees. Therefore, during the term of this Agreement and
for one (1) year thereafter, NMFSC agrees
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<PAGE>
not to directly or indirectly solicit or employ any MBSN employee without the
prior written consent of MBSN.
17. Assignment. NMFSC may not assign or delegate any of its rights or
obligations pursuant to this Agreement without the prior written consent of
MBSN. Any or all of MBSN's rights and obligations under this Agreement may
be assigned or delegated by it in its sole discretion.
18. Governing Law. This Agreement will be governed by the law of the
State of Nevada, without regard to its choice of law provisions.
19. Miscellaneous.
19.1 This Agreement embodies the entire understanding and agreement
of the parties with respect to the subject matter hereof and may not be
altered or modified in any manner except by a written agreement signed by
both parties.
19.2 No delay or omission on the part of either party in exercising
any right hereunder shall operate as a waiver of such right or any other
right of such party, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion.
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In witness whereof, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MEDICAL BILLING SERVICES OF ARIZONA, INC.
By:/s/ Christopher J. Asterino
-------------------------------
President
NATIONAL MEDICAL FINANCIAL SERVICES
CORPORATION
By:/s/ Douglas R. Colkitt, M.D.
-------------------------------
President
7
<PAGE>
Exhibit 11.1
Computation of Per Share Earnings
For the Three Month Periods Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
Average shares outstanding.................................................. 15,015,316 14,913,688
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price.......................................... -- 870,900
------------ ------------
Total....................................................................... 15,015,316 15,784,588
------------ ------------
------------ ------------
Net income.................................................................. $ 316,258 $ 373,955
------------ ------------
------------ ------------
Primary net income per share................................................ $ 0.02 $ 0.02
------------ ------------
------------ ------------
FULLY DILUTED NET INCOME PER SHARE
Average shares outstanding.................................................. 15,015,316 14,913,688
Net effect of dilutive stock options and
warrants based on the treasury stock
method using ending market price........................................... -- 870,900
------------ ------------
Total....................................................................... 15,015,316 15,784,588
------------ ------------
------------ ------------
Net income.................................................................. $ 316,258 $ 373,955
------------ ------------
------------ ------------
Fully diluted net income per share.......................................... $ 0.02 $ 0.02
------------ ------------
------------ ------------
</TABLE>
<PAGE>
Exhibit 11.2
Computation of Per Share Earnings
For the Six Month Periods Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
Average shares outstanding.................................................. 14,996,121 14,791,962
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price.......................................... 314,480 824,946
------------ ------------
Total....................................................................... 15,310,601 15,616,908
------------ ------------
------------ ------------
Net income.................................................................. $ 687,227 $ 804,626
------------ ------------
------------ ------------
Primary net income per share................................................ $ 0.04 $ 0.05
------------ ------------
------------ ------------
FULLY DILUTED NET INCOME PER SHARE
Average shares outstanding.................................................. 14,996,121 14,791,962
Net effect of dilutive stock options and
warrants based on the treasury stock
method using ending market price........................................... 314,480 824,946
------------ ------------
Total....................................................................... 15,310,601 15,616,908
------------ ------------
------------ ------------
Net income.................................................................. $ 687,227 $ 804,626
------------ ------------
------------ ------------
Fully diluted net income per share.......................................... $ 0.04 $ 0.05
------------ ------------
------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,631,568
<SECURITIES> 0
<RECEIVABLES> 6,998,006
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,777,814
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,926,065
<CURRENT-LIABILITIES> 711,780
<BONDS> 0
0
0
<COMMON> 150,154
<OTHER-SE> 15,064,131
<TOTAL-LIABILITY-AND-EQUITY> 15,926,065
<SALES> 4,753,523
<TOTAL-REVENUES> 4,753,523
<CGS> 0
<TOTAL-COSTS> 3,284,052
<OTHER-EXPENSES> 617,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (171,490)
<INCOME-PRETAX> 1,023,027
<INCOME-TAX> 335,800
<INCOME-CONTINUING> 687,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 687,227
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
