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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 1, 1998
SYSTEMS COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 000-26668 65-0036344
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(State or other jurisdiction (Commission (I.R.S Employer
of incorporation or organization) file Number) Identification No.)
4707 140th Avenue North, Suite 107,Clearwater, Florida 33762
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (813)530-4800
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SYSTEMS COMMUNICATIONS, INC.
Item 3. Bankruptcy or Receivership.
The Company learned on June 8, 1998 that an Involuntary
Petition (the "Petition") was filed on June 1, 1998 against
the Company in the United States Bankruptcy Court for the
Middle District of Florida (Case No. 98-09299-8P7) under
Chapter 7 of the Bankruptcy Act (the "Proceeding") by
certain petitioners (the "Petitioners"). The names of the
Petitioners and the amounts of their alleged claims are set
forth in the following table.
Petitioner Name Amount Claimed
Kenneth D. Lame $212,519
Barry L. Johnson 9,171
Jon T. Lame 2,325
Jack Arthur 26,498
K. Philip Lame 489
Keith A. Krenz 77,442
Kenneth Lame served as a consultant to National Solutions
Corporation ("NSC") from October 31, 1995 to January 17,
1997. NSC is a wholly-owned subsidiary of the Company,
acquired in October 1995. Kenneth Lame was employed as NSC's
President and Chief Executive Officer in January 1997. Part
of Kenneth Lame's assigned duties as the President and Chief
Executive Officer of NSC was development of a business,
operating and marketing plan for NSC's "CHAMPUS software and
data base." Kenneth Lame did not deliver any business,
operating or marketing plans to NSC and NSC terminated the
services of Kenneth Lame in March 1997. The alleged claim of
Kenneth Lame, which is properly against NSC, is disputed by
NSC. Kenneth Lame arranged for NSC to engage the services of
Petitioners Johnson, Jon T. Lame, Arthur and K. Philip Lame
to assist him in development of the business, operating and
marketing plans. The Company believes that it never employed
Kenneth Lame or the Petitioners named in the preceding
sentence and is not indebted to them in any amount.
Furthermore, the Company believes the alleged claims of
Petitioners Arthur, Jon. T. Lame and K. Philip Lame have
been paid in full and the alleged claim of Petitioner
Johnson has been reduced to $4,000.
Kenneth Lame introduced Health Management Technologies, Inc.
("HMT") to the Company which the Company ultimately acquired
and later divested. The Company and Kenneth Lame entered
into a letter agreement dated July 16, 1996 for payment of a
finder's fee to Kenneth Lame for the HMT acquisition. The
Company believes it has satisfied in full all of its
monetary obligations to Kenneth Lame under the letter
agreement. Furthermore, Kenneth Lame has a suit pending
against the Company and its wholly owned subsidiary National
Solutions Corporation in The United States District Court,
District of Utah (case no. 2:97-cv-00292 C) for the claims
which he asserts against the Company in the Petition.
Accordingly, the Company believes Petitioners Kenneth Lame,
Johnson, Jon T. Lame, Arthur and K. Philip Lame are
creditors of NSC, to the extent of provable claims, and not
creditors of the Company.
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Petitioner Krenz was a shareholder of NSC at the time it was
acquired by the Company. As a part of the acquisition
agreement, the Company issued a promissory note to Mr. Krenz
in the amount of $129,070. The Company paid $51,628 of this
note prior to May 1996; but, suspended payments because the
Company discovered the business, assets and prospects of NSC
had been misrepresented. The Company has not received any
correspondence or any demand for payment from Mr. Krenz since
the date it suspended payments to Mr. Krenz.
The Company plans to file a motion to dismiss the Petition
on the grounds that it does not have any outstanding
obligation to five of the six Petitioners and contests its
obligation to the sixth Petitioner. The Company intends to
seek sanctions against the Petitioners and its counsel for
any damages its sustains as a result of the Petition. The
Company believes that the Petitioners have filed the
Petition in bad faith and with malice and that the Petition
contains fraudulent misrepresentations to the Court. The
Company intends to vigorously defend against the Petition.
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Item 5. Other Events
Subsequent to the filing of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, the Company
revised the description of the Company and its business, as
follows:
The Company, a Florida corporation, was incorporated as
Florida One Capital Corporation in 1987 and made an initial
public offering of its common stock in 1988 as a "blank
check" company for the purpose of acquiring other companies.
The Company underwent several corporate name changes from
its inception until 1991 when it changed its name to Systems
Communications, Inc. During 1990 and 1991, the Company
acquired companies engaged in merchandising optical products
and developing residential homes. These acquisitions were
rescinded and Company was inactive from 1991 until August
1994. Beginning in August 1994, the Company acquired a
number of companies engaged in various telecommunications
businesses and businesses engaged in the healthcare cost
containment industry. The following table sets forth the
name of each acquired company, the year of its acquisition
by the Company, the general nature of its business and, if
applicable, year of its disposition by the Company.
Year Year of
Name Acquired Business Disposition
Ameristar 1994 Pay-per-view television 1997 (1)
Telecommunications, services and products
Inc.
Coast Communications, 1994 Installation of pay-per- 1996 (1)
Inc. view television
equipment
LCI Communications, 1995 Switch-less re-seller 1997 (2)
Inc. of long-distance
telephone services
Comstar Network 1995 Switch-less re-seller 1997 (2)
Services, Inc. of long-distance
telephone services
Affiliated 1995 Switch-less re-seller 1997 (2)
Communications, Inc. of long-distance
telephone services
Telcom Network, Inc. 1995 Switch-less re-seller 1997 (3)
("TNI") of long-distance
telephone services
National Solutions 1995 Healthcare cost N/A
Corporation containment services
and products
Health Management 1996 Developer of medical 1997 (1)
Technologies, Inc. management computer
software
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(1) Transaction rescinded.
(2) Business and assets transferred to TNI. The Company is
now a dormant wholly owned subsidiary.
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(3) Business sold. The Company is now a dormant wholly owned
subsidiary.
(4) For a description of the effect of the rescissions and
sales identified in this table, see "Management's Discussion
and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and
the notes thereto appearing in the Company's Annual Report
on form 10-K.
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The principal executive offices of the Company are located at
Suite 107, 4707 140th Avenue North, Clearwater, Florida 33762
and the telephone number at that office is (813) 530-4800.
With the acquisition of NSC in 1995, the Company entered the
healthcare cost containment field. The Company pursued
development, for commercial use, of healthcare management
information systems technology designed to manage healthcare
benefit costs. The Company licensed the systems technology
("CHAMPUS Software") under a Cooperative Research and
Development Agreement ("CRDA") with the U.S. Army. The
CHAMPUS Software is part of the Civilian Health and Medical
Program for the Uniformed Services ("CHAMPUS") program
developed by the U.S. Armed Services. The Company's license
under the CRDA includes the right to use the CHAMPUS
database covering the healthcare claims and treatment
histories of over eighteen million individuals. The Company
has enhanced the CHAMPUS Software, which it has copyrighted
under the name "Continuum", to improve the management and
administration of healthcare benefits by intelligent
application of data analysis with strategies to identify
misapplied expenditures and overpayments. The proprietary
enhancements included in Continuum significantly expanded
its capabilities as a healthcare claims case management,
treatment analysis and data mining tool for use by
commercial users in controlling their healthcare costs. The
Company planned to operate a data center using Continuum and
sell the benefits of the Continuum operating system to the
U.S. automotive industry, other large self-insured
companies, healthcare insurers, PPO's, HMO's, healthcare
benefit plan administrators and large pharmaceutical
companies who the Company believes have a need to analyze
the outcomes of medical treatment regimes and drug
therapies. The Company suspended further development of
Continuum in June 1997, prior to completion of a fully
working and marketable management information operating
system.
The Company does not have any facilities, equipment or
financial resources to pursue further development of the
Continuum operating system and is pursuing potential uses of
the CHAMPUS database in lieu of further development
activities.
The CRDA expires in June 1998 and, unless extended, the
license becomes perpetual and non-exclusive. The Company is
attempting to renew the CRDA on an exclusive basis. The
renewal of the CRDA on an exclusive basis may require the
payment of a fee to the U.S. Army, the amount of which has
not yet been determined and which neither NSC nor the
Company are likely to have at the time of renewal. See
"Licenses and Copyrights."
In 1993 and 1995, respectively, NSC entered into service
agreements with Chrysler Corporation and Ford Motor Company
to audit healthcare claims which had been previously paid.
Both companies have self-insured health programs for their
employees administered by third party administrators.
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The purpose of the audits was to recover payments of claims
which were not covered under their self-insured health
benefit programs. In 1993, the Company entered into a
subcontract agreement with Health Management Services
("HMS"), a healthcare claims management company located in
New York, NY, under which HMS used its own analytical
software to audit these healthcare claims. The Company
received ten to thirty percent of recovered payments and
generally shared half of its receipts from recovered claims
with HMS. Due to a dispute between the Company and HMS, the
subcontract was terminated in May 1997. The Company does not
currently have any agreement with Chrysler Corporation or
Ford Motor Company. The Company's 1993 service agreement
with Chrysler Corporation was terminated in September 1997,
due to performance issues between Chrysler and HMS. The
Company's 1995 service agreement with Ford Motor Company
expired by its terms in March 1997.
In September 1997, the Company entered into an alliance
agreement with HMG Health Care Claims Auditing, Inc.
located in Pittsburg, PA ("HMG") to replace HMS as the
Company's subcontractor for healthcare claims auditing
contracts the Company might obtain in the future. The
Company beleives HMG's proprietary computer software
programs provide a greater range of healthcare cost
containment features and services than those offered by HMS.
These features and services include, among others,
electronic review and reporting of health care claims paid
and on an ongoing basis to identify duplicate, erroneous or
medically inconsistent charges, payments for ineligible
patients and other responsible party liabilities from other
group benefit programs, workers' compensation coverage,
motor vehicle or third party liability coverage, payments
for non-covered services, misapplied deductibles and co-
payments and provider agreement compliance.
The Company was able to negotiate an agreement with Chrysler
Corporation beginning January 1998 to perform pharmaceutical
retrospective analysis and recovery services. As a result
of the Company's uncertain financial condition, however,
Chrysler Corporation and HMG entered into the agreement
directly. Pursuant to the agreement between HMG and Chrysler
Corporation and the alliance agreement between the Company
and HMG, the Company and HMG are to receive a monthly fee of
$4,000 and $12,000, respectively, from Chrysler Corporation
and will share on a 50%-50% basis recovered claims up to an
aggregate of $500,000, each. For the Company and HMG to
realize amounts from recovered claims, Chrysler Corporation
must recover at least $5,000,000 of pharmaceutical claims
paid in error. HMG began performance under the agreement
with Chrysler Corporation in May 1998.
Following suspension of development of Continuum, the
Company redirected its business to focus on the development
of a network of healthcare cost containment companies,
providers of healthcare products and services and third-
party healthcare plan administrators, beginning with HMG,
with an objective of obtaining the right to market a wide
array of non-competing healthcare cost containment services
and products to large, self-insured companies on a fee or
revenue sharing basis. The Company has entered into an
alliance agreement with Haddon National Companies, Inc.
located in Maple Shade, NJ ("HNCI") and anticipates that it
will enter into an alliance will a major pharmaceutical
manufacturer in the near future. The alliance agreement with
HNCI gives the Company the ability to sell and market HNCI's
claims administration and processing services, medical and
surgical cost containment services and Medicare A and B
validation services to large self-insured corporations, third
party administrators, commercial health insures and other
managed healthcare companies. The proposed alliance with a
major pharmaceutical manufacturer contemplates the use of
the CHAMPUS database and Continuum software to enhance the
manufacturer's mathematical models for its disease
management programs and expansion of its existing disease
management programs to include other diseases.
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Market and Marketing-
The market for the products and services offered and
expected to be offered by the Company include large
corporations that self-insure and rely on third-party
administrators to manage their healthcare benefit programs,
the third-party administrators themselves, HMO's, PPO's and
healthcare insurers. Healthcare programs administered by
state and municipal governments also represent potential
clients for the products and services the Company expects to
market. The Company believes that interest in healthcare
cost containment, including recovering payments of
healthcare claims which should not have been made and
prepayment screening of claims, will become increasingly
more important to large corporations, third-party
administrators, HMO's, PPO's and healthcare insurers.
The Company believes that its focus on alliance
relationships and the wide array of healthcare cost
containment products and services currently available via
alliance relationships will provide the Company with the
ability to generate profitable operations in the future.
Competition-
The Company is not aware of any other organizations which
are marketing the services of multiple providers of
healthcare cost containment and case management products and
services. The Company believes its primary competition is
the providers of such services with whom the Company does
not have a marketing agreement or affiliation. The Company
believes that this field is fragmented, with many companies
providing healthcare claims auditing and prepayment claims
screening services.
Licenses and Copyrights-
On June 2, 1994 before acquisition by the Company, NSC
entered into the CRDA with the U.S. Army. Under the
original CRDA, NSC has an irrevocable, perpetual license to
use the CHAMPUS Software and CHAMPUS database to perform
evaluation, analysis and recovery of benefit payments
involving the healthcare benefit programs of the U.S.
automotive industry and their down-line vendors, including
indemnity claims, coordinated benefits and workers
compensation claims, and to perform in-depth studies of the
U.S. automobile industry's healthcare benefit programs
("field of use"). The original CRDA expired in June 1997
and was extended for an additional one-year period,
beginning June 18, 1997. The extension of the CRDA also gave
NSC the ability, with the prior approval of the U.S. Army,
to use the CHAMPUS Software and CHAMPUS databases to analyze
the healthcare benefits of companies outside of the U.S.
automotive industry. NSC has not made such a request and
has no reason to believe a request, if made, would be
denied. The license to use the CHAMPUS Software and CHAMPUS
database will convert to a non-exclusive, perpetual license,
unless the CRDA is further extended on an exclusive basis
by the mutual consent of the parties. The Company is attempting
to renew the CRDA on an exclusive basis. NSC may be required
to pay a fee for the extension, the amount of which has not
been determined. NSC and the Company do not currently have
the resources to pay an extension fee. NSC is not required
to turn over to the U.S. Army the enhancements which it has
made to the CHAMPUS Software in the development of Continuum
and is entitled to patent any inventions made and copyright
any works created under the CRDA.
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Facilities and Employees- .
The Company does not own any facilities. All office space,
consisting of a corporate office with approximately 1,450
sq. ft., is leased. The monthly rental is approximately
$1,600. The Company believes the leased facilities are
adequate for its current needs and that additional suitable
space will be available as needed. The Company has three
executive employees and one administrative assistant. The
Company makes extensive use of independent contractors for
accounting, administration and sales and marketing and
currently has approximately 10 persons under contract
providing such services. The Company also has commission-
based marketing representatives who serve over 20 major
metropolitan areas.
Item 7. Financial Statements and Exhibits
(c) None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SYSTEMS COMMUNICATIONS, INC. Date: June 15, 1998
By /s/ Edwin B. Salmon, Jr.
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Edwin B. Salmon, Jr
Chairman of the Board and Secretary
