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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1996.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] for the transition period from ______________ to
______________
Commission file number 0-26538
--------------------------------------------------------
HEALTHCARE ACQUISITION CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0572565
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Broward Boulevard, Fort Lauderdale, Florida 33301
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (954) 761-2908
-----------------------------------------------------
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Warrants to Purchase One Share of Common Stock
(Title of Class)
Units Consisting of One Share of Common Stock and Two Warrants
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 14, 1997, the registrant had 2,100,000 shares of Common Stock, par
value $.001 per share, outstanding. The aggregate market value of the voting
stock, based on the average bid and asked prices of the common stock on March
14, 1997 as quoted on the OTC Bulletin Board, held by non-affiliates of the
registrant was approximately $7,689,432.
DOCUMENTS INCORPORATED BY REFERENCE. Certain Items in Parts I, II and III of
this Report on Form 10-K incorporate by reference certain disclosures made in
the Registrant's Prospectus dated February 26, 1997 relating to the proposed
merger transaction described in this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Healthcare Acquisition Corp. ("Company") was formed in March 1995 as a
Specified Purpose Acquisition Company ("SPAC"), the objective of which is to
acquire an operating business ("Target Business") in the healthcare industry
("Healthcare Industry"). To date, the Company's efforts have been limited to
organizational activities, completion of its initial public offering and
evaluating potential Target Businesses and negotiating a possible Business
Combination (as hereinafter defined) and preparing and filing a proxy
statement/S-4 registration statement with the Securities and Exchange Commission
with respect to a potential Business Combination.
On November 12, 1996, the Company, Healthcare Acquisition Inc., a Texas
corporation ("Acquisition") which is a wholly owned subsidiary of the Company,
and Encore Orthopedics, Inc., a Texas corporation ("Encore"), entered into an
Agreement and Plan of Merger ("Merger Agreement") dated November 12, 1996,
pursuant to which Acquisition will merge with and into Encore (the "Merger"),
and whereby Encore will be the surviving corporation and become a wholly-owned
subsidiary of the Company, subject to the terms and conditions of the Merger
Agreement. The Company has filed a Joint Proxy Statement/Registration Statement
on Form S-4 (Registration No. 333-22053) with the Securities and Exchange
Commission with respect to the proposed Merger which was declared effective by
the Securities and Exchange Commission on February 25, 1997 (the "Registration
Statement"). Meetings of the stockholders of the Company and Encore have been
called for March 25, 1997 to vote on the Merger. At such meeting, the
stockholders of the Company will also vote on certain amendments to the
Company's certificate of incorporation and the adoption of a Stock Option Plan
all as more fully disclosed in the Registration Statement.
For a description of the primary attributes of a SPAC, please see the
section of the Registration Statement entitled "Business of HCAC" the provisions
of which are hereby incorporated by this reference into this Report on Form
10-K.
ITEM 2. PROPERTIES
The Company does not lease any permanent office space. However, it does
pay an administrative services fee to its legal counsel for the periodic use of
office space and secretarial and other basis office services. If the Merger is
consummated, the Company will discontinue its use of such offices and its
utilization of such services and conduct its activities from the current offices
of Encore.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company in the
fourth quarter of fiscal 1996.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants (each Warrant entitling the
holder thereof to purchase one share of Common Stock for $5.00 per share) are
each quoted on the OTC Bulletin Board under the symbols HCAC and HCACW,
respectively. The Company has never paid cash dividends on the Common Stock or
its other shares of capital stock.
The following table sets forth the range of high and low bid closing
prices for the Common Stock and Warrants for the period from March 13, 1996
through March 14, 1997, as reported by the OTC Bulletin Board.
Common
Stock Warrants
---------- --------
High Low High Low
---- --- ---- ---
1st Quarter - 1996 (from March 13, 1996) $4.50 $4.50 $1.06 $1.06
2nd Quarter - 1996 $4.63 $4.50 $1.06 $0.91
3rd Quarter - 1996 $4.84 $4.63 $1.03 $0.84
4th Quarter - 1996 $4.88 $4.63 $1.00 $0.63
1st Quarter - 1997 (through March 14, 1997) $5.13 $4.75 $0.81 $0.63
As of March 14, 1997, there were 2,100,000 shares of Common Stock and
3,850,000 Warrants outstanding, held of record by 14 holders and 12 holders,
respectively.
The above quotations represent prices between dealers and do not
include retail markups, markdowns or commissions. They may not necessarily
represent actual transactions.
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Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to
the Company for the periods indicated, which data has been derived from the
audited financial statements of the Company. The data should be read in
conjunction with the Financial Statements, related Notes, and other financial
information included herein.
MARCH 21, 1995 MARCH 21, 1995
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1996
-------------- ------------ --------------
STATEMENT OF OPERATIONS DATA:
Interest Income -- $ 360,939 $360,939
Expenses $ 38,921 230,050 268,971
Net income (loss) (38,921) 107,889 68,968
Net income (loss) per share $ (0.10) $ 0.06
Weighted average common shares outstanding 375,000 1,750,437
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
BALANCE SHEET DATA:
Working capital (deficit) $(195,715) $ 8,645,342
Total assets 233,356 9,358,278
Current liabilities 227,277 301,093
Common stock subject to possible conversion to cash -- 1,746,368
Common stock 375 1,755
Additional paid-in capital 44,625 7,309,767
Deficit accumulated during the development stage (38,921) (705)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The disclosure contained in the section entitled "Management's
Discussion and Analysis of Financial Condition and Result of Operations of HCAC"
of the Registration Statement is hereby incorporated by this reference into this
Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Financial Statements for the year ended December 31,
1996 and the period from March 21, 1995 (inception) to December 31, 1995 are
included in this report beginning on page F-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The disclosure contained in the section entitled "Management of HCAC"
of the Registration Statement is hereby incorporated by this reference into this
Report on Form 10-K.
Pursuant to Section 16(a) of the Securities Exchange Act of 1934
("Exchange Act") and the rules promulgated thereunder, the Company's directors,
executive officers and beneficial owners of more than 10% of the Common Stock
are required to file reports of ownership and changes in ownership of the
Company's Common Stock with the Commission. Copies of such reports are required
to be furnished to the Company. Based solely upon its review of the copies of
such reports furnished to it, the Company believes that all reports required to
be filed by Messrs. Haft, Abeles, Freiman and Kanter pursuant to Section 16(a)
of the Exchange Act in 1996 were filed on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The disclosure contained in the section entitled "Management of HCAC -
Executive and Director Compensation" of the Registration Statement is hereby
incorporated by this reference into this Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of March 14, 1997: (i) each holder
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock; (ii) each director of the Company; and (iii) all
directors and officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole or shared investment and voting
power with respect to such shares, subject to community property laws where
applicable.
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Number of Percentage
Shares of Beneficially
Principal Stockholders Common Stock Owned
- ---------------------- ------------ ------------
Jay M. Haft and Clayre Haft 131,250(1) 6.3%
10 Edgewater Drive
Coconut Grove, Florida 33133
John H. Abeles, M.D. 131,250(2) 6.3%
c/o Medvest Inc.
2365 N.W. 41st Street
Boca Raton, Florida 33431
Northlea Partners Ltd. 131,250 6.3%
c/o Medvest Inc.
2365 N.W. 41st Street
Boca Raton, Florida 33431
Joel S. Kanter 37,500(3) 1.8%
c/o Windy City, Inc.
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Windy City, Inc. 37,500 1.8%
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Paul E. Freiman 37,500 1.8%
66 Bret Harte Terrace
San Francisco, California 94133
Barry Rubenstein 272,300(4) 13.0%
68 Wheatley Road
Brookville, New York 11545
Marilyn Rubenstein 272,300(5) 13.0%
68 Wheatley Road
Brookville, New York 11545
All Officers and Directors as a 337,500 16.1%
group (four persons)
- ------------------
(1) Mr. Haft is Chairman of the Board of Directors and Secretary of the
Company. These shares of Common Stock are owned by Mr. Haft and his
wife as joint tenants, with right of survivorship.
(2) Dr. Abeles is President, Treasurer and a Director of the Company. These
shares of Common Stock represent the 131,250 shares of Common Stock
owned by Northlea Partners Ltd., a limited partnership of which Dr.
Abeles is the general partner and the Abeles Family Trust is the sole
limited partner. Northlea Partners Ltd.'s principal activity is
investment for its own account. Dr. Abeles has sole voting investment
power with respect to such shares.
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(3) Mr. Kanter is the Vice President and a Director of the Company. These
shares of Common Stock represent the 37,500 shares owned by Windy City,
Inc., a corporation of which Joel Kanter is the President and a member
of the Board of Directors. Windy City, Inc.'s principal activity is
investment for its own account. Mr. Kanter has sole voting and
investment power with respect to such shares.
(4) Represents 82,300 shares individually owned by Mr. Rubenstein, 20,000
shares owned by Mr. Rubenstein's wife, 50,000 shares owned by Woodland
Partners, a general partnership of which Mr. Rubenstein is a general
partner, 50,000 shares owned by Seneca Ventures, a limited partnership
of which Mr. Rubenstein is a general partner, 50,000 shares owned by
Woodland Venture Fund, a limited partnership of which Mr. Rubenstein is
a general partner, and 20,000 shares owned by the Marilyn and Barry
Rubenstein Family Foundation, a tax-exempt organization under Section
501(a) of the Internal Revenue Code of which Mr. Rubenstein is a
trustee. Except for the 82,300 shares individually owned by Mr.
Rubenstein, Mr. Rubenstein disclaims beneficial ownership of these
securities, except to the extent of his pecuniary interest therein. Mr.
Rubenstein has sole voting and investment power with respect to 82,300
of these shares and shared voting and investment power with respect to
190,000 of these shares.
(5) Represents 20,000 shares individually owned by Mrs. Rubenstein, 82,300
shares owned by Mrs. Rubenstein's husband, 50,000 shares owned by
Woodland Partners, a general partnership of which Mrs. Rubenstein is a
general partner, 50,000 shares owned by Seneca Ventures, a limited
partnership of which Mrs. Rubenstein is a limited partner, 50,000
shares owned by Woodland Venture Fund, a limited partnership of which
Mr. Rubenstein, Mrs. Rubenstein's husband, is a general partner, and
20,000 shares owned by the Marilyn and Barry Rubenstein Family
Foundation, a tax-exempt organization under Section 501(a) of the
Internal Revenue Code of which Mrs. Rubenstein is a trustee. Except for
the 20,000 shares individually owned by Mrs. Rubenstein, Mrs.
Rubenstein disclaims beneficial ownership of these securities, except
to the extent of her pecuniary interest therein. Mrs. Rubenstein has
sole voting power with respect to 20,000 of these shares and shared
voting power with respect to 252,300 of these shares.
The shares of the Company's Common Stock owned as of the date of the
IPO by all of the officers and directors of the Company have been placed in
escrow with Continental Stock Transfer & Trust Company, as escrow agent, for a
period ending March 8, 1999. During such escrow period, such persons may vote
their escrowed shares of Common Stock, but will not be able to sell or otherwise
transfer their respective shares of Common Stock, except, for estate planning
purposes, to their spouses and children (or to trusts established for their
benefit).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The disclosure contained in the section entitled "Other Transactions"
of the Registration Statement is hereby incorporated by this reference into this
Report on Form 10-K.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements are filed as part of this
report:
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Common Stock, Common Stock Subject to
Possible Conversion, Preferred Stock, Additional
Paid-in Capital and Deficit
Statements of Cash Flows
Notes to Financial Statements
(a)(2) Financial Statement Schedules
Not applicable.
(a)(3) Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger dated as of November 12,
1996 by and among the Company, Healthcare
Acquisition, Inc. and Encore Orthopedics, Inc., as
amended.*
3.1 Registrant's Certificate of Incorporation**
3.2 Registrant's By-laws**
4.1 Form of Common Stock Certificate**
4.2 Form of Warrant Certificate**
4.3 Form of Unit Purchase Option granted to the
Underwriters in the IPO**
4.4 Warrant Agreement between Continental Stock
Transfer & Trust Company and the Registrant**
10.2 Letter Agreement among each of the Initial
Stockholders of the Registrant, the Registrant and
GKN Securities (without schedules)**
10.3 Form of Promissory Note**
10.4 Form of Warrant issued in Bridge Financing**
10.5 Investment Management Trust Agreement between IBJ
Schroder Bank & Trust Company and Registrant**
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10.6 Stock Escrow Agreement between Registrant and
Continental Stock Transfer & Trust Company**
10.7 Stock Contribution Agreement between each of the
Initial Stockholders and the Registrant**
10.8 Engagement Letter dated December 2, 1996 between
Registrant and Rodman & Renshaw, Inc.*
10.9 Encore Medical Corporation 1996 Incentive Stock Plan*
10.10 Portions of the Company's Registration Statement on
Form S-4 incorporated into this Report on Form 10-K.+
- ------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-4 [Registration No. 333-22053].
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 [Registration No. 33-92854].
+ Filed concurrently herewith.
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Registrant on October 24, 1996
announcing that the Company entered into a letter of intent with Encore
Orthopedics, Inc. ("Encore") to consummate a Business Combination.
On December 12, 1996, the Company filed a report on Form 8-K
announcing the execution of a merger agreement among the Company, a newly formed
subsidiary of the Company and Encore.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 19, 1997
Healthcare Acquisition Corp.
By: /s/ John H. Abeles
-------------------------------
John H. Abeles, M.D., President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 19, 1997.
Signature Title
/s/ John H. Abeles
- --------------------------
John H. Abeles, M.D. President, Chief Financial Officer and
Principal Accounting Officer, Treasurer
and Director
/s/ Jay M. Haft
- --------------------------
Jay M. Haft Chairman of the Board, Secretary and
Director
/s/ Paul E. Freiman
- --------------------------
Paul E. Freiman Director
/s/ Joel S. Kanter
- --------------------------
Joel S. Kanter Vice President and Director
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HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
- I N D E X -
-------------
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEETS F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF COMMON STOCK, COMMON STOCK
SUBJECT TO POSSIBLE CONVERSION, PREFERRED
STOCK, ADDITIONAL PAID-IN CAPITAL AND DEFICIT F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Healthcare Acquisition Corp.
Fort Lauderdale, Florida
We have audited the accompanying balance sheets of Healthcare
Acquisition Corp. (a corporation in the development stage) as at December 31,
1995 and December 31, 1996 and the related statements of operations, common
stock, common stock subject to possible conversion, preferred stock, additional
paid-in capital and deficit and cash flows for the year ended December 31, 1996
and for the periods from March 21, 1995 (inception) to December 31, 1995, and
from March 21, 1995 to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of Healthcare
Acquisition Corp. as at December 31, 1995 and December 31, 1996 and the results
of its operations and its cash flows for the year ended December 31, 1996 and
for the periods from March 21, 1995 (inception) to December 31, 1995 and March
21, 1995 to December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company must
liquidate in the event that it does not consummate business combination, or
satisfy certain extension criteria, by September 8, 1997, and, although the
Company has signed a merger agreement with a target company, there is no
assurance that such merger will take place or that the Company will have
sufficient funds to seek another target company in the event that the proposed
merger does not take place.
New York, New York
January 17, 1997
F-2
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HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
BALANCE SHEETS
December 31,
-------------------
ASSETS 1995 1996
------ ----- ----
Current assets:
Cash .................................................................. $ 31,562 $ 193,899
U.S. Treasury Bills and cash held in Trust
Fund (Note 1) ....................................................... 8,731,867
Prepaid expenses ...................................................... 20,669
----------- ----------
Total current assets ........................................... 31,562 8,946,435
Deferred merger costs (Note 2) ........................................... 407,427
Deferred registration costs .............................................. 184,056
Deferred financing costs (net of amortization) ........................... 12,543
Organization costs (net of amortization) ................................. 5,195 4,416
----------- ----------
TOTAL .......................................................... $ 233,356 $9,358,278
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bridge notes payable (Note 5) ......................................... $ 190,726
Reimbursable expenses due to stockholder .............................. 3,489
Accrued interest on notes payable ..................................... 12,722
Accrued expenses ...................................................... 20,340 $ 278,093
Income taxes payable .................................................. 23,000
----------- ----------
Total current liabilities ...................................... 227,277 301,093
----------- ----------
Common stock, subject to possible conversion to
cash, 344,999 shares at conversion value
(Note 1) ............................................................. 1,746,368
----------
Stockholders' equity (Notes 1, 4, 5, 6 and 7):
Preferred stock, $.001 par value - shares
authorized 1,000,000; none issued
Common stock, $.001 par value - shares
authorized 20,000,000; issued and outstanding 1,755,001
shares at December 31, 1996 (excluding 344,999 shares
subject to possible conversion to cash) and 375,000
shares at December 31, 1995 ......................................... 375 1,755
Additional paid-in capital ............................................ 44,625 7,309,767
Deficit accumulated during the development
stage ............................................................... (38,921) (705)
----------- ----------
Total stockholders' equity ..................................... 6,079 7,310,817
----------- ----------
TOTAL .......................................................... $ 233,356 $9,358,278
=========== ==========
Attention is directed to the foregoing accountants'
report and to the accompanying notes to financial statements.
F-3
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HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
STATEMENTS OF OPERATIONS
March 21, 1995 March 21, 1995
(Inception) (Inception)
to Year Ended to
December 31, December 31, December 31,
1995 1996 1996
-------------- ------------ --------------
Interest income ....................................... $ 360,939 $360,939
--------- --------
Expenses:
General and administrative
expenses ......................................... $ 966 204,409 205,375
Amortization of financing
costs on notes payable ........................... 25,233 21,817 47,050
Interest ........................................... 12,722 3,824 16,546
--------- --------- --------
Total expenses .............................. 38,921 230,050 268,971
--------- --------- --------
Income (loss) before provision
for income taxes ................................... (38,921) 130,889 91,968
Provision for income taxes ............................ 23,000 23,000
--------- --------- --------
NET INCOME (LOSS) .................................... $ (38,921) $ 107,889 $ 68,968
========= ========= ========
Net income (loss) per share ........................... $ (0.10) $ 0.06
========= =========
Weighted average common shares
outstanding ........................................ 375,000 1,750,437
========= =========
Attention is directed to the foregoing accountants'
report and to the accompanying notes to financial statements.
F-4
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HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
STATEMENTS OF COMMON STOCK, COMMON STOCK SUBJECT TO POSSIBLE CONVERSION,
PREFERRED STOCK, ADDITIONAL PAID-IN CAPITAL AND DEFICIT
FOR THE PERIOD FROM MARCH 21, 1995 (INCEPTION) TO DECEMBER 31, 1996
Common Stock,
Subject to (Deficit)
Common Stock Possible Conversion Preferred Stock Accumulated
------------------- ------------------- ------------------ Additional During the
Number Number Number Paid-In Development
of Shares Amount of Shares Amount of Shares Amount Capital Stage
--------- -------- ---------- ------ --------- ------ ---------- ------------
Original issuance of common stock,
$.07 per share ...................... 375,000 $ 375 $ 24,625
Issuance of warrants, May 16, 1995 .... 20,000
Net loss for the period ............... $(38,921)
----------- ------ ---------- --------
Balance, December 31, 1995 ............ 375,000 375 44,625 (38,921)
Sale of 1,725,000 units, net of
underwriting discount and
offering expenses ................... 1,380,001 1,380 344,999 $1,676,695 7,265,142
Accretion to redemption value of
common stock subject to
possible conversion ................ 69,673 (69,673)
Net income for the period ............. 107,889
---------- ------ ------- ---------- ----- ------ ---------- ---------
BALANCE, DECEMBER 31, 1996 ............ $1,755,001 $1,755 344,999 $1,746,368 - 0 - $- 0 - $7,309,767 $ (705)
========== ====== ======= ========== ===== ====== ========== =========
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-5
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HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
STATEMENTS OF CASH FLOWS
March 21, 1995 March 21, 1995
(Inception) (Inception)
to Year Ended to
December 31, December 31, December 31,
1995 1996 1996
-------------- ------------ --------------
Cash flows from operating activities:
Net income (loss) .......................................... $ (38,921) $ 107,889 $ 68,968
----------- ----------- -----------
Adjustments to reconcile net income (loss)
to net cash (used in) operating
activities:
Amortization of organization costs ..................... 779 779
Amortization of deferred financing
costs ................................................ 25,233 21,817 47,050
(Increase) in interest receivable and
interest on trust fund investments ................... (348,367) (348,367)
(Increase) in prepaid expenses ......................... (20,669) (20,669)
Increase (decrease) in accrued interest
on notes payable ..................................... 12,722 (12,722) - 0 -
Increase in accrued expenses ........................... 27,706 27,706
Increase in income taxes payable ....................... 23,000 23,000
----------- ----------- -----------
Total adjustments ................................... 37,955 (308,456) (270,501)
----------- ----------- -----------
Net cash (used in) operating
activities ........................................ (966) (200,567) (201,533)
----------- ----------- -----------
Cash flows from investing activities:
Cash invested in trust fund ................................ (8,383,500) (8,383,500)
Payments of deferred merger costs .......................... (157,040) (157,040)
----------- -----------
Net cash (used in) investing
activities ........................................ (8,540,540) (8,540,540)
----------- -----------
Cash flows from financing activities:
Proceeds from public offering, net of
underwriting discount and offering
expenses ................................................. 9,103,444 8,943,217
Registration costs ......................................... (160,227)
Proceeds from bridge notes payable ......................... 200,000 200,000
Advances from stockholders ................................. 8,000 8,000
Repayment of bridge notes payable .......................... (200,000) (200,000)
Repayments to stockholders ................................. (8,000) (8,000)
Proceeds from sale of common stock to
founding stockholders .................................... 25,000 25,000
Financing costs ............................................ (27,050) (27,050)
Organization costs ......................................... (5,195) (5,195)
----------- ----------- -----------
Net cash provided by financing
activities ........................................ 32,528 8,903,444 8,935,972
----------- ----------- -----------
NET INCREASE IN CASH .......................................... 31,562 162,337 193,899
Cash at beginning of period ................................... 31,562
----------- ----------- -----------
CASH AT END OF PERIOD ......................................... $ 31,562 $ 193,899 $ 193,899
=========== =========== ===========
Supplemental disclosures of noncash transactions:
Registration costs included in accrued
expenses and amounts due to stockholder ................ $ 23,829
Merger costs included in accrued expenses ................ $ 250,387 $ 250,387
Attention is directed to the foregoing accountants' report
and to the accompanying financial statements.
F-6
19
HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - ORGANIZATION AND BUSINESS OPERATIONS:
Healthcare Acquisition Corp. (the "Company") was incorporated in
Delaware on March 21, 1995 with the objective of acquiring or merging with an
operating business in the healthcare industry. The Company's founding directors
and advisors purchased 425,000 common shares, $.001 par value, in April 1995. In
January 1996, the stockholders contributed 100,000 shares back to the Company.
In addition, in March 1996, the Company effected a 1 2/13 for 1 stock split. The
contribution and stock split have been reflected retroactively in the
accompanying financial statements. The Company has selected December 31 as its
fiscal year-end.
The Company consummated an initial public offering of its common stock
in March and April 1996 (the "Offering") and raised net proceeds of
approximately $9,050,000. The Company's management has broad discretion with
respect to the specific application of the net proceeds of the Offering,
although substantially all of the net proceeds of the Offering are intended to
be generally applied toward consummating a business combination with an
operating business engaged in the healthcare industry (the "Business
Combination"). Furthermore, there is no assurance that the Company will be able
to successfully effect a Business Combination. As of December 31, 1996,
approximately $8,732,000 or $5.06 per share held by the Public Stockholders (as
defined below) is being held in a trust account (the "Trust Fund"), and has been
invested in government securities until the earlier of (i) the consummation of a
Business Combination or (ii) liquidation of the Company. The remaining proceeds
may be used to pay for business, legal and accounting due diligence on
prospective acquisitions, and continuing general and administrative expenses in
addition to other expenses.
The Company, after signing a definitive agreement for the acquisition
of a target business, will submit such transaction for stockholder approval (see
Note 2). All of the Company's stockholders immediately prior to the Offering,
including all of the officers, directors and the advisors of the Company (the
"Initial Stockholders"), have agreed to vote the shares of common stock owned by
them as of the effective date of the Offering in accordance with the vote of the
majority in interest of all other stockholders of the Company (the "Public
Stockholders") with respect to any Business Combination. After consummation of
the Company's first Business Combination, this voting safeguard will no longer
be applicable.
(continued)
F-7
20
HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - ORGANIZATION AND BUSINESS OPERATIONS: (continued)
With respect to the first Business Combination which is approved and
consummated, any Public Stockholder who votes against the Business Combination
may demand that the Company convert his shares into cash. The per share
conversion price will equal the amount in the Trust Fund as of the record date
of determination of stockholders entitled to vote on the Business Combination
divided by the number of shares held by Public Stockholders. The Company will
not consummate a Business Combination if 20% or more in interest of the Public
Stockholders exercise their conversion rights. Accordingly, Public Stockholders
holding approximately 19.99% of the aggregate number of shares owned by all
Public Stockholders may have their shares converted to cash in the event of a
Business Combination. Such Public Stockholders are entitled to receive their per
share interest in the Trust Fund, computed without regard to shares held by
Initial Stockholders.
The Company's Certificate of Incorporation provides for mandatory
liquidation of the Company, without stockholder approval, in the event that the
Company does not consummate a Business Combination within 18 months from the
date of the consummation of the Offering March 8, 1996, or 24 months from the
consummation of the Offering if certain extension criteria have been satisfied.
In the event of liquidation, it is likely that the per share value of the
residual assets remaining available for distribution (including Trust Fund
assets) will be less than the initial public offering price per share in the
Offering.
As discussed in Note 2, the Company has entered into a merger agreement
with Encore Orthopedics, Inc. ("Encore"). However, the completion of the merger
is contingent on among other conditions, the prior approval of the stockholders
of the Company and Encore and there is no assurance that the merger will be
consummated. In addition, the Company's current liabilities exceed its
unrestricted current assets by $86,525. Accordingly should the merger not take
place, there is no assurance that the Company will have sufficient funds to seek
another target company.
(NOTE 2) - MERGER AGREEMENT:
On November 12, 1996, the Company, Healthcare Acquisition, Inc., a
newly formed wholly-owned subsidiary of the Company ("Acquisition"), and Encore
entered into an Agreement and Plan of Merger ("Merger Agreement") pursuant to
which Acquisition will merge with and into Encore, with Encore being the
surviving corporation and becoming a wholly-owned subsidiary of the Company. The
consummation of the transactions contemplated by the Merger Agreement are
subject, among other conditions, to the prior approval of the stockholders of
the Company and Encore.
(continued)
F-8
21
HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(NOTE 2) - MERGER AGREEMENT: (continued)
As of December 31, 1996, the Company has incurred merger related costs
aggregating approximately $407,000 which are included as deferred merger costs
on the accompanying balance sheet. These costs, together with additional
anticipated costs relating to the merger, will be charged to expense upon either
consummation or abandonment of the merger.
(NOTE 3) - SUMMARY OF ACCOUNTING POLICIES:
INCOME TAXES:
The Company follows Statement of Financial Accounting Standards No. 109
("FAS 109"), "Accounting for Income Taxes". FAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns.
DEFERRED FINANCING COSTS:
Costs incurred in connection with the Company's initial bridge
financing were amortized over the term of the notes.
NET INCOME (LOSS) PER SHARE:
Net income (loss) per common share is computed on the basis of the
weighted average number of common shares outstanding during the period. Warrants
to purchase shares of common stock are anti-dilutive and are excluded from the
calculation.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
(NOTE 4) - PUBLIC OFFERING:
On March 13, 1996, the Company sold 1,500,000 units ("Units") in the
Offering. On March 25, 1996 and April 10, 1996, the underwriters of the Company
exercised their over-allotment option and the Company sold an additional 160,000
units and 65,000 units, respectively.
(continued)
F-9
22
HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(NOTE 4) - PUBLIC OFFERING: (continued)
Each Unit consists of one share of the Company's common stock, $.001 par value,
and two Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant
entitles the holder to purchase from the Company one share of common stock at an
exercise price of $5.00 during the period commencing on the later of one year
from the effective date of the Offering (March 8, 1996) or the consummation of a
Business Combination and ending seven years from the effective date of the
Offering. The Warrants will be redeemable at a price of $.01 per warrant upon 30
days notice at any time, only in the event that the last sale price of the
common stock is at least $8.50 per share for 20 consecutive trading days ending
on the third day prior to the date on which notice of redemption is given.
(NOTE 5) - BRIDGE NOTES PAYABLE:
In May 1995, the Company issued an aggregate of $200,000 of promissory
notes to certain accredited investors. These notes bore interest at the rate of
10% per annum and were repaid upon the consummation of the Company's Offering
with accrued interest thereon of $16,546. In addition, the investors were issued
warrants to purchase 400,000 shares of common stock (valued at $20,000) ("Bridge
Warrants") which have been accounted for as a debt discount increasing the
effective interest rate to 19%. These warrants are identical to the Warrants
discussed in Note 3, except that they are not redeemable by the Company until 90
days after the consummation of a Business Combination.
(NOTE 6) - COMMON STOCK:
The Company has 4,300,000 shares of common stock reserved for
issuance upon exercise of the Warrants, the Bridge Warrants and underwriters'
warrants.
(NOTE 7) - PREFERRED STOCK:
The Company is authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
F-10