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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11568
TADEO HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4228470
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
42705 Grand River Avenue - Suite 101
Novi, Michigan 48375
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (248) 344-9599
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Check 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, and (2) has been subject to such filings requirements for
the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-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. /X/
The aggregate market value of the voting stock held by non-affiliates for
the issuer as of October 2, 1998 was $ 7,041,260.
The number of shares outstanding of the issuer's Common Stock, $.0001 par
value, as of October 2, 1998 was 11,507,603.
Documents incorporated by reference: None
PART I
ITEM 1. BUSINESS
GENERAL
On January 28, 1998, the Company sold its operating assets and the
stock of its two principal operating subsidiaries, Diabetes Self Care, Inc.
("Diabetes") and USCI Healthcare Management Solutions, Inc. ("HMS"), to Gainor
Medical Management, LLC, a privately held Georgia company ("Gainor"), for a
gross purchase price of $34 million, $17,000,000 in cash, as reduced by
$8,725,226 of specified liabilities of the Company, and $17,000,000 by the
delivery of a Gainor convertible subordinated promissory note (the "Note").
Out of the cash received at closing, the Company satisfied an aggregate of
$4,451,136 in liabilities to permit the required transfer of assets to Gainor
free and clear of encumbrances. The Note bears interest at a simple rate of
7% per annum through December 31, 1998 and 8% thereafter until payment in full
of the principal balance no later than January 28, 2003. Prior to its maturity,
the Note may be converted into equity securities of Gainor, at the election of
the Company, upon the successful completion of a public offering of such equity
securities by Gainor, subject to certain restrictions. The Company's
stockholders approved the sale of its business at their Annual Meeting held on
January 26, 1998 in Livonia, Michigan, at which time they also approved an
amendment to the Company's certificate of incorporation changing its name to
Tadeo Holding, Inc. The sale of the Company's operating business to Gainor shall
hereinafter be referred to as the "Transaction".
In addition to offsets for customary indemnification's under the Asset
Purchase Agreement among the parties, dated November 14, 1997, the principal
amount of the Note is subject to reduction in the event that (i) such principal
amount does not equal at least 75% of Gainor's revenues from operation of
Diabetes during calendar 1998, in which event the Note will be reduced by the
difference between 75% of such revenues and $17,000,000, (ii) Gainor is not able
to collect at least $6,000,000 from the accounts receivable sold to Gainor as
part of the Transaction during the one-year period succeeding the closing, in
which event the Note will be reduced by the difference between $6,000,000 and
the amount of receivables actually collected, and (iii) prior to July 28, 1998
fewer than 3,334 former customers of PCS, Inc. - West become customers of
Gainor, in which event the Note will be reduced by $600 for each former customer
of PCS, Inc. - West less than the minimum 3,334 who fails to transfer to Gainor,
up to a maximum amount of $2,000,000.
On July 29 1998, Tadeo Holdings, Inc. ("Tadeo" or the "Company"), a
Delaware corporation, signed a letter of intent to acquire Astratek, Inc. by
merger with a wholly-owned subsidiary of the Company. Astratek, Inc.
("Astratek") develops software tools and related products for Internet and
intranet technology and provides consulting and professional services for
several major companies. Astratek products are developed to address critical
operational issues in distributed computing environments. A definitive merger
agreement has not yet been executed by Tadeo and Astratek, and there is no
assurance that such an agreement will be signed and that the merger will be
consumated.
2
The Company is currently in the process of negotiating such a definitive
merger agreement and completing its due diligence investigation of Astratek
and its business.
As a result of the Company's sale of its operating business to Gainor,
the Company has no ongoing operations at this time.
Tadeo is the parent corporation for the following wholly-owned
subsidiaries: Physicians Support Services, Inc., a California corporation
("PSS"); Clinishare Diabetes Centers, Inc. d/b/a SugarFree Centers, Inc.
("SugarFree"), USC-Michigan, Inc. a Michigan corporation and its wholly-owned
subsidiary, PCS, Inc.-West (collectively identified as "Patient Care Services"),
a Michigan Corporation. Depending upon the context, the term "Company" refers to
either Tadeo alone, or Tadeo and one or more of its subsidiaries. The
subsidiaries have discontinued operations, and are in the process of being
merged into Tadeo.
EMPLOYEES
As of October 5, 1998, the Company employed one full-time employee.
This position consists of corporate accounting and reporting, including: bank
relations, year- end audit liaison and other miscellaneous functions. The
Company believes that its relationship with this employee is good.
INSURANCE COVERAGE
The Company maintains general liability insurance, which includes
directors and officers liability coverage, in amounts deemed adequate by the
Board of Directors.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company does not own any real property. The following table sets
forth information as to the material properties which the Company leases.
Expiration Annual Size/Square Purchase
Location and Use Date Rental Feet Option
- - ---------------- ---- ------ ---- ------
11585 Farmington Road September $112,092 6,600 Yes
Livonia, Michigan 48150 2002
(former executive, sales
and administrative offices)
ITEM 3. LEGAL PROCEEDINGS
DEPARTMENT OF HEALTH SERVICES
The Company has undergone an audit by representatives of the State of
California, State Controller's Office, Division of Audits. The purpose of the
audit was to determine the level of the Company's compliance with the guidelines
of the California
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Department of Health Services (Medi-Cal) and the California State Board of
Equalization. Representatives from the State Controller's Office have raised
the issue of whether the Company may have practiced two-tier pricing policies
in the charges to it's customers which are not in conformance with Medi-Cal
regulations. Under such regulations, a company may not charge any customer
prices less than those charged to the Medi-Cal program. Based upon
Management's independent review, the Company maintains that it conformed with
pricing regulations because its prices were consistent within each of its
former operating subsidiaries, Sugar Free and PSS, and because these two
subsidiaries offered different services. The Company's Management further
believes that the Medi-Cal program was charged the "prevailing prices"
charged for supplies, and that those charges were in compliance with current
regulations, and that the Representatives from the Controller's Office
compared prices for different services with different delivery methods. The
State Controller's Office contends that the reimbursement was paid for
products, and not for services, so the difference in pricing was not
warranted based upon the services rendered in conjunction with the products
delivered. In July 1994, the State Controller's Office issued an Auditor's
Report with findings to the Department of Health Services ("DHS") for the
period beginning July 1, 1990 through June 30, 1993. The Report recommends a
recovery of approximately $1.3 million due to such alleged two-tier pricing.
In November 1994, the State Controller's Office issued a Letter of Demand for
the recovery of such amounts due. In November 1994, the Company appealed the
audit determination made by the State Controller's Office. In January 1996, a
hearing was held before an Administrative Law Judge. In July 1996, the Judge
recommended that the overpayment determination be upheld. In August 1996, the
DHS adopted the recommendation of the Law Judge as the final decision of the
Director of DHS. In January 1997, the Company filed an appeal to the decision
with the Superior Court for the County of Los Angeles. The Company intends to
vigorously contest any recovery by the State with respect to such alleged
improper pricing practices for services rendered.
Based upon the above contingency, the Company has provided a reserve,
in the event that a defense of its position does not prevail, of $700,000.
Management believes that a total estimated settlement amount of $700,000, or 54%
of the maximum amount demanded, is reasonable under circumstances with respect
to this matter. Unless the California two-tier pricing controversy is either
settled or the related claims made by the State of California otherwise released
prior to the maturity date of the Note delivered to the Company in partial
consideration for the sale of assets pursuant to the terms of the Transaction,
then the principal of the Note payable to the Company will be reduced by the
amount then alleged to be owed to the State of California with respect to such
controversy.
On December 18 1997, the Company underwent an audit by the Medi-Cal
program. The purpose and scope of the audit was to determine if the Company's
documentation supported reimbursement of the $653,990 for various sizes of
disposable insulin syringes and $1,975,588 for blood glucose test strips that
Medi-Cal had made to the Company from November 1, 1994 to April 30, 1996. As of
June 9, 1998, DHS reported that its audit disputed reimbursement for aggregate
of $ 75,351. The Company has made a counteroffer of $50,000 to settle the case,
but the DHS has rejected that offer. A formal hearing on this matter has been
scheduled for December 8, 1998.
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MEDICARE PART B
The Company has undergone an audit by Medicare covering charges
submitted for reimbursement in the Western region (Region D) during the
period January 1, 1994 through December 31, 1995. Medicare determined that an
overpayment to the Company may have occurred as a result of use of a
superseded diagnosis code on claims submitted. The claims in question were
originally submitted to Medicare in order to gain a denial of charges so that
an alternative carrier could be validly billed, since a denial is required by
certain intermediaries prior to billing for certain charges. Medicare may
have inappropriately made reimbursements on these charges. In November 1996,
Medicare issued a demand for refund of $795,702 plus interest of $35,475. As
of January 28, 1998, Medicare offset a total of $630,918 of the Company's
claims for payment. In the most recent correspondence from Medicare on this
subject, it was claimed that on March 31, 1997, the Company owed a refund of
$808,887, of which $795,701 was principal and $22,290 was accrued interest.
The Company rebilled Medi-Cal $732,853 in February 1997 and $62,849 in March
1997.
Patient Care Services was previously the subject of an investigation by
Medicare for (i) Medicare's alleged overpayment for products and services by
Patient Care Services and (ii) Medicare's payment to patient Care Services for
claims which were allegedly not properly subject to Medicare's reimbursement.
During fiscal year 1995, Medicare withheld $300,766 of payments due for claims
reimbursement to cover previously estimated liabilities resulting from this
investigation. A further assessment in the amount of $78,500 resulting from
continuation of this investigation has been made, and that amount withheld in
July 1996. The Company went through an in-person hearing on May 28, 1997 to
contest Medicare's aggregate $379,200 of withheld reimbursement, and on July 28,
1997 the Company received a partially favorable Hearing Decision. The Company
received a refund on October 31, 1997, for $30,314 form Medicare Part B based
upon the partially favorable Hearing Decision. The Company's intends to appeal
the partially unfavorable amount of $348,686 from the Hearing Officer's decision
and has retained counsel to contest the decision in proceedings before an
Administrative Law Judge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
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5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The principal market for trading the Company's securities is the Nasdaq
Small Cap Market ("Nasdaq"), although the Company's Common Stock and Class A
Warrants are also traded on the Boston Stock Exchange.
PRICE RANGE OF OUTSTANDING COMMON STOCK
On December 18, 1992, the Common Stock began trading on Nasdaq and has
been quoted on Nasdaq at all times since that date.
The following table sets forth the high and low bid prices for each
fiscal quarter during the fiscal years ended June 30, 1997 and 1998, as reported
by Nasdaq. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and do not necessarily represent actual transactions.
High Bid Low Bid
-------- -------
FISCAL YEAR ENDED JUNE 30, 1997
First Quarter ended September 30, 1996 2-7/8 2-1/4
Second Quarter ended December 31, 1996 3-1/2 2
Third Quarter ended March 31, 1997 4-1/8 2-3/4
Fourth Quarter ended June 30, 1997 2-3/4 2-11/16
FISCAL YEAR ENDED JUNE 30, 1998
First Quarter ended September 30, 1997 2-7/8 2-1/8
Second Quarter ended December 31, 1997 2-13/16 1-7/16
Third Quarter ended March 31, 1998 2-1/8 1-13/32
Fourth Quarter ended June 30, 1998 1-11/16 7/8
On October 2, 1998, the last trade price for a share of Common Stock was
$1-11/16, as reported on Nasdaq, and the Company had 75 shareholders of record
of its Common Stock. The Company estimates it has in excess of 300 beneficial
holders of its Common Stock.
6
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future, but rather
intends to retain future earnings, if any, for reinvestment in its future
business. Any future determination to pay cash dividends will be in compliance
with the Company's contractual obligations, and otherwise at the discretion of
the Board of Directors and based upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
The Company has outstanding an aggregate of One million (1,000,000)
shares of Series B Redeemable Preferred Stock, $.0001 par value per share (the
"Series B Preferred Stock"), which shares of Series B Preferred Stock are
subject to: (i) a liquidation preference of $1.00 per share ($1,000,000); (ii)
payment of annual cumulative dividends on September 30th of each year,
commencing September 30, 1996, of $.02 per share ($20,000) for the period from
April 25, 1995 through June 30, 1996, $.03 per share ($30,000) for the year
ending June 30, 1997, $.04 per share ($40,000) for the year ending June 30,
1998, $.05 per share ($50,000) for the year ending June 30, 1999, $.06 per share
($60,000) for the year ending June 30, 2000, and $.12 per share ($120,000)
thereafter; PROVIDED, that such annual cash dividends is payable ONLY if the
consolidated pre-tax income of the Company and its subsidiaries shall exceed
$500,000 in the fiscal year ending immediately prior to the relevant September
30th payment date; (iii) being convertible at any time at the option of the
holder into Common Stock of the Company at a conversion ratio of one share of
Common Stock for every two (2) share of Series B Preferred Stock so converted (a
maximum of 500,000 shares of Common Stock); (iv) the right to vote, together
with the Common Stock as a single class, for the election of directors and all
other matters on which stockholders of the Company are entitled to vote; and (v)
redemption, at a the sole option of the Company at any time commencing June 30,
2000, on 30 days' prior written notice given by the Company, if the average of
the closing bid price of the Common Stock, as reported on The NASDAQ SmallCap
Market (or the last sale price of the Common Stock, if then traded on the NASDAQ
National Market System of another national securities exchange) during the 20
consecutive trading days ending on the third day prior to the date on which
notice of redemption is given shall equal or exceed $4.00 per share, with the
holders having the right to convert all or any portion of their Series B
Preferred Stock into Common Stock at any time after receipt of notice of
redemption and prior to the date fixed for redemption.
See Part III, "Item 10., Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16 (a)", and "Item 12., Security
Ownership of Certain Beneficial Owners and Management," for information
concerning the redemption of the Company's Series A Preferred Stock in September
1998.
7
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ITEM 6. SELECTED FINANCIAL DATA
Tadeo Holdings, Inc.
Selected Financial Data
Years ended June 30,
in (000's)
1998 1997 1996 1995 1994
--------------------------------------------------
Operating revenues 0 0 0 0 0
Income (loss) from continuing operations (624) (837) (1,381) (760) (131)
Income (loss) from continuing operations
per share (0.08) (0.13) (0.23) (0.21) (0.03)
Total assets 8,865 18,299 18,209 17,132 6,060
Long term debt 23 4,628 2,316 1,520 114
Redeemable preferred stock 1,219 1,830 2,246 2,276 0
Dividends per common stock 0 0 0 0 0
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
YEAR 2000
Over the course of the last half of the year, the Company has been
evaluating various acquisitions. This effort has incorporated an analysis of the
Year 2000 issues, and management believes that appropriate and timely action
will be taken to minimize the negative impact of this event. The year 2000 issue
results from the inability of many computer systems and applications to
recognize the year 2000 as the year following 1999. This could cause systems to
process critical information incorrectly. Given its current status as a Company
without on going operations, the Company is not materially affected by year 2000
issues. However, the Company plans to implement new systems and technologies in
connection with any acquisition of an operating business that will provide
solutions to these issues. The Company plans to work with its future customers,
suppliers and third party service providers to identify external weaknesses and
to provide solutions which will prevent the disruption of business activities
following its acquisition of an operating business. The Company does not expect
the cost of implementation to have a material adverse effect on its future
results of operations, liquidity or capital resources.
FORWARD-LOOKING STATEMENTS
When used in the Form 10-K and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result" and "the Company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, each of
which speaks only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the results of any revisions which
may be made to any forward-looking
9
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
RESULTS OF OPERATIONS
Since the Company disposed of the operations of its previous business
during January 1998, a comparison and discussion of the disposed business with
prior periods is not deemed to be relevant. The Company is presently collecting
interest income under the terms of the $17,000,000 Note received from Gainor and
earning interest on the cash received from Gainor, in connection with the sale
of the Company's operating business in January 1998. Such interest income
amounted to $536,523 since the January 28, 1998 sale date. General corporate
overhead amounted to $1,160,761 for the year ended June 30, 1998 compared to
$836,894 for the year ended June 30, 1997, an increase of $323,867, primarily
resulting from activity associated with the sale of the Company's operations.
FISCAL YEARS ENDED JUNE 30, 1998, JUNE 30, 1997 AND JUNE 30, 1996
Net income for Fiscal 1998 was $2,394,351, as compared to a net loss of $
2,653,231 for Fiscal 1997, as compared to a net loss of $ 2,532,238 for Fiscal
1996. This increase is primarily due to the gain from disposal, including
operating losses, through disposal date of $1,489,272.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 the Company's existing cash consisted of
approximately $2.4 million. See Part I, "Item 1., Business, General," for
information concerning the sale of the Company's operating assets to Gainor in
the Transaction. In addition to the cash received at the closing of the
Transaction, as part of the Transaction consideration, Gainor issued to the
Company the $17,000,000 convertible subordinated promissory Note. The Note bears
interest at a simple rate of 7% per annum through December 31, 1998 and 8%
thereafter until payment in full of the principal balance no later than January
28, 2003. Prior to its maturity, the Note may be converted into equity
securities of Gainor, at the election of the Company, upon the successful
completion of a public offering of such equity securities by Gainor, subject to
certain restrictions. In addition to offsets for customary indemnification's
under the Asset Purchase Agreement among the parties, dated November 14, 1997,
the principal amount of the Note is subject to reduction in the event that (i)
such principal amount does not equal at least 75% of Gainor's revenues from
operation of Diabetes during calendar 1998, in which event the Note will be
reduced by the difference between 75% of such revenues and $17,000,000, (ii)
Gainor is not able to collect at least $6,000,000 from the accounts receivable
sold to Gainor as part of the Transaction during the one-year period succeeding
the closing, in which event the Note will be reduced by the difference between
$6,000,000 and the amount of receivables actually collected, and (iii) prior to
July 28, 1998 fewer than 3,334 former customers of PCS, Inc. - West (a former
operating subsidiary) become customers
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of Gainor, in which event the Note will be reduced by $600 for each former
customer of PCS, Inc. - West less than the minimum 3,334 who fails to
transfer to Gainor, up to a maximum amount of $2,000,000. On July 15, 1998
the Note principal was reduced by $144,958, based upon a audit review of the
Company's post closing balance sheet. On July 28, 1998 the Note was reduced
by $559,800, based upon the results of item number (iii) identified above.
The Company has been granted an additional 60 days to arrange for additional
customers transfers to Gainor at the conclusion of which the Note may be
further reduced if Gainor fails to receive sufficient number of customers.
The Company currently receives on average the following: 1) $10,250 a month
in interest from its various money market and certificate of deposit accounts
and 2) $255,218 a quarter in interest under the Note as adjusted to reflect
the two principal adjustments.
The note receivable is due from Gainor in connection with the sale
of the Company's business in January 1998. The note has a face amount of
$17,000,000 and is due in January 2003. The note bears interest at the rate
of 7% for the first year and 8% per annum thereafter, with interest payable
quarterly.
The Asset Purchase Agreement states that the Note is subject to
reduction by Gainor under each of the following circumstances:
A. A failure to obtain the requisite number of assignments of benefit from
former patients, with a maximum adjustment of $2,000,000.
B. The failure by Gainor to collect a minimum of $5.75 million of purchased
accounts receivable with the principal on the note reduced by any
short-fall.
C. The failure of the acquired businesses to achieve revenues of
approximately $23,000,000 for the year subsequent to closing.
In September 1998, Gainor notified the Company that the assignment
of benefits provision is currently at the macimum adjustment level of
$2,000,000. Gainor made a $559,800 downward adjustment to note principal, and
granted an extension until November 21, 1998 of the time for a sufficient
number of assignments of benefits to be received by Gainor in order to avoid
further downward adjustment to note principal. Gainor had previously reduced
the Note balance by approximately $145,000 for what were claimed to be
unrecorded purchase date accruals, as an adjustment to the closing balance
sheet under the Asset Purchase Agreement. In addition, Gainor notified the
Company that as of August 31, 1998, (i) its collection of receivables
purchased from the Company pursuant to the Asset Purchase Agreement were
behing a schedule that, on an annualized basis, would result in collecting
more than $5.75 million of such accounts, and (ii) its generation of revenues
from the operation of the purchased business was not as anticipated, either
of which could result in additional downward adjustments to note principal
under the terms of the asset purchase agreement.
As a result of the aforementioned, the Company has reduced the
carrying basis of the note to $6,000,000 based on what management believes
would be the value of the note if it were to be sold to an unrelated third
party in an arms-length transaction. The Company has therefore reduced the
gain of the disposal of the discontinued business by $11,000,000. However,
the Company will continue to vigorously pursue the full collection of the
face amount of the note as well as all interest accrued.
The Company's material ongoing fixed expenses are as follows: 1)
monthly rent expense of $ 9,341 (See Part I, "Item 2., Description of
Property," for information concerning the location and description of the
leasehold and 2) $ 7,633 a month to Mr. Buchholz's under his employment
termination agreement, an aggregate of $ 450,336 (See Part "Section 1
Employment and Consulting Agreements," Part III for information concerning
the agreements, and 3) $12,625 a month to Mr. Robinson under his employment
termination agreement, an aggregate of $151,500 (See Part III "Section 1
Employment and Consulting Agreements," for information concerning agreement
and 4) $10,413 a month under the terms of a Stock Purchase Agreement.
Pursuant to a Stock Purchase Agreement, dated April 26, 1996, the
Company acquired all of the outstanding capital stock of P.C.S. Northfield,
Inc., a company engaged in the marketing and sale of products used in the
treatment of diabetes. Prior to the acquisition, the Company had provided
administrative services, including billing and receivables collection, to
P.C.S. Northfield, Inc. The purchase price for stock acquired was a $350,000
three-year promissory note, bearing 10% annual interest, with equal monthly
payments of principal and interest equal to $10,413 per month. The seller
also received 32,278 shares of the Company's Common Stock. As of June 30,
1998, $109,020 was due on this note. Additionally, per the Stock Purchase
Agreement the seller received an additional 30,523 shares of the Company's
Common Stock in September 1998.
In July 1998, the Company completed a private placement of 136,887
shares of Common Stock at $1.50 per share to an accredited investor, for
$205,256.
[An aggregate sum of 229,950 shares of Series A Redeemable Preferred
Stock, $.0001 par value per share (the "Series A Preferred Stock") was redeemed,
evidencing all outstanding shares of Series A Preferred Stock, in September
1998. The Company was able to redeem the outstanding Series A Preferred Stock,
which otherwise would have obligated the Company to pay $1,149,745 in aggregate
redemption payments through March 2001, by converting such Series A Preferred
Stock, under the terms of its charter, into 1,363,163 shares of Common Stock.]
Additionally, in July 1998 the Company was able to terminate its
employment agreements with Messrs. Brian Bookmeier, Alan Korby and
Matthew B. Gietzen (See Part III, Item 12, "Employment and Consulting
Agreements," for information concerning termination agreements) and reduce
cash payments of $ 17,307 every two weeks, or $450,000 a year. The Company
reduced ongoing payments and an aggregate of approximately 250,000 shares
of Common Stock to Messrs. Korby, Gietzen and Bookmeier.
11
CASH FLOW
As of June 30, 1998 the Company had working capital of $1,233,595
compared to a working capital of $3,128,805 at June 30, 1997. The decrease in
working capital during the year is primarily due to the sale of its operating
business.
NET OPERATING LOSSES
The Company has net operating loss carryforwards for tax purposes
totaling $1,800,000 at June 30, 1998, expiring in the years 2012 to 2013.
Substantially all of these carryforwards are subject to limitations on annual
utilization due to "equity structure shifts" or "owner shifts" involving 5%
stockholders (as these terms are defined in Section 382 of the Internal Revenue
Code) which have resulted in a more than 50% change in ownership.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TADEO HOLDINGS, INC. AND SUBSIDIARIES
INDEX CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
Page Number
-----------
INDEPENDENT AUDITOR'S REPORT F-1
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CONSOLIDATED BALANCE SHEET AS OF F-2
JUNE 30, 1998 AND 1997
CONSOLIDATED STATEMENT OF OPERATIONS F-3
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
CONSOLIDATED STATEMENT OF CHANGES IN F-4
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
JUNE 30, 1998, 1997 AND 1996
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
YEARS ENDED JUNE 30, 1998, 1997 AND 1996 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6-15
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Tadeo Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Tadeo
Holdings, Inc. and Subsidiaries as of June 30, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years ended June 30, 1998, 1997 and 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tadeo Holdings, Inc. and
Subsidiaries as of June 30, 1998 and 1997 and the results of its operations
and its cash flows for the years ended June 30,1998, 1997 and 1996 in
conformity with generally accepted accounting principles.
/s/ Feldman Sherb Ehrlich & Co., P.C.
-------------------------------------
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
October 7, 1998
New York, New York
F-1
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
------------------------
1998 1997
CURRENT ASSETS: ------------------------
Cash $ 2,406,045 $ 541,814
Accounts receivable - net of allowance for doubtful accounts
of $0 and $2,261,684, respectively - 10,241,191
Interest receivable 276,005 -
Inventories - 551,692
Prepaid expenses - 111,910
Note receivable- officer 162,627 -
----------- -----------
TOTAL CURRENT ASSETS 2,844,677 11,446,607
LONG-TERM NOTES RECEIVABLE (face value $17,000,000) 6,000,000 -
PROPERTY AND EQUIPMENT
net of accumulated depreciation of $8,599 and
$618,017, respectively 10,326 956,446
INTANGIBLE ASSETS
net of accumulated amortization of $0 and
$806,265, respectively - 5,847,321
DEPOSITS AND OTHER ASSETS 9,834 48,356
----------- -----------
$ 8,864,837 $18,298,730
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 41,269 $ 7,296,044
Notes payable - current portion 85,760 208,126
State audit reserve 700,000 700,000
Accrued termination costs, short-term 784,053 -
Payroll taxes payable - 113,632
----------- -----------
TOTAL CURRENT LIABILITIES 1,611,082 8,317,802
----------- -----------
ACCRUED TERMINATION COSTS, long-term 280,209 -
LONG-TERM NOTES PAYABLE, net of current portion 23,260 262,916
REVOLVING CREDIT LOAN - 4,365,410
REDEEMABLE PREFERRED STOCK, Series A 1,219,141 1,829,658
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, Series B Cumulative Convertible,
$.0001 par value, 10,000,000 shares authorized, 1,000,000
shares issued and outstanding 505,000 505,000
Common stock, $ .0001 par value, 100,000,000 shares authorized,
9,724,579 shares issued and outstanding as of June 30, 1998
and 1997 972 972
Additional paid-in capital 14,045,838 14,045,838
Accumulated earnings/(deficit) (8,820,665) (11,028,866)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,731,145 3,522,944
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,864,837 $18,298,730
=========== ==========
See notes to consolidated financial statements
F-2
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended June 30,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
REVENUES $ - $ - $ -
COST OF GOODS SOLD - - -
----------- ----------- -----------
GROSS PROFIT - - -
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,160,761 836,894 1,381,017
----------- ----------- -----------
LOSS FROM OPERATIONS (1,160,761) (836,894) (1,381,017)
INTEREST INCOME 536,523 - -
----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS (624,238) (836,894) (1,381,017)
----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations (2,122,296) (1,816,337) (1,151,221)
Gain from disposal, including operating losses, through
disposal date, of $1,489,272 5,140,885 - -
----------- ----------- -----------
TOTAL INCOME (LOSS) FROM DISCONTINUED OPERATIONS 3,018,589 (1,816,337) (1,151,221)
----------- ----------- -----------
NET INCOME/(LOSS) $ 2,394,351 $(2,653,231) $(2,532,238)
=========== =========== ===========
BASIC INCOME (LOSS) PER SHARE:
Continuing $ (0.08) $ (0.13) $ (0.23)
Discontinued 0.31 (0.22) (0.17)
----------- ----------- -----------
NET INCOME (LOSS) PER SHARE- BASIC $ 0.23 $ (0.35) $ (0.40)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 9,724,579 8,084,278 6,843,943
=========== =========== ===========
See notes to consolidated financial statements
F-3
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Series B Common Stock Additional Total
-------------------- ------------------ Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- --------- --------- -------- ----------- ----------- -----------
Balance - June 30, 1995 1,000,000 $ 505,000 6,149,057 $ 615 $ 8,607,951 $(5,420,132) $ 3,693,434
Shares issued to employees 148,000 15 147,985 148,000
Shares issued upon exercise of Bridge lenders'
warrants 222,223 22 (22) -
Warrants issued in connection with private
financing - - 216,028 216,028
Debt converted as consideration for
exercise of options 150,000 15 149,985 150,000
Exercise of Class B Warrants 344,720 34 517,046 517,080
Shares issued for acquisition 32,278 3 149,997 150,000
Options exercised for cash 100,000 10 149,990 150,000
Debt converted as consideration for
exercise of options 667,655 67 776,415 776,482
Shares issued in settlement of note payable 74,073 7 99,993 100,000
Dividends paid on Preferred Stock Series A (211,485) (211,485)
Various expenses associated with stock
issuances - - (162,572) (162,572)
Write off of discount associated with warrants
issued in private financing upon early
retirement of debt (29,000) (29,000)
Net loss (2,532,238) (2,532,238)
--------- --------- --------- -------- ----------- ----------- -----------
Balance - June 30, 1996 1,000,000 $ 505,000 7,888,006 $ 788 $10,623,796 $(8,163,855) $ 2,965,729
Shares issued in connection with private
offering 500,000 50 999,950 1,000,000
Shares issued in connection with private
offering 250,000 25 499,975 500,000
Debt converted as consideration for
exercise of options 1,009,415 101 2,018,729 2,018,830
Dividends paid on Preferred Stock Series A (211,780) (211,780)
Various expenses associated with
private placement (100,004) (100,004)
Various expenses associated with
consulting services 1,700 - 3,400 3,400
Shares issued in connection with expenses
associated to debt conversion 75,458 8 (8) -
Net loss (2,653,231) (2,653,231)
--------- --------- --------- -------- ----------- ----------- -----------
Balance - June 30, 1997 1,000,000 505,000 9,724,579 972 14,045,838 (11,028,866) 3,522,944
Dividends paid on Preferred Stock Series A (186,150) (186,150)
Net income 2,394,351 2,394,351
--------- --------- --------- -------- ----------- ----------- -----------
Balance - June 30, 1998 1,000,000 $ 505,000 9,724,579 $ 972 $14,045,838 $(8,820,665) $ 5,731,145
========= ========= ========= ======== =========== =========== ===========
See notes to consolidated financial statements.
F-4
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 2,394,351 $(2,653,231) $(2,532,238)
----------- ----------- -----------
Adjustments to reconcile net income/(loss) to
net cash from operating activities:
Depreciation and amortization 220,727 651,151 549,083
Loss on disposal of fixed assets - - 23,632
Gain on sale of operations (5,140,885) - -
Changes in operating assets and liabilities:
(Increase) in interest receivable (276,005) - -
Changes in operating assets and liabilities of discontinued
operations 2,002,440 (2,221,612) 2,723,523
----------- ----------- -----------
Total adjustments (3,193,723) (1,570,461) 3,296,238
----------- ----------- -----------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES (799,372) (4,223,692) 764,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from sale of operations 8,065,336 - -
Net cash paid for acquisitions - - (194,306)
Capital expenditures - (273,021) (585,697)
----------- ----------- -----------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 8,065,336 (273,021) (780,003)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance/(Repayments) of related party loans - (60,000) (100,000)
Proceeds from related party loans - - 60,000
Borrowing of revolving credit line - 4,365,410 (884,000)
Repayment of revolving credit line (4,365,410) - -
Issuance of common stock, net of expenses - 1,403,399 652,508
Net proceeds from (repayment of) long-term debt (239,656) (133,017) 532,375
Dividends paid on Series A Preferred Stock (186,150) (211,780) (211,485)
Redemption of Series A Preferred Stock (610,517) (416,551) (30,182)
----------- ----------- -----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (5,401,733) 4,947,461 19,216
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 1,864,231 450,748 3,213
CASH - BEGINNING OF YEAR 541,814 91,066 87,853
----------- ----------- -----------
CASH - END OF YEAR $ 2,406,045 $ 541,814 $ 91,066
=========== =========== ===========
CASH PAID FOR:
Interest $ 465,694 $ 623,804 $ 664,082
=========== =========== ===========
Income taxes $ - $ - $ -
=========== =========== ===========
See notes to consolidated financial statements
F-5
TADEO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
Tadeo Holdings, Inc. (formerly Universal Self Care, Inc.) (the
"Company"), is a Delaware corporation formed on May 12, 1989. Prior to
February 1998 the Company had been in the business of providing diabetes
supplies and services.
In January 28, 1998, the Company disposed of its operating business,
through the sale of stock of certain operating subsidiaries and any remaining
operating assets and specified liabilities of its retained subsidiaries to
Gainor Medical Management, LLC.
The Company has the following remaining subsidiaries at June 30,
1998, none of which are operating: Physicians Support Services, Inc., a
California corporation ("PSS"); Clinishare Diabetes Centers, Inc. d/b/a
SugarFree Centers, Inc. ("SugarFree"), USC-Michigan, Inc. a Michigan
corporation and its wholly-owned subsidiary, PCS, Inc.-West (collectively
identified as "Patient Care Services"), a Michigan Corporation.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated.
B. Property and Equipment - Property and equipment is stated at cost
and is
F-6
depreciated on a straight-line basis over the estimated useful lives
of the assets.
C. Net Income (loss) per Share - The Company has adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". Net Income (loss) per common share has been restated for all
periods presented to conform to the provisions of SFAS 128. Basic
earnings (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss)
per share reflects the per share amount that would have resulted if
dilutive potential common stock had been converted to common stock as
prescribed by SFAS 128. Dilution is predicated on the effect that
dilutive securities have on income (loss) from continuing operations.
D. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
E. Accounting for Stock Based Compensation - In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation". The
standard permits companies to choose to follow the accounting
proscribed by the standard for securities issued to employees or to
continue to follow the method proscribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees",
coupled with certain pro forma disclosures. The Company has adopted
the disclosure only aspect of this statement.
F. Fair Value of Financial Instruments - Effective December 31, 1996, the
Company adopted Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments", which requires
disclosure of fair value information about financial instruments
whether or not recognized in he balance sheet. The carrying amounts
reported in the balance sheet for cash, trade receivables, accounts
payable and accrued expenses approximate fair value based on the
short-term maturity of these instruments.
G. Impairment of Long-Lived Assets - The Company has adopted Statement of
Financial Accounting Standards No. 121, "Accounting for The Impairment
of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of".
2. SALE OF ASSETS
On January 28, 1998, the Company closed on an Asset Purchase Agreement
dated November 14, 1997 (as amended November 24, 1997) with Gainor
Medical Management, LLC ("Gainor") pursuant to which the Company sold
its previous diabetes supply business to Gainor.
F-7
The sale price for the business was $34,000,000, $17,000,000 in cash.
3. DISCONTINUED OPERATIONS
In connection with the Company's sale of its diabetes supply business
in January 1998, the accompanying financial statements have been
restated to present the previous operations as discontinued operations.
The revenues of the discontinued business were $19,136,465,
$34,001,626 and $36,257,415 for the fiscal years ended June 30, 1998,
1997 and 1996, respectively.
4. NOTE RECEIVABLE
The Note is due from Gainor in connection with the sale of the
Company's business in January 1998. The Note has a face amount of
$17,000,000 and is due in January 2003. The Note bears interest at the
rate of 7% for the first year and 8% per annum therafter, with interest
payable quarterly.
The Asset Purchase Agreement states that the Note is subject to
reduction by Gainor under each of the following circumstances:
a) A failure to obtain the requisite number of assigments of
benefits from former patients, with a maximum adjustment of
$2,000,000.
b) The failure of Gainor to collect a minimum of $5.75 million of
purchased accounts receivable with the principal on the Note
reduced by any short-fall.
c) The failure of the acquired business to achieve revenues of
approximately $23,000,000 for the year subsequent to closing.
In September 1998, Gainor notified the Company that the assignment of
benefits provision is currently at the maximum adjustment level of
$2,000,000. Gainor made a $559,800 downward adjustment to the Note
principal, and granted an extension until November 21, 1998 of the time
for a sufficient number of assignments of benefits to be received by
Gainor in order to avoid further downward adjustment to the Note
principal. Gainor had previously reduced the Note balance by
approximately $145,000, from what were claimed to be unrecorded
purchase date accruals, as an adjustment to the closing balance sheet
under the Asset Purchase Agreement. In addition, Gainor notified the
Company that as of August 31, 1998, (i) its collection of receivables
purchased from the Company pursuant to the Asset Purchase Agreement
were behind schedule that, on an annualized basis, would result in
collecting more than $5.75 million of such account, and (ii) its
generation of revenues from operation of the purchased
F-8
business was not as anticipated, either of which could result in
additional downward adjustments to the Note principal under the terms
of the Asset Purchase Agreement.
As a result of the aforementioned, the Company has reduced the carrying
basis of the Note to $6,000,000 based on what management believes would
be the value of the Note if it were to be sold to an unrelated third
party in an arms-length transaction. The Company has therefore reduced
the gain on the disposal of the discontinued business by $11,000,000.
However, the Company will continue to vigorously pursue the full
collection of the face amount of the Note as well as all interest
accrued.
5. COMMITMENTS AND CONTINGENCIES
LEASE- The Company is obligated under a premises lease, for base
annual rent of approximately $112,000 through September 2002.
DEPARTMENT OF HEALTH SERVICES- The Company has undergone an audit by
representatives of the State of California, State Controller's Office,
Division of Audits. The purpose of the audit was to determine the level
of the Company's compliance with the guidelines of the California
Department of Health Services (Medi-Cal) and the California State Board
of Equalization. Representatives from the State Controller's Office
have raised the issue of whether the Company may have practiced
two-tier pricing policies in the charges to it's customers which are
not in conformance with Medi-Cal regulations. Under such regulations, a
company may not charge any customer prices less than those charged to
the Medi-Cal program. Based upon Management's independent review, the
Company maintains that it conformed with pricing regulations because
its prices were consistent within each of its former operating
subsidiaries, Sugar Free and PSS, and because these two subsidiaries
offered different services. The Company's Management further believes
that the Medi-Cal program was charged the "prevailing prices" charged
for supplies, and that those charges were in compliance with current
regulations, and that the Representatives from the Controller's Office
compared prices for different services with different delivery methods.
The State Controller's Office contends that the reimbursement was paid
for products, and not for services, so the difference in pricing was
not warranted based upon the services rendered in conjunction with the
products delivered. In July 1994, the State Controller's Office issued
an Auditor's Report with findings to the Department of Health Services
("DHS") for the period beginning July 1, 1990 through June 30, 1993.
The Report recommends a recovery of approximately $1.3 million due to
such alleged two-tier pricing. In November 1994, the State Controller's
Office issued a Letter of Demand for the recovery of such amounts due.
In November 1994, the Company appealed the audit determination made by
the State Controller's Office. In January 1996, a hearing was held
before an Administrative Law Judge. In July 1996, the Judge recommended
that the overpayment determination be upheld. In August 1996, the DHS
adopted the recommendation of the Law Judge as the final decision of
the Director of DHS. In January 1997, the Company filed an appeal to
the decision with the Superior Court for the County of Los Angeles. The
Company intends
F-9
to vigorously contest any recovery by the State with respect to such
alleged improper pricing practices for services rendered.
On December 1997, the Company underwent an audit by the Medi-Cal
program. The purpose and scope of the audit was to determine if the
Company's documentation supported reimbursement of the $653,990 in
various sizes of disposable insulin syringes and $1,975,588 for
blood glucose test strips that Medi-Cal had made to the Company from
November 1, 1994 to April 30, 1996. As of June 9, 1998, DHS reported
that its audit disputed reimbursement for aggregate of $ 75,351. The
Company has made a counteroffer of $50,000 to settle the case, but
the DHS has rejected that offer. A formal hearing on this matter has
been scheduled for December 8, 1998.
MEDICARE PART B-
The Company has undergone an audit by Medicare covering charges
submitted for reimbursement in the Western region (Region D) during
the period January 1, 1994 through December 31, 1995. Medicare
determined that an overpayment to the Company may have occurred as a
result of use of a superseded diagnosis code on claims submitted. The
claims in question were originally submitted to Medicare in order to
gain a denial of charges so that an alternative carrier could be
validly billed, since a denial is required by certain intermediaries
prior to billing for certain charges. Medicare may have inappropriately
made reimbursements on these charges. In November 1996, Medicare issued
a demand for refund of $795,702 plus interest of $35,475. As of
January 28, 1998, Medicare offset a total of $630,918 of the Company's
claims for payment. In the most recent correspondence from Medicare
on this subject, it was claimed that on March 31, 1997, the Company
owed a refund of $808,887, of which $795,701 was principal and $22,290
was accrued interest. The Company rebilled Medi-Cal $732,853 in
February 1997 and $62,849 in March 1997.
Patient Care Services was previously the subject of an investigation
by Medicare for (i) Medicare's alleged overpayment for products and
services by Patient Care Services and (ii) Medicare's payment to
patient Care Services for claims which were allegedly not properly
subject to Medicare's reimbursement. During fiscal year 1995,
Medicare withheld $300,766 of payments due for claims reimbursement to
cover previously estimated liabilities resulting from this
investigation. A further assessment in the amount of $78,500 resulting
from continuation of this investigation has been made, and that amount
withheld in July 1996. The Company went through an in-person hearing on
May 28, 1997 to contest Medicare's aggregate $379,200 of withheld
reimbursement, and on July 28, 1997 the Company received a partially
favorable Hearing Decision. The Company received a refund on October
31, 1997, for $30,314 form Medicare Part B based upon the partially
favorable Hearing Decision. The Company's intends to appeal the
partially unfavorable amount of $348,686 from the Hearing Officer's
decision and has retained counsel to contest the decision in
proceedings before an Administrative Law Judge.
6. INCOME TAXES
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS No. 109"). SFAS No. 109 requires the recognition of deferred tax
assets and liabilities for both the expected impact of differences
between the financial statements and tax basis of assets and
liabilities, and for the expected future tax benefit to be derived from
tax loss and tax credit carryforwards. SFAS No. 109 additionally
requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. At June 30, 1998, the
Company had deferred tax assets of $720,000 related to net operating
loss carryforwards of approximately $1,800,000 and a deferred tax asset
of $250,000 related to $700,000 of termination contracts. The Company
has recorded a valuation allowance for the full amount of the deferred
tax assets.
The provisions for income taxes differ from the amount computed
applying the statutory federal income tax rate to income before income
taxes as follows:
F-10
Year Ended June 30,
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
Income( tax) benefit computed at statutory rate $ (855,000) $ 929,000 $ 886,000
Effect of permanent differences - (142,000) (184,000)
Effect of temporary differences (250,000) 231,000 (8,000)
Income tax benefit not recognized - (1,018,000) (694,000)
Tax benefit of net operating loss carryforward 1,105,000 - -
-------------- -------------- --------------
Income tax benefit $ - $ - $ -
============== ============== ==============
The Company has net operating loss carryforwards for tax
purposes totaling $1,800,000 at June 30, 1998 expiring in the years
2012 to 2013. Substantially all of the carryforwards are subject to
limitations on annual utilization because there are "equity structure
shifts" or "owner shifts" involving 5% stockholders (as these terms are
defined in Section 382 of the Internal Revenue Code), which have
resulted in a more than 50% change in ownership.
7. REDEEMABLE PREFERRED STOCK SERIES A
In April 1995, in connection with the acquisition of PCS, Inc.
-West, the Company issued 580,000 shares of Series A Redeemable
Preferred Stock. The shares contained a liquidation preference of $5
per share and pay no dividends they are mandatorily redeemable at $5
per share, over a five year period in equal monthly installments
beginning in October 1995. The Company recorded the present value of
the required future payments as a liability utilizing a discount rate
of 9%. The portion of the monthly redemption installments which are
attributed to this discounting factor are accounted for as preferred
stock dividends. At June 30, 1998, there were 229,950 shares
outstanding. In August 1998, the Company amended the certificate of
designation to allow for the conversion of the Series A Preferred Stock
and the remaining balance was converted into 1,363,163 shares of
F-11
Common Stock in September 1998.
8. STOCKHOLDERS' EQUITY
A. Preferred Stock - The Certificate of Incorporation of the
Company authorizes the issuance of a maximum of 10,000,000
shares of preferred stock. The Company's Board of Directors is
vested with the authority to divide the class of preferred
shares into series and to fix and determine the relative
rights and preferences of shares of any such series to the
extent permitted by the laws of the State of Delaware and the
Articles of Incorporation.
B. In April 1995, in connection with the Acquisition of PCS, the
Company issued 1,000,000 shares of Series B Cumulative
Convertible Preferred Stock. Each share contains a liquidation
preference of $1.00 per share. Each share is convertible into
common stock at the rate of two shares for one common share.
Each share pays a cumulative dividend at the rate of from $.02
per share annually, beginning in September 1996, increasing to
$.12 per share through June 30, 2000. However, such dividend
only becomes payable if, in the immediate preceding fiscal
year, the Company had pre-tax income of at least $500,000.
The shares also have voting rights and are redeemable by the
Company under certain conditions.
C. In February 1998, the Company amended its Certificate of
Incorporation to change the name of the corporation to Tadeo
Holdings, Inc., and to increase the authorized Common Stock to
100,000,000.
D. In connection with its December 1992 public offing, the
Company has 1,143,800 Class A warrants outstanding to purchase
Common Stock at $3.30 per share. These warrants were
previously set to expire in December 1997, but have been
extended by the Company to December 1998.
9. STOCK OPTION PLAN
A. The Company's 1992 Employee Stock Option Plan (the "1992
Plan") was approved by the Company's Board of Directors and
stockholders in June 1992. On July 28, 1993, 310,000 stock
options, exerciseable at $1.50 per share, for a period of
ten years, were issued under the 1992 Plan. Options granted
under the 1992 plan may include those qualified as
incentive stock options under Section 422A of the Internal
Revenue Code of 1986, as amended, as well as non-qualified
options. Employees as well as other individuals, such as
outside directors, who provide necessary services to the
Company are eligible to participate in the 1992 Plan.
Non-employees and part-time employees may receive only
non-qualified stock options. The maximum number of shares
of common stock for which options may be granted under the
1992 Plan is 500,000 shares.
B. The Company's Management Non-Qualified Stock Option Plan (the
F-12
"Management Plan") was approved by the Company's Board of
Directors in December 1992. On July 28, 1993, 100,000 stock
options, exercisable at $1.50 per share, for a period of ten
years, were issued under the Management Plan. Management and
key employees, as well as outside directors and other
individuals who provide necessary services to the Company, are
eligible to participate in the Management Plan. Options
granted under the Management Plan are nonqualified options.
The maximum number of shares of Common Stock for which options
may be granted under the Management Plan is 550,000.
C. In November 1997, the Company established the 1997 Stock
Option Plan for Non-employee Directors, which authorizes the
issuance of up to 300,000 options to purchase Common Stock at
an exercise price of 100% of the Common Stock's market price.
Subsequent to its adoption at the annual meeting in February
1998, 30,000 five year options were granted under this plan at
an exercise price of $1.81 per share. On July 1, 1998, 30,000
more five year options were granted at $ .97 per share.
10. ACCOUNTING FOR STOCK OPTIONS
The Company accounts for stock options issued to employees under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", under which
no compensation expense is recognized if the exercise price equals the
stock market value on the measurement date (generally the grant date).
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock
Based Compensation" for disclosure purposes.
For disclosure purposes, the fair value of each option is measured an
the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions used for stock options granted
during the years ended June 30, 1998, 1997 and 1996, respectively:
annual dividends of $0.00 for both years; expected volatility of
86.3% for both years; risk free interest rate of 7.0% for all years,
and expected life of five years for all years.
If the Company had recognized compensation cost in accordance with SFAS
No. 123, the Company's pro forma net loss and net loss per share would
have been $3.3 million and $.35 for fiscal 1997 and $2.6 million and
$.41 for fiscal 1996. The effect for fiscal 1998 would not be material.
The following table summarizes the changes in options outstanding and
the related price ranges:
F-13
Weighted
Average Range of
Shares Expected Price Exercise Price
---------- -------------- --------------
Outstanding at June 30, 1995 585,000 $ 1.43 $1.25 - $1.50
Granted 746,667 1.22 1.00 - 1.50
Exercised (250,000) 1.20 1.00 - 1.50
--------- --------- --------------
Balance June 30, 1996 1,081,667 1.33 1.00 - 1.50
Granted 275,999 1.72 1.70 - 1.50
---------- --------- --------------
Balance June 30, 1997 1,357,666 1.41 1.00 - 2.25
Granted 55,000 2.15 1.81 - 2.50
---------- --------- --------------
Balance June 30, 1998 1,412,666 $ 1.44 $1.00 - $2.50
========= ========= ==============
The following table summarizes information about stock options
outstanding at June 30, 1998:
Weighted Average
Range of Average Remaining Contractual
Exercise Prices Outstanding Life in Years
- - ---------------- ----------- ---------------------
$1.00 - $2.50 1,412,661 4.26
- - ------------- --------- ----
Options exercisable at June 30, 1998 and 1997 were: 1,412,666 and
1,342,666 respectively. During 1998, 55,000 options were granted for a
weighted average exercise price of $2.50.
11. NOTE RECEIVABLE - OFFICER
The note due from the officer was dated May 1998 and was repaid in
August 1998, together with interest at 12% per annum.
12. TERMINATION AGREEMENTS
The Company entered into the following contracts subsequent to the
disposal of its business:
A. With a former operating officer commencing March 1998, aggregating
$485,000, payable in monthly installments of $7,633 through March 2003.
The Company has recorded the present value of this contract at
$359,265, with the balance being $345,231 at June 30, 1998.
F-14
B. With a former operating officer commencing March 1998, aggregating
$151,500, payable in monthly installments of $12,500 through February
2003. The Company has recorded the present value of this contract at
$143,603, with the balance being $97,315 at June 30, 1998.
C. With three former officers dated July 1998, aggregate consideration
of $862,498, with $385,000 paid in August 1998, $225,000 settled
through the issuance of notes payable due in January 2000, bearing
interest at 7% per annum and the $252,490 balance settled by
exchanging cash severance payments for the direct issuance of
168,332 shares of Common Stock (at $1.00 value per share) and the
exercise price of concurrently granted options to acquire 84,167
shares of Common Stock at $1 per share. The Company has accrued the
amounts related to these contracts as of June 30, 1998.
13. SUBSEQUENT EVENTS
A. On July 6, 1998, the Company entered into a letter of intent with
Astratek, Inc., a New York corporation in the business of producing
computer software. Under the proposed agreement, the Company would
acquire Astratek, Inc., in exchange for Common Stock equivalent to
approximately 19% of the Company's outstanding shares.
In connection with this agreement, the Company extended a secured line
of credit to Astratek in the amount of $300,000, for the purpose of
funding technological developments and working capital needs, which
loan is secured by specified Astratek receivables .
B. In September 1998, the Company extended a 30 day loan of $250,000 to
Azurel, Ltd., a publicly traded Delaware corporation.
14. FOURTH QUARTER ADJUSTMENT (UNAUDITED)
During the fourth quarter, the Company re-evaluated the value of the
Note received in the sale of its business and reduced the gain on the
sale by $11,000,000.
F-15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of October 2, 1998 are as
follows:
24
Name Age Position with the Company
---- --- -------------------------
Brian D. Bookmeier 40 President of Tadeo Holdings,
Inc., Director
James Linesch 44 Director
Damon Testaverde 50 Director
Set forth below is a brief background of the officers, directors and key
employees of the Company, based on information supplied by them.
BRIAN D. BOOKMEIER. Mr. Bookmeier is an investor and Vice
President of Seven Sons, Inc., d/b/a Las Vegas Golf & Tennis. Seven Sons,
Inc. is in the business of franchised retailing of golf and tennis products.
Mr. Bookmeier has held this position since August 1997. Mr. Bookmeier has
served as President, Chief Executive Officer and a director of the Company
since July 1995. From September 1989 until its Merger into the Company Mr.
Bookmeier served as Executive Vice President and a Director of Patient Care
Services, a home medical equipment supply company that specialized in
diabetes management, and the sale of related equipment and supplies. He has
been a Director of the American Diabetes Association since June 1995.
JAMES LINESCH. Since February 1997, Mr. Linesch has served as a
Director of the Company. Mr. Linesch is currently the President, Chief
Executive Officer and Chief Financial Officer of CompuMed, a public
computer company involved with computer assisted diagnosis of medical
conditions, which he joined in April 1996 as Vice President and Chief
Financial Officer. Mr. Linesch served as a Vice President, Chief Financial
Officer and Controller of the Company from August 1991 to April 1996. From
may 1988 to August 1991, Mr. Linesch served as the Chief Financial Officer of
Science Dynamics Corp., a corporation involved in the development of computer
software.
DAMON TESTAVERDE. Mr. Testaverde has been a director since January
19, 1998. From May 1991 until June 1995, Mr. Testaverde served as President
and Chief Executive Officer of the Company. From 1989 to March 1991, Mr.
Testaverde served as the principal stockholder of H. R. Damon & Company,
Inc., a former full service securities broker-dealer which ceased operations
in March 1991. Since March 1994, Mr. Testaverde has been a registered
representative with Network One Financial Services, Inc., a full service
securities broker-dealer. From 1980 to 1986, Mr. Testaverde served in the
capacity of President of S. D. Cohn & Co., Inc. A full service securities
broker-dealer with active investment banking and brokage operations.
25
Mr. Testaverde is also a former director of American Complex Care,
Incorporated, a public company formerly engaged in the provision of home health
care infusion therapies and as a distributor of Medicare Part B products. In
March 1995, American Complex Care, Incorporated's operating subsidiaries made
assignments of their assets for the benefit of their creditors, without resort
to bankruptcy proceedings.
(The remainder of this page has been intentionally left blank)
26
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term Compensation
Annual Compensation Awards Payouts
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen
Position Year Salary Bonus sation Awards Sars(#) Payouts sation
- - -------- ---- ------ ----- ------ ------ ------- ------- ------
Brian Bookmeier 1996 $179,306 0 $15,000 $ 0 $ 0 $ 0 $ 0
President and 1997 $116,667 0 $ 9,000 $ 0 $ 0 $ 0 $ 0
Chief Executive 1998 $ 87,500 0 $ 1,000 $ 0 $ 0 $ 0 $ 0
Officer and
Director
Alan Korby 1996 $179,306 0 $15,000 $ 0 $ 0 $ 0 $ 0
Executive V.P. 1997 $116,667 0 $ 9,000 $ 0 $ 0 $ 0 $ 0
Marketing 1998 $ 87,500 0 $ 1,000 $ 0 $ 0 $ 0 $ 0
Mattew Gietzen 1996 $179,306 0 $15,000 $ 0 $ 0 $ 0 $ 0
Executive V.P. 1997 $116,667 0 $ 9,000 $ 0 $ 0 $ 0 $ 0
of Fulfillment 1998 $ 87,500 0 $ 1,000 $ 0 $ 0 $ 0 $ 0
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Edward Buchholz entered into a three year contract on December 16,
1996, effective on January 1, 1997, employment the term of which ends on
December 31, 1999. Mr. Buchholz's is the President and Chief Executive Officer
of Healthcare Management Solution, Inc., a subsidiary of the Company. Mr.
Buchholz's employment agreement provides him with an annual base salary of $
150,000. In connection with his employment agreement, Mr. Buchholz was granted
options to acquire 175,000 shares of common stock at an exercise price of $1.70
per share (fair market value on the date of grant), vested on the date of grant.
On January 28, 1998, the Company and Mr, Edward Buchholz entered into a
termination agreement (the "Agreement"). In mutual consideration of the promises
contained in the Agreement, the Company agreed to make severance payments
aggregating $708,000 to Mr. Buchholz, (i) $250,000 to be paid by Tadeo Holdings,
Inc. as the initial payment and (ii) $458,000 to be paid by Tadeo Holdings, Inc.
in sixty equal monthly installments of $7,633.33. Additionally, Tadeo Holdings,
Inc. will continue to pay quarterly premiums on Mr. Buchholz's existing $350,000
life insurance policy through December 31, 1999.
In connection with consummation of the Merger, the Company entered into
separate employment agreements expiring June 30, 2000 with each of Messrs. Alan
Korby, Brian Bookmeier and Matthew B. Gietzen. Under the terms of such
agreements, each of Messrs. Korby, Bookmeier and Gietzen serve as the Vice
President, President and Chief Executive Officer, and Vice President,
respectively, of the Company. Under such employment agreements, they each
receive a base salary of $150,000 per annum, plus customary fringe benefits,
including medical insurance and the use of an automobile paid for by the
Company, the aggregate value of which fringe benefits to each such person is
estimated at no more than $18,000.
27
On April 25, 1996, each of Messrs. Bookmeier, Korby and Gietzen agreed
to waive the payment of installments of their annual compensation from the
Company during the annual period commencing May 1, 1996, in the aggregate amount
of $150,000 for each such person, and Mr. Buchholz agreed to waive the payment
of installments of his annual compensation from the Company during the annual
period commencing May 1, 1996 in the aggregate amount of $50,000. In
consideration for such waiver of compensation, each of Messrs. Bookmeier, Korby
and Gietzen was granted a five-year non-qualified stock option to acquire
125,000 shares of Company Common Stock at an exercise price of $1.35 per share
and Mr. Buchholz was granted a five-year non-qualified stock options to acquire
41,667 shares of Company Common Stock at an exercise price of $1.35 per share.
All of the options granted to Messrs. Bookmeier, Korby, Gietzen and Buchholz
vested in full on May 1, 1996. The closing sale price for a share of Common
Stock on April 25, 1996, as reported by Nasdaq, was $2-5/8. On May 1, 1997, each
of Messrs. Bookmeier, Korby and Gietzen again began to receive full annual
compensation under their employment agreement.
On July 10, 1998, the Company and each of Messrs. Bookmeier, Korby and
Gietzen, entered into employment termination agreements (the "Agreements"). In
mutual consideration of the promises contained in the Agreements severance
payments were made as follows: (i) $128,333.33 was paid to each and (ii) each
received a $75,000 promissory note bearing 7% annual interest with principal
payable on January 1, 2000. Messrs. Korby and Gietzen were each issued 84,166
shares of Tadeo Common Stock for the purchase price of $1 per share (which
subscriptions were paid for in exchange for additional severance payments of
$84,166 under the Agreements) and (iv) Mr. Bookmeier was granted stock options
under the Tadeo Employee Stock Option Plan to purchase 84,167 shares of Common
Stock exercisable at $1.00 per share (which options were exercised by Mr.
Bookmeier in exchange for an additional $84,167 severance payment under the
Agreements).
In March 1996, Mr. Tod Robinson entered into a two-year employment
agreement with Diabetes Self Care, Inc., a wholly-owned subsidiary of the
Company. Under such agreement, Mr. Robinson is to serve as the National Vice
President-Sales for Diabetes Self Care, having responsibility for marketing and
sales efforts throughout the United States for such company. Mr. Robinson's
employment base salary is $95,000 per annum. He has the opportunity to earn a
Performance Bonus of up to $1,000 based upon achieving performance goals to be
identified by the Company's management, as well as a Commission of $1,000 for
each executed managed care contract covering more than 10,000 lives which he
originates. Mr. Robinson's employment contract also provides for certain profit
participation, pursuant to which he will earn .5% of the net after-tax profits
of Diabetes Self Care for each fiscal year (and prorations thereof) during the
term of the employment agreement. In the event that such net after-tax profits
exceed $500,000 for any fiscal year, the profit participation shall be increased
by $10,000. Mr Robinson may also receive additional discretionary bonuses, and
customary fringe benefits. On March 10, 1996, in connection with commencing his
employment, Mr. Robinson was granted options to acquire 30,000 shares of the
Company's common stock at an exercise price of $1.50 per share. The closing sale
price for a share of common stock on March 8, 1996 (the last business day before
the date of such agreement), as reported by Nasdaq, was $2-15/16. On January 28,
1998, the Company and Mr, Tod Robinson entered into a
28
termination agreement (the "Agreement"). In mutual consideration of the
promises contained in the Agreement, a severance of $151,200, to be paid by
Tadeo Holdings, Inc. in 12 equal installments of $12,625 through January 1,
1999 and (ii) $4,000 commission for Motorola contract to be paid by Tadeo
Holdings, Inc. and (iii) $1,600 to be paid by Tadeo Holdings, Inc. for
December and January commissions and (iv) $4,000 of accrued vacation to be
paid by Tadeo Holdings, Inc.
Each director of the Company receives a $25,000 annual directors fees
for attendance at Board meetings, as well as reimbursement for the actual
expenses incurred in attending such meetings. Officers and key employees of the
Company receive employment benefits (e.g., health insurance, automobile
allowances) other than cash compensation and interests in the Company's employee
stock option plan.
In November 1997, the Company established the 1997 Stock Opyion Plan
for Non-employee Directors, which authorizes the issuance of up to 300,000
options to purchase Common Stock at an exercise price of 100% of the Common
Stock's market price. Subsequent to its adoption at the annual meeting in
February 1998, 30,000 five year options were granted under this plan at an
exercise price of $1.81 per share. Each July of any year in which a
non-employee Director serves as a Director, such Director will be granted
10,000 five-year options to acquire shares of Common Stock at the market price
at the date of grant.
The following table sets forth information concerning options exercised
and the number of unexercised options, and the value of such unexercised
options, for any persons named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED ON VALUE REALIZED OPTIONS/SARS AT OPTIONS/SARS AT
NAME EXERCISE (#) ($) FY-END(#) FY-END($)
(a) (b) (c) (d) (e)
- - ---------------------- -------------------- --------------------- ---------------------- ----------------------
EXERCISABLE/ EXERCISABLE/
UNEXECISABLE UNEXERCISABLE
Brian Bookmeier 125,000 0 125,000/0 0/0
Alan Korby 125,000 0 125,000/0 0/0
Matthew Gietzen 125,000 0 125,000/0 0/0
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table identifies each person or entity known to the
Company to be the beneficial owner of more than five percent of the Company's
common stock on October 2, 1998, each director of the Company and all the
directors and officers of the Company as a group, and sets forth the number of
shares of the Company's common stock beneficially owned by each such person and
such group and the percentage of the
29
shares of the Company's outstanding common stock owned by each such person
and such group. In all cases, the named person has sole voting power and sole
investment power of the securities, unless otherwise specified.
Percentage of
Name and Address Number of Shares of Common Outstanding
of Beneficial Owner Stock Beneficially Owned(1) Common Stock Owned
- - ------------------- --------------------------- ------------------
Brian D. Bookmeier 699,167 5.9%
19327 Augusta Drive
Livonia, MI 48152 (2)
Matthew Gietzen 699,167 5.9%
23307 Mystic Street
Novi, MI 48375 (2)
Fred Kassner 3,451,950 28.2%
59 Spring Street
Ramsey, NJ 07446 (3)
Alan M. Korby 699,167 5.9%
23705 Winter Green Circle
Novi, MI 48375 (2)
James Linesch 156,823 1.4%
3401 Walnut Avenue
Manhattan Beach, CA 90266 (4)
Robert L.Moody, Jr. 607,560 5.1%
2302 Post Office Street, Suite 601
Galveston, TX 77550 (3)
Robert M. Rubin 613,798 5.3%
6060 Kings Gate Circle
Delray Beach, FL 33484 (3)
Damon D. Testaverde 407,372 3.5%
580 Oak Dale Street
Staten Island, NY 30312 (3)(4)
All officers and directors 7,335,004 54.6%
as a group (3 persons) --------- -----
(2)(4)
30
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the next 60
days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment rights.
(2) Includes (i) 333,334 shares of Common Stock held by Mr. Korby as well as
166,666 shares of Common Stock issuable to Mr. Korby upon conversion of
his 333,333 shares of Series B Preferred Stock, (ii) 338,333 shares of
Common Stock held by Mr. Bookmeier as well as 166,667 shares of Common
Stock issuable to Mr. Bookmeier upon conversion of his 333,334 shares of
Series B Preferred Stock. Also includes options to purchase 125,000
shares of Common Stock at $1.35 per share, granted to each of Messrs.
Korby and Bookmeier in connection with the waiver of certain cash
compensation in 1996. 39,179 of the shares of Common Stock issued to
each of Messrs. Korby and Bookmeier (78,358 shares in the aggregate),
have been pledged to Barbara Milinko to secure a $325,000 note payable
to Ms. Milinko by Messrs. Korby, Bookmeier and Gietzen. In mutual
consideration of the promises contained in the Agreements severance
payments,Messrs. Korby and Gietzen were issued 84,166 shares of Tadeo
Common Stock for the purchase price of $1 per share.
(3) For Mr. Kassner, includes 642,535 shares of Common Stock underlying the
Company's publicly-traded Class A Warrants and 100,000 shares of Common
Stock underlying Warrants granted in connection with certain financial
accommodations granted by Mr. Kassner related to the release of security
interests in Company assets. For Mr. Moody, includes Class A warrants to
purchase an aggregate of 307,560 shares of Company Common Stock. For Mr.
Rubin, includes the shares underlying 100,000 warrants granted in
connection with the waiver of defaults under then existing indebtedness.
For Mr. Testaverde, includes the shares underlying 150,000 warrants granted
in connection with the waiver of defaults under then existing indebtedness.
(4) Includes 20,000 options granted to each Messrs. Linesch and Testaverde
(10,000 exercisable at $1.81 per share of Common Stock and of 10,000
exercisable at $ .97 per share of Common Stock) under the Company's 1997
Non-Employee Director's Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of the Patient Care Services Merger Agreement, each of
Messrs. Rubin, and Damon Testaverde, agreed to vote all of the shares of Company
Common Stock to be owned by them following the Merger for so long as each of
such person(s) shall continue to hold not less than 73% of the percentage of the
outstanding shares of Company Common Stock issued to him upon consummation of
the Merger, for the election of each of Messrs. Korby, Bookmeier and Gietzen to
the Board of Directors of the Company. In addition, any additional nominees to
the Company's Board of Directors must be acceptable to Messrs. Rubin and
Testaverde and to a majority of Messrs. Korby, Bookmeier and Gietzen to the
extent that such persons meet the share ownership criterion set forth above.
In April 1996, Fred Kassner exchanged $ 776,482 of indebtedness in
consideration for: the exercise of 450,000 Warrants at an exercise price of
$1.00 per share to acquire 450,000 shares of common stock; and the exercise of
217,655 Class B Warrants at an exercise price of $1.50 per share, to acquire
217,655 shares of common stock and the acquisition of 217,655 Class A Warrants.
In July 1998, the Company
31
completed a private placement of 136,837 shares of Common Stock at $1.50 per
share to Mr. Kassner.
See Item 6. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for information concerning loans made to
the Company by certain members of Company management and by principal
stockholders of the Company.
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32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES - SEE, ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA."
(B) EXHIBITS,
NUMBER DESCRIPTION OF EXHIBIT
- - ------ ----------------------
3.1(a) Certificate of Incorporation of the Company. (1)
3.1(b) Certificate of Renewal of Charter of the Company. (1)
3.1(c) Certificate of Amendment of Charter of the Company. (3)
3.1(d) Certificate of Amendment of Charter of the Company.
3.1(e) Certificate of Amendment to Certificate of Designations of Charter
of the Company.
3.2 By-Laws of the Company. (3)
3.3 Certificate of Designations, Preferences and Relative,
Participating, Optional or other special rights of Series A
Redeemable Preferred Stock. (9)
3.4 Certificate of Designations, Preferences and Relative,
Participating, Optional or other special rights of Series B
Convertible Preferred Stock. (9)
4.1(a) Specimen Certificate of the Company's Common Stock. (2)
4.1(b) Specimen of Redeemable Common Stock Purchase Warrant. (5)
4.2 Form of Warrant Agent Agreement between the Company and American
Stock Transfer Company. (2)
4.3 Form of Underwriter's Warrant Agreement. (6)
4.4 1992 Employee Incentive Stock Option Plan, including form of
Incentive Stock Option Agreement. (2)
4.5 1998 Non-Employee Director Stock Option Plan. (18)
10.1 Voting Agreement, dated April 12, 1995, by and among Messrs.
Rubin,Testaverde, Korby, Bookmeier and Gietzen. (12)
33
10.2 Management Non-Qualified Stock Option Plan. (5)
10.3 Stock Option Agreement, dated as of February 8, 1994, by and between
the Company and Edward T. Buchholz. (7)
10.4 Loan Agreement, dated April 28, 1995, by and among Fred Kassner
("Lender"), the Company, USCM and PCS., Inc. - West (all
Schedules omitted). (12)
10.5 Warrant Agreement, dated April 28, 1995, by and between the Company
and Fred Kassner ("Lender"). (12)
10.6 Registration Rights Agreement, dated April 28, 1995, by and between the
Company and Lender. (12)
10.7 Loan Agreement, dated July 14, 1995, by and among the Company, USCM
and PCS., Inc. - West (all Schedules omitted). (11)
10.8 Security Agreement, dated July 14, 1995, by and among Lender, the
Company, USCM and PCS, Inc. - West. (11)
10.9 Warrant Agreement, dated July 14, 1995, by and between the Company and
Lender. (11)
10.10 Registration Rights Agreement, dated July 14, 1995, by and between
the Company and Lender. (11)
10.11 Amendment to Loan Agreement dated as of January 17, 1996 by and
among the Company, the providers and Fred Kassner. (14)
10.12 Stock Pledge Agreement dated January 17, 1996 by and between the
Company, USC-Michigan, Inc. (One of the Providers) and Lender.(14)
10.13 Letter agreement dated August 29, 1996 by and between the Company
and Lender, in respect of certain events of default and the issuance
of certain Common Stock purchase warrants. (15)
10.14 Promissory Note, dated February 21, 1996 in $500,000 principal
amount made by the Company to H. T. Ardinger. (17)
10.15 Letter agreement dated August 29, 1996 by and between the Company
and Fred Kassner, in respect of certain events of default and the
issuance of certain Common Stock purchase warrants. (15)
10.16 Agreement and Plan of Merger between the Company and Gainor Medical
Management, LLC, as amended, dated November 14, 1997. (17)
10.17 Closing Agreement dated January 28, 1998. (18)
34
10.18 Termination Agreement of Edward Buchholz, dated January 28, 1998. (18)
10.19 Termination Agreement of Tod Robinson, dated January 28, 1998. (18)
10.21 Employment Termination Agreement, dated July 10, 1998, by and among the
Company and Mr. Alan Korby.
10.22 Employment Termination Agreement, dated July 10, 1998, by and among the
Company and Mr. Matthew Gietzen.
10.23 Employment Termination Agreement, dated July 10, 1998, by and among the
Company and Mr. Brian Bookmeier.
22. Subsidiaries.
- - ------------------
1. Incorporated by reference, filed as an exhibit to the Registrant's
Registration Statement on Form S-1 filed on August 3, 1992, SEC File
No. 33-50426.
2. Incorporated by reference, filed as an exhibit to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 filed on October
13, 1992.
3. Incorporated by reference, filed as an exhibit to Amendment No. 2
to the Registrant's Registration Statement on Form S-1 filed on
November 10, 1992.
4. Incorporated by reference, filed as an exhibit to Amendment No. 3
to the Registrant's Registration Statement on Form S-1 filed on
November 13, 1992.
5. Incorporated by reference, filed as an exhibit to Amendment No. 4
to the Registrant's Registration Statement on Form S-1 filed on
December 4, 1992.
6. Incorporated by reference, filed as an exhibit to Amendment No. 5
to the Registrant's Registration Statement on Form S-1 filed on
December 8, 1992.
7. Incorporated by reference, filed as an Exhibit to the Company's
Report on Form 8- K, filed on February 23, 1994.
8. Incorporated by reference, filed as an Exhibit to the Company's
Annual Report on Form 10-KSB, filed on October 13, 1994.
9. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on December 2, 1994.
10. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on April 19, 1995.
11. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on July 26, 1995.
35
12. Incorporated by reference, filed as an exhibit to the Registrant's
Registration Statement on Form SB-2, filed on July 31, 1995, SEC
File No. 33-95222.
13. Incorporated by reference, filed as an exhibit to the
Registrant's Registration Statement on Form SB-2 filed on July 31,
1995, SEC File No. 33-95222.
14. Incorporated by reference, filed an Exhibit to the Company's Current
Report on Form 8-K, filed on January 30, 1996.
15. Incorporated by reference, filed as an Exhibit to the Company's
Report on Form 8-K, filed on September 10, 1996.
16. Incorporated by reference, filed as an exhibit to the Company's
Current Report on Form 10-QSB, filed on November 14, 1996.
17. Incorporated by reference, filed as an exhibit to the Company's
definmitive Proxy Statement, filed on December 24, 1998.
18. Incorporated by reference, filed as an exhibit to the Company's
Report on Form 10-Q, filed on December 24, 1998.
(b) EXHIBITS LIST OF REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter
ended June 30, 1998.
(The remainder of this page has been intentionally left blank)
36
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: October 13, 1998 TADEO HOLDINGS, INC.
By:
------------------------------
Brian Bookmeier, President and
Chief Executive Officer
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated
SIGNATURES TITLE DATE
/s/ President, Chief October 13, 1998
- - ----------------------------- Executive Officer, Acting
Brian Bookmeier Chief Financial Officer
and Director
/s/ Director October 13, 1998
- - -----------------------------
James Linesch
/s/
- - ----------------------------- Director October 13,1998
Damon Testaverde
37