-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ACyCGG5rz5DvIR0OOyHvsNDV0RIGtH6gz7kly884PxLsGO39hWSwKu/45BoBoYv0 Z8KVORIQ+b2gIqtZTiOSaA== 0001047469-98-037535.txt : 19981027 0001047469-98-037535.hdr.sgml : 19981027 ACCESSION NUMBER: 0001047469-98-037535 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981016 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TADEO HOLDINGS INC CENTRAL INDEX KEY: 0000879465 STANDARD INDUSTRIAL CLASSIFICATION: 5961 IRS NUMBER: 954228470 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-11568 FILM NUMBER: 98727187 BUSINESS ADDRESS: STREET 1: 42175 GRAND RIVER AVENUE STREET 2: SUITE 101 CITY: NOVI STATE: MI ZIP: 48735 BUSINESS PHONE: 3132612988 MAIL ADDRESS: STREET 1: 42175 GRAND RIVER AVENUE STREET 2: SUITE 101 CITY: NOVI STATE: MI ZIP: 48735 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL SELF CARE INC DATE OF NAME CHANGE: 19950808 10-K/A 1 10-K/A U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K/A [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 Holdings, 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 $5.75 million 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 $5.75 million 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 3 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. 4 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 (The remainder of this page has been intentionally left blank) 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 (The remainder of this page has been intentionally left blank) 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
(The remainder of this page has been intentionally left blank) 8 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 $5.75 million 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 $5.75 million 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 10 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 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 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 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 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. 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. 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. 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 12 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, consisting of a $17,000,000 Note and $17,000,000 in cash, subject to adjustments, such that the cash portion would equal the Net Asset Value at closing. The sale price was settled through a cash payment of approximately $8.2 million for the Net Asset Value, and the issuance of Gainor's Note to the Company for $17 million, subject to adjustments. 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, 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 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 all years; expected volatility of 86.3% for all 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 1,412,666 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 (The remainder of this page has been intentionally left blank) 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 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 $1.81 per share. Each July of any year in which a non-employee Director serves as a Director, such Director will be granted 10,000 five-year options to acquire shares of Common Stock at the market price at the date of grant. The following table sets forth information concerning options exercised and the number of unexercised options, and the value of such unexercised options, for any persons named in the Summary Compensation Table. AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY SHARES ACQUIRED ON VALUE REALIZED OPTIONS/SARS AT OPTIONS/SARS AT NAME EXERCISE (#) ($) 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. (The remainder of this page has been intentionally left blank) 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 -----END PRIVACY-ENHANCED MESSAGE-----