SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File Number: 0-21475
EMERGENT GROUP INC.
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(Exact name of Registrant as specified in its charter)
Nevada 93-1215401
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(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
932 Grand Central Avenue
Glendale, California 91201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 240-8250
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Former address: 375 Park Avenue, New York, NY 10152
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in part III of this
Form 10-K or any amendment to this Form 10-K [ ].
As of December 31, 2002, the number of shares held by non-affiliates
was approximately 31,275,140 shares. Due to the limited and sporadic trading of
the Company's Common Stock in the over-the-counter market, no estimate is
provided of the value of the Company's Common Stock held by non-affiliates since
such information would not be meaningful.
The number of shares outstanding of the Registrant's Common Stock, as
of January 24, 2003, was 64,917,803.
FORWARD-LOOKING STATEMENTS
We believe this annual report contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties and are based on the
beliefs and assumptions of our management, based on information currently
available to our management. When we use words such as "believes," "expects,"
"anticipates," "intends," "plans," "estimates," "should," "likely" or similar
expressions, we are making forward-looking statements. Forward-looking
statements include information concerning our possible or assumed future results
of operations set forth under "Business" and/or "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. Our future results and stockholder
values may differ materially from those expressed in the forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. Stockholders are cautioned not to put
undue reliance on any forward-looking statements. For those statements, we claim
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. For a discussion of some
of the factors that may cause actual results to differ materially from those
suggested by the forward-looking statements, please read carefully the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Risk Factors." In addition to the Risk Factors and
other important factors discussed elsewhere in this annual report, you should
understand that other risks and uncertainties and our public announcements and
SEC filings could affect our future results and could cause results to differ
materially from those suggested by the forward-looking statements.
PART I
Item 1. Business
THE COMPANY
Emergent Group Inc. ("Emergent") is the parent company of Medical
Resources Management, Inc. ("MRM"), its wholly owned and only operating
subsidiary. MRM was acquired by Emergent in July 2001. MRM primarily conducts
its business through its wholly owned subsidiary Physiologic Reps ("PRI").
Emergent, MRM and PRI are referred to collectively hereinafter as the "Company."
PRI is a provider of surgical equipment on a fee for service basis to hospitals,
surgical care centers and other health care providers. PRI serves both large and
small health care providers, including: 1) smaller independent hospitals and
physicians who cannot afford to buy surgical equipment because of budget
constraints or cannot justify buying due to limited usage; and 2) larger,
well-financed hospitals that may be able to purchase equipment for use in their
own facility but may choose not to because reimbursement or utilization rates
for many procedures do not warrant a capital commitment. Additionally,
infrequent utilization may not justify the cost of training and retention of
technicians to operate such equipment. PRI is also able to provide its
technicians to support hospital-owned surgical equipment on a fee for service
basis, thus improving efficiency and reducing costs for the hospital. Reduced
operating costs and improved flexibility for hospitals are elements of the PRI
value proposition to its customers.
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PRI makes mobile surgical services available to its customers by
providing surgical equipment on a per procedure basis to hospitals, outpatient
surgery centers, and physician offices. PRI provides mobile lasers and other
surgical equipment to customers along with technical support required to ensure
the equipment is working correctly. PRI also provides a limited amount of
non-surgical medical equipment on a rental basis to hospitals and surgery
centers. This non-surgical equipment is used throughout such facilities to
supplement their in-house resources.
PRI's mobile surgical services focus on two areas of the health care
industry: surgical care and cosmetic surgery. In the surgical care area,
physicians can perform minimally invasive surgery at hospitals renting PRI's
laser or other equipment. For cosmetic surgery, physicians benefit from having
different laser technologies available to offer to their patients without a
significant capital investment. In both instances, physicians and hospitals
receive PRI's technical support and expertise that is provided with the
equipment, allowing the staff to concentrate on their patient care duties
without the distraction of setup and running equipment.
PRI has approximately 500 active surgical service accounts in
California, Utah, Colorado and Nevada and experiences a high rate of repeat
business from the hospitals, surgery centers and doctors it serves. The market
encompasses many disciplines including plastic/cosmetics surgery, dermatology,
orthopedic surgery, otolaryngology, urology, obstetrics, gynecology,
ophthalmology, general surgery, podiatry and dentistry. Equipment is
increasingly becoming more specialized to specific medical procedures, and
technical training of the physician regarding the use of equipment is an
integral part of PRI's business.
PRI has begun building a healthcare distribution network that allows
physicians, hospitals and healthcare facilities access to new medical equipment
without the expense of acquisition. PRI is able to help manufacturers bring
advanced medical technologies to market by using its distribution channels and
relationships with doctors, hospitals and healthcare facilities to introduce
selected additional surgical products and services to end users on a `fee per
procedure' model. PRI had revenues of approximately $11.4 million in 2001,
including general medical equipment rental revenues of $1.6 million, which is
being discontinued, (amounts on a pro forma basis assuming a full year of
operations), and assisted in more than 12,000 surgical procedures. By making new
technologies available to physicians PRI hopes to become a distributor of
innovative medical device and support services to the healthcare community early
in a product's life cycle.
ACQUISITIONS
Acquisition of Medical Resources Management, Inc.
In July 2001, Emergent completed its acquisition of MRM as per an
Agreement and Plan of Reorganization of Merger (The "Merger Agreement") dated
January 23, 2001. As required by the terms of the Merger Agreement, Emergent
exchanged 5,633,667 shares of its Common Stock, which represented 11% of the
total post-merger outstanding shares, for all the issued and outstanding common
3
stock of MRM at a conversion ratio of 0.37 shares of Emergent's Common Stock per
share of MRM Common Stock. Based on the average of Emergent's closing stock
price for the 10 days prior to the acquisition, the purchase price for MRM was
$3,897,009 not including assumed debt. Additionally, on the effective date of
the Merger, all outstanding MRM options became options to purchase 564,786
shares of Emergent's Common Stock. The options exchanged had a fair value of
approximately $316,000. Emergent assumed approximately $13,802,071 in existing
MRM debt, capital lease obligations, and other liabilities. As of time of the
merger, the debt obligations had interest rates ranging from 6.3% to 25.5% and
were repayable over a one to five year period. Emergent's transaction costs
incurred in completing the merger amounted to approximately $336,000. Goodwill
of approximately $3,421,000 resulted from the merger. The transaction has been
accounted for under the purchase method of accounting. MRM is headquartered in
Glendale, California and operates as a wholly owned subsidiary of Emergent.
Following the merger, Emergent relocated its principal executive office from New
York City, New York to Glendale, California. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Transfer of Equity with Dynamic International, Ltd. and Formation of
Emergent Group Inc.
Emergent Ventures, LLC ("Ventures"), a Delaware Corporation, was formed
on March 8, 2000 to invest primarily in global private equity opportunities in
information technology, health care and medical technology companies. Ventures'
equity capitalization consisted of a contribution of securities by Emergent
Management Company, LLC ("Manager"), for a fifty-eight percent (58%) interest in
Ventures and a contribution of $7,500,000 in cash by other members in return for
the remaining forty-two percent (42%) interest in Ventures.
On August 31, 2000, Ventures consummated the transactions contemplated
by an Equity Transfer Transaction ("Transfer"), all pursuant to an Equity
Transfer and Reorganization Agreement ("Agreement"), by and among Emergent,
formerly named Dynamic International, Ltd. ("Dynamic Ltd.") and Ventures.
Pursuant to and in accordance with the Agreement and immediately prior to the
consummation of the Transfer, Dynamic Ltd. transferred all of its assets and
liabilities (other than outstanding bank debt in the amount of $250,000) to a
wholly owned subsidiary of Dynamic Ltd., named Dynamic International, Inc.
Dynamic International, Inc. acquired the transferred assets, assumed the
remaining liabilities and indemnified Dynamic Ltd. against any liabilities
relating to or arising out of the transferred assets and the assumed
liabilities. In conjunction with the Transfer, Dynamic International, Inc. was
spun-off from Dynamic Ltd. as a separate entity to its stockholders on a pro
rata basis. Pursuant to the Agreement, Ventures contributed substantially all of
its assets to Dynamic Ltd. in exchange for the issuance of 39,755,178 shares of
Dynamic Ltd. common stock to the members of Ventures. Dynamic Ltd. subsequently
changed its name to Emergent Group Inc. ("Emergent") on November 6, 2000. The
Company retained Dynamic Ltd.'s State of Incorporation in Nevada. For financial
accounting purposes, the Transfer was accounted for as a re-capitalization by
Ventures as the accounting acquiror and with Dynamic Ltd. as the accounting
acquiree. After the Transfer, the former members of Ventures became the
beneficial owners of approximately 39,755,178 shares of Dynamic Ltd.'s common
stock, representing approximately ninety percent (90%) interest in Dynamic Ltd.
with voting control of the Emergent resting in the hands of Manager. Each of the
Directors of Dynamic Ltd. resigned immediately prior to the consummation of the
Transfer or within a few months thereafter. The beneficial owners of the Manager
were elected as directors and executive officers of Emergent. Emergent recorded
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goodwill as a result of the Transfer amounting to $250,000, which is being
amortized over three years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Prior to Emergent's acquisition of MRM it was a merchant banking firm.
Merchant banks are essentially in the business of finding opportunities and
sources of funding and, with investors' money and their own capital, financing
growth and facilitating transactions for, and among their clients. The
distinguishing characteristics of a merchant bank are that it commits its own
capital, or the capital of its principals, to a transaction, either in the form
of debt, typically short-term bridge financing, or equity, and that it generally
receives an equity position in the client company as part or all of the
compensation for its services. Since July 2001, Emergent ceased its merchant
banking activities to concentrate its management and resources on developing the
mobile surgical services business of MRM.
PRODUCTS AND SERVICES
PRI's technicians provide surgical equipment and associated technical
services support to physicians and operating room ("O.R.") personnel in
hospitals, surgical care centers and other health-related facilities on a
per-procedure basis. Mobile surgical services are ordered from 24 hours to
several months in advance of surgery, and re-confirmed with the customer the day
before the medical procedure by PRI's scheduling department. Upon arrival at the
customer site, PRI's technician posts required warning notices outside the O.R.,
issues safety equipment to the O.R. staff, provides any disposable materials
needed, and supplies equipment certifications and/or documentation required for
hospital record keeping. The technician is responsible for setting the
physician's requested power settings on rented equipment and for helping to
maintain a safe environment with regard to the rental equipment during the
surgical procedure. Technician-only services are made available to hospitals and
surgery facilities, especially those with fluctuating occupancy levels.
Customers find that outsourcing of trained technicians without renting equipment
to be a cost-effective alternative to training and staffing their own personnel.
PRI's laser equipment encompasses CO2, Nd:YAG, Pulse Dye, KTP/YAG and
Holmium YAG laser technology. PRI has established working relationships with
leading laser manufacturers and is sometimes an introducer of laser technology
in its markets. PRI reviews developments in the medical field to stay abreast of
new and emerging technologies and to obtain new surgical medical equipment. In
this regard, PRI has in recent years added equipment to provide for services in
cryosurgery, advanced visualization technology and brachytherapy. The Company
strives to develop and expand strategic relationships in order to enhance its
product lines and improve its access to new medical devices.
PRI also provides its customers with disposable products and/or
attachments that are needed for a given medical procedure. These disposable
products are primarily related to laser equipment rentals requiring fibers,
tubing, laser drapes and masks. Customers may benefit from this added service by
lowering their inventory levels of infrequently used products.
5
In the past PRI has offered a broad range of general medical equipment
to its customers. PRI's inventory of equipment included an extensive selection
of devices serving a broad range of hospital departments and needs such as adult
and infant ventilators, carbon dioxide monitors, defibrillators, feeding pumps,
PCA pumps, electro cardiogram monitors, infusion pumps, neo-natal monitors, and
pulse oximeters. In late 2001 the Company decided to discontinue this area of
business in order to focus on its core surgical equipment rental/services
business. In connection with the phase-out of the general medical equipment
rental business and after review of its other operating assets, the Company
recorded impairment charges for property and equipment, and goodwill of
$3,732,223 and $687,906, respectively, as of December 31, 2001. "See
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MARKETING AND SALES
PRI markets its mobile surgical equipment and services business largely
through the efforts of its direct sales force which focuses on providing
high-quality service and products to its customers and on obtaining new customer
accounts. In conjunction with its sales efforts, PRI sponsors educational
seminars on new laser and other surgical equipment technologies which are
attended by its current and prospective customers. These seminars allow PRI's
direct sales force to introduce new technologies and procedures to its customer
base early in the product's life cycle.
PRI's sales representatives attend national and regional physician
medical seminars and trade shows to present PRI's services and products. PRI
also markets its products and services through direct mail marketing of
literature and promotional materials which describe PRI's complete range of
surgical equipment and services to hospitals, surgery centers and physicians.
MARKETS
PRI currently serves customers in California, Colorado, Utah and
Nevada. Each location is staffed with full-time technicians and sales
representatives. During the period from July 2001 (date of acquisition) to
December 31, 2001, no customer accounted for more than 10% of PRI's total sales
for such periods.
Hospital Mobile Laser/Surgical Services
PRI provides mobile laser/surgical services to customers in each market
served. Each location is staffed with full-time trained technicians and sales
representatives, and is equipped with a variety of surgical equipment to meet
customer needs. During the twelve months ended December 2001, PRI performed over
12,000 procedures company-wide. For the period ended December 31, 2001, revenues
from our mobile laser/surgical services comprised approximately 68% of our total
revenues. We believe that revenue from our surgical related services will
continue to comprise the majority of our revenues in the foreseeable future.
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Cosmetic Mobile Laser/Surgical Services
The cosmetic laser business is primarily physician office based. This
market is characterized by rapid changes in specific techniques as new
technology emerges. Recently, cosmetic laser skin resurfacing surgery has shown
significant growth, however, price competition is a constant challenge from
smaller start-up companies. Recent legislation in California and some other
states restricting anesthesia in doctor offices has redirected some of this
cosmetic surgery to hospitals and surgery centers where PRI has existing
customer relationships and the ability to compete more effectively.
General Medical Equipment, Rentals
PRI entered the general equipment rental market several years ago.
However, due to lower margins and increased competition and its focus on the
higher margin mobile surgical services business, MRM started phasing out its
general equipment rental business in late 2001 and is in the process of selling
its general medical rental equipment assets.
INVESTMENTS
Investments In Limited Liability Companies
In connection with expanding its business in certain commercial and
geographic areas, PRI will occasionally sponsor and form Limited Liability
Companies ("LLCs") in which it will acquire a minority interest and offer the
remaining interest to physicians and other qualifed investors. These LLCs
acquired certain equipment for use in their respective business activities which
generally focus on cosmetic and surgical procedures. In prior years, PRI
sponsored and acquired minority equity interests in various LLCs in Utah,
Colorado and California and holds minority interest in six LLCs as of December
31, 2001. The Company utilizes the equity method of accounting for its
investments in the various LLCs. For the period ended December 31, 2001 the
Company recorded equity in earnings of $26,773 from its ownership interest in
such LLCs. In addition, PRI and its affiliates provide operating and
administrative services to the LLCs. During the period ended December 31, 2001
the Company earned fees for management, operational and other services of
$565,429. The balances due from the LLCs at December 31, 2001 was $38,268, which
is recorded under "due from related parties" in the accompanying consolidated
balance sheets.
Other Investments
As discussed herein, prior to Emergent's acquisition of MRM in July
2001 it acted as a merchant banking firm seeking opportunities and sources of
funding and, with investors' money and/or the Company's own capital, financing
expected growth of Company's clients or facilitating transactions for them.
During the course of these activities the Company's largest investment of
$2,000,000 was made in March 2000 in the securities of Stonepath Group Inc.
("Stonepath") (formerly Net Value Holdings Inc.), an investment made on the
Company's behalf by a related party. As of December 31, 2001 and 2000 the
Company recognized an unrealized gain (loss) on this investment of $175,760 and
$(1,908,333), respectively.
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In October 2000, a related party of the Emergent (the "plaintiff")
commenced an action on behalf of Emergent against Stonepath and two of its
officers in the United States District Court for the Southern District of New
York. The action was for negligence and fraud under the federal securities laws
and common law to recover its investment in Stonepath. On April 15, 2002 the
court dismissed the plaintiff's amended Complaint without leave to amend.
Emergent has filed an appeal of the court's decision. The Company does not
intend to conduct any additional merchant banking activities in the future.
GOVERNMENT REGULATION
The healthcare industry is subject to extensive federal and state
regulation. Promulgation of new laws and regulations, or changes in or
re-interpretations of existing laws or regulations, may significantly affect the
Company's business, operating results or financial condition. The Company is not
currently subject to regulation, however, a court or governmental body could
make a determination that the Company's business should be regulated. The
Company's operations might be negatively impacted if it had to comply with
government regulations. Furthermore, the manufacturers of medical equipment
utilized by the Company are subject to extensive regulation by the Food and Drug
Administration ("FDA"). Failure of such manufacturers to comply with FDA
regulations could result in the loss of approval by the FDA of such medical
equipment, which could adversely affect the Company's operating results or
financial condition. As consolidation among physician groups continues and
provider networks continue to be created, purchasing decisions may shift to
persons with whom the Company has not had prior contact. The Company cannot be
certain that it will be able to maintain its physician, vendor and/or
manufacturer relationships under such circumstances.
POTENTIAL EXPOSURE TO LIABILITY
Physicians, hospitals and other providers in the healthcare industry
are subject to lawsuits, which may allege medical malpractice or other claims.
Many of these lawsuits result in substantial defense costs and judgments or
settlements. The Company does not engage in the practice of medicine, nor does
it control the practice of medicine by physicians utilizing its services or
their compliance with regulatory requirements directly applicable to such
physicians or physician groups. However, the services the Company provides to
physicians, including actions by its technicians, its establishment of protocols
and its training programs, could give rise to liability claims. The Company may
become involved in material litigation in the future and it is possible that a
claim or claims arising from such litigation might exceed the Company's
insurance coverage. Currently, the Company's insurance coverage expires in April
2003. In the future, the Company may not be able to maintain such insurance
coverage or obtain new coverage in the future.
COMPETITION
The market for PRI's mobile surgical services is highly competitive.
Companies, particularly in the laser surgery industry, often compete by price,
thereby impacting profit margins. In addition, PRI faces many existing and
future competitors of various size and scale. Some of our competitors have
significantly greater financial and management resources than the company.
Competitors in our market include two privately held companies by the name of
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Mobile Med, Incorporated and Southland Surgical. In spite of such competition,
the Company believes that it can compete successfully but can give no assurances
with regard to its ability to compete. The Company's business could be adversely
affected if our customers elect to purchase surgical equipment directly from the
manufacturers and hire their own technicians.
EMPLOYEES
As of December 31, 2002, the Company employed 77 full-time persons
(including two executive officers), 50 of whom were involved in operations
activities (most of these were active as field technicians), 12 of whom were
involved in sales and marketing, and 15 of whom were involved in administration,
information technology, and accounting. In addition, the Company may employ
part-time and occasional employees as technicians to handle overload situations.
None of our employees are represented by collective bargaining agreements. The
Company believes that its employee relations are good.
Item 2. Properties
The Company leases approximately 14,400 square feet of office/warehouse
space for its operations and headquarters in Glendale, California. The lease
agreement provides for monthly rent of $13,270, and is subject to annual
increases based on increases in the Consumer Price Index. The lease expires in
July 2006 and provides for an option to renew for an additional five years. The
Company also leases an aggregate of approximately 5,000 square feet of space for
its field and sales office under operating lease agreements that expire on
various dates through March 2004 in Northern California, Colorado and Utah. We
believe our present facilities will be adequate for our reasonably foreseeable
needs.
Item 3. Legal Proceedings
Stonepath Group, Inc.
In October 2000, a related party of the Company (the "plaintiff")
commenced an action on behalf of the Company against Stonepath Group, Inc. and
two of its officers in the United States District Court for the Southern
District of New York. The action was for negligence and fraud under the federal
securities laws and common law to recover its investment in Stonepath. On April
15, 2002, the court dismissed the plaintiff's amended Complaint without leave to
amend. The Company has filed an appeal of the court's decision and this appeal
is pending.
Citicorp Vendor Finance, Inc.
On April 25, 2002, Citicorp Vendor Financial, Inc. filed suit against
PRI and MRM for breach of contract in Superior Court of California, County of
Los Angeles. This lawsuit seeks to recover $655,916 plus interest and late
charges in connection with amounts due under certain equipment lease agreements.
The Company reached a settlement with Citicorp in November 2002, whereby, the
Company agreed to pay Citicorp a total of $400,000 in full settlement of the
9
claim in various installments, with the balance being paid in full by March 1,
2004. As part of the settlement, Citicorp has agreed that PRI may sell the
equipment under the equipment lease agreement but must transmit to Citicorp all
proceeds from the sale in excess of $225,000. The settlement further stipulates
in event of non-payment, Citicorp can petition the court for an entry of
judgment against PRI. The Company is current in making all required payments
under the settlement agreement.
General Electric
Beginning in 1999, the Company's subsidiaries entered into 39 personal
property sales contracts to purchase from General Electric certain medical
imaging equipment. The total amount the Company owed to General Electric as of
May 21, 2002 was $2,399,487. The Company reached a settlement with General
Electric in June 2002 and entered into a Stipulation of Settlement for entry of
judgment which would be filed in Superior Court of the State of California,
County of Los Angeles only if there is a default which is not cured. Pursuant to
the settlement agreement, the Company agreed to return certain equipment to
General Electric and to made sixty (60) monthly payments of $18,013 for a total
of $1,080,781. In the event the Company fails to make all required payments when
due, and an event of default occurs which is not cured, the Company would owe
General Electric the original due under 39 personal sales contracts. The Company
is current in making all required payments under the settlement agreement.
Charlotte Taylor
In December 2001, Charlotte Taylor commenced a legal proceeding in the
Superior Court of the State of California, County of Orange, against the
Company, Anaheim General Hospital and a surgeon named Jay Shree Vyas M.D.
alleging compensatory and general damages for medical negligence and product
liability in the amount to be proved at trial plus reasonable attorneys' fees,
interest on the sum of damages awarded, costs of suit and such other amount as
the Court deems just and proper. Plaintiff alleges that while she was under
anesthesia, Defendants sought to use an instrument called a morcelator which did
not function properly and allegedly caused her harm. The Company has reported
this legal proceeding to its insurance company and management believes that the
outcome of this proceeding will be covered by insurance, except for any
applicable deductible. The Company intends to vigorously defend this lawsuit.
Paige Amans
On October 18, 2002, a former employee of the Company, commenced a
legal proceeding in the Superior Court of California, County of Los Angeles
against the Company, its subsidiaries, and an officer of the Company. The
Complaint contains three causes of action as follows: (1) discrimination on the
basis of her sex in violation of the California Fair Employment and Housing Act
(California Government Code Section 12940); breach of contract; and breach of
the implied covenant of good faith and fair dealing. Plaintiff alleges that she
was discriminated against in the terms and conditions of her employment,
transferred, and ultimately wrongfully terminated because of her sex (female)
and due to alleged favoritism towards another female employee at the Company.
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Plaintiff also claims that her termination breached an implied contract of
employment to terminate her only for "good cause", including violation of the
implied covenant of good faith and fair dealing inherent in contracts. The
Plaintiff seeks actual, incidental, consequential, and general damages in an
unspecified amount, punitive damages, costs and attorneys' fees. The Company
disputes the merit of Plaintiff's Complaint and intends to vigorously defend
against this lawsuit.
In addition to the matters noted above, from time to time, we may
become involved in litigation arising out of operations in the normal course of
business. As of December 31, 2001 and as of January 23, 2003, we are not a party
to any pending legal proceedings the adverse outcome of which could reasonably
be expected to have a material adverse effect on our operating results or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2001 or between January 1, 2002 and the filing date of
this Form 10-K.
PART II
Item 5. Market for Registrant's Securities and Related Stockholder Matters.
Our common stock was traded on the OTC Bulletin Board under the symbol
"EMGR" before being removed from listing due to the late filing of this Form
10-K. The last closing sales price of our Common Stock on the bulletin board was
$.005 on May 21, 2002. The Company intends to attempt to obtain a new listing
for its common stock on the OTC Bulletin board or BBX Exchange. No assurances
can be given that the Company will be successful in this regard. Since being
removed from the Bulletin Board, our common stock continues to trade on a
limited and sporadic basis in the Over-the-Counter Market. The following table
sets forth the range of high and low closing prices of our Common Stock for the
periods indicated. All sales of common stock for periods before the quarter
ended September 30, 2000 were sales of common stock of Dynamic International,
Ltd. before the spin-off of assets to Dynamic International Inc.
Quarters Ended High Low
September 30, 2000 (1).......................................$1.69 $.14
December 31, 2000............................................ 1.08 .31
March 31, 2001............................................... 1.00 .01
June 30, 2001................................................ 1.25 .25
September 30, 2001........................................... .56 .15
December 31, 2001............................................ .15 .05
March 31, 2002............................................... .06 .01
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June 30, 2002................................................ .035 .005
September 30, 2002........................................... .03 .0001
December 31, 2002.................... .01 .0001
Last Available in 2002...............
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December 20, 2002............................................ .0001 .0001
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(1) The common stock of the Company was not publicly traded until the
completion of the merger with Dynamic International, Ltd. in August
2000, therefore, no public market price existed for the Company's
common stock prior to the period ended September 30, 2000. See
"Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
All quotations reflect inter-dealer prices, without retail mark-up,
markdown or commissions, and may not necessarily represent actual transactions.
As of December 11, 2002, there were 1,078 holders of record of our
common stock, although we believe that there are other persons who are
beneficial owners of our common stock held in street name. The Company's
transfer agent is American Stock Transfer & Trust Company, 59 Maiden Lane, New
York, NY 10038.
Dividend Policy
We have never paid any cash dividends and intend, for the foreseeable
future, to retain any future earnings for the development of our business. Our
Board of Directors will determine our future dividend policy on the basis of
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities.
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..Recent Sales of Unregistered Securities
Since January 1, 2001, the Company made the following sales or issuances of
unregistered securities:
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
Consideration Received
and Description of
Underwriting or Other
Discounts to Market If Option, Warrant
Price or Convertible or Convertible
Security, Afforded to Exemption from Security, terms of
Purchasers Registration exercise or
Date of Sale Title of Security Number Sold Claimed conversion
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
12/30/02 Common Stock 11,502,970 Services rendered; no Section 4(2) Not applicable.
commissions paid
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
12/30/02 Common Stock 4,361,000 Options granted under This stock option 10-year Options were
2002 Stock Option Plan; plan will be granted to
no cash received; no registered on a employees, directors
commissions paid Form S-8 and consultants and
Registration at $.01 per share;
Statement shortly Options generally
after the filing vest in five equal
of this Form 10-K annual installments
and other required commencing on the
Exchange Act date of grant expire
Reports. ten years from date
of grant.
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
12/30/02 Common Stock 30,000 Warrants granted in Section 4(2) Warrants exercisable
connection with debt at anytime $.01 per
foregiveness; no cash share through
received; no 2/28/05.
commissions paid
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
5/01 Common Stock 237,874 Conversion of Section 4(2) Not applicable
outstanding debt; no
commissions paid
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
5/21/02 Common Stock 6,195,880 Options granted under This stock option 10-year Options were
2002 Stock Option Plan; plan will be granted to
no cash received; no registered on a employees/consultants
commissions paid Form S-8 at $.01 per share;
Registration Options generally
Statement vest in five equal
shortly after the annual installments
filing of this Form commencing on the
10-K and other date of grant and
required Exchange expire ten years from
Act Reports. from date of grant.
13
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
11/1/01 Common Stock 970,000 Options granted under This stock option Options vest over a
2001 Stock Option Plan; plan will be period of three
no cash received; no registered on a years, exercisable
commissions paid Form S-8 at $1.00 per share,
Registration and expire on December
Statement 31, 2005.
shortly after
the filing of this
Form 10-K and other
required Exchange Act
Reports.
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
11/1/01 Common Stock 4,673,436 Options/warrants Section 4(2) Options/warrants
approved by the Board approved by the
of Directors outside of Board of Directors
Stock Option Plan to an to various persons
officer, a director, and vest over
officer of subsidiary, different time
outside general periods and are
counsel, employees and exercisable at
consultants; no cash prices between $.01
received; no per share and $1.00
commissions paid per share; all the
options/ warrants
expiration no later
than December 31,
2004
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
7/01 Common Stock 3,000,000 Common Stock sold in Section 4(2) Not applicable
July 2001 at $.20 per
share. Stock was
approved by the Board
on 11/1/01 but
belatedly issued in
June 2002; no
commissions paid
- -------------- ------------------ -------------- ------------------------- -------------------- ----------------------
14
Equity Compensation Plan
The following summary information is as of December 31, 2002 and relates to
our 2002 Stock Option Plan described in Item 11 pursuant to which we have
granted options to purchase our common stock:
- ------------------------------- ------------------------------ ---------------------- --------------------------------
(a) (b) (c)
- ------------------------------- ------------------------------ ---------------------- --------------------------------
Plan category Number of shares of common Weighted average Number of securities
stock to exercise price of remaining available for
be issued upon exercise outstanding future issuance under
of outstanding options options (1) equity compensation plans
(excluding shares
reflected in column (a)
- ------------------------------- ------------------------------ ---------------------- --------------------------------
Equity compensation
Plans (2) 9,167,609 $.012 3,832,391
- ------------------------------- ------------------------------ ---------------------- --------------------------------
- --------------------
(1) Based upon 9,007,609 options exercisable at $.01 per share, 80,000 options
exercisable at $.05 per share and 80,000 options exercisable at $.20 per
share.
(2) The 2002 Stock Option Plan will be submitted to stockholders for approval
at our next annual meeting.
The following summary information is as of December 31, 2002 and relates to
our 2001 Stock Option Plan described in Item 11 pursuant to which we have
granted options to purchase our common stock:
- ------------------------------- ------------------------------ ---------------------- --------------------------------
(a) (b) (c)
- ------------------------------- ------------------------------ ---------------------- --------------------------------
Plan category Number of shares of common Weighted average Number of securities
stock to exercise price of remaining available for
be issued upon exercise outstanding future issuance under
of outstanding options options (1) equity compensation plans
(excluding shares
reflected in column (a))
- ------------------------------- ------------------------------ ---------------------- --------------------------------
Equity compensation
Plans (2) 585,000 $1.00 -0-
- ------------------------------- ------------------------------ ---------------------- --------------------------------
- --------------------
(1) All options are exercisable at $1.00 per share.
(2) The 2001 Stock Option Plan will be submitted to stockholders for approval
at our next annual meeting. The Plan originally covered 8,000,000 shares
but has been reduced by board resolution to the number of outstanding
options.
15
The following summary information is as of December 31, 2002 and relates to
our Stock Option Plans of MRM described in Item 11 which were assumed by
Emergent and pursuant to which we have granted options to purchase our common
stock:
- ------------------------------- ------------------------------ ---------------------- --------------------------------
(a) (b) (c)
- ------------------------------- ------------------------------ ---------------------- --------------------------------
Plan category Number of shares of common Weighted average Number of securities
stock to exercise price of remaining available for
be issued upon exercise outstanding future issuance under
of outstanding options options (1) equity compensation plans
(excluding shares
reflected in column (a))
- ------------------------------- ------------------------------ ---------------------- --------------------------------
Equity compensation
Plans (2) 51,375 $1.47 -0-
- ------------------------------- ------------------------------ ---------------------- --------------------------------
- --------------------
(1) Based upon 44,530 options exercisable at $.68 per share and 6,845 options
exercisable at $4.05 per share.
(2) The Board of Directors of Emergent does not intend to grant any more options
under the old MRM Plans.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from
the Company's consolidated financial statements, which have been
examined by independent certified public accountants. Such financial
data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
audited consolidated financial statements included elsewhere in this
Form 10K.
Statement of Operations Data
Period from inception
Year Ended (March 8, 2000) to
December 31, 2001 (1) December 31,2000
-------------------- ----------------
Revenues ...................................... $ 5,244,585 $--
Cost of goods sold ............................ 4,328,935 --
Gross profit .................................. 915,650 --
Selling, general and administrative expenses .. (3,609,439) (986,401)
Impairment of property and equipment .......... (3,732,223) --
Impairment of goodwill ........................ (687,906) --
Loss from operations .......................... (7,113,918) (986,401)
Total other income (expense) .................. (2,604,703) (581,419)
Loss before provision for income taxes ........ (9,718,621) (1,567,820)
Provision for income taxes .................... 1,600 --
Net Loss ...................................... (9,720,221) (1,567,820)
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on investment securities 309,822 (2,042,395)
Comprehensive loss ............................ (9,410,399) (3,610,215)
Basic and diluted net loss per
share ......................................... (0.19) (0.04)
(1) Operating results include the operations of MRM from July 6, 2001 (date of
acquisition) to December 31, 2001.
Balance Sheet Data
December 31,
2001 December 31, 2000
Total assets ............................................... $10,135,189 $ 5,184,747
Long-term debt ............................................. 2,884,798 --
Cash dividends declared per common share ................... 0 0
Weighted average common shares outstanding basic and diluted 48,350,262 41,557,789
Critical Accounting Policies
Our discussion and analysis of our financial conditions and results of
operations are based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements require managers to make estimates and
disclosures on the date of the financial statements. On an on-going basis, we
evaluate our estimates including, but not limited to, those related to revenue
recognition. We use authoritative pronouncements, historical experience and
other assumptions as the basis for making judgements. Actual results could
differ from those estimates. We believe that the following critical accounting
policies affect our more significant judgements and estimates in the preparation
of our financial statements.
Revenue Recognition. We are required to make judgements based on
historical experience and future expectations, as to the realizability of goods
and services billed to our customers. These judgements are required to assess
the propriety of the recognition of revenue based on Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition," and related guidance. We make such
assessments based on the following factors: (a) customer-specific information,
and (b) historical experience for issues not yet identified.
17
Inventory Valuation. We are required to make judgements based on historical
experience and future expectations, as to the realizability of our inventory. We
make these assessments based on the following factors: (a) existing orders and
usage, (b) age of the inventory, and (c) historical experience.
Property and Equipment. We are required to make judgements based on
historical experience and future expectations, as to the realizability of our
property and equipment. We made these assessments based on the following
factors: (a) the estimated useful lives of such assets, (b) technological
changes in our industry, and (c) the changing needs of our customers.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto appearing elsewhere in
this Form 10K. All statements contained herein that are not historical facts,
including, but not limited to, statements regarding anticipated future capital
requirements, our future plan of operations, our ability to obtain debt, equity
or other financing, and our ability to generate cash from operations, are based
on current expectations. These statements are forward-looking in nature and
involve a number of risks and uncertainties that may cause the Company's actual
results in future periods to differ materially from forecasted results.
Overview
Emergent is the parent company of MRM, its wholly owned and only
operating subsidiary. MRM primarily conducts its business through its wholly
owned subsidiary, PRI. Emergent Group Inc., MRM and PRI are referred to
collectively hereinafter as the "Company." PRI is a provider of mobile surgical
equipment, on a fee for service basis, to hospitals, surgical care centers and
other health care providers. PRI serves both large and small health care
providers and makes mobile surgical services available to its customers by
providing this equipment on a per procedure basis to hospitals, out patient
surgery centers, and physician offices. PRI provides mobile lasers and other
surgical equipment with technical support required to ensure the equipment is
working correctly. PRI also provides a limited amount of general equipment on a
rental basis to hospitals and surgery centers, although PRI is discontinuing
this area of business in order to focus on its core surgical equipment
rental/services business. In connection with the phase-out of the general
medical equipment rental business and review of other property and equipment
assets, the Company recorded impairment charges for property and equipment, and
goodwill of $3,732,223 and $687,906, respectively, as of December 31, 2001
Acquisition of Medical Resources Management, Inc.
Reference is made to "Item 1" for a discussion of the Company's July
2001 acquisition of MRM.
18
Prior to Emergent's acquisition of MRM, Emergent was a merchant banking
firm. Merchant banks are essentially in the business of finding opportunities
and sources of funding and, with investors' money and their own capital,
financing growth and facilitating transactions for, and among their clients. The
distinguishing characteristics of a merchant bank are that it commits its own
capital, or the capital of its principals, to a transaction, either in the form
of debt, typically short-term bridge financing, or equity, and that it generally
receives an equity position in the client company as part or all of the
compensation for its services. In late 2000 Emergent made convertible loans to
MRM. Since July 2001 we have ceased our merchant banking activities in order to
concentrate the Company's management and resources on developing the mobile
surgical services business of MRM.
Transfer of Equity with Dynamic International, Ltd. and Formation of
Emergent Group Inc.
Reference is made to "Item 1" for a discussion of an equity transfer
and spin-off of assets to Dynamic International Ltds and the former members of
Emergent Ventures, LLC's acquisition of control of Dynamic Ltd.
19
Results of Operations
The following table sets forth certain selected condensed consolidated statement
of operations data for the periods indicated:
Statement of Operations Data
- -------------------------------------------------------- --------------------------------- ---------------------------------
For the period
from inception
Year Ended (March 8, 2000)
December 31, to December 31,
2001 2000
- -------------------------------------------------------- --------------------------------- ---------------------------------
Revenues $ 5,244,585 $ ---
- -------------------------------------------------------- --------------------------------- ---------------------------------
Cost of sales 4,328,935 ---
- -------------------------------------------------------- --------------------------------- ---------------------------------
Gross profit 915,650 ---
- -------------------------------------------------------- --------------------------------- ---------------------------------
Selling, general and administrative expenses 3,609,439 (986,401)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Impairment of property and
equipment 3,732,223 ---
- -------------------------------------------------------- --------------------------------- ---------------------------------
Impairment of goodwill 687,906 ---
- -------------------------------------------------------- --------------------------------- ---------------------------------
Loss from operations (7,113,918) (986,401)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Total other income (expense) (2,604,703) (581,419)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Loss before provision for income taxes (9,718,621) (1,567,820)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Provision for income taxes 1,600 ---
- -------------------------------------------------------- --------------------------------- ---------------------------------
Net loss (9,720,221) (1,567,820)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Other comprehensive gain (loss), net of tax 309,822 (2,042,395)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Comprehensive loss (9,410,399) (3,610,215)
- -------------------------------------------------------- --------------------------------- ---------------------------------
Basic and diluted net loss per share (0.19) (0.04)
- -------------------------------------------------------- --------------------------------- ---------------------------------
The Company conducted no significant operations, other than its
investing activity prior to its acquisition and merger with MRM on July 6, 2001.
The condensed consolidated financial statements of the Company for the year
ended December 31, 2001 reflects a net loss of $(9,720,221) on net revenues of
$5,244,585. In addition, in late 2001 the Company decided to discontinue its
rental of general equipment to hospitals and physicians, which accounted for
approximately 11% of revenues for the period ended December 31, 2001.
20
Year Ended December 31, 2001 Compared to the period from March 8, 2000
(inception) to December 31, 2000
The Company generated revenues of $5,244,585 in 2001 compared to $0 in
2000. Revenues for 2001 were generated by MRM during the period from July 6,
2001 (date of acquisition) to December 31, 2001. The Company had no operations
prior to the acquisition of MRM. Approximately 68% of revenues for 2001 were
generated from MRM mobile surgical equipment services with the balance primarily
generated from cosmetic services and non-surgical equipment rentals.
Cost of goods sold of amounted to $4,328,935 for 2001, compared to $0
for 2000. Such costs were incurred by MRM during the period from July 6, 2001 to
December 31, 2001 in connection with its mobile surgical equipment services
business. No such costs were incurred during 2000 as discussed herein. Costs of
good sold primarily consist of payroll costs and related expenses for
technicians, cost of disposables consumed, insurance costs and other operating
costs incurred in rendering such services..
Gross profit from operations was $915,650 for 2001 compared to $0 for
the period ended December 31, 2000. Gross profit represented 17.4% of revenues
for 2001 and is not necessarily indicative of the margins that may be realized
in future periods. We anticipate that operating margins will improve in future
periods as we complete our financial restructuring efforts and continue to
improve our operating procedures.
Selling, general and administrative expenses were $3,609,439 for 2001,
compared to $986,401 for 2000. The increase in such expenses relate to the
inclusion of operating results for MRM for the period from July 6, 2001 (date of
acquisition) to December 31, 2001, while no such expenses were incurred in 2000.
As discussed elsewhere in this Form 10-K, the Company, as the successor to
Dynamic International, Ltd., is deemed to have been formed for financial
reporting purposes on March 8, 2000 and as a result incurred general and
administrative expenses from the date of formation to December 31, 2000, while
general and administrative expenses were incurred for the full year in 2001.
The Company recognized an impairment charge of $3,609,439 as of
December 31, 2001 primarily in connection with the revaluation of its general
rental equipment. In late 2001, the Company decided to discontinue its general
rental business due to poor performance and in order to focus on its core
business of providing mobile surgical equipment and services. The Company is in
the process of selling its remaining general rental equipment through the use of
independent equipment brokers. From January 1, 2002 to December 31, 2002, the
Company sold general rental equipment with an aggregate net book value of
$504,044 and had recognized net gains on such dispositions of approximately
$163,880. The Company expects to continue its disposition activities until all
such general rental equipment is sold.
The Company recognized an impairment charge of $687,906 related to
recorded goodwill as of December 31, 2001. Such amount represents a portion of
the goodwill recorded in connection with the acquisition and merger with MRM in
July 2001. The write-down of goodwill related to the MRM merger primarily
21
resulted from the Company's decision to discontinue the non-surgical rental
business in late 2001. The Company will continue to review the value of its
tangible and intangible assets in the future as events and circumstances warrant
and it may be required to record additional impairment charges if the carrying
amount of its assets is deemed to be unrecoverable.
Realized losses on investment securities amounted to $2,306,428 in
2001, compared to $709,703 in 2000. The realized losses in 2001 relate primarily
to the permanent impairment of several investments in common stocks of
unaffiliated companies, which were acquired by Emergent in 2000.
Interest expense amounted to $357,134 in 2001 compared to $0 in 2000.
Interest expense was incurred by MRM in connection with its debt and capital
lease obligations.
Period from Inception (March 8, 2000) to December 31, 2000
For the period form inception (March 8, 2000) to December 31, 2000, we
incurred a net loss of $(1,567,820) or $(0.04) per share. The net loss resulted
from expenses being incurred due to an increase in operations and investing
activities. The net loss includes a realized loss of $709,703 on investments
attributable to the termination of business operations by the company with which
the investment was made. The unrealized loss of $2,042,395 on investments is due
to the general decline in value of technology and Internet related companies.
Recently Issued Accounting Pronouncements
Between June 2001 and October 2002, the Financial Accounting Standards
Board ("FAB") issued SFAS No. 141 through SFAS No. 147. These pronouncements and
any anticipated effect on us are described in Note 3 in the notes to our
consolidated financial statements, which are incorporated herein by reference in
this Item 7.
Liquidity and Capital Resources
Our consolidated financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and
satisfaction of liabilities in the normal course of our business. As of December
31, 2001 we had a deficiency in working capital of $(1,837,584) and incurred a
net loss of $(9,720,221) for the year then ended. In order to avoid ceasing our
operations, a possible bankruptcy filing and in an effort to improve our
financial condition, during the first quarter of 2002 we began the process of
renegotiating substantially all of our outstanding debt, lease, and trade
obligations with our key creditors. As of December 31, 2002, we have
substantially completed this process whereby we have renegotiated outstanding
debt and lease obligations with principal balances outstanding as of December
31, 2001 of approximately $5.1 million and have recorded $2.1 million in net
gains on forgiveness of debt. The restructured debt and lease obligation
agreements provide in some cases for the return of equipment used to
22
collateralize such obligations, if applicable, and certain periodic and monthly
installment for the balance of such obligations. In connection with our
renegotiations with creditors we returned equipment with a net book value of
approximately $1.5 million. Generally, in the event of default by the Company we
are required to repay all amounts previously forgiven and all amounts then
outstanding are accelerated and become immediately due and payable. In addition,
we have renegotiated outstanding trade debt with our major vendors in the amount
of approximately $446,000 and have recorded gains on forgiveness of vendor debt
in the amount of $335,000. As of the filing date of this Annual Report on Form
10K, we are in compliance with the terms and conditions of our renegotiated debt
agreements. However, as of December 31, 2002 the Company continues to be in
default under certain note and lease obligations with aggregate principal
balances outstanding of $162,000. We intend to continue negotiations with these
creditors until these disputes are resolved and satisfactory resolutions are
reached. No assurances can be given that these negotiations will be completed on
terms satisfactory to the Company, if at all.
At December 31, 2001 we had a bank loan (the "Bank Term Loan")
outstanding in the amount of $867,000. The loan agreement provides for monthly
payments of principal of $33,333 and interest at the prime rate plus 4.00%.
Pursuant to the loan agreement principal and interest are due in 60 monthly
installments through May 2004. As of December 31, 2001 we were in default under
the loan agreement and as a result all principal and interest were accelerated
and became immediately due and payable. However, in connection with the
renegotiation of our debt obligations the due date for the principal and
interest was extended to March 31, 2003. In addition, the lender has agreed to
accept reduced principal payments of $16,667 per month through March 31, 2003.
The Company assumed this loan obligation in July 2001 in connection with its
acquisition of MRM. We also have an outstanding bank line of credit (the "Bank
Line of Credit") in the amount of $1,108,700 with the same lender. This Bank
Line of Credit provides for interest at the prime rate, plus 2.75%, with
borrowings based upon eligible accounts receivable as defined. The amount
outstanding under the Bank Line of Credit exceeded the eligible borrowing base
as of December 31, 2001, and the Company was in default under the credit
agreement. As a result this facility is not available for use as of the filing
date of this Form 10-K. We have agreed with the lender to pay down the Bank Line
of Credit using 50% of proceeds from the sale of medical rental equipment, not
pledged to other lenders, as such transactions occur. No amounts have been
repaid from such sales as of December 31, 2002. The Bank Line of Credit has been
extended to March 31, 2003. The Company intends to continue its renegotiation
efforts with the lender in order to reach favorable repayment terms and
conditions regarding these two bank credit facilities. No assurances can be
given that these negotiations will be comleted on terms satisfactory to the
Company, if at all.
The Bank Line of Credit and Bank Term Loan prohibit the payment of cash
dividends and require us to maintain certain levels of net worth and to generate
certain ratios of cash flows to debt service. Notwithstanding the modified terms
and conditions of the Bank Line of Credit and Bank Term Loan as discussed above,
as of December 31, 2001, and the filing date of this Form 10-K, we were not in
compliance with certain financial covenants of such agreements. As a result, we
have classified all of the bank loan facilities as current liabilities in the
accompanying balance sheet as of December 31, 2001.
The Company had cash and cash equivalents of $482,165 at December 31,
2001. Cash provided by operating activities for the year ended December 31, 2001
was $274,116. Such amount primarily related to the inclusion in net loss of
certain non-cash write-downs, including, write-down of investments of
$2,306,428, impairment of charges of $4,420,129, depreciation and amortization
of $1,117,661, compensation expense for the issuance of stock options of
$525,891, offset by a net decrease in working capital. Cash provided from
investing activities amounted to $150,662 due to net proceeds from the sale of
investments of $30,000, and the proceeds from the sale of property and equipment
23
of $355,411 offset by the purchase of property and equipment for $120,199 and
cash paid to limited liability companies of $114,550. Cash used by financing
activities of $693,453, was primarily the result of the pay down of debt
obligations and related fees of $1,320,849, costs related to the acquisition of
MRM of $335,856, all offset by borrowings of $387,832 and proceeds from the sale
of common stock of $600,000.
Our auditors have included an explanatory paragraph relating to our
ability to continue as a going concern as of and for the year ended December 31,
2001, in their Report of Independent Certified Public Accountants included in
our audited financial statements contained elsewhere in this report. For the
year ended December 31, 2001, we incurred a net loss of $(9,720,221). Our
accumulated deficit amounted to $(11,288,041) at December 31, 2001. Our auditors
considered these factors, among others, to raise doubt about our ability to
continue as a going concern. Recovery of our assets in the normal course of
business is dependent upon future events, the outcome of which is
indeterminable.
We anticipate that our future liquidity requirements will arise from
the need to finance our accounts receivable and inventories, and from the need
to fund our current debt obligations and capital expenditure needs. The primary
source of funding for such requirements will be cash generated from operations,
raising additional capital from the sale of equity or other securities,
borrowings under debt facilities and trade payables. However, there can be no
assurances that we will have sufficient liquidity to fund our future operations
or fulfill our restructured debt, lease and vendor obligations. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
24
RISK FACTORS
WE HAVE INCURRED LOSSES AND MAY CONTINUE TO INCUR LOSSES.
We incurred a net loss of $(9,720,221) for the year ended December 31,
2001 due to a number of factors including impairment charges for property and
equipment and goodwill of $4,420,129, a realized loss of on investments of
$2,306,428 due to the permanent impairment of such investments and an increase
in administrative and selling expenses as of result of our acquisition of MRM in
July 2001. In addition, the report of our independent auditors for the year
ended December 31, 2001 contains a going concern opinion as a result of
continuing net losses, a deficiency in working capital as of December 31, 2001
and defaults under certain debt and lease agreements. These matters raise
substantial doubt about our ability to continue as a going concern. While many
of these losses were primarily attributed to the matters noted herein, there can
be no assurances that we will achieve profitability in the future.
OUR CORE BUSINESS IN MOBILE SURGICAL SERVICES HAS BEEN VERY PRICE COMPETITIVE.
The market for our services and equipment is highly competitive.
Competitors often compete by lowering prices, thus impacting profit margins. We
can provide no assurances that we will be successful (profitable) in a highly
competitive market.
WE MAY NEED SUBSTANTIAL ADDITIONAL FINANCING TO ACHIEVE OUR STRATEGIC GOALS AND
TO RETIRE DEBT.
Much of our future growth depends upon our ability to expand our
customer base and on our ability to acquire new technologies related to medical
surgical equipment. Such endeavors will require additional capital resources. In
addition, we will need to generate funds to meet our existing debt obligations,
most of which was recently restructured. These initiatives may require us to
raise significant sums of additional capital, which may or may not be available.
We can provide no assurances that such financing will be available to us on
satisfactory terms, if at all.
OUR BUSINESS IS SUBJECT TO ADVERSE CHANGES IN GOVERNMENT REGULATION.
Many aspects of our business in delivering surgical equipment and
related services may be impacted by changes in federal and state regulations. We
could encounter difficulties in meeting the requirements of new or changing
regulations.
25
WE MAY HAVE DIFFICULTIES IN ESTABLISHING SERVICE CAPABILITIES WITH NEW MEDICAL
DEVICES UNRELATED TO OUR CURRENT BUSINESS.
Establishing a market presence with new technologies may require us to
build a new sales and support infrastructure. We may have difficulty hiring the
appropriate personnel and establishing the necessary relationships for us to
successfully penetrate any new market.
THERE MAY NOT BE AN ACTIVE TRADING MARKET FOR OUR STOCK.
In the past, there has been an irregular and relatively illiquid public
market for our common stock. Our common stock was removed from listing and
trading on the OTC Electronic Bulletin Board due to the late filing of this Form
10-K. Our common stock trades periodically and on a limited basis in the
Over-the-Counter Market. We intend to attempt to obtain a broker-dealer to file
a new listing of our common stock on the OTC Electronic Bulletin Board or BBX
Exchange, as the case may be. There can be no assurances that we will be
successful in this regard nor can we provide assurance when and if, or to what
extent, a more regular and/or liquid trading market may develop. This may make
it difficult for you to sell your shares of our common stock.
THE PRICE OF OUR STOCK MAY FLUCTUATE
The market price of our common stock may be as highly volatile, or more
so, as the stock market in general or, for that of micro cap stocks, and the
technology sector more specifically. Stockholders may have difficulty selling
their common stock following periods of such volatility due to the market's
adverse reaction to such volatility. Many of the factors leading to such
volatility are well beyond our control and could include:
o conditions and trends in our industry;
o changes in the market valuation of companies similar to us;
o actual or expected variations in our operating results;
o announcements by us or our competitors of the development of new
products or technologies or strategic alliances or acquisitions; and
o changes in members of our senior management or other key employees.
These and other factors may adversely affect the price of our common
stock, regardless of its future operating results and we cannot assure you that
our common stock will trade at prices similar to the stock of our competitors or
other similar companies.
26
WE MAY EXPERIENCE QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR OPERATING RESULTS IN
THE FUTURE, WHICH MAKES OUR PAST PERFORMANCE AN UNRELIABLE INDICATION OF FUTURE
PERFORMANCE.
Our operating results may vary significantly from quarter to quarter
and from year to year in the future. A number of factors, many of which are
outside of our control, may cause these variations, including:
o fluctuations in demand for our products and services;
o the introduction of new products, services or technologies by
competitors, entry of new competitors, pricing pressures and
other competitive factors;
o our ability to obtain and introduce new surgical equipment products,
services and technologies in a timely manner;
o the rate of market acceptance of any new surgical equipment products or
services that we offer;
o delays or reductions in customer orders of our products and services in
anticipation of the introduction of new or enhanced products and
services by our competitors or us;
o our ability to control expenses;
o the timing of regulatory approvals and changes in domestic and regulatory
environments;
o the level of capital spending of our customers;
o costs related to acquisitions or alliances, if any; and
o general economic conditions.
Due to these and other factors, we believe that our operating results
in future quarters and years may differ from expectations, and
quarter-to-quarter and year-to-year comparisons of our past operating results
may not be meaningful. You should not rely on our results for any quarter or
year as an indication of future performance.
OUR INDUSTRY IS UNPREDICTABLE AND CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES
AND EVOLVING STANDARDS, AND, IF WE FAIL TO ADDRESS CHANGING MARKET CONDITIONS,
OUR BUSINESS AND OPERATING RESULTS WILL BE HARMED.
Our industry is characterized by rapid technological change, frequent
new product introductions, changes in customer requirements and evolving
industry standards. Our equipment could quickly become obsolete due to new
technological developments in medical devices. This could lead to a significant
financial impact since most of our equipment is generally financed over a period
of several years. Because this market is subject to rapid change, it is
difficult to predict our potential size or future growth rate. Our success in
generating revenues in this market will depend on, among other things:
27
o maintaining and enhancing our relationships with customers;
o the education of potential customers about the benefits of our products
and services; and
o our ability to accurately predict and obtain new products, services and
technologies to meet industry standards.
We cannot assure you that our expenditures for the acquisition of new
products and technologies will result in their introduction or, if such products
or technologies are introduced, that they or the related services will achieve
sufficient market acceptance. We may need to expend significant resources to
acquire new products and services in the future, which may adversely impact our
profitability. However, the failure to make such expenditures to address rapid
technological changes in the industry could adversely affect our business.
FAILURE TO SUCCESSFULLY COMPLETE AND MANAGE GROWTH STRATEGIES COULD ADVERSELY
AFFECT OUR BUSINESS, PROFITABILITY AND GROWTH PROSPECTS.
Part of our growth strategy may include acquisitions and alliances
involving complementary products, services, technologies and businesses. If we
are unable to overcome the potential problems and inherent risks related to such
acquisitions and alliances, our business, profitability and growth prospects
could suffer. Our ability to expand successfully through acquisitions and
alliances depends on many factors, including our ability to identify appropriate
prospects and negotiate and close transactions. Even if future acquisitions or
alliances are completed:
o we could fail to select the best acquisition or alliance partners;
o we could fail to effectively plan and manage acquisition or alliance
strategies;
o management's attention could be diverted from other business concerns;
o we could encounter problems integrating the acquired or allied
operations, technologies or products; and
o the acquisition or alliance could have adverse effects on our existing
business relationships with suppliers and/or customers.
Many companies compete for acquisition and alliance opportunities in
our industry. Some of our competitors are companies that have significantly
greater financial and management resources than us. This may reduce the
28
likelihood that we will be successful in completing alliances necessary to the
future success of our business.
Anticipated growth in the number of employees and in sales, combined
with the challenges of managing geographically dispersed operations, may place a
significant strain on our management systems and resources. We expect that we
will need to continue to improve our information technology systems, financial
and managerial controls, reporting systems and procedures and continue to
expand, train and manage our work force. The failure to effectively manage
growth could disrupt our business and adversely affect our operating results.
IF WE LOSE SENIOR MANAGEMENT AND KEY EMPLOYEES ON WHOM WE DEPEND, OUR BUSINESS
COULD SUFFER.
Effective December 30, 2002, we entered into 18 month employment
contracts with Bruce J. Haber and Louis Buther who are key employees of the
Company. At such time as we are current in our filings under the Securities
Exchange Act of 1934, as amended, Mr. Haber will become our Chief Executive
Officer and Chairman of the Board and Mr. Buther will become our President.
Management believes that our overdue reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 2002 will be filed on or about January 28,
2003, although no assurances can be given in this regard. Contemporaneously with
Mr. Haber's joining us, we have hired Louis Buther as our new President. We
believe that our future success will depend to a significant extent upon
retaining the services of Messrs. Haber and Buther and other key employees. Our
business could be materially and adversely affected if we lose the services of
Messrs. Haber and Buther. We currently do not have "key-person" life insurance
policies to cover the lives of Messrs. Haber and Buther or any other key
employees. The ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining our future success.
Competition for highly skilled personnel is intense and we may not be successful
in attracting, assimilating or retaining qualified personnel to fulfill current
or future needs. If we cannot recruit, train, retain and effectively manage key
employees, our business, profitability and growth prospects could suffer.
SOME OF OUR PRODUCTS ARE COMPLEX IN DESIGN AND MAY CONTAIN DEFECTS THAT ARE NOT
DETECTED UNTIL DEPLOYED BY CUSTOMERS, WHICH COULD INCREASE OUR COSTS AND REDUCE
OUR REVENUES.
Many of our products are inherently complex in design and require
ongoing regular maintenance. As a result of the technical complexity of the
equipment and certain fibers used in the delivery of our services, changes in
our suppliers' manufacturing processes or the inadvertent use of defective or
contaminated materials by such suppliers could result in a material adverse
effect on our ability to achieve acceptable product reliability. To the extent
that such product reliability is not achieved, we could experience, among other
things:
o damage to our business reputation;
o loss of customers;
29
o failure to attract new customers or achieve market acceptance;
o diversion of resources; and
o legal actions by customers.
The occurrence of any one or more of the foregoing factors could
seriously harm our business, our financial condition and results of operations.
WE FACE INTENSE COMPETITION.
The surgical equipment rental and services industry is highly
competitive. Our operations compete with services provided by numerous local,
regional and national equipment and service providers. Certain of these
competitors are larger or have greater financial resources than us. There can be
no assurance that we will not encounter increased competition, which could have
a negative impact on our business, results of operations or financial condition.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act)
provides a safe harbor for forward-looking statements made by or on behalf of
our Company. Our Company and its representatives may from time to time make
written or verbal forward-looking statements, including statements contained in
this report and other Company filings with the Securities and Exchange
Commission and in our reports to stockholders. Statements which relate to other
than strictly historical facts, such as statements about the Company's plans and
strategies and expectations for future financial performance are forward-looking
statements within the meaning of the Act. Generally, the words "believe,"
"expect," "intend," "estimate," "anticipate," "will" and other similar
expressions identify forward-looking statements. The forward-looking statements
are and will be based on management's then current views and assumptions
regarding future events and operating performance, and speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. See Risk Factors for a discussion of events and
circumstances that could affect our financial performance or cause actual
results to differ materially from estimates contained in or underlying our
forward-looking statements.
30
Item 7(a). Quantitative and Qualitative Disclosures about Market Risk.
The Company is not exposed to financial market risks from changes in
foreign currency exchange rates or changes in interest rates. The Company does
not use derivative financial instruments.
The Company's debt obligations are primarily fixed rate, with the exception
of its working capital loans. If the Company were to pursue re-financing of its
fixed rate debt or lease obligations, it could potentially be exposed to changes
in interest rates.
Item 8. Financial Statements and Supplementary Data.
Financial Statements
Quarterly Results
The following table sets forth certain unaudited quarterly financial
data for 2001 and 2000. In our opinion, this unaudited information has been
prepared on the same basis as the audited information and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The operating results for any
one quarter are not necessarily indicative of results for any future period.
Quarterly Results of Operations
The following table sets forth unaudited quarterly financial data for
the periods indicated. We derived this data from unaudited financial statements,
and in the opinion of our management, they include all adjustments, which
consist primarily of normal recurring adjustments necessary to present fairly
the financial results for the periods. Results of operations for any previous
period do not necessarily indicate what results may be for any future period.
- ------------------------------------ ----------------------------------------------------------------------------------
Selected Quarterly Financial Information
(Unaudited)
- ------------------------------------ ----------------------------------------------------------------------------------
Quarter Ended
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Period from Inception
(March 8, 2000) to
March 31, 2000 (1) June 30, 2000 (1) Sept. 30, 2000 Dec. 31, 2000
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Net revenues $ -- $ -- $ -- $ --
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Cost of good sold -- -- -- --
---------------- ---------------- ------------ -------------
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Gross profit -- -- -- --
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Selling, general and
administrative 45,201 167,238 284,296 489,666
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Operating income (loss) (45,201) (167,238) (284,296) (489,666)
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Other income (expenses):
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Realized loss on investment
securities -- -- -- (709,703)
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Other income -- 128,284
---------------- ---------------- ------------ -------------
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Net income (loss) $ (45,201) $ (167,238) $ (284,296) $ (1,071,085)
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Unrealized gain (loss) on
Investments 1,343,554 (2,456,663) (661,564) (267,722)
--------------- ------------- ----------- --------------
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Comprehensive income (loss) $ 1,298,353 $(2,623,901) $ (945,860) $ (1,338,807)
=============== ============= =========== ==============
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
INCOME (LOSS) PER
SHARE DATA:
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Basic and diluted loss NA NA $ (0.02) $ (0.02)
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
Weighted average common
Shares outstanding NA NA 17,381,852 44,173,280
- ------------------------------------ --------------------- --------------------- ------------------ -------------------
31
(1) As discussed elsewhere in this Annual Report on Form 10K, Emergent Ventures,
LLC completed its merger with Dynamic International, Ltd. in August 2000. Prior
to that date there were no shares of common stock outstanding. See "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, 2001 June 30, 2001 September 30, December 31,
(2) (2) 2001 (2) 2001 (1)
--- --- -------- --------
Net revenues $ - $ - $ 2,769,622 $ 2,474,963
Cost of goods sold - - 2,002,538 2,326,397
----------------- ---------------- ----------------- -----------------
Gross profit - - 767,084 148,566
General & administrative expense 411,853 525,138 831,108 1,841,340
Impairment of property and equipment 3,732,223
Impairment of goodwill 687,906
----------------- ---------------- ----------------- -----------------
Loss from operations (411,853) (525,138) (64,024) (6,112,903)
Other Income (expense):
Realized gain (loss) on Investment securities (687,500) (783,075) (930,396) 94,543
Interest expense - - (211,776) (145,358)
Equity in net gain of investment in limited liability - - 24,098 2,675
companies
Gain on disposal of property and equipment - - 1,483 44,088
Revaluation of property & equipment - - - -
Other (expense), net 33,219 15,851 (27,453) (35,102)
----------------- ---------------- ----------------- -----------------
Total other (expense) (654,281) (767,224) (1,144,044) (39,154)
----------------- ---------------- ----------------- -----------------
Loss before income taxes (1,066,134) (1,292,362) (1,208,068) (6,152,057)
Provision for income taxes - - - (1,600)
----------------- ---------------- ----------------- -----------------
Net loss $ (1,066,134) $ (1,292,362) $ (1,208,068) $ (6,153,657)
----------------- ---------------- ----------------- -----------------
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on investment activities 3,105 133,834 38,821
----------------- ---------------- ----------------- -----------------
Reclassification adjustment for gains included
in net loss (2) 134,062
----------------- ---------------- ----------------- -----------------
Comprehensive loss $ (1,063,029) $ (1,158,528) $ (1,208,068) $ (5,980,774)
----------------- ---------------- ----------------- -----------------
LOSS PER SHARE DATA: $ (0.02) $ (0.03) $ (0.02) $ (0.12)
Net loss per share- basic & diluted
Weighted average number of common shares outstanding 44,173,280 44,173,280 49,501,000 49,998,000
(1) In connection with the acquisition of substantially all of the assets and
liabilities of MRM in July 2001, Emergent recorded an excess of cost over
the fair value of assets acquired of $3,420,862. In the fourth quarter, we
recorded an expense of $687,906 in connection with the impairment of this
asset. In addition, we recorded a net expense of $3,732,223 in connection
with a review of property and equipment for impairment. Also, we increased
the reserve for inventory obsolescence by $50,000 in December 2001, which
is included in cost of goods sold.
(2) Certain reclassifications are reflected in the above quarterly data since
the filing of such quarterly reports on Form 10-Q.
32
The report of the Independent Accountants, Financial Statements and Schedules
are set forth beginning on page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On January 25, 2001 we dismissed Moore Stephens, P.C. ("MS") as our
independent auditor. MS was the independent auditor for Dynamic International,
Ltd. ("Dynamic") at the time of the merger with Emergent Ventures, LLC in August
2000. MS reported on Dynamic's financial statements for each of the two fiscal
years ended April 30, 2000 and 1999, respectively (collectively, the "Prior
Fiscal Years"). Such reports were each modified in their reference to the
uncertainty of Dynamic's ability to continue as a going concern. Except for this
reference, such reports did not contain an adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles. For the period from August 2000 through January
25, 2001 (the "Interim Period") there were no disagreements ("Disagreements")
between us and MS on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which Disagreement, if not
resolved to the satisfaction of MS, would have caused MS to make reference to
the subject matter of the Disagreement in connection with its reports for the
Prior Fiscal Years. There were no "Reportable Events," as such term is defined
in Item 304(A)(1)(v) of Regulation S-K, during either (i) the Prior Fiscal Years
or (ii) the Interim Period. Subsequently, we engaged Arthur Andersen LLP ("AA")
as our independent public accountants for our fiscal year ended December 31,
2000. We did not consult AA with respect to either (i) the Prior Fiscal Years,
(ii) the Interim Period with respect to either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, or (iii)
any matter that was either the subject of a Disagreement or a Reportable Event.
On March 5, 2002 AA notified us that AA was no longer our independent
auditor and effectively resigned from such capacity. AA's report on our
financial statements for the period from March 8, 2000 (the date of inception of
Emergent Ventures LLC) to December 31, 2000 (collectively, the "Prior Fiscal
Year"), did not contain an adverse opinion or disclaimer of opinion, nor was
such report qualified or modified as to uncertainty, audit scope or accounting
principles. The decision of AA to resign was not recommended or approved by our
Board of Directors. There were no disagreements ("Disagreements") between us and
AA during either (i) the Prior Fiscal Year, or (ii) the period January 1, 2001
through March 5, 2002 (the "Interim Period") on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which Disagreement, if not resolved to the satisfaction of AA, would
have caused AA to make reference to the subject matter of the Disagreement in
connection with its report for the Prior Fiscal Year. There were no "Reportable
Events," as such term is defined in Item 304(A)(1)(v) of Regulation S-K, during
either (i) the Prior Fiscal Year or (ii) the Interim Period. We have engaged
Singer Lewak Greenbaum & Goldstein LLP ("SLGG") as our independent auditor for
our fiscal year ended December 31, 2001. We did not consult SLGG with respect to
33
either (i) the Prior Fiscal Year, (ii) the Interim Period with respect to either
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, or (iii) any matter that was either the subject of a
Disagreement or a Reportable Event.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The names, ages and principal occupations of the Company's
present directors, and the date on which their term of office commenced and
expires, are listed below.
Term of Office First Became
Name Age Director Principal Occupation
Daniel Yun........................ 35 (1) 2000 Private Investor
Mark Waldron...................... 35 (1) 2000 Chief Executive Officer
and President
Howard Waltman.................... 70 (1) 2001 Private Investor
Matthew K. Fong, Sr............... 49 (1) 2001 President of Strategic
Advisory Group and Senior
Counsel with Sheppard,
Mullen, Richter & Hampton
- ------------------
(1) Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting.
Daniel Yun is Chairman of the Board and Mark Waldron is Chief Executive
Officer and President of the Company. William M. McKay, who joined the Company
in August 2002, is Chief Financial Officer, Secretary and Treasurer. The terms
of all officers expire at the annual meeting of directors following the annual
stockholders meeting. Officers serve at the pleasure of the Board and may be
removed, either with or without cause, by the Board of Directors, and a
successor elected by a majority vote of the Board of Directors, at any time.
Daniel Yun became Chairman of the Board of the Company and has served
in this capacity since August, 2000. Mr. Yun has also served as a director of
its subsidiary, Medical Resources Management, Inc., since September 2000. Mr.
Yun is Chairman of the board of Voyager Advisors, LLC, a Securities and Exchange
Commission registered investment advisor. During approximately the past four
years, Mr. Yun's principal occupation has been as a private investor. He has
served as Manager of Emergent Capital Investment Management LLC since October
1998. Between May 1994 and August 1998, Mr. Yun served as vice president in
charge of middle market derivatives at Lehman Brothers. Before joining Lehman
Brothers, Mr. Yun was an associate in the fixed income division of Goldman,
Sachs & Co. from 1993 to 1994. Upon graduating from the United States Military
Academy at West Point with a Bachelor of Science in Economics, Mr. Yun was
commissioned as a second lieutenant in the US Army, and was later appointed as a
commanding officer in charge of 220 multinational soldiers in Korea. While in
the army, Mr. Yun attended the Airborne, Air Assault and Ranger Schools, and
obtained a Master in Public Administration from the University of Oklahoma. His
professional publications include "Understanding Exotic Derivatives" in
Controlling and Managing Interest Rate Risk, (ed. Robert Klein, Prentice Hall,
1996). Mr. Yun currently serves on the Rand Corporation Advisory Board.
34
Mark Waldron has served as a director, Chief Executive Officer and
President of the Company since August, 2000. Mr. Waldron has served as a
director of Medical Resources Management, Inc. since September 2000. Between
1998 and 2001, Mr. Waldron's principal occupation was as a private investor. Mr.
Waldron is a former vice president of J.P. Morgan in New York and was with the
firm from June 1993 to June 1998. Mr. Waldron received his MBA from Northwestern
University's Kellogg School of Management through the School's accelerated
one-year program, where he attained Dean's List standing. Mr. Waldron was an
Associate at Bankers Trust Company before attending business school, and
received a B.A. with honors from the Richard Ivey School of Business at the
University of Western Ontario. Mr. Waldron is a member of the Foreign Policy
Association and MENSA, and is a citizen of Canada.
Howard Waltman has served as a director of the Company since 2001.
Since 2000, Mr. Waltman has acted as a private investor for a family limited
liability corporation. Since 1986, Mr. Waltman has served as a director of
Express Scripts, Inc. ("ESI"), and as its Chairman from 1986 to 2000. ESI was
formed in 1986 as a subsidiary of Sanus, a company formed in 1983 by Mr.
Waltman, who served as its Chariman of the Board from 1983 to 1987. Sanus was
acquired by New York Life Insurance Company in 1987. ESI provides mail order
pharmacy services and pharmacy claims processing services and was spun out of
Sanus and taken public in June 1992. Mr. Waltman also founded Bradford National
Corp. in 1968, which was sold to McDonnell Douglas Corporation in 1981. From
1996 to 2000, Mr. Waltman served as a director of Computer Outsourcing Services,
Inc. Mr. Waltman is currently a director of a number of privately held
companies.
Matthew K. Fong, Sr. has served as a director of the Company since
2001. Mr. Fong has served as a senior counsel with Sheppard, Mullin, Richter &
Hampton, a law firm with offices in both San Francisco and Los Angeles since
2000. Since 1999, he has served as President of Strategic Advisory Group of
Industry, CA, a business strategy consulting company. Mr. Fong was the
Republican candidate for the U.S. Senate in California in 1998, in which he ran
against Democrat Senator Barbara Boxer. From 1995 to 1999, Mr. Fong was the
Treasurer of the State of California. Mr. Fong holds a BS in International
Affairs from the US Air Force Academy, an MBA from Pepperdine University, and a
JD from Southwestern University.
William M. McKay, age 48, has served as Chief Financial Officer of the
Company since August 2002. From August 2000 to August 2002, he served as Chief
Financial Officer and as a consultant for EV Global Motors Company, a privately
held consumer products company. From December 1998 to July 2000 Mr. McKay served
as Chief Financial Officer and Secretary for Internet Dynamics, Inc., a
privately held software development company. From February 1998 to November
1998, he served as Chief Financial Officer for Koo Koo Roo, Inc., a publicly
held food services company. From May 1995 to February 1998, Mr. McKay served as
Chief Financial Officer and Secretary for View Tech, Inc., a publicly held
35
technology company. Mr. McKay also has ten years of public accounting experience
with Deloitte & Touche, where he last served as a senior manager in its audit
department. Mr. McKay is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants, and
holds a B.S. in business administration with an emphasis in accounting from the
University of Southern California - Los Angeles.
In 2001, Dr. Bernard Rineberg resigned from his position as a director
of the Company. Upon the Company becoming current with all reports due under the
Securities Exchange Act of 1934, as amended, which is anticipated to be on or
before January 28, 2003, Bruce J. Haber has agreed to fill the vacancy in the
Board of Directors and become a director of the Company and to serve as its
Chairman of the Board and Chief Executive Officer through an Employment
Agreement. Mr. Haber will be required to devote to the Company such time as is
necessary for the performance of his duties. Contemporaneously, Louis Buther has
agreed to serve as the Company's President and to devote his full working time
to the affairs of the Company through an Employment Agreement. The biographies
of Messrs. Haber and Buther are as follows:
Bruce J. Haber, age 50, is currently President of BJH Management, LLC,
a management firm specializing in turnaround consulting and private equity
investments. From October 2001 until December 2002, Mr. Haber served on the
Board of Directors of EB2B Commerce, Inc. a computer software company. From
March 2002 to December 2002 Mr. Haber served as Chairman of the Board and as a
turnaround consultant to EB2B. Mr. Haber was founder, President and CEO of
MedConduit.com, Inc., a healthcare e-commerce B2B from 2000 to 2001. Mr. Haber
served as Executive Vice President and a Director of Henry Schein, Inc. as well
as President of their Medical Group from 1997 to 1999. From 1981 to 1997, Mr.
Haber served as President, CEO and Director of Micro Bio-Medics, Inc., and
Caligor Medical Supply Company which merged with Henry Schein in 1997. Mr. Haber
holds a Bachelor of Science degree from the City College of New York and a
Master of Business Administration from Baruch College in New York.
Louis Buther, age 49, has served as an independent consultant since
2000. From 1997 through 2000, Mr. Buther was Senior Vice President of the
Medical Division of Henry Schein, Inc. From 1983 to 1997, Mr. Buther served as
Vice President of Micro Bio-Medics, Inc., and Caligor Medical Supply Company
which merged with Henry Schein in 1997. Mr. Buther holds an Associates Art
Science Degree in Chemistry from Bronx Community College and a Bachelor of
Science Degree in Pharmacy from Long Island University.
36
Committees
Prior to November 2001, the Company had no standing audit, nominating
and compensation committees of the Board of Directors or committees performing
similar functions.
On November 1, 2001, the Company's Board established a Compensation
Committee with Messrs. Waltman, Fong an