UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 5, 2002
VITALLABS, INC.
(Exact name of registrant as specified in its charter)
Nevada 000-20598 75-2293489
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1375 South Fort Harrison Ave., Clearwater Florida 33756
(Address of principal executive offices Zip Code)
Registrant's telephone number, including area code: 727 461-3200
NOT APPLICABLE
(Former name or former address, if changed since last report)
Item 1. Changes in Control of Registrant.
NOT APPLICABLE
Item 2. Acquisition or Disposition of Assets.
On Friday, April 5, 2002, Monogram Pictures consummated the "Agreement
Providing For The Exchange Of Capital Stock" with Med-Tech Labs, Inc.,
d/b/a Med Services of America (MSA). Monogram Pictures, Inc. has acquired
100% of MSA's issued and outstanding common stock pursuant to the
"Agreement Providing for the Exchange of Common Stock" entered into January
25, 2002. More information regarding MSA may be found in the registrant's
January 25 2002 Form 8-K filing.
The foregoing summary of the Agreement is qualified in its entirety by
reference
to the Agreement.
Item 3. Bankruptcy or Receivership.
NOT APPLICABLE
Item 4. Changes in Registrant's Certifying Accountants.
NOT APPLICABLE
Item 5. Other Events and Regulation FD Disclosure.
NOT APPLICABLE
Item 6. Resignation of Registrant's Directors.
NOT APPLICABLE
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1. Audited financial statements of MedTech Labs, Inc. as of December 31,
2001 and for the years ended December 31, 2001 and 2000, which includes
the
following:
a. Balance Sheet;
b. Statements of Operations;
c. Statements of Shareholders' Equity;
d. Statements of Cash Flows; and
e. Notes to Financial Statements.
f. Pro Forma Unaudited Condensed Financial Information
Financial Statements
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
Contents
Independent Auditors' Report on Financial Statements 1
Financial Statements:
Balance Sheet 2
Statements of Operations 3
Statements of Changes in Stockholders' Deficit 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-16
Independent Auditors' Report
Board of Directors
MedTech Labs, Inc.
(A Owned Subsidiary of Vitallabs, Inc.)
Clearwater, Florida
We have audited the accompanying balance sheet of MedTech Labs, Inc. (A Wholly
Owned Subsidiary of Vitallabs, Inc.) as of December 31, 2001 and the related
statements of operations, changes in stockholders' deficit, and cash flows for
the years ended December 31, 2001 and 2000. These financial statements are the
responsibility of the management of MedTech Labs, Inc. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. These standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MedTech Labs, Inc. (A Wholly
Owned Subsidiary of Vitallabs, Inc.) as of December 31, 2001 and the results of
its operations and its cash flows for the years ended December 31, 2001 and
2000 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2,
the Company has incurred significant losses from operations for the last two
years, has negative working capital of approximately $2,438,000 as of December
31, 2001, and its liabilities exceed its assets by approximately $2,350,000 at
December 31, 2001. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 2. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
October 25, 2002
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Balance Sheet
December 31, 2001
Assets
Current assets:
Cash $ 18,768
Accounts receivable, net of allowance
for doubtful accounts and
contractual allowance of $1,608,070 1,843,038
Inventory 218,890
Prepaid expenses 21,270
Total current assets 2,101,966
--------------
Equipment, net of accumulated depreciation 1,005,852
--------------
Other assets:
Receivables from related parties 105,071
Intangible assets, net of accumulated amortization 96,250
Other 52,465
--------------
Total other assets 253,786
--------------
$ 3,361,604
==============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,477,394
Accrued expenses, current 129,396
Current portion of accrued payroll liabilities 834,097
Current portion of notes payable 809,165
Current portion of notes
payable, stockholders and related parties 1,229,935
Current portion of capital lease obligations 60,268
Total current liabilities 4,540,255
--------------
Long-term liabilities:
Accounts payable, long-term 224,034
Accrued payroll liabilities, net of current portion 474,222
Notes payable, net of current portion 226,000
Notes payable, stockholders and related parties,
net of current portion 75,000
Capital lease obligations, net of current portion 172,416
--------------
Total long-term liabilities 1,171,672
--------------
Stockholders' deficit:
Common stock; $1 par value; 7,500 shares authorized;
6,750 shares issued and outstanding 6,750
Additional paid-in capital 252,519
Accumulated deficit (2,599,592)
--------------
(2,340,323)
Treasury stock, at cost (10,000)
--------------
Total stockholders' deficit (2,350,323)
--------------
$ 3,361,604
==============
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Statements of Operations
Year Ended December 31,
-------------------------
2001 2000
-------------------------
Revenues $ 11,245,885 $ 9,614,018
Cost of revenues 6,040,566 4,077,349
-------------- -------------
Gross profit 5,205,319 5,536,669
General and administrative expenses 6,846,192 5,800,716
-------------- -------------
Loss from operations (1,640,873) (264,047)
-------------- -------------
Other income (expense):
Other income (expense) 42,107 (19,372)
Interest expense (300,782) (126,341)
Payroll tax penalties (190,284)
Lawsuit settlement (100,000)
-------------- -------------
(448,959) (245,713)
-------------- -------------
Net loss $ (2,089,832) $ (509,760)
============== =============
<FN>
The accompanying notes are an integral part of the financial statements.
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Statements of Changes in Stockholders' Deficit
Years Ended December 31, 2001 and 2000
Additional
Common Stock Paid-In Accumulated Treasury Stock
--------------------- -----------------
Shares Amount Capital Deficit Shares Amount Total
------------------------------------------------------------------------------
Issuance of common stock 1,750 $ 1,750 $ 268,250 $ 270,000
Excess purchase price of
acquisition of related
company's assets and
liabilities (69,276) (69,276)
Net loss $ (509,760) (509,760)
--------------------------------------------------------------------------------
Balance, December 31, 2000 1,750 1,750 198,974 (509,760) (309,036)
Issuance of common stock
for services 5,000 5,000 53,545 58,545
Acquisition of treasury stock 750 $(10,000) (10,000)
Net loss (2,089,832) (2,089,832)
--------------------------------------------------------------------------------
Balance, December 31, 2001 6,750 $ 6,750 $ 252,519 $(2,599,592) 750 $(10,000) $(2,350,323)
================================================================================
<FN>
The accompanying notes are an integral part of the financial statements.
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Statements of Cash Flows
Year Ended December 31,
----------------------------
2001 2000
----------------------------
Operating activities
Net loss $ (2,089,832) $ (509,760)
----------------------------
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization 313,589 176,912
Common stock issued for services 58,545
(Increase) decrease in:
Accounts receivable (662,599) (388,515)
Other receivables 99,157 (99,158)
Inventory (120,644) (98,246)
Prepaid assets (18,313) (2,957)
Other assets 18,904 (47,969)
Increase (decrease) in:
Accounts payable 378,448 653,907
Accrued liabilities (19,258) 270,776
Accrued payroll liabilities 1,308,319
----------------------------
Total adjustments 1,356,148 464,750
----------------------------
Net cash used by operating activities (733,684) (45,010)
----------------------------
Investing activities
Acquisition of property and equipment (20,525) (223,382)
Payment for non-compete agreement (10,000)
Acquisition of Medical Technology
Laboratories, Inc. (1,000,000)
Cash acquired on acquisition of
Med Services of America, Inc. 4,057
----------------------------
Net cash used by investing activities (20,525) (1,229,325)
----------------------------
Financing activities
Issuance of common stock 270,000
Net proceeds on line of credit 312,000
Proceeds from notes payable and
notes to stockholders 748,105 1,419,134
Payment on notes payable and on
capital lease obligations (375,851) (211,006)
Net advances to related parties (62,904) (42,166)
Acquisition of treasury stock (10,000)
----------------------------
Net cash provided by financing activities 611,350 1,435,962
----------------------------
Net (decrease) increase in cash (142,859) 161,627
Cash at beginning of year 161,627 0
----------------------------
Cash at end of year $ 18,768 $ 161,627
============================
<FN>
The accompanying notes are an integral part of the financial statements.
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Statements of Cash Flows
Year Ended December 31,
---------------------------
2001 2000
----------------------------
Supplemental disclosures of
cash flow information and noncash
investing and financing activities:
Cash paid for interest during the year $ 284,923 $ 96,023
============================
On February 23, 2000, the Company entered into an agreement to purchase the
assets and liabilities of Medical Technology Laboratories, Inc. (the "Lab") in
a business combination accounted for as a purchase. The Company acquired all
assets and liabilities of the Lab by paying $1,000,000 and assuming
approximately $608,000 in debt. This agreement was effective as of January 1,
2000.
In connection with the acquisition, liabilities assumed were as follows:
Fair value of assets acquired $ 1,608,291
Cash paid for assets 1,000,000
------------
Liabilities assumed $ 608,291
============
The Company also acquired the assets and liabilities of Med Services of
America, Inc. ("Med Services") in January 2000 from a stockholder. Med
Services is primarily engaged in providing diagnostic medical testing services
to nursing homes throughout central Florida. In the acquisition, the Company
assumed debt of $96,733 and acquired assets totaling $27,457. The total cost
of the acquisition exceeded the carrying value of the related company's net
assets by $69,276. In accordance with accounting principles generally accepted
in the United States of America, this excess was applied against the capital
contributed by the stockholder.
During the years ended December 31, 2001 and 2000, the Company acquired
equipment with a fair value of approximately $237,000 and $85,000,
respectively, by incurring obligations under capital leases.
<FN>
The accompanying notes are an integral part of the financial statements. 6
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
1. Background Information
MedTech Labs, Inc. (the "Company") was incorporated in the state of Florida on
January 6, 2000 and provides diagnostic medical testing services to physician
practices in central and southwest Florida under the name of Med Services of
America. The Company's operations employ approximately 150 people who either
work out of the laboratory facility located in Clearwater, Florida, or work out
of 1 of the 22 draw stations servicing the west coast of Florida.
The Company was originally incorporated for the purpose of acquiring the assets
of a full-service, independent clinical laboratory. On February 23, 2000, the
Company entered into an agreement to purchase the assets and liabilities of
Medical Technology Laboratories, Inc. (the "Lab") in a business combination
accounted for as a purchase. The Company acquired all assets and liabilities
of the Lab by paying $1,000,000 and assuming approximately $608,000 in debt.
This agreement was effective as of January 1, 2000.
The Company also acquired the assets and liabilities of Med Services of
America, Inc. ("Med Services") in January 2000 from a stockholder. Med
Services is primarily engaged in providing diagnostic medical testing services
to nursing homes throughout central Florida. In the acquisition, the Company
assumed debt of $96,733 and acquired assets with a carrying value of $27,457.
In accordance with accounting principles generally accepted in the United
States of America, this excess was applied against the capital contributed by
the stockholder.
Subsequent to December 31, 2001, the stockholders of the Company exchanged all
of their shares of stock for a controlling interest in the stock of Monogram
Pictures, Inc, a publicly held company. As such, these stockholders gained
control of Monogram Pictures, Inc. in a business combination, which is
accounted for as a reorganization of the Company, and the Company became a
wholly owned subsidiary of Monogram Pictures, Inc. This agreement was
effective April 5, 2002. In connection with this reorganization, Monogram
Pictures, Inc. changed its name to Vitallabs, Inc. The following table
reflects the results of operations on a pro forma basis as if the business
combination had been completed at the beginning of 2000:
2001 2000
------------------------------
Revenues $ 11,245,885 $ 9,614,018
==============================
Net loss $ (4,995,596) $ (6,524,516)
==============================
Loss per share $(1.23) $(1.69)
==============================
Weighted shares outstanding 4,052,789 3,856,984
==============================
7
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
2. Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has incurred significant losses
from operations for the last two years, had negative working capital of
approximately $2,438,000 at December 31, 2001, and its liabilities exceed its
assets by approximately $2,350,000 at December 31, 2001. These factors and
others raise substantial doubt about the Company's ability to continue as a
going concern. Management is currently looking into raising additional funds
for the Company by means of a private placement of some of the Company's
equity securities and additional long-term borrowings, although no assurance
can be given regarding how successful these efforts may be. The financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
3. Significant Accounting Policies
The significant accounting policies followed are:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
The Company extends credit to its various customers based on the customer's
ability to pay. Based on management's review of accounts receivable, a
contractual allowance and an allowance for doubtful accounts of approximately
$1,608,000 is considered necessary at December 31, 2001.
Inventory is stated at the lower of cost (first-in, first-out) or market.
Equipment is recorded at cost. Depreciation is calculated by the straight-
line method over the estimated useful lives of the assets, ranging generally
from five to seven years. Maintenance and repairs are charged to operations
when incurred. Betterments and renewals are capitalized. When equipment is
sold or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations. Depreciation expense for the years ended December 31, 2001 and
2000 amounted to $208,589 and $168,162, respectively.
Intangible assets, consisting of a non-compete agreement, are recorded at
cost. Amortization is calculated by the straight-line method over the life of
the non-compete agreement of two years.
8
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
3. Significant Accounting Policies (continued)
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective
income tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that included the enactment date.
The Company generally recognizes revenue for services rendered upon the
completion of the testing process. Billings for services under third-party
payer programs, including Medicare and Medicaid, are recorded as revenues, net
of allowances for differences between amounts billed and the estimated
receipts under such programs. Adjustments to the estimated receipts, based on
the final settlement with the third-party payers, are recorded upon
settlement.
The Company follows Statement of Financial Accounting Standards Board No.
144 (SFAS No. 144), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. If an asset is
determined to be impaired, the Company recognizes a loss for the difference
between the carrying amount and the fair value of the asset. The fair value
of the asset is measured using quoted market prices or an estimation of
future cash flows. During the periods presented, the Company determined
that its long-lived assets were not impaired.
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management. The
respective carrying value of certain on-balance sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable, notes payable, and accrued expenses.
Fair values were assumed to approximate carrying values for these financial
instruments since they are short-term in nature and their carrying amounts
approximate fair values, or they are receivable or payable on demand.
The Company issues stock in lieu of cash for certain transactions.
Generally, the fair value of the stock, based on comparable cash purchases,
is used to value the transactions.
9
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
4. Inventory
Inventory consists of lab supplies that totaled $218,890 at December 31, 2001.
Substantially all of the Company's inventory is pledged as collateral on the
stockholder notes and bank loans as of December 31, 2001.
5. Equipment
Equipment consists of:
Office furniture and fixtures $ 63,692
Computer and telephone equipment 299,120
Transportation equipment 134,089
Software 120,762
Laboratory equipment 397,547
Leasehold improvements 3,450
Computer and telephone equipment and software
held under capital leases 364,159
-----------
1,382,819
Less accumulated depreciation 376,967
-----------
$ 1,005,852
============
Included in accumulated depreciation above is depreciation on computer and
telephone equipment and software held under capital leases of $29,202.
Substantially all of the Company's equipment is pledged as collateral on the
stockholder note and bank loans at December 31, 2001.
6. Intangible Assets
Intangible assets consist of:
Gross carrying amount of non-compete agreement $ 210,000
Less accumulated amortization 113,750
----------
Net value $ 96,250
==========
Amortization expense amounted to $105,000 and $8,750 for the years ended
December 31, 2001 and 2000, respectively.
10
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
6. Intangible Assets (continued)
On November 27, 2002, the Company, its majority stockholder, and other related
parties entered into a "Settlement Agreement and Mutual General Release" and a
Separation and Non-Compete Agreement with a former officer of the Company.
The agreements call for the Company or majority stockholder to pay the former
officer $310,000.
Of the $310,000, $100,000 is for release of any claim to ownership in the
Company by the former officer and is reflected in the accompanying statements
of operations as "lawsuit settlement." The additional $210,000 is for a two-
year agreement not to compete between the former officer and the Company.
7. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of:
Convertible debt; interest ranging from 10.0% to 14.0%;
principal and accrued interest to be paid utilizing the
parent's common stock at the rate of one-half of the
trading price of the common stock on the date of
conversion; payment date of principal and interest
shall be the 10th day during which the Company's
common stock is traded with any NASDAQ listing
system or upon a registered exchange $ 301,000
Notes payable to stockholders; interest at 10.0% payable
monthly; principal due on demand; unsecured; $75,000
subordinated to the bank line of credit 75,000
Notes payable to stockholders; interest at 16.0% payable
monthly; principal was due June 30, 2002; currently past
due; unsecured; subordinated to the bank line of credit 300,000
Notes payable to stockholder; interest at 16.0% payable
monthly; principal due December 2002; unsecured;
$741,194 subordinated to bank line of credit 819,257
Note payable, bank; interest at prime plus .25% payable
monthly; principal due on demand; secured by all
business assets 87,892
Note payable; interest at 12.0%; principal and interest
are past due; unsecured 29,276
11
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
7. Notes Payable and Long-Term Debt (continued)
Line of credit facility ($350,000 maximum); interest at
prime payable monthly; principal due on demand;
secured by all business assets including equipment and
non-Medicaid receivables; personally guaranteed by
three of the Company's stockholders 312,000
Note payable to affiliated company; interest at 16.0%
payable monthly; principal due December 2002;
unsecured; subordinated to the bank line of credit 137,357
Note payable, bank; principal past due; forbearance
agreement calls for monthly payments of $4,000;
secured by all business assets 129,013
Note payable, former stockholder; interest at 16.0%; settlement
agreement calls for payments of $75,000 per month
beginning October 13, 2001; remaining principal and
interest due on January 5, 2002; secured by Company stock 49,305
Note payable, bank; interest at 8.0%; principal due January 7,
2002; paid subsequent to year-end; secured by insurance
receivables; personally guaranteed by two stockholders 100,000
-------------
2,340,100
Less amounts currently due 2,039,100
-------------
$ 301,000
=============
The above amounts and terms on related party notes are not necessarily
indicative of the amounts and terms that would have been incurred had
comparable transactions been entered into with independent parties.
8. Lease Commitments
The following is a schedule by year of future minimum rental payments
required under operating leases that have an initial or remaining
noncancelable lease term in excess of one year as of December 31, 2001:
Year Ending
December 31,
------------
2002 $ 286,897
2003 149,157
2004 12,505
2005 6,407
2006 4,271
------------
$ 459,237
============
12
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
8. Lease Commitments (continued)
The Company also rents equipment under operating leases with lease terms of
less than one year.
Rent expense amounted to $504,997 and $378,831 for the years ended December
31, 2001 and 2000, respectively.
9. Obligations Under Capital Leases
The Company has capitalized certain rental obligations under leases of
equipment. The obligations, which mature in 2005, represent the total
present value of future rental payments discounted at the interest rates
implicit in the leases. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or
the fair value of the assets. The assets are amortized over the lower of
their related lease terms or their estimated productive lives. Amortization
of assets under capital leases is included in depreciation expense for the
periods presented. Future minimum lease payments under capital leases are:
Year Ending
December 31,
-------------
2002 $ 91,931
2003 91,931
2004 90,298
2005 24,593
----------
Total minimum lease payments 298,753
Less amount representing interest 66,069
----------
Present value of net minimum lease payments 232,684
Less current portion 60,268
----------
$ 172,416
============
10. Retirement Plan
The Company has a 401(k) retirement plan that covers substantially all of
its full-time employees. A participant can contribute an amount up to 12
percent of their annual compensation. The Company can make matching
contributions equal to 25 percent of the participant's contributions up to a
maximum contribution of four percent of the annual compensation of the
participant. Contributions to the 401(k) plan are made at the discretion of
the Board of Directors of the Company. During the years ended December 31,
2001 and 2000, the Company made matching contributions of approximately
$11,000 and $8,000, respectively.
13
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
11. Payroll Taxes
At December 31, 2001, the Company was delinquent on approximately $718,000 of
payroll taxes. Subsequent to year-end, the Internal Revenue Service assessed
approximately $307,000 of penalties and $48,000 of back interest on the
payroll taxes. Approximately $190,000 of the penalties and interest relate to
the year ended December 31, 2001. The Company entered into an installment
agreement with the Internal Revenue Service to pay back the taxes over the
next three years. The agreement calls for payments of $14,000 per month
beginning May 28, 2002, which are to be applied against the taxes and
interest. In addition, the Company must make interim payments of $115,000 and
$250,000 on May 28, 2002 and November 25, 2002, respectively. Full payment of
the taxes and all accruals is to be completed by April 5, 2005, and the
Company must keep current on all filings and payment requirements. The
Internal Revenue Service has attached a federal tax lien against all assets of
the Company for a portion of the unpaid taxes.
12. Income Taxes
The Company has incurred significant operating losses since its inception and,
therefore, no tax liabilities have been incurred for the periods presented.
The amount of unused tax losses available to carry forward and apply against
future years taxable income totaled approximately $1,252,000 at December 31,
2001. These operating loss carryforwards expire in 2021. In addition, the
Company has approximately $1,155,000 of allowance for doubtful accounts that
are not currently deductible for income tax purposes. These items give rise
to a deferred tax asset of approximately $940,000 at December 31, 2001.
Management has established a valuation allowance equal to the amount of the
deferred tax assets due to the uncertainty of the Company's realization of
this benefit.
Annual utilization of the Company's net operating loss carryforwards will be
limited due to a change in ownership control of the Company's common stock
that took place in 2002, as more fully explained in Note 1 to the financial
statements.
13. Related Party Transactions
Included in receivables from related parties at December 31, 2001 are advances
to certain stockholders/officers in the amount of $38,000 and advances to a
company owned by a stockholder of approximately $67,000. These advances are
non-interest bearing, contain no specific repayment terms, and are unsecured.
Subsequent to year-end, a company owned by four stockholders acquired the
building and property that house the corporate offices and main laboratory.
The Company entered into a lease with this related company for a one-year term
at a rate of $10,000 per month. On September 23, 2002, the related company
14
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
13. Related Party Transactions (continued)
sold the building to an unrelated party and terminated this lease. The
Company signed a new lease with the new, unrelated owners for approximately
$13,000 per month. The related company advanced the Company approximately
$300,000 of the sale proceeds. This advance is unsecured and has no specific
repayment terms.
The above amounts and terms are not necessarily indicative of the amounts and
terms that would have been incurred had comparable transactions been entered
into with independent parties.
14. Other Subsequent Events
As discussed in note 1, subsequent to December 31, 2001, the stockholders of
the Company exchanged all of their shares of stock for a controlling interest
in the stock of Monogram Pictures, Inc., a publicly held company. As such,
these stockholders gained control of Monogram Pictures, Inc. in a business
combination, which is accounted for as a reorganization of the Company, and
the Company became a wholly owned subsidiary of Monogram Pictures, Inc. This
agreement was effective April 5, 2002. In connection with this
reorganization, Monogram Pictures, Inc. changed its name to Vitallabs, Inc.
Subsequent to December 31, 2001, the Company issued 340,940 shares of its
common stock for services valued at $220,018.
Subsequent to December 31, 2001, the Company issued 17,647 shares of its
common stock in satisfaction of a stock payable of $58,700.
Subsequent to December 31, 2001, the Company entered into agreements with
consultants to provide investment services to the Company. The Company issued
617,648 shares of common stock as deferred compensation to these consultants
in the amount of $548,252.
Subsequent to December 31, 2001, the Company engaged the services of a
factoring company. Certain accounts receivable are factored with full
recourse for unpaid invoices in excess of 120 days.
During the quarter ended September 30, 2002, Vitallabs, Inc., the Company's
parent, established a new wholly owned subsidiary, Gateway Laboratories
Acquisition, Inc. On August 28, 2002, this subsidiary entered into an
agreement to acquire the book of business of a laboratory. Vitallabs, Inc.
issued 446,428 shares of common stock valued at $250,000 and agreed to pay
$200,000 to the stockholders of Bayshore Laboratories, Inc. In connection
with this transaction, the Company borrowed $500,000 from one of its
stockholders, which is restricted to be used for future acquisitions.
15
MedTech Labs, Inc.
(A Wholly Owned Subsidiary of Vitallabs, Inc.)
Notes to Financial Statements
As of December 31, 2001 and the
Years Ended December 31, 2001 and 2000
15. Commitments and Contingencies
The Company is involved in various litigation proceedings incidental to the
ordinary course of business. In the opinion of management, the ultimate
liability, if any, resulting from such litigation would not be material in
relation to the Company's financial position or results of operations.
During the period ended September 30, 2002, a stockholder of Vitallabs, Inc.
notified the Company of a potential stockholder derivative action to rescind
the acquisition of MedTech Labs, Inc. The basis of this potential lawsuit is
the Company's non-performance of certain requirements alleged to be
contained in the acquisition agreement. The Company believes the potential
lawsuit is without merit and based on erroneous information and a
misinterpretation of the acquisition agreement. Management plans to
vigorously defend any action filed for the purpose of rescinding the
acquisition.
The Company is involved in a lawsuit with a former employee. The claim in
that suit is for damages for failure to pay a severance package in the
amount of $175,000. At this time, management cannot predict the outcome of
this matter.
In addition, the Company is in a case with a consultant who claims to have
the right to $125,000 worth of common stock of Vitallabs, Inc. The case is
in the early stages and the Company intends to defend the case based upon
later agreements between the parties.
A stockholder of the Company has commenced an arbitration proceeding seeking
damages of approximately $150,000 from the Company for alleged fraud, which
he claims induced him to devote time to seeking arrangements for funding of
the Company. The Company issued 500,000 shares of common stock to this
individual as an engagement fee and would have been obligated to pay him an
additional $40,000 in the event of his success in arranging funding of
$1,500,000. The Company believes it provided him with the best information
it had available at the time, and believes these claims are entirely without
merit, and intends to vigorously defend itself in the arbitration.
Prior the business combination with Vitallabs, Inc., the Company established
a stockholder agreement that governed the rights and obligations of
stockholders regarding the disposition of shares of stock. During 2001, a
stockholder who was also an officer, resigned from the Company. As part of
the agreement, the Company was to obtain an independent business valuation
to determine the fair value of this individual's stock. To date, no such
appraisal has been obtained. The stockholder and the Company have made
various offers to transfer the stock to the Company, but none have been
accepted.
The Company has entered into employment agreements with four officers of the
Company. The agreements pay the officers salaries that range from $72,000
to $180,000 per year. The terms of the agreement is for five years and if
the officers are terminated without cause, they are entitled to receive one
year of their compensation plus release the officers from any guarantees
made on behalf of the Company.
(b) Proforma Financial Information
MedTech Labs, Inc.
Pro Forma Unaudited Condensed Financial Information
The accompanying pro forma unaudited condensed statements of financial
position and results of operations are based upon the historical financial
statements of MedTech Labs, Inc. (the "Company") and Vitallabs, Inc.
("Vitallabs") adjusted to give effect to the acquisition of the Company by
Vitallabs, accounted for as a reorganization, as if the acquisition had
occurred at January 1, 2000. The stockholders of the Company exchanged all
of their shares of stock for a controlling interest in Vitallabs, a publicly
held company. As such, these stockholders gained control of Vitallabs in a
business combination accounted for as a reorganization of the Company, and
the Company became a wholly owned subsidiary of Vitallabs. The pro forma
statements of financial position and results of operations are not
necessarily indicative of the results that would have been obtained if the
acquisition had occurred on the date indicated or for any future period or
date. The pro forma adjustments give effect to available information and
assumptions that the Company believes are reasonable. The pro forma
condensed financial information should be read in conjunction with the
Company's historical financial statements and notes thereto and the
historical financial statements of Vitallabs, Inc. and the notes thereto.
Condensed Consolidated Balance Sheet
As of December 31, 2001
Historical
--------------------------------
Med-Tech Pro Forma Pro Forma
Labs, Inc. Vitallabs, Inc. Adjustments As Adjusted
------------- ---------------- ------------ -------------
Assets
Current assets:
Cash $ 18,768 $ 58 $ 18,826
Accounts receivable, net 1,843,038 1,843,038
Inventory 218,890 218,890
Prepaid expenses 21,270 21,270
------------- ---------------- ------------ -------------
Total current assets 2,101,966 58 2,102,024
------------- ---------------- ------------ -------------
Property and equipment, net 1,005,852 3,009 1,008,861
Other Assets 253,786 163 (37,008) (1) 216,941
------------- ---------------- ------------ -------------
$ 3,361,604 $ 3,230 $ 3,327,826
============= ================ ============ =============
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued expenses $ 1,606,790 $ 131,255 $ 1,738,045
Note payable 809,165 34,061 843,226
Notes payable, stockholders and related
parties 1,229,935 1,229,935
Current portion of accrued
payroll liabilities 834,097 834,097
Due to related parties 37,008 (37,008) (1)
Current portion of capital
lease obligations 60,268 - 60,268
Net liabilities of discontinued operations,
including related party of $31,171 29,781 29,781
------------- ---------------- ------------ -------------
Total current liabilities 4,540,255 232,105 4,735,352
------------- ---------------- ------------ -------------
Long-term liabilities:
Accounts payable, long-term 224,034 - 224,034
Accrued payroll liabilities,
net of current portion 474,222 - 474,222
Notes payable, net of current portion 226,000 - 226,000
Notes payable, stockholders and
related parties, net of current
portion 75,000 - 75,000
Capital lease obligations,
net of current portion 172,416 - 172,416
------------- ---------------- ------------ -------------
Total long-term liabilities 1,171,672 - 1,171,672
------------- ---------------- ------------ -------------
Common stock payable - 58,700 58,700
Stockholders' Equity
Preferred stock - 175 175
Common stock 6,750 15,145 (14,254) (2) 8,208
(6,750) (3)
7,317 (3)
Additional Paid in Capital 252,519 22,610,467 14,254 (2) (46,689)
(22,923,929) (3)
Accumulated deficit (2,599,592) (22,913,362) 22,913,362 (2,599,592)
------------- ---------------- ------------ -------------
(2,340,323) (287,575) (2,637,898)
Treasury stock, at cost (10,000) 10,000 -
------------- ---------------- ------------ -------------
Total stockholders' deficit (2,350,323) (287,575) (2,637,898)
$ 3,361,604 $ 3,230 $ 3,327,826
============= ================ ============ =============
(1) Eliminate intercompany accounts.
(2) The Company's Board of Directors approved a 1 for 17 reverse stock split.
(3) On April 5, 2002, the stockholders of MedTech Labs, Inc. exchanged all of their stock for a controlling
interest in the stock of Vitallabs, Inc. (formerly Monogram Pictures, Inc.) As such, the stockholders
of MedTech Labs, Inc. gained control of Vitallabs, Inc. in a business combination, which is accounted
for as a reorganization of the Company.
Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2001
Historical*
--------------------------------
Med-Tech Pro Forma Pro Forma
Labs, Inc. Vitallabs, Inc. Adjustments As Adjusted
------------- ---------------- ------------ -------------
Revenues $ 11,245,885 $ - $ 11,245,885
Cost of revenues 6,040,566 - 6,040,566
------------- ---------------- ------------ -------------
Gross profit 5,205,319 - 5,205,319
General and administrative expenses 6,846,192 2,565,783 9,411,975
------------- ---------------- ------------ -------------
Loss from operations (1,640,873) (2,565,783) (4,206,656)
------------- ---------------- ------------ -------------
Other income (expenses) (448,959) (448,959)
------------- ---------------- ------------ -------------
Net loss from continuing operations $ (2,089,832) $ (2,565,783) $ (4,655,615)
============= ================ ============ =============
Loss per share $ - $ (0.49) $ (1.15)
============= ================ ============ =============
Weighted average common shares
outstanding - 5,226,828 (1,174,039) 4,052,789
============= ================ ============ =============
*The above statements of operations do not include the discontinued operations of
Medical Discounts Limited, Inc. and General Personnel Mangement, Inc., which were
reported in the Vitallabs, Inc. December 31, 2001 Form 10KSB.
16
8. Change in Fiscal Year.
NOT APPLICABLE
9. Item FD Disclosure.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VitalLabs, INC.
By /s/ Thomas W. Kearney, CFO
Thomas W. Kearney, CFO
(Principal financial and accounting officer)
February 5, 2003
5