1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24696
NATIONAL DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-3248917
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
755 West Brandon Blvd., Brandon, Florida 33511
- ---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (813) 882-6567
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 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class: Common Stock, No Par Value Outstanding at August 13, 1998,
8,880,000
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
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NATIONAL DIAGNOSTICS, INC.
INDEX TO FORM 10-QSB
Page
Number
------
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1997 and June 30, 1998 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30,
1997 and 1998 5
Condensed Consolidated Statements of Cash Flows
for the three and six months ended
June 30, 1997 and 1998 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
3
ITEM - 1.
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
December 31, 1998,
1997 (Unaudited)
------------- -----------
Current Assets:
Accounts receivable, net of allowance of $678,700
and 1,011,942 in 1998 and 1997 respectively $ 2,058,647 $ 2,518,717
Prepaid expenses and other current assets 148,903 141,834
------------- -------------
Total current assets 2,207,550 2,660,551
------------- -------------
Property and equipment 9,974,924 9,976,773
Less: accumulated depreciation and
amortization (4,574,173) (5,235,994)
------------- -------------
Net property and equipment 5,400,751 4,740,779
------------- -------------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $85,751 and
$61,274 in 1997 and 1996 respectively 403,711 391,471
Deposits 54,941 55,103
Marketable securities - 1,874,618
Other 41,894 29,847
------------- -------------
Total other assets 500,546 2,351,039
------------- -------------
$ 8,108,847 $ 9,752,369
============= ==============
See Accompanying Notes.
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
December 31, 1998,
1997 (Unaudited)
--------------- -----------
Current liabilities:
Lines of credit $ 1,309,612 $ 1,109,303
Note due to related party 62,500 243,500
Note payable, other 152,156
Current installments of long-term debt 413,243 388,000
Current installments of obligations
under capital leases 3,820,933 3,447,989
Accounts payable 1,655,858 2,144,508
Accrued radiologist fees 439,066 284,040
Accrued expenses other 696,814 950,436
------------- -------------
Total current liabilities 8,398,026 8,719,932
Long-term liabilities:
Long-term debt, excluding current installments 594,064 364,139
Obligations under capital leases,
excluding current installments 224,000
Deferred lease payments 175,136 144,249
------------- -------------
Total liabilities 9,167,226 9,452,320
------------- -------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, no par value, 1,000,000
shares authorized, 500,000 shares issued
and 368,815 shares outstanding in 1998 - 1,475,260
Common stock, no par value, 9,000,000
shares authorized, 3,093,430 and 8,880,000
shares issued and outstanding in 1997 and 1998 779 1,936
Additional paid-in capital 2,899,138 3,422,720
Retained earnings:
Unappropriated (accumulated deficit) (3,958,296) (4,474,485)
Accumulated other comprehensive income:
net unrealized loss on marketable securities (125,382)
------------- -------------
Net stockholders' equity (deficit) (1,058,379) 300,049
------------- -------------
$ 8,108,847 $ 9,752,369
============= =============
See Accompanying Notes.
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Revenue, net $ 2,612,347 $ 2,320,991 $ 5,189,235 $ 5,118,294
------------- ------------- ------------- -------------
Operating expenses:
Direct operating expenses 1,497,388 1,394,089 2,895,834 2,625,208
General and administrative 1,012,833 1,023,464 1,980,128 2,076,455
Depreciation and amortization 372,842 342,130 738,927 686,109
------------- ------------- ------------- -------------
Total operating expenses 2,883,013 2,759,683 5,614,889 5,387,772
------------- ------------- ------------- -------------
Operating loss (270,666) (438,692) (425,654) (269,478)
Interest expense 188,528 172,645 358,274 328,185
Other income 299 10 5,781 81,474
------------- ------------- ------------- -------------
Loss before income taxes (458,895) (611,327) (778,147) (516,189)
Income taxes - - - -
------------- ------------- ------------- -------------
Net loss (458,895) (611,327) (778,147) (516,189)
------------- ------------- ------------- -------------
Dividends to preferred shareholders (intrinsic value of
beneficial conversion features - see Note 2) - - - (25,473,612)
------------- ------------- ------------- -------------
Net loss available to common shareholders $ (458,895) $ (611,327) $ (778,147) $ (25,989,801)
============= ============= ============= =============
Net (loss) per common share $ (.17) $ (.07) $ (.29) $ (4.04)
============= ============= ============= =============
Weighted average number of common
shares outstanding 2,714,341 8,880,000 2,671,696 6,432,943
============= ============= ============= =============
Other comprehensive income (loss):
Net loss $ (458,895) $ (611,327) $ (778,147) $ (516,189)
Other comprehensive income (loss), net of tax:
Unrealized loss on securities - (125,382) - (125,382)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ (458,895) $ (736,709) $ (778,147) $ (641,571)
============= ============= ============= =============
See Accompanying Notes.
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Cash flows from operating activities:
Net (loss) $ (458,895) $ (611,327) $ (778,147) $ (516,189)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Income taxes
Depreciation and amortization 372,842 342,130 738,927 686,109
Provision for Bad Debts 80,872 77,347 71,353 (333,244)
(Increase) decrease in accounts receivable (70,618) 14,531 (279,079) (126,828)
Loss on disposition of equipment - 2,770 -
Decrease in prepaid
expenses and other current assets 16,093 56,898 82,985 7,069
Increase in accounts payable 169,072 349,078 340,405 488,650
Increase (decrease) in accrued radiologist fees 118,882 (34,788) 72,855 (155,026)
Increase (decrease) in other accrued expenses (93,172) 75,061 (26,524) 253,622
Decrease in deferred lease payments (14,251) (15,443) (29,695) (30,887)
------------- ------------- ------------ -------------
Net cash provided by operating activities 120,825 253,487 195,850 273,276
------------- ------------- ------------ -------------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (78,841) (1,849) (217,288) (1,849)
Increase in deposits (200) (103) (819) (162)
Increase in organization & start-up costs (3,403) (66,588) -
------------- ------------- ------------ -------------
Net cash used by investing activities (82,444) (1,952) (284,695) (2,011)
------------- ------------- ------------ -------------
Cash flows provided (used) by financing activities:
Increase in line of credit 178,100 (209,423) 230,836 (200,309)
Proceeds from long-term borrowings 150,000 - 150,000 -
Repayment of long-term borrowings (18,637) (19,802) (38,250) (34,382)
Proceeds of borrowing from related parties - 65,000 125,000 181,000
Repayment of borrowing from related parties (2,001) - (6,167) -
Proceeds from other notes payable - 205,000 -
Repayment of other notes payable (93,165) (68,630) (142,212) (68,630)
Principal payments under capital lease obligations (331,773) (46,787) (466,823) (148,944)
------------- ------------- ------------ -------------
Net cash provided (used) by financing activities (117,476) (279,642) 57,384 (271,265)
------------- ------------- ------------ -------------
Net decrease in cash (79,095) (28,107) (31,461) -
Cash at beginning of period 151,969 28,107 104,335 -
------------- ------------- ------------ -------------
Cash at end of period $ 72,874 $ - $ 72,874 $ -
============= ============= ============ =============
(continued)
See Accompanying Notes.
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Supplemental disclosure of cash
flow information - Interest paid $ 251,330 $ 86,416 $ 402,287 $ 175,936
============= ============= ============= =============
Stock issued as satisfaction for trade creditor debt $ 175,520 $ $ 175,520 $
============= ============= ============= =============
Stock issued for equipment acquisition $ 20,000 $ $ 20,000 $
============= ============= ============= =============
Stock issued as satisfaction of related party debt $ 275,604 $ $ 275,604 $
============= ============= ============= =============
Stock issued in exchange for marketable securities $ 1,800,000 $ $ 1,800,000 $ 2,000,000
============= ============= ============= =============
Asset added under capital lease $ 68,925 $ $ 265,580 $
============= ============= ============= =============
See Accompanying Notes.
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by National Diagnostics, Inc., and
Subsidiaries (the "Company") for quarterly financial reporting
purposes are the same as those disclosed in the Company's annual
financial statements. In the opinion of management, the accompanying
condensed consolidated financial statements reflect all adjustments
(which consist only of normal recurring adjustments) necessary for a
fair presentation of the information presented.
The quarterly condensed consolidated financial statements herein have
been prepared by the Company without audit. Certain information and
footnote disclosures included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Although the Company management believes the
disclosures are adequate to make the information not misleading, it
is suggested that these quarterly condensed consolidated financial
statements be read in conjunction with the audited annual financial
statements and footnotes thereto.
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
OPERATIONAL MATTERS AND LIQUIDITY
The Company has a net loss for the quarter ending June 30, 1998 of
$516,189 and at June 30, 1998 has a working capital deficiency of
approximately $6,059,000 after reclassification of the Company's
major long-term lease commitments to current (more fully discussed
below). Prior to a private placement for $2,000,000 in securities on
March 27, 1998, the Company had a deficiency of net assets of
($963,000). Collectively, these factors have resulted in the Company
being in default of its major lease and loan agreements. In view of
these matters, recoverability of a major portion of the recorded
asset amounts shown in the accompanying balance sheet is dependent
upon continued operation of the Company, which in turn is dependent
upon either the Company's ability to succeed in its future operations
and its ability to cure its lease and loan defaults. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence. The following
commentary addresses the Company's operations for the second quarter
of 1998 and its plan to improve future results.
The Company attributes the loss in the second quarter primarily to
losses sustained by its relatively new start up facilities, which
experienced a loss in revenues in the second quarter. The Orange Park
facility experienced a 44% decrease in net revenue (approximately
$388,000) from that of the corresponding quarter in the previous year
which resulted in a loss approximating $232,000 compared to a $61,000
loss for the same quarter in 1997. The Riverside facility had a loss
of $195,000 compared to a loss of $188,000 in the corresponding
quarter of 1997. Due to losses experienced in the Company's
relatively new start up facilities and the Company's expansion and
growth the Company's working capital has decreased to the extent that
the Company had fallen behind in meeting its lease, vendor and
certain loan obligations. During the quarter, the Company has
negotiated with many of its major vendors, lessors, and lending
institutions terms, which will allow the Company to bring its
obligations current by year-end. The Company is actively
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
seeking financing alternatives for it accounts receivables as a
result of its current asset lender imposing unfavorable loan
restrictions on the Company as a result of the change in control of
the Company. The Company expects to close on a refinancing package
with its major lessor by the end of August, which will bring its
lease obligations current. During this period the Company has not
received a waiver of default from its lessors and therefore, has
reclassified its long-term lease obligation to short-term.
The Company is continuing with its merger plans with American
Enterprise Solutions, Inc. ("AES") and hopes to complete the merger
process by third quarter end. AES has loaned the Company
approximately $181,000 through June 30, 1998. The Company believes
with a successful conclusion to its financing arrangements, and an
increase in revenues, its financial condition will strengthen; though
no absolute assurances can be given.
At June 30, 1998, the market value of the Company's marketable
securities decrease slightly to $1,874,618. The Company believes the
decline to be temporary. The Company recorded an unrealized net loss
on securities of $125,382.
(2) PREFERRED STOCK TRANSACTION
In March, 1997, the Securities and Exchange Commission (SEC)
announced its position on accounting for the issuance of convertible
preferred stock with a nondetachable conversion feature that is
deemed "in the money" at the date of issue (a "beneficial conversion
feature"). The beneficial conversion feature is initially recognized
and measured by allocating a portion of the preferred stock proceeds
equal to the intrinsic value of that feature to additional paid-in
capital. This initial value is calculated at the date of issue as the
difference of the conversion price and the quoted market price of the
company's common stock into which the security is convertible,
multiplied by the number of shares into which the security is
convertible. The discount resulting from the allocation of proceeds
in the beneficial convertible feature is treated as dividend and is
recognized as a return to the preferred shareholder over the minimum
period in which the preferred shareholders can realize that return
(i.e. from the date the securities are issued to the date they are
first convertible). The accounting for the beneficial conversion
feature requires the use of an unadjusted quoted market price (i.e.,
no valuation discounts allowed) as the full value used in order to
determine the intrinsic value dividend. The intrinsic value of the
dividends to the preferred shareholder is deducted from the net
income before calculating the net loss per common share. The
intrinsic value of beneficial conversion features to preferred
shareholders is $25,568,750. Upon merger with AES, the effect of the
beneficial conversion features is reversed.
(3) LEGAL ACTION
On May 20,1998, Carnegie Capital, Ltd. ("Carnegie Capital") filed
suit for foreclosure against the Company and its wholly owned
partnership, Sundance Partners for alleged default of a second
mortgage note held by Carnegie Capital. The debt outstanding at July
31, 1998, approximates $150,000 plus interest approximating $14,000
which the Company has provided for. The property involved is the
fixed site facility occupied by the Company's Orange Park diagnostic
subsidiary. The Company has filed a counter suit alleging certain
improprieties on the part of Carnegie Capital.
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NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM- 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
Net revenues for the second quarter ended June 30, 1998 were $2,320,991
compared to $2,612,347 for the same period in 1997, representing an 11%
decrease. The decrease is primarily attributable to the Company's two
relatively new start up facilities. Year to date revenues are down a modest 1%.
Direct operating expenses for the second quarter ended June 30, 1998 were
$1,394,089 compared to $1,497,388 for the same period in 1997, representing a
7% decrease. Direct costs as a percent of net revenue increased slightly by
2.8%, with a year to date decline of 4.6%. This over all decrease is the result
of the Company achieving lower medical supply costs.
General and administrative expenses for the second quarter ended June 30, 1998
were $1,023,464 compared to $1,012,833 for the same period in 1997,
representing a 1% increase. The increase is primarily attributable to an
increase in property taxes on the relatively new equipment for the Riverside
facility. Depreciation and amortization costs decreased to $342,000 from
$373,000 for the quarters ending June 30, 1998 and 1997, respectively. This is
primarily attributable to the Riverside start-up costs being fully amortized.
Interest expense has decreased to $173,000 from $189,000 for the quarters
ending June 30, 1998 and 1997, respectively. This is due primarily from the
amortization of Company debt.
The decrease in operating costs was not sufficient to offset the decrease in
revenues resulting in a quarter loss of $605,000 compared to $459,000 for the
same period in 1997. The relatively new Riverside facility contributed a
$195,000 loss compared to a $188,000 for the same period in 1997. The Orange
Park facility (its fixed site opened July of 1995) incurred a loss of $232,000
compared to a $61,000 loss for the quarter in 1997. The Brandon facility
experienced a profit of $8,000 compared to a $31,000 profit in 1997. The Sun
Point facility posted an $18,000 loss for the quarter compared to a loss of
$23,000 for the same period in 1997. The Company has not determined if the
decrease in revenues experienced in the 2nd quarter will continue through the
3rd quarter.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company has a working capital deficiency of approximately
$6,059,000 after the reclassification of its major long-term lease obligations
to current (more fully discussed below). Prior to a private placement for
$2,000,000 in marketable securities on March 27, 1998, the Company has a
deficiency of net assets of approximately $963,000, which collectively resulted
in the Company being in default of its major lease and loan agreements. The
Company is concluding discussions with its major lessor whereby the Company
expects to enter into a refinancing agreement, which will cure the defaults.
During this discussion period the Company has not received a waiver of default
and therefore, has reclassified its long-term lease obligation to short-term.
Additionally, the Company is in default of a second mortgage loan on one of its
fixed site facilities. The lender filed a suit of foreclosure on May 12, 1998.
The Company has filed a counter suit alleging certain improprieties on the part
of the lender (see the Company's Form 10-QSB for March 31, 1998).
The Company's marketable securities experienced a market decline and has valued
them at $1,874,618 at June 30, 1998. The Company believes this market decline
to be of a temporary nature.
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The Company is continuing in the merger process with American Enterprise
Solutions, Inc. ("AES"). The Company hopes to consummate the merger in the
third quarter of 1998. During this period the Company has negotiated terms with
many of its vendors which will allow the Company to become current on its
obligation be year end. To this end AES has loaned to the Company on an as
needed basis $181,000 through June 30, 1998.
The Company has a $2,000,000 line of credit with Health Care Financial
Partners, Inc. ("HCFP"). The lender has a first security interest on all
accounts receivable. HCFP considers the Company to be in technical default of a
loan covenant, wherein HCFP has not approved the change of control that
resulted when AES acquired a majority interest in the Company. Subsequently,
HCFP has required acceleration of a term loan with payment of $4,000 per day
toward the balance of $152,000 remaining at June 30, 1998, and has increased
the interest rate to 15% from prime plus 2%. At August 12th, the term loan was
paid through October 1998, with a balance of $112,000. At June 30, 1998, due to
a change in liquidity factors, the Company became over borrowed on its line of
credit by approximately $65,000. The Company eliminated this overage by July
29, 1998. At August 12, 1998, the Company's loan balance on its line of credit
was $1,018,000, with zero availability. The Company is actively pursuing
alternative financing.
In the quarter ending June 30, 1998, the company's cash remained unchanged.
Operations contributed $253,000. Financing utilized $2,000 and the remaining
cash was used for debt retirement.
The Company had intended to curtail its external expansion (new start-ups or
acquisitions) until the Company's current relatively new start-ups achieve
acceptable levels of operation, and/or the Company achieved additional capital
infusion. It is likely that external expansion will not take place until
subsequent to the merger; at which time the Company will evaluate the synergies
developing through merger and the recourses available to the Company then
develop a plan for further external expansion.
As a result of its cost cutting measures, if the Company can increase revenues,
return to profitability, if costs can be contained, if the Company's vendors
continue work with the Company, and if the Company is successful in curing its
lease and loan defaults, the Company believes that its presently anticipated
short-term needs for operation, capital repayments and capital expenditures for
its current operations can be satisfied. The Company feels that its ability in
the short-term to improve its working capital is reasonably attainable. There
is no assurance that these short-term needs can be met.
The Company's long term growth strategies will require additional funds. The
Company feels that the financial resources will be more easily attainable
subsequent to the merger. In the event that the Company proceeds with the
establishment of additional facilities, or encounters favorable acquisition
opportunities in the near future, the Company may incur, from time to time,
additional indebtedness and attempt to issue equity or debt securities in
public or private transactions. There is no assurance that the Company will be
successful in securing additional financing or capital through equity or debt
securities.
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company's independent certified public
accountant's report on the Company's 1997 Financial Statements contained in the
Company's Annual Form 10-KSB included a going concern qualification. The
information contained in Note 2 to the Financial Statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997 remains relevant related to the status of certain of the Company's
operational and funding matters and, accordingly, should be referred to in
conjunction with this Form 10-QSB.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no significant change in the Company's legal
proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.54 Third Amendment to Merger Agreement by and between National
Diagnostics, Inc. and American Enterprise Solutions, Inc.
effective July 24, 1998.
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None
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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 thereunto duly authorized.
Date: August 19, 1998
NATIONAL DIAGNOSTICS, INC.
/s/ Curtis L. Alliston
-------------------------------------
Curtis L. Alliston
President and Chief Operating Officer
/s/ Dennis C. Hult
-------------------------------------
Dennis C. Hult
Comptroller
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NATIONAL DIAGNOSTICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
Exhibit
Number Description of Document
- ------- -----------------------
10.54 Third Amendment to Merger Agreement by and between National Diagnostics, Inc.
and American Enterprise Solutions, Inc. effective July 24, 1998
14