U.S. 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 March 31, 2001
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission file number 000-22653
Comprehensive Medical Diagnostics Group, Inc.
(Exact name of small business issuer as specified in its charter)
Florida
(State or other jurisdiction of incorporation or organization)
65-0353816
(IRS Employer Identification No.)
32 Nassau Street, Second Floor, Princeton, New Jersey 08542
(Address of principal executive offices)
609-924-1001
(Issuer's telephone number)
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of March 31, 2001 the registrant
had issued and outstanding 20,665,369 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes |_| No |X|
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2001 (unaudited) 2
Condensed Consolidated Statements of Operations for the Nine Months
Ended March 31, 2001 and 2000 (unaudited) 3
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2001 and 2000 (unaudited) 4
Condensed Consolidated Statement of Stockholders' Equity for the
Nine Months Ended March 31, 2001 (unaudited) 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operations
Part II. Other Information
Signatures
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2001
Assets
Current Assets
Cash $ 5,771
Accounts Receivable 4,949,780
Note Receivable 37,628
Prepaid Expenses 230,797
------------
Total Current Assets 5,223,976
Property and Equipment, Net of $243.200 accumulated depreciation 1,665,062
Goodwill, Net of accumulated amortization of $99,906 10,039,270
Deferred Costs 196,462
------------
Total Assets 17,124,770
============
Liabilities and Stockholders Equity
Current Liabilities
Accounts Payable and Accrued Expenses 1,471,304
Income Taxes Payable 357,474
Note Payable, Demand 236,182
Current Portion of Acquisition Indebtedness 4,026,084
Current Portion of Long Term Debt 221,685
Current Portion of Capitalized Lease Obligations 139,365
Notes Payable - Affiliates 928,508
------------
Total Current Liabilities 7,380,602
Promissory Notes Payable 123,063
Acquisition Indebtedness, Less Current Portion 5,451,521
Long Term Debt 130,712
Capitalized Lease Obligations 304,839
8% Convertible Notes Payable 431,086
Deferred Taxes Payable 1,126,448
------------
Total Liabilities 14,948,271
Stockholders' Equity
Series A Convertible Preferred Stock, $.001 par value, 30,000,000 shares authorized
5,850,000 issued and outstanding 5,850
Common Stock, $.001 par value 50,000,000 shares authorized 20,668,694 shares issued
and 20,665,369 shares outstanding 20,668
Additional Paid In Capital 12,441,379
Treasury Stock, 3,325 shares at cost (64,941)
Accumulated Deficit (10,226,457)
------------
Total Stockholders' Equity 2,176,499
------------
Total Liabilities and Stockholders' Equity $ 17,124,770
============
See notes to the condensed consolidated financial statements.
2
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended Nine Months Ended
March 31 March 31,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ----------- ------------ -----------
Revenues $ 2,161,140 $ -- $ 3,610,543 $ --
------------ ----------- ------------ -----------
Selling, General and Administrative Expenses 2,316,409 -- 4,933,129 --
Depreciation and Amortization 160,132 -- 334,824 --
------------ ----------- ------------ -----------
Total 2,476,541 -- 5,267,953 --
Operating Loss (315,401) -- (1,657,410) --
Other Income/Expense
Interest Expense (132,594) -- (274,333) --
------------ ----------- ------------ -----------
Loss From Continuing Operations (447,995) -- (1,931,743) --
Loss From Discontinued Operations (net of $0 tax effect) -- (538,642) (98,420) (1,943,785)
------------ ----------- ------------ -----------
Loss Before Minority Interest (447,995) (538,647) (2,030,163) (1,943,785)
Loss Applicable to Minority Interest -- 107,729 -- 388,757
------------ ----------- ------------ -----------
Net Loss (447,995) (430,918) $ (2,030,163) $(1,555,028)
============ =========== ============ ===========
Net Loss Per Common Share from Continuing Operations $ (.04) $ -- $ (.18) $ --
Net Loss Per Common Share from Discontinued
Operations -- (.07) (.01) (.25)
------------ ----------- ============ -----------
Net Loss Per Common Share $ (.04) $ (.07) $ (.19) $ (.25)
============ =========== ============ ===========
Weighted Average Common Shares Outstanding 10,464,431 6,473,125 10,464,431 6,316,831
============ =========== ============ ===========
See notes to the condensed consolidated financial statements.
3
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Condensed Consolidated Comparative Statements of Cash Flows
Nine Months Ended
March 31,
---------------------------
2001 2000
------------ -----------
Cash Flows from Operating Activities
Operating Activities:
Net Loss $ (2,030,163) $(1,555,028)
Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by
Operating Activities
Depreciation and Amortization 343,106 467,107
Amortization of Debt Issuance Costs -- 1,151,431
Exchange of preferred shares for common shares and net
assets of businesses acquired 2,062,500 --
Issuance of common shares as a result of note conversion 500,880 --
Issuance of common shares pursuant to settlement agreement
and forgiveness of indebtedness 1,125,000 --
Compensation and Other Services Paid Through Issuance of Common
Stock -- 190,312
Loss Attributable to Minority Interest -- (388,757)
Changes in Operating Assets and Liabilities
Accounts Receivable (4,949,780) (286,715)
Inventories -- 98,831
Other Assets -- 28,308
Other Current Assets (224,948) 123,254
Accounts Payable and Accrued Expenses 941,901 232,642
Current and Deferred Taxes Payable 1,483,922 --
------------ -----------
Net Cash (Used In) Provided By Operating Activities (747,582) 61,385
Cash Flows From Investing Activities
Net Cash From Reverse Acquisition -- 76,994
Purchase of Property and Equipment (1,908,262) --
Purchase of Goodwill (10,139,176) --
Deferred Costs (196,462) --
Repayment of Convertible Note Payable (498,914) --
------------ -----------
Net Cash (Used In) Provided by Investing Activities (12,742,814) 76,994
Cash Flows From Financing Activities
Capital Contribution -- 100
Proceeds from Promissory Notes Payable 123,063 --
Proceeds From Demand Note Payable, Demand 236,182 --
Proceeds From Acquisition Indebtedness 9,560,305 --
Proceeds From Long Term Debt 466,262 (29,697)
Proceeds From Capitalized Lease Obligations 489,482 --
Proceeds From Notes Payable Affiliate 928,508 --
Issuance of Common Shares 1,924,191 --
------------ -----------
Net Cash Provided By Financing Activities 13,727,993 (29,597)
Net (Decrease) Increase in Cash (4,246) 108,782
Cash Beginning of Period 10,017 --
------------ -----------
Cash, End of Period $ 5,771 $ 108,782
============ ===========
See notes to the condensed consolidated financial statements.
4
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
Nine Months Ended
March 31,
-------------------------
2001 2000
---------- -----------
Supplemental Disclosure of Cash Flow Information
Interest Paid $ -- $ 27,769
========== ===========
Income Taxes Paid $ -- $ --
========== ===========
Supplemental Schedule of Non-Cash Investing and Finance Activities
Issuance of 3,000,000 Preferred Shares for the Common Shares of
The Comprehensive Medical Group, Ltd. 1,125,000 --
Issuance of 2,500,000 Preferred Shares in Exchange for the Assets of
CAT, a New York Limited Liability Company 937,500 --
Issuance of 250,000 Preferred Shares for Long Term Consulting
Agreement 93,750 --
Issuance of 100,000 Preferred Shares as Incentive Compensation 37,500 --
Issuance of 16,154,126 Common Shares Upon Conversion of 8%
Convertible Note 500,880 --
Issuance of 843,373 Common Shares in Exchange for Forgiveness of
Indebtedness 700,000 --
Issuance of 780,000 Common Shares for Consulting Service 292,500 --
Issuance of 300,000Common Shares Pursuant to Settlement Agreement
and Forgiveness of Indebtedness 425,000 --
---------- -----------
Total $4,112,130 $ --
========== ===========
See notes to the condensed consolidated financial statements.
5
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended December 31, 2000
Preferred Stock Common Stock Additional
------------------------ ------------------------- Paid in
Shares Amount Shares Amount Capital
---------- ----------- ----------- ----------- ------------
Balance, June 30, 2000 -- $ -- 263,493 $ 263 $ 6,855,063
Preferred Stock Issuances
In Exchange for the Common Shares of
The Comprehensive Medical Group, Ltd. 3,000,000 3,000 -- -- 1,122,000
In Exchange for the Assets of CAT, a New York
Limited Liability Company 2,500,000 2,500 -- -- 935,000
For Long-Term Consulting Agreement 250,000 250 -- -- 93,500
As Incentive Compensation 100,000 100 -- -- 37,400
Common Stock Issuances
Pursuant to Private Placement Offering -- -- 2,106,024 2,106 1,745,894
Resulting from Note Conversion -- -- 16,154,126 16,158 484,722
In Exchange for Forgiveness of Indebtedness -- -- 843,373 843 699,157
For Consulting Services -- -- 780,000 780 291,720
Pursuant to Settlement Agreement and in
Forgiveness of Indebtedness -- -- 300,000 300 424,700
Fees Incidental to Private Placement -- -- 218,353 218 (218)
Fees and Costs Incurred Incidental to
Private Placement -- -- -- -- (111,159)
Commissions Paid Incidental to Private Placement -- -- -- -- (181,650)
Sale of Warrants -- -- -- -- 45,250
Net Loss -- -- -- -- --
---------- ----------- ----------- ----------- ------------
5,850,000 $ 5,850 20,665,369 $ 20,668 $ 12,441,379
Balance, September 30, 2000 ========== =========== =========== =========== ============
Treasury Stock
Accumulated ----------------------
Deficit Shares Amount Total
------------ -------- ----------- -----------
Balance, June 30, 2000 $ (8,196,294) 3,325 $ (64,941) $(1,405,909)
Preferred Stock Issuances
In Exchange for the Common Shares of
The Comprehensive Medical Group, Ltd. -- -- -- 1,125,000
In Exchange for the Assets of CAT, a New York
Limited Liability Company -- -- -- 937,500
For Long-Term Consulting Agreement -- -- -- 93,750
As Incentive Compensation -- -- -- 37,500
Common Stock Issuances
Pursuant to Private Placement Offering -- -- -- 1,748,000
Resulting from Note Conversion -- -- -- 500,880
In Exchange for Forgiveness of Indebtedness -- -- -- 700,000
For Consulting Services -- -- -- 292,500
Pursuant to Settlement Agreement and in
Forgiveness of Indebtedness -- -- -- 425,000
Fees Incidental to Private Placement -- -- -- --
Fees and Costs Incurred Incidental to
Private Placement -- -- -- (111,159)
Commissions Paid Incidental to Private Placement -- -- -- (181,650)
Sale of Warrants -- -- -- 45,250
Net Loss (2,030,163) -- -- (2,030,163)
------------ -------- ----------- -----------
$(10,226,457) 3,325 $ (64,941) $ 2,176,499
Balance, September 30, 2000 ============ ======== =========== ===========
See notes to the condensed consolidated financial statements.
6
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
NATURE OF BUSINESS
Comprehensive Medical Diagnostics Group, Inc. ("Medical Diagnostics") was
incorporated in Florida on August 17, 1992. Prior to June 30, 2000 its
financial statements included the continuing operations of its wholly
owned subsidiaries, Industrial Fabrication & Repair, Inc. ("IFR") and
PeopleFirst Staffing LLC ("PeopleFirst"). On September 7, 1999 Medical
Diagnostics and PeopleFirst consummated certain transactions pursuant to a
Share Exchange Agreement whereby PeopleFirst became an 80% subsidiary of
Medical Diagnostics. The Exchange was treated for accounting purposes as a
"purchase business combination" and a "reverse acquisition" effective as
of September 1, 1999 in which Medical Diagnostics was the legal acquirer
and PeopleFirst was the accounting acquirer.
On April 29, 2000 Medical Diagnostics discontinued the operations of IFR
and on June 29, 2000 discontinued the administrative services operations
and commenced a liquidation of the remaining assets and liabilities of
PeopleFirst (see DISCONTINUED OPERATIONS).
As further explained below (see BUSINESS ACQUISITIONS), as a result of the
acquisitions discussed therein, Medical Diagnostics has changed its focus
and strategy to concentrate on becoming a provider of medical treatment,
diagnostic testing and ancillary services to the long-term healthcare
business sector and the medical community at large.
UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial
position of Comprehensive Medical Diagnostics Group, Inc. and its
subsidiaries (collectively, the "Company") as of March 31, 2001 and their
results of operations, changes in stockholders' equity and cash flows for
the nine months ended March 31, 2001 and 2000. Certain terms used herein
are defined in the audited consolidated financial statements of the
Company as of June 30, 2000 and for the years ended June 30, 2000 and 1999
(the "Audited Financial Statements") included in the Company's Annual
Report on Form 10-KSB (the "Form 10KSB") for the year ended June 30, 2000
that was previously filed with the United States Securities and Exchange
Commission (the "SEC"). Pursuant to rules and regulations of the SEC,
certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these consolidated
financial statements unless significant changes have taken place since the
end of the most recent fiscal year. Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction with the
Audited Financial Statements and the other information also included in
the Form 10-KSB.
The results of the Company's operations for the nine months ended March
31, 2001 and 2000 are not necessarily indicative of the results of
operations for the full year ending June 30, 2001.
BUSINESS ACQUISITIONS
Cardiovascular Laboratories Holding, Inc.
As of July 27, 2000 the Company, through its wholly owned subsidiary,
Cardiovascular Laboratories Holding, Inc. ("CLH") acquired the assets and
assumed the liabilities of Cardiovascular, LLC ("CLI") which, on May 31,
2000 acquired the assets (including inventory, equipment, machinery, and
contractual and other rights and certain accounts receivable) and assumed
certain liabilities of Cardiovascular Laboratories, Inc. of PA ("CLP").
The transaction between CLI and CLP closed in escrow, which escrow was
maintained after the closing between CLH and CLI, pending the assignment
and assumption of certain equipment leases and financing contracts by CLH.
7
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
As consideration for the acquisition of CLI, CLH assumed CLI's obligations
under a seller note to CLP to pay $684,000 over a period of three years
subject to reduction should certain monthly revenue levels not be attained
and also assumed CLI's obligations under certain leases, financing
agreements and trade obligations.
CLH specializes in the provision of non-invasive cardiovascular imaging
and the turnkey management of fixed sight vascular and ecocardiographic
ultrasound laboratories.
Comprehensive Medical Group, Ltd.
As of July 25, 2000, the Company entered into an Agreement and Plan of
Reorganization with The Comprehensive Medical Group, Ltd ("CMG"). The
Company issued 3,000,000 shares of its Series A Convertible Preferred
Stock to CMG's shareholders in exchange for all issued and outstanding
stock of CMG.
CMG intends to provide health and wellness management services for
employee assistance programs, human resource departments and labor unions;
and to design and operate a kiosk based point of purchase medical
marketing program called "The Wellness Shop"; and to design and operate a
website called "Leaseonlife.com" to provide interactive health and
wellness analysis, treatment content and management tools.
Diagnostic Management Group Holdings, Inc.
As of August 2, 2000, the Company through its wholly owned subsidiary,
Diagnostic Management Group Holdings, Inc. ("DMG") acquired the assets of
CAT, a New York limited liability company.
The purchase price for CAT's assets was $1,100,000 in cash and 2,500,000
shares of the Company's Series A Convertible Preferred Stock. DMG acquired
all inventory equipment, machinery, contractual and other rights, and
certain accounts receivable, also assuming certain equipment leases and
trade payables.
DMG manages the operation of a medical diagnostic cardiological and
neurological testing services and tele-medicine of CAT - ECG PC, a New
York professional corporation.
Diagnostic Health Services, Inc. (DHS)
As of January 1, 2000 the Company through its wholly owned subsidiary
Diagnostic Management Group Holdings, Inc. acquired all of the issued and
outstanding stock of DHS in exchange for $4,700,000 consisting of a cash
payment of $1,500,000, assumption of certain DHS liabilities in the amount
of $500,000 and notes payable to DHS's former shareholders in the amount
of $2,700,000. Additionally, the Company is obligated to pay DHS's former
shareholders 92.5% of accounts receivable ($4,421,505 at the date of
closing) actually collected by the Company at the rate of $150,000 per
month commencing in June, 2001.
DHS owns and manages a mobile diagnostic testing center which delivers
mobile x-ray radiology and cardiovascular services to long term care
facilities, nursing homes and state institutions.
DISCONTINUED OPERATIONS
On April 1, 2000 the Company discontinued its manufacturing operations by
agreeing to sell IFR back to its previous owner in exchange for 3,325
shares of the Company's common stock with a fair value of approximately
$64,941 (or $19.53 per share). The shares reacquired have been reflected
as treasury stock in the accompanying condensed consolidated balance
sheet. On June 29, 2000, the Board of Directors, and a majority of the
stockholders of the Company approved the adoption of a plan to effectively
(i) discontinue the administrative services operations of PeopleFirst
through the return of the right to operate its business to its previous
owners in exchange for their agreement to relieve the Company of all
obligations arising from such operations and (ii) liquidate the remaining
assets and liabilities of PeopleFirst. Accordingly,
8
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
the results of the Company's manufacturing and administrative services
operations are reported, and as to 1999 reclassified, as a loss from
discontinued operations in the accompanying condensed consolidated
statement of operations.
Revenue and loss from discontinued operations was as follows:
Nine Months Ended
-----------------------
March 31, March 31,
2001 2000
-------- -----------
Revenue $ -- $ 3,170,814
-------- -----------
Loss from discontinued operations $(98,420) $(1,943,785)
======== ===========
Net Loss $(98,420) $(1,555,028)
======== ===========
PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following
Operating equipment $1,714,047
Website and kiosk software and equipment 133,598
Office equipment 50,150
Vehicles 10,467
----------
Subtotal 1,908,262
Less accumulated depreciation and amortization 243,200
----------
Total $1,665,062
==========
Depreciation expense charged to operations for the nine month periods
ended March 31, 2001 amounted to $122533.
GOODWILL
During the nine month period ended March 31, 2001 the Company acquired
substantially all of the assets of CAT and CLI subject to the assumption
of certain indebtedness; as well as all of the issued and outstanding
stock of CMG. The excess cost over net book value of assets acquired as a
result of these acquisitions aggregated $10,139,176 and is comprised as
follows:
CLI
Assumption of a non-interest bearing seller note of $684,000 payable
originally over a 36 month period (extended to a 48 month period
effective October, 2000) and subject to adjustment if certain future
monthly revenue levels are not attained, after a present value
discount of 10% $ 510,710
Assumption of liabilities in excess of net book value of assets
acquired 383,756
Capitalized costs and fees incidental to the transaction 70,151
------------
Subtotal $ 964,617
------------
9
CAT
Cash $ 1,100,000
Issuance of 2,500,000 shares of the Company's Series A Convertible
Preferred Stock with an estimated fair value of $.375 per share at the
time of issuance 937,500
Capitalized costs and fees incidental to the transaction 15,311
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
Less: Amount allocable to fair market in excess of net book value of
property and equipment acquired (750,000)
------------
Subtotal $ 1,302,811
------------
CMG
Issuance of 3,000,000 shares of the Company's Series A Convertible
Preferred Stock with an estimated fair value of $.375 per share at time
of issuance $ 1,125,000
Assumption of liabilities in excess of net book value of assets acquired 634,858
Capitalized costs and fees incidental to the transaction 5,000
------------
Subtotal 1,764,858
------------
DHS
Notes Payable 8,700,000
Less: Note Book Value of Assets Acquired (2,593,110)
------------
Subtotal 6,106,890
------------
Total $ 10,139,176
============
The Company is amortizing goodwill over a 40 year period. Amortization for
the nine months ended March 31, 2001 amounted to $87,188.
NOTES PAYABLE DEMAND
The Company through its subsidiary, CLH agreed to assume certain demand
loan obligations of CLP. Pursuant thereto, there are outstanding advances
under a loan commitment which permits borrowings as determined by a
percentage of CLH's qualifying accounts receivable, up to a maximum
limitation of $1,000,000. Such borrowings bear interest at the lenders
defined prime rate plus 2.25%. Repayments under the loan are via a lock
box agreement which provides for the receipt and processing of accounts
receivable. The outstanding balance under this financing arrangement was
$236,182 at March 31, 2001.
ACQUISITION INDEBTEDNESS
Acquisition indebtedness is comprised of the following:
Non-interest bearing seller note payable in the original principal
amount of $684,000 incurred upon the acquisition of CLI's net assets
and payable originally over a 36 month period (modified to $5,000 per
month effective February, 2001) without interest and subject to
adjustment if certain future monthly revenue levels are not attained. $ 611,521
Remaining cash consideration due incidental to the acquisition of
CAT's net assets 150,000
Amounts due CAT sellers consisting of uncollected and unremitted
accounts receivable existing on the transaction date 16,084
10
Note payable to 5761 Holdings Corp. bearing interest at the rate of 14%
per annum, due July 1, 2001 and secured by all unencumbered accounts
receivable of the Company 1,500,000
Note payable to former shareholders of DHS in the original principal 2,700,000
amount of $2,700,000 incurred upon the acquisition of all issued and
outstanding stock of DHS and bearing interest at the rate of 5% per
annum payable $300,000 on March 1, 2001, $400,000 six months
thereafter and $500,000 in each of the four quarters thereafter
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
Pursuant to the acquisition agreement, sellers may elect to receive
common shares of the Company at a cost of $1.00 per common share Note
payable to former shareholders of DHS in the original principal amount
of $4,000,000, which sum represents 92.5% of DHS accounts receivable
at the date of acquisition, payable at the rate of $150,000 per month
without interest commencing June, 2001. This obligation is subject to
reduction to the extent that actual collections are in an amount lesser
than that existing at March 31, 2001 ($4,421,505) to the extent of
92.5% thereby 4,000,000
The Company agreed to assume up to $500,000 of income tax related
obligations of DHS 500,000
-----------
Total 9,477,605
Less current portion 4,026,084
-----------
$ 5,451,521
===========
The aggregate amount of future principal repayments at March 31, 2001 is as
follows:
Year ending March 31
- -------------------------------------------------------------
2002 $ 4,026,084
2003 3,131,521
2004 1,760,000
2005 560,000
-----------
Total $ 9,477,605
===========
LONG TERM DEBT
The Company, through its subsidiary CLH, has agreed to assume certain
long-term debt of CLP which, at March 31, 2001 consists of the following:
Term loan payable in monthly installments of $2,075, including interest
at 13.7% through October 16, 2001 $ 17,656
Term loan payable in monthly installments of $1,908, including interest
at 9.0% through June 1, 2001 5,689
Equipment loan payable in monthly installments of $13,640, including
interest at 10.675% through September 29, 2002 214,313
Equipment loan payable in monthly installments of $402 including
interest at 9.65% through November 24, 2002 7,402
Equipment loan payable in monthly installments of $456, including
interest at 10.84% through December 30, 2004 16,796
Equipment loan payable in monthly installments of $434, including
interest at 9.95% through January 28, 2005 16,247
Equipment loan payable in monthly installments of $415, including
interest at 9.95% through February 3, 2003 8,323
11
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
Equipment loan payable in monthly installments of $394, including
interest at 8.18% through February 1, 2003 8,029
Term loan payable in monthly installments ranging from $2,500 to
$3,500, including interest at 11% through May, 2002 36,550
---------
331,005
Less current portion 221,685
---------
Long-term debt $ 109,320
=========
The loans are secured by liens on equipment and accounts receivable of CLH.
The aggregate amount of future principal repayments at March 31, 2001 is as
follows:
Years Ending March 31,
2002 $ 243,431
2003 77,086
2004 10,488
---------
Total $ 331,005
=========
CAPITALIZED LEASE OBLIGATIONS
The Company through it's subsidiary CLH, agreed to assume obligations
under the provisions of three long-term leases entered into in 1999. In
addition, the Company, through it's subsidiary DHS, agreed to assume
obligations under the provisions of various long-term leases of medical
equipment entered into by DHS prior to acquisition. For financial
reporting purposes, minimum lease payments relating to the equipment have
been capitalized. The leases expire between March 1, 2003 and January 31,
2005. The leased property under capital leases by CLH as of September 30,
2000 were acquired at the pre-acquisition amortized cost of $340,274, and
have accumulated amortization of $14,132 and a net book value of $326,142.
Amortization of the lease property is included in depreciation expenses.
The future minimum lease payments under capital lease and the net present
value of the future minimum lease payments at March 31, 2001 are as
follows:
Total minimum lease payments $ 538,558
Amount representing interest (94,354)
Present value of net minimum Lease payments 444,204
Current portion 139,365
---------
Long-term capital lease obligation $ 304,839
=========
8% CONVERTIBLE NOTE PAYABLE
Prior to July 14, 2000, the Company had outstanding three 8% Convertible
Promissory Notes, dated March 3, 1999 in the aggregate principal amount of
$819,000 ("Convertible Notes") and one 8% Promissory Note having a
principal amount of $81,000 ("Non-Convertible Note"). The Company was in
default as to the above notes and interest of $30,000 was due.
12
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
The terms and conditions of the Convertible Notes were amended and
restated in a Note Reformation Agreement dated as of July 14, 2000 and new
Convertible Notes were issued reflecting a total balance of $930,000,
extending the maturity date to June 30, 2003 and amending and modifying
the conversion terms of the Convertible Note. Additionally, the Non-
Convertible Notes was cancelled.
Subsequently, the Amended and Restated Convertible Notes were sold by the
note holder to a group of investors.
As of March 31, 2001 certain convertible note holders exercised their
conversion rights resulting in the Company's issuance of 16,154,126 common
shares and thereby reducing the principal balance of the 8% Convertible
Note to $431,086.
PREFERRED STOCK
The Company is authorized to issue 30,000,000 shares of $.0001 par value
preferred stock. As of December 31, 2000 the company has issued and
outstanding 5,850,000 shares of Series A Preferred Stock; such shares have
voting rights equal to those of common shareholders, have priority in
liquidation over common shareholders, have no stated dividend requirements
and may each be converted into one common share.
Incidental to the acquisition of CAT and CMG (see BUSINESS ACQUISITIONS)
the Company issued 5,500,000 shares of Series A Preferred Stock which, in
the opinion of management had a fair value at the time of issuance of
$.375 per share.
Additionally, the Company has issued 250,000 shares of Series A Preferred
Stock pursuant to a long-term consulting agreement and 100,000 shares of
Series A Preferred Stock as incentive compensation to an officer of the
Company; such issuances, in the opinion of management, having a fair value
at the time of issuance of $.375 per share.
COMMON STOCK
The Company is authorized to issue 50,000,000 $.001 par value common
shares.
Through March 31, 2001 the Company has issued 2,949,397 common shares in
exchange for cash consideration of $1,748,000 and debt forgiveness of
$700,000 which issuance was made pursuant to a private placement to
accredited investors, which is exempt from registration under Regulation D
of the Securities Act of 1933, as amended. Additionally, the Company
issued 218,353 common shares and incurred fees, costs and commissions
amounting to $292,809 incidental to such issuances.
Through March 31, 2001 the Company has issued 16,154,126 common shares
pursuant to the Company's conversion of a portion of the 8% Convertible
Preferred Notes resulting in a principal reduction of $468,194.
Pursuant to a certain Termination and Settlement Agreement, the Company
issued 300,000 common shares in exchange for forgiveness of $425,000.
The Company has entered into consultancy agreements whereby 780,000 common
shares have been rendered in exchange for services to be provided through
June 30, 2001. It is management's opinion that the fair value of such
common shares issued is $.375 per share.
13
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
WARRANTS
On February 6, 2001 the Company sold warrants to purchase 500,000 common
shares for $45,250. The warrants expire on July 31, 2001 and have an
exercise price equal to the lesser of $1.00 per share or 80% of the
average of the lowest three bid prices for the Company's stock during the
thirty day period prior to exercise.
INCOME TAXES
As of December 31, 2000 the Company had net operating loss carryforwards
of approximately $26,000,000. These net operating loss carryforwards are
available to reduce future taxable income and will expire at various dates
through 2021. Due to the uncertainties relating to, among other things,
changes in the ownership of the Company which occurred in September of
1999 and July of 2000, as well as the disposition and acquisition of
various subsidiaries, and the extent and timing of its future taxable
income, the Company has offset the deferred tax assets attributable to
potential benefits of approximately $7,200,000 from the utilization of
those net operating loss carryforwards by an equivalent valuation
allowance.
Upon the acquisition of DHS, the Company assumed liabilities for current
and deferred taxes in the amounts of $357,474 and $1,126,448,
respectively.
Also, for the above reasons, no credit for income taxes is included in the
accompanying condensed consolidated statements of operations for the six
month periods ended December 31, 2000 and December 31, 1999 respectively.
EARNINGS (LOSS) PER SHARE
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings per common share pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" Basic earnings (loss) per common share is calculated by dividing
net income or loss applicable to common stock by the weighted average
number of common shares outstanding during each period. The calculation of
diluted earnings per common share is similar to that of basic earnings per
common share, except that: (i) the denominator is increased to include the
number of additional common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable upon the
assumed exercise of stock options and warrants and the conversion of notes
or preferred shares had been issued during the period and (ii) the
numerator is adjusted to eliminate interest on convertible notes and
convertible preferred dividend requirements.
Diluted per share amounts have not been presented in the accompanying
condensed consolidated statements of operations because the Company had a
net loss for the nine month periods ended March 31, 2001 and 2000,
respectively and, accordingly, the effects of the assumed conversion of
all of the Company's outstanding convertible notes, and the assumed
exercise of all of the Company's outstanding warrants and the application
of the treasury stock method, would have been anti-dilutive.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
accounts receivable. The Company maintains its cash balances with major
financial institutions that have high credit ratings. At times, such
balances may exceed Federally insured limits.
The Company generally extends credit to its customers (which include third
party payors), all of whom are located in the northeastern United States.
Management of the Company closely monitors the extension of credit to
customers while maintaining allowances for potential credit losses. During
the nine month periods ended March 31, 2001 and 2000, no customer
accounted for more than 10% of the Company's revenues. Generally, the
Company does not have a significant receivable from any single customer
and, accordingly, management does not believe that the Company was exposed
to any significant credit risk at March 31, 2001.
14
Comprehensive Medical Diagnostics Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
OPERATING LEASE COMMITMENTS
On September 1, 1999, CMG entered into a twenty-one month sublease for the
period September 1, 1999 through June 30, 2001 for 4,500 square feet of
office space. The rent is $4,200 per month and is not subject to further
increases.
On March 10, 1999, CAT entered into an amended ten year lease for the term
March 10, 1999 through March 31, 2009, for 7,000 square feet of laboratory
and office space.
DHS has non-cancellable operating leases for its fleet of automobiles that
extend over the next three to five years, with a total annual lease
expense of approximately $150,000.
DHS has the following rental commitments for office space.
To B & G Realty Company, an affiliated company, for its New Jersey office
building under a fifteen year lease expiring on December 31, 2010. Future
minimum lease payments are approximately as follows:
Base Rent
----------
April 1, 2000 - December 31, 2000 $ --
January 1, 2001 - December 31, 2003 138,600
January 1, 2004 - December 31, 2006 172,800
January 1, 2007 - December 31, 2010 240,000
----------
Total minimum future rental payments $ 551,400
==========
DHS has a lease in Dayton Manor, New Jersey for office space on a
month-to-month basis at $400 per month.
DHS had a lease in New York City, for office space on a month-to-month
basis at $725 per month which expired on April 30, 2000. The new lease
began on May 1, 2000, and expires on April 30, 2002. Future minimum lease
payments are approximately as follows:
2000 $ --
2001 7,986
2002 3,568
--------
Total minimum future rental payments $ 11,554
========
DHS has an option to renew for another year at an annual rental of $11,340
DHS has a lease in Garner, North Carolina, beginning September 1, 1999, and
expiring on August 31, 2001. Future minimum lease payments are
approximately as follows:
2000 $ --
2001 3,000
--------
$ 3,000
========
The lease contains an option to renew for another year at an annual rental
of $7,500.
13
Management's Discussion and Analysis or Plan of Operations
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act 1995. Such statements consist of
any statement other than a recitation of historical fact and can be
identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof
or other variations thereon or comparable terminology. The reader is
cautioned that all forward-looking statements are necessarily speculative
and there are certain risks and uncertainties that could cause actual
events or results to differ materially from those referred to in such
forward looking statements. The Company does not have a policy of updating
or revising forward- looking statements and thus it should not be assumed
that silence by management of the Company over time means that actual
events are bearing out as estimated in such forward looking statements.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes appearing elsewhere in this
report.
Overview
Comprehensive Medical Diagnostics Group, Inc. ("Medical Diagnostics") was
originally incorporated in Florida on August 17, 1992 as American Risk
Management Group, Inc. It's name was changed to Comprehensive Medical
Diagnostic Group, Inc. on August 20, 2000.
The Company was originally formed to seek acquisitions or business
opportunities, to the extent permitted by its assets, in various business
sectors throughout the United States. Pursuant to this strategy, the
Company bought and sold several businesses over the last few years.
The Company has changed its focus and strategy and will concentrate on
becoming a provider of medical treatment, diagnostic testing and ancillary
services to the long-term health care business sector and the medical
community at large. The Company will also attempt to position itself to
become an internet provider of health care content and services.
In order to implement its focus and strategy the Company recently
completed four acquisitions as follows:
Cardiovascular Laboratories Holding, Inc.
As of July 27, 2000 the Company, through its wholly owned
subsidiary, Cardiovascular Laboratories Holding, Inc. ("CLH")
acquired the assets and assumed the liabilities of Cardiovascular,
LLC ("CLI") which, on May 31, 2000 acquired the assets (including
inventory, equipment, machinery, and contractual and other rights
and certain accounts receivable) and assumed certain liabilities of
Cardiovascular Laboratories, Inc. of PA ("CLP"). The transaction
between CLI and CLP closed in escrow, which escrow was maintained
after the closing between CLH and CLI, pending the assignment and
assumption of certain equipment leases and financing contracts by
CLH.
As consideration for the acquisition of CLI, CLH assumed CLI's
obligations under a seller note to CLP to pay $684,000 over a period
of three years subject to reduction should certain monthly revenue
levels not be attained and also assumed CLI's obligations under
certain leases, financing agreements and trade obligations.
CLH specializes in the provision of non-invasive cardiovascular
imaging and the turnkey management of fixed sight vascular and
ecocardiographic ultrasound laboratories.
14
Comprehensive Medical Group, Ltd.
As of July 25, 2000, the Company entered into an Agreement and Plan
of Reorganization with The Comprehensive Medical Group, Ltd.
("CMG"). The Company issued 3,000,000 shares of its Series A
Convertible Preferred Stock to CMG's shareholders in exchange for
all issued and outstanding stock of CMG.
CMG intends to provide health and wellness management services for
employee assistance programs, human resource departments and labor
unions; and to design and operate a kiosk based point of purchase
medical marketing program called "The Wellness Shop"; and to design
and operate a website called "Leaseonlife.com" to provide
interactive health and wellness analysis, treatment content and
management tools.
Diagnostic Management Group Holdings, Inc.
As of August 2, 2000, the Company through its wholly owned
subsidiary, Diagnostic Management Group Holdings, Inc. ("DMG")
acquired the assets of CAT, a New York limited liability company.
The purchase price for CAT's assets was $1,100,000 in cash and
2,500,000 shares of the Company's Series A Convertible Preferred
Stock. DMG acquired all inventory equipment, machinery, contractual
and other rights, and certain accounts receivable, also assuming
certain equipment leases and trade payables.
DMG manages the operation of a medical diagnostic cardiological and
neurological testing services and tele- medicine of CAT - ECG PC, a
New York professional corporation.
Diagnostic Health Services, Inc. (DHS)
As of January 1, 2000 the Company through its wholly owned
subsidiary Diagnostic Management Group Holdings, Inc. acquired all
of the issued and outstanding stock of DHS in exchange for
$4,700,000 consisting of a cash payment of $1,500,000 assumption of
certain DHS liabilities in the amount of $500,000 and notes payable
to DHS's former shareholders in the amount of $2,700,.000.
Additionally, the Company is obligated to pay DHS's former
shareholders 92.5% of amounts receivable $4,421,505 at the date of
closing) actually collected by the Company at the rate of $150,000
per month commencing in June, 2001.
DHS owns and manages a mobile diagnostic testing center which
delivers mobile x-ray, radiology and cardiovascular services to long
term care facilities, nursing homes and state institutions.
Additionally the Company discontinued certain operations as follows:
On April 1, 2000 the Company discontinued its manufacturing
operations by agreeing to sell it's subsidiary Industrial
Fabrication & Repair, Inc. ("IFR") back to its previous owner in
exchange for 3,325 shares of the Company's common stock with a fair
value of approximately $64,941 (or $19.53 per share). The shares
reacquired have been reflected as treasury stock in the accompanying
condensed consolidated balance sheet. On June 29, 2000, the Board of
Directors, and a majority of the stockholders of the Company
approved the adoption of a plan to effectively (i) discontinue the
administrative services operations of PeopleFirst Staffing LLC
(PeopleFirst) through the return of the right to operate its
business to its previous owners in exchange for their agreement to
relieve the Company of all obligations arising from such operations
and (ii) liquidate the remaining assets and liabilities of
PeopleFirst.
The condensed consolidated statement of operations includes the
operations of CLH, CMG, DMG and DHS from the respective effective
dates that they were acquired by the Company. The results of
operations IFR and PeopleFirst are reported as losses from
discontinued operations.
15
Pro Forma
The following discussion includes the results of operations for the nine
months ended March 31, 2001 and 2000 as though both the acquisitions and
dispositions described above had been consummated on July 1, 1999.
During the six months ended March 31, 2001, consolidated revenues
increased by approximately $400,000 or 22% from approximately $1,800,000
for the nine months ended March 31, 2000 to approximately $$1,400,000 for
the nine months ended March 31, 2001.
Operating costs for the nine months ended March 31, 2001 increased
approximately $$1,000,000 or 53% from approximately $1,900,000 for the six
months ended March 31, 2000 to approximately $2,900,000 for the nine
months ended March 31, 2001 This increase is attributable to an increases
in kiosk and website development costs, administrative expenses and
expenses related to changes in the Company's focus and direction.
On a pro forma basis, the Company's loss from continuing operations
increased by approximately $1,455,000 or $(0.24) per share from
approximately $(45,000) or $(.01) per share for the nine months ended
March 31, 2000 to approximately $$1,500,000 or $(0.25) per share for the
nine months ended March 31, 2001.
Historical Information
These results include the operations of CLH, CMG, DMG and DHS from the
effective date of their acquisitions by the Company through March 31,
2001.
During the nine months ended March 31, 2001 the Company had revenues of
$3,610,543, all of which was derived from its operating subsidiaries, CLH,
DMG and DHS.
Selling general and administrative expenses were $4,933,129 of which
$3,807,373 was attributable to its operating subsidiaries and the
remainder, of $1,125,756 was attributable to kiosk and website development
costs as well as administrative expenses.
Depreciation attributable to acquired assets and amortization of goodwill
arising from these acquisitions amounted to $334,824 for the nine months
ended March 31, 2001 Interest expense was $274,333 for this period.
As a result of all the above, the Company's loss from continuing
operations and net loss amounted to $1,931,743 $(0.18 per share) and
$2,030,163 $(0.19 per share), respectively, for the nine months ended
March 31, 2001.
Liquidity and Capital Resources
At March 31, 2001 the Company had a working capital deficiency of
$2,156,626. The working capital deficiency is attributable to the excess
of current liabilities over assets assumed in the acquisitions of CHP,
current amounts due to sellers of CAT, CHP and DHS and current obligations
incidental to CMG's kiosk and website development costs and fees
incidental to the above, a private placement offering and a debt
restructuring.
Private Placement
On July 17, 2000, the Company entered into subscription agreements with
fifteen accredited investors under a private placement, which is exempt
from registration under Regulation D of the Securities Act of 1933, as
amended. The Company has agreed to sell to these accredited investors
5,000,000 shares of its common stock at a per share price of $.83 for an
aggregate purchase price of $4,150,000. As of December 31, 2000, the
Company has received or accounted for $2,448,000 of these subscriptions.
16
Note Restructuring
Prior to July 14, 2000, the Company had outstanding three 8% Convertible
Promissory Notes, dated March 3, 1999 in the aggregate principle amount of
$819,000 ("Convertible Notes") and one 8% Promissory Note having a
principal amount of $81,000 ("Non-Convertible Note"). The Company was in
default as to the above notes and interest of $30,000 was due.
The terms and conditions of the Convertible Notes were amended and
restated in a Note Reformation Agreement dated as of July 14, 2000 and new
Convertible Notes were issued reflecting a total balance of $930,000,
extending the maturity date to June 30, 2003 and amending and modifying
the conversion terms of the Convertible Note. Additionally, the
Non-Convertible Note was cancelled.
Subsequently, the Amended and Restated Convertible Notes were sold by the
note holder to a group of investors.
As of March 31, 2001 certain convertible note holders exercised their
conversion rights resulting in the Company's issuance of 16,154,126 common
shares and thereby reducing the principal balance of the 8% Convertible
Note to $431,086.
The Company anticipates that its working capital, as a result of accounts
receivable loans presently being negotiated, together with anticipated
cash flow from the recently acquired companies, will be sufficient to
satisfy the Company's cash requirements for at least twelve months. In the
event the Company's plan changes (due to unanticipated expenses or
difficulties of integrating these acquisitions), or if the working capital
and projected cash flow otherwise prove insufficient to fund operations,
the Company could be required to seek additional financing sooner than
currently anticipated. The Company has no current arrangements with
respect to, or sources of, additional financing. Accordingly, there can be
no assurance that additional financing will be available to the Company
when needed, or at all, on commercially reasonable terms. The Company's
inability to obtain such additional financing could have a material
adverse effect on the Company's liquidity. The Company believes that it
will be able to obtain financing, if needed, although there can be no
assurances of such.
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed or behalf by the undersigned thereunto
duly authorized.
Comprehensive Medical Diagnostics
Group, Inc.
A Florida Corporation
/s/ Ronald Wilheim
----------------------------------------
Ronald Wilheim
Chief Executive Officer
17