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, 1999
[ ] 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 Identification No.)
incorporation or organization)
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 December 1, 1999, 8,880,000
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
Page 1 of 14
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, 1998 and June 30, 1999 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30,
1998 and 1999 5
Condensed Consolidated Statements of Cash Flows for the
three and six months ended June 30, 1998 and 1999 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 13
Item 3. Defaults on Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
ITEM - 1.
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
DECEMBER 31, JUNE 30, 1999
1998 (UNAUDITED)
------------ -------------
Current Assets:
Cash $ -- $ 103,578
Related party receivable from net accounts receivable financing -- 2,091,134
Accounts receivable, net of allowance of $887,300 --
in 1998 1,958,813
Due from related party -- 32,090
Prepaid expenses and other current assets 63,033 51,640
------------ ------------
Total current assets 2,021,846 2,278,442
------------ ------------
Property and equipment 10,023,116 9,901,686
Less: accumulated depreciation and
amortization (5,800,043) (5,996,811)
------------ ------------
Net property and equipment 4,223,073 3,904,875
------------ ------------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $96,360 and
$106,860 in 1998 and 1999 respectively 323,567 313,067
Other 85,507 52,276
------------ ------------
Total other assets 409,074 365,343
------------ ------------
$ 6,653,993 $ 6,548,660
============ ============
3
See Accompanying Notes.
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DECEMBER 31, JUNE 30, 1999
1998 (UNAUDITED)
------------ -------------
Current liabilities:
Lines of credit $ 1,130,863 $ 1,625,667
Note payable 1,633,511 1,633,511
Note due to related party 87,500 128,450
Current installments of long-term debt 686,085 620,507
Current installments of obligations
under capital leases 799,319 2,932,613
Deferred lease payments -- 82,472
Accounts payable 1,863,185 1,915,653
Accrued expenses other 1,266,456 1,417,824
Due to related party -- 44,709
------------ ------------
Total current liabilities 7,466,919 10,401,406
Long-term liabilities:
Obligations under capital leases,
excluding current installments 2,137,486 --
Deferred lease payments 113,390 --
------------ ------------
Total liabilities 9,717,795 10,401,406
------------ ------------
Stockholders' equity (deficit):
Preferred stock, no par value, 1,000,000
shares authorized, 500,000 shares issued
and 368,815 shares outstanding 1,475,260 1,475,260
Common stock, no par value, 9,000,000
shares authorized, 8,880,000
shares issued and outstanding 1,936 1,936
Additional paid-in capital 3,422,721 3,422,721
Note receivable from stockholder (1,326,000) (1,170,135)
Retained earnings (accumulated deficit) (6,637,689) (7,582,528)
------------ -------------
Net stockholders' equity (deficit) (3,063,772) (3,852,746)
------------ -------------
$ 6,653,993 6,548,660
============ ============
4
See Accompanying Notes.
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS THREE MONTS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- -------------
Revenue, net $ 2,320,991 $ 1,517,648 $ 5,118,294 $ 3,726,386
------------ ------------ ------------ ------------
Operating expenses:
Direct operating expenses 1,394,089 845,950 2,625,208 2,113,629
General and administrative 1,023,464 875,121 2,076,455 1,951,680
Depreciation and amortization 342,130 267,959 686,109 536,030
------------ ------------ ------------ ------------
Total operating expenses 2,759,683 1,989,030 5,387,772 4,601,339
------------ ------------ ------------ ------------
Operating loss (438,692) (471,382) (269,478) (874,953)
Interest expense 172,645 186,984 328,185 388,134
Interest income -- 36,705 -- 102,688
Other income 10 198,386 81,474 215,560
------------ ------------ ------------ ------------
Loss before income taxes (611,327) (423,275) (516,189) (944,839)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss (611,327) (423,275) (516,189) (944,839)
------------ ------------ ------------ ------------
Dividends to preferred shareholders (intrinsic
value of beneficial conversion
features - see Note 2) -- -- (25,473,612) --
------------ ------------ ------------ ------------
Net loss available to common shareholders $ (615,327) $ (423,275) $(25,989,801) $ (944,839)
============ ============ ============ ============
Net (loss) per common share $ (.07) $ (.05) $ (4.04) $ (.11)
============ ============ ============ ============
Weighted average number of common
shares outstanding 8,880,000 8,880,000 6,432,943 8,880,000
============ ============ ============ ============
Other comprehensive income (loss):
Net loss $ (611,327) $ -- $ (516,189) $ --
Other comprehensive income (loss), net of tax:
Unrealized loss on securities (125,382) -- (125,382) --
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (736,709) -- $ (641,571) $ --
============ ============ ============ ============
5
See Accompanying Notes.
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, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- -------------
Cash flows from operating activities:
Net (loss) $(611,327) $(423,275) $(516,189) $(944,839)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation and amortization 342,130 268,009 686,109 536,080
Provision for Bad Debts 77,347 31,138 (333,244) 120,700
(Increase) decrease in accounts receivable 14,531 171,826 (126,828) (405,356)
Decrease in related party receivable -- 152,335 -- 152,335
Increase in due from related party -- (13,203) -- (13,203)
Decrease in prepaid expenses
and other current assets 56,898 98,464 7,069 30,653
Increase (decrease) in accounts payable 349,078 (122,667) 488,650 52,468
Increase in other accrued expenses 40,273 74,855 98,596 151,368
Decrease in deferred lease payments (15,443) (15,444) (30,887) (30,888)
--------- --------- --------- ---------
Net cash provided (used) by operating activities 253,487 222,038 273,276 (350,682)
--------- --------- --------- ---------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (1,849) (3,764) ( 1,849) (38,749)
Disposal of property and equipment -- 111,223 -- 111,223
Increase in deposits (103) -- (162) --
--------- --------- --------- ---------
Net cash provided (used) by investing activities (1,952) 107,459 (2,011) 72,474
--------- --------- --------- ---------
Cash flows provided (used) by financing activities:
Increase (decrease) in line of credit (209,423) (164,653) (200,309) 494,804
Repayment of long-term borrowings (19,802) (40,718) (34,382) (65,578)
Proceeds of borrowing from related parties 65,000 18,697 181,000 50,250
Repayment of borrowing from related parties -- -- -- (9,300)
Repayment of other notes payable (68,630) -- (68,630) --
Proceeds from note receivable from stockholder -- 155,865 -- 155,865
Principal payments under capital lease obligations (46,787) (195,110) (148,944) (244,255)
--------- --------- --------- ---------
Net cash provided (used) by financing activities (279,642) (225,919) (271,265) 381,786
--------- --------- --------- ---------
Net decrease in cash (281,107) 103,578 -- 103,578
Cash at beginning of period 28,107 -- -- --
--------- --------- --------- ---------
Cash at end of period $ -- $ 103,578 $ -- $ 103,578
========= ========= ========= =========
See Accompanying Notes. (continued)
6
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, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- ------------- ------------- -------------
Supplemental disclosure of cash
flow information - Interest paid $ 86,416 $ 85,825 $ 175,936 $ 205,697
============ ========== =========== ==========
Preferred stock issued for non-cash item $ $ $ 2,000,000 $
============ ========== =========== ==========
Assets added under capital leases $ $ $ 265,885
============ ========== =========== ==========
The Company recognized $25,568,750 of preferred dividends for the first quarter
of 1998 based on the intrinsic value of beneficial conversion features (see
Note 2).
In February of 1999 the Company refinanced its line of credit approximating
$1,210,000 with a new line from AESI Funding, Inc. (a company wholly owned by
American Enterprise Solutions, Inc.). The Company transfers its accounts
receivables in exchange for the line of credit.
7
See Accompanying Notes.
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, 1999 of
$423,000 and at June 30, 1999 has a working capital deficiency of
approximately $8,060,000 after reclassification of the Company's major
long-term lease commitments to current (more fully discussed below) and
at June 30, 1999, the Company had a deficiency of net assets of
($3,853,000). 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 1999 and
its plan to improve future results.
The Company continued to consolidate its Jacksonville operations in the
second quarter of 1999 in response to continued losses from its Orange
Park and Riverside facilities. The Company closed its Orange Park
facility and downsized its staffing in Jacksonville. Equipment from the
Jacksonville site was either sold or utilized elsewhere in the Company
where the demand for services warrants. In March of 1999 the Company
entered into a sales agreement for its Orange Park facility, which in
July of 1999 failed to close due to a defect in the title (subsequently
cured). In July, a mortgage holder foreclosed on the property due to
payment arrearages. The Company estimates its loss from foreclosure to
approximate $16,000. The Company, with the underwriting of AESI,
entered into an agreement in April of 1999, which would allow the
Company to cure its arrearages with its major lessor. The Company has
fallen behind in its payments, and at December 7, 1999, has not
obtained a waiver of default from the lessor. The long-term capital
lease obligations have been reclassified to current due to acceleration
clauses contained in the contract. The Company is discussing
alternatives with the lender to bring the lease obligations current and
satisfy a $1,633,000 term loan.
8
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company is continuing with its merger plans with American
Enterprise Solutions, Inc. ("AES") and hopes to complete the merger
process by year end. 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.
(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 March 14, 1999, Carnegie Capital, Ltd. ("Carnegie Capital") was
awarded a final judgement of foreclosure on the Company's Orange Park
facility due to arrearages. Carnegie Capital agreed to stay its
foreclosure action until June 11, 1999, pending a sale of the property
by the Company. Due to a technical defect in the title, the sale did
not take place and in July the property was foreclosed.
9
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, 1999 were $1,518,000 compared
to $2,321,000 for the same period in 1998, representing an 35% decrease.
Approximately 70% of the $803,000 decline is attributable to the Orange Park
facility, which was closed in the 2nd quarter. The remaining diagnostic centers
realized a net decline in revenues of approximately $239,000, or 13% compared to
the same period in the preceding year.
Direct operating expenses for the second quarter ended June 30, 1999 were
$846,000 compared to $1,394,000 for the same period in 1998, representing a 39%
decrease. Excluding the effect of the Orange Park facility, direct costs
declined $328,000 or 32% from the same period in the preceding year. Direct
costs as a percent of net revenue declined 4% to 56% from the same period in the
corresponding year. The Company has not determined whether this decline will
continue since some of the Orange Park direct costs will transfer to other
Centers upon transfer of the medical equipment.
General and administrative expenses for the second quarter ended June 30, 1999
were $875,000 compared to $1,023,000 for the same period in 1998, representing a
14% decrease. Excluding the effect of the Orange Park facility, general and
administrative costs increased approximately 6% or $52,000, caused generally by
an overall increase in general and administrative costs. Depreciation and
amortization costs decreased to $268,000 from $342,000 for the quarters ending
June 30, 1999 and 1998, respectively. This is attributable to costs being fully
amortized. Interest expense has increased to $187,000 from $173,000 for the
quarters ending June 30, 1999 and 1998, respectively. This is due primarily from
the increase in the line of credit.
The decrease in expenses was not sufficient to offset the decrease in revenues
resulting in a quarter loss of $423,000 compared to $611,000 for the same period
in 1998. The Riverside facility contributed a $182,000 loss compared to a
$195,000 for the same period in 1998. The Orange Park facility (closed in the
second quarter) incurred a loss of $298,000 compared to a $232,000 loss for the
same quarter in 1998. The Brandon facility experienced a profit of $312,000
compared to a $8,000 profit in 1998. The Sun Point facility posted an $102,000
profit for the quarter compared to a loss of $18,000 for the same period in
1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company has a working capital deficiency of approximately
$8,060,000 after the reclassification of its major long-term lease obligations
to current (more fully discussed below) and a deficiency of net assets of
approximately $3,853,000, which collectively resulted in the Company being in
default of its major lease and loan agreements. The Company is discussing with
its major lessor alternatives to cure defaults of the Company's lease
obligations and an unpaid $1,633,000 term loan due June of 1999. During this
period the Company has not received a waiver of default and therefore, has
reclassified its long-term lease obligation to short-term. At June 30, 1999,
excluding the defaulted mortgages (see Note. 3 to the financial Statements), the
Company was in arrears approximately $11,000 with certain bank debt. Generally,
the banks have been cooperating with the Company during this delinquency period.
No waiver of default has been received and therefore the Company has
reclassified its long-term debt to current.
10
In an agreement entered into with AES Funding Corporation ("AES Funding", a
wholly owned subsidiary of American Enterprise solutions, Inc.) the Company
sells its accounts receivables to AES Funding in exchange for an amount equal to
the eligible receivables net of an allowance for doubtful accounts. AES Funding
funds its purchase of the receivables by a 5 million dollar loan agreement it
has with Healthcare Capital Resources (agent) and HCR Pool III Funding Corp.
(lender). Interest is at the rate of Prime plus 1.5%. The Company is not in
compliance with certain loan covenants. In this event, the lender has the right
to call the loan. The Company is not aware of the intent of the lender to
exercise this right and is currently striving to achieve compliance. At June 30,
1999, the Company has borrowed $1,626,000 on the line with no additional
availability.
In the quarter ending June 30, 1999, the Company's cash position increased to
$103,000. Cash from operating activities approximately $222,000 and investing
activities provided $107,000. Financing activities utilized approximately
$226,000 cash ($165,000 primarily paying down the line of credit) with
approximately $195,000 utilized for debt retirement.
The Company closed its Orange Park operations due to continued losses and either
integrated the Orange Park equipment into other operations or sold it (see Note
1 to the financial Statements).
In August of 1999, the Company opened a new 1,500 square foot fixed site
location ("Long Lake") in Tampa, florida, as a branch of the Brandon Diagnostic
Center, Ltd. A five (5) year lease with two (2) optional five (5) year terms was
entered into effective May 15, 1999. The net lease calls for monthly payments of
$1,250 plus sales tax. Medical modalities include general radiology,
mammography, ultrasound, and bone densitomitry studies. The equipment came from
the closed Orange Park facility. The location has two technicians and two
support persons.
The Company is continuing the merger process with American Enterprise.Com
("Aes", formerly American Enterprise Solutions, Inc.) which owns 100% of the
Company's outstanding Preferred Stock and 65% of the outstanding Common Stock.
AES is currently engaged in obtaining equity and debt financing. AES has
received an engagement agreement from a tier-one New York investment banking
firm to make a $25 million Private Placement; a $2 million commitment for a
Florida investment firm using convertible securities; and is currently
discussing a $15 million dollar debt refinancing arrangement for all subsidiary
companies.
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 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 1998 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,
1998 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.
11
YEAR 2000 ISSUES
It is widely known that many computerized system and software programs
were made to recognize two-digit rather than four-digit numbers to represent
years. The "19" that precedes dates in this century was assumed. Consequently,
systems that use dates to perform calculations, comparisons, or sorting may
generate incorrect results when looking at the "00" in the year 2000.
The Company has identified the areas wherein the Y2K problems could
affect the Company. The Company is near to completing its compliant plan.
The following areas are believed to be impacted by the Y2K issues:
billing, accounting, payroll, and accounts receivable financing. Each is
addressed, outlining the Company's state of readiness, the risks to the company,
costs to address the issues, and the Company's contingency plans, if required.
The Company performs radiological diagnostic procedures and bills
insurance providers and patients for its services. The Company's current billing
software is Y2K compliant. Also, the Company in early 1999 began contracting its
billing and collection processes with a Company that specializes in medical
billing. The billing company has indicated that they are Y2K complaint. The
Company has identified certain computers in its Diagnostic Centers which are not
Y2K complaint. Upgrades that will bring them into compliance are scheduled to be
completed by the 3rd week in December.
The Company, effective January 1, 1999, began outsourcing its
accounting function. The service Company has indicated that they are compliant.
The Company, effective January 1, 1999, began utilizing a human
resource leasing firm. The leasing firm is Y2K compliant; a certificate of
compliance is being processed by the employee leasing firm.
The Company finances it's receivables with a lender specializing in
medical receivables. The reports required to process the loan transactions are
generated by the billing company mentioned above.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no significant change in the Company's legal
proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company defaulted on a second mortgage note for its fixed site
Orange Park Facility. The property was foreclosed for arrearages of
approximately $126,000 in July of 1999.
The Company is in default of its major lease commitments due to
arrearages. Total in default approximates $3,015,000 at June 30, 1999, with
arrearages approximating $669,000. The Company is in discussion with its major
lessor to resolve the arrearage.
The Company is in default of a Term loan of approximately $1,634,000
due June 1, 1999, to its major lessor. The Company is in discussion with its
major lessor to resolve the default.
The Company is in technical default of certain covenants with its
credit line and is working toward satisfying these defaults. The credit line
approximates $1,878,000 as of December 7, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------
(a) EXHIBITS
--------
27 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
-------------------
None
13
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: December 9, 1999
NATIONAL DIAGNOSTICS, INC.
/s/ CURTIS L. ALLISON /s/ CHUCK BROES
------------------------------------- ----------------------------------
Curtis L. Alliston Chuck Broes
President and Chief Operating Officer Chief Executive Officer
/s/ DENNIS C. HULT /s/ ANTHONY F. MANISCALCO
------------------------------------ ---------------------------------
Dennis C. Hult Anthony F. Maniscalco
Comptroller Executive Vice President, Finance
American Enterprise Solutions, Inc.
14
NATIONAL DIAGNOSTICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
27 Financial Data Schedule (for SEC use only)