<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
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 No. 0-11772
NU-TECH BIO-MED, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1411971
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
55 Access Road, Warwick, Rhode Island 02886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 732-6520
- ------------------------------------------------------------------------------
(Former name or former address, 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 Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No __
As of May 9, 1997, there were issued and outstanding 2,731,363 shares
of common stock of the registrant.
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Nu-Tech Bio-Med, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,052,975 $ 1,690,538
Accounts receivable - (net of allowance for doubtful accounts of
approximately $6,355 and $2,823,400 at March 31, 1997, and at December
31, 1996, respectively) 73,922 1,751,230
Other receivables 52,609 --
Inventory 10,714 219,428
Prepaid expenses and other current assets 44,939 82,801
---------------------------------
Total current assets 1,235,159 3,743,997
Investment in senior debt of Physicians Clinical Laboratory, Inc. 13,287,164 9,424,439
Note receivable 100,000 --
Equipment and leasehold improvements 364,652 1,766,842
Goodwill (net of accumulated amortization of approximately
$33,575 and $833,200 at March 31, 1997, and
December 31, 1996, respectively) 721,016 6,352,860
Deferred acquisition costs 1,077,040 1,028,524
Deposits 18,964 89,104
---------------------------------
Total Assets $ 16,803,995 $ 22,405,766
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 363,101 $ 1,580,797
Accrued expenses 184,031 1,286,035
Contract payable 55,571 65,571
Current portion of long term debt 205,185 2,263,990
Current portion of capitalized lease obligations 17,265 214,270
---------------------------------
Total current liabilities 825,153 5,410,663
Long-term debt 63,339 338,672
Capitalized lease obligations 13,931 471,984
Liabilities to be paid with common stock -- 3,422,500
---------------------------------
Total liabilities 902,423 9,643,819
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; 1,000,000 shares
authorized; 14,000 issued and outstanding at March 31, 1997
(liquidation preference of $14,000,000 at March 31, 1997) 140 140
Common stock, $.01 par value; 12,000,000 shares authorized; 2,427,374 and
2,089,652 shares issued and outstanding at March 31, 1997, and
December 31, 1996 respectively 24,273 20,897
Capital in excess of par value 38,948,820 34,501,337
Deferred consulting expense (82,503) (96,250)
Accumulated deficit (22,989,158) (21,664,177)
---------------------------------
Total stockholders' equity 15,901,572 12,761,947
---------------------------------
Total liabilities and stockholders' equity $ 16,803,995 $ 22,405,766
=================================
</TABLE>
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<PAGE> 3
Nu-Tech Bio-Med, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31 March 31
1997 1996
-------------------------------
<S> <C> <C>
Revenues:
Assay sales, net $ 29,850 $ 23,730
Laboratory revenues, net 1,798,361 --
Medical billing services revenues 109,081 --
Contract revenue 5,540 --
-------------------------------
Total revenues, net 1,942,832 23,730
Operating costs:
Laboratory expenses 1,418,293 55,298
Medical billing services expenses 123,930 --
Selling, general and administrative 1,190,235 717,855
Research and development 16,610 20,768
-------------------------------
Total operating costs 2,749,068 793,921
-------------------------------
Operating loss (806,236) (770,191)
Other income (expense):
Investment and interest income 10,265 30,047
Interest expense (529,010) (8,038)
-------------------------------
Total other income (expense) (518,745) 22,009
-------------------------------
Net loss $(1,324,981) $ (748,182)
===============================
Net loss per common share $ (1.36) $ (0.43)
===============================
Weighted average common shares outstanding 2,192,690 1,728,069
</TABLE>
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<PAGE> 4
Nu-Tech Bio-Med, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31 MARCH 31
1997 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,324,981) $ (748,182)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 215,997 264,969
Provision for bad debt 91,643 --
Warrants issued in connection with debt 494,000 --
Changes in assets and liabilities:
Accounts receivable, prepaids,
inventory and other current assets (222,975) 43,935
Accounts payable and accrued expenses (689,650) 20,900
Accrued compensation -- 155,974
-------------------------------
Net cash used in operating activities (1,435,966) (262,404)
INVESTING ACTIVITIES
Proceeds received from disposition of
Medical Science Institute, net 2,512,154 --
Acquisition costs (48,517) (106,812)
Capital expenditures (15,394) (11,523)
-------------------------------
Net cash provided by (used in) investing activities 2,448,243 (118,335)
FINANCING ACTIVITIES
Proceeds from exercise of warrants 534,359 --
Repayment of contract payable (10,000) (24,999)
Repayment of notes payable (2,037,332) (48,321)
Repayment of capitalized lease obligations (36,867) (2,041)
Notes receivable (100,000) --
-------------------------------
Net cash used in
financing activities (1,649,840) (75,361)
-------------------------------
Net decrease in cash and
cash equivalents (637,563) (456,100)
Cash and cash equivalents at beginning of period 1,690,538 2,538,002
-------------------------------
Cash and cash equivalents at end of period $ 1,052,975 $ 2,081,902
===============================
</TABLE>
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<PAGE> 5
Nu-Tech Bio-Med, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1997
(Unaudited)
A. Basis of Presentation
In the opinion of management of Nu-Tech Bio-Med, Inc. (the "Company" or
"Nu-Tech") the accompanying unaudited financial statements contain all
adjustments necessary to present fairly the financial position of the
Company at March 31, 1997, and the results of operations and cash flows
for the three months ended March 31, 1997, and 1996.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Analytical Biosystems
Corporation ("ABC"), NTBM Billing Services, Inc. ("NTBM") and Medical
Science Institute ("MSI") through February 26, 1997, (see Note B). All
material intercompany transactions and balances have been eliminated.
Where appropriate, prior year amounts have been reclassified to permit
comparison.
ABC is a clinical oncology laboratory service and research company
located in Rhode Island; NTBM is a medical billing service business
located in Florida; MSI is a full service medical laboratory facility
which operates throughout the State of California.
The consolidated financial statements have been prepared on the basis
that the Company will continue as a going concern. The Company has
expended cash in excess of cash generated from operations and has not
achieved sufficient revenues to support future operations and has a
working capital deficiency. The Company anticipates that it will obtain
additional debt or equity financing, generate additional revenues
and/or reduce costs, although no assurance may be given that it will be
able to do so. Obtaining additional financing or achieving adequate
revenues is dependent upon future events, the outcome of which is
presently not determinable. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities or any other adjustments that might be necessary should the
Company be unable to continue as a going concern.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
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<PAGE> 6
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1996.
B. Disposition
On February 26, 1997, the Company completed the sale of its ownership
interest in MSI to Physicians Clinical Laboratory, Inc. ("PCL") (see
note C). The Company sold its interests in MSI to PCL for approximately
$7.6 million. The Company received approximately $2.6 million in cash
and a secured promissory note of PCL in the principal amount of
$5,000,000. The note is secured by all the assets of PCL but is
subordinate to certain other claims and administrative expenses. The
Company used approximately $2 million of the sale proceeds to repay in
full an outstanding secured loan which the Company had incurred to
acquire MSI. In the event the PCL Plan of Reorganization (see note C)
is consummated and such plan provides that the Company shall become the
owner of 52.6% of the outstanding capital stock of PCL, the note will
be forgiven. If the PCL Plan is not consummated by November 9, 1997,
the note shall be payable in full. There can be no assurance that the
note will be repaid in full if the PCL Plan is not consummated.
PCL assumed all other obligations incurred by Nu-Tech in connection
with the MSI acquisition, including Nu-Tech's guarantee of certain
remaining obligations under the MSI Plan.
As a result of the above transactions, during the first quarter of
1997, the Company owned MSI for the 57 day period beginning January 1,
1997, and ending February 26, 1997. The following table sets forth a
Statement of Operations on a pro forma basis to exclude the results of
operations of MSI for the 57 day period beginning January 1, 1997, and
ending February 26, 1997.
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<PAGE> 7
<TABLE>
<CAPTION>
For the three months ended
March 31 March 31
1997 1996
---------------------------
<S> <C> <C>
Revenues:
Assay sales, net $ 29,850 $ 23,730
Medical billing services revenues 109,081 --
Contract revenue 5,540 --
---------------------------
Total revenues, net 144,471 23,730
Operating costs:
Laboratory expenses 43,871 55,298
Medical billing services expenses 123,930 --
Selling, general and administrative 365,211 717,855
Research and development 16,610 20,768
---------------------------
Total operating costs 549,622 793,921
---------------------------
Operating loss (405,151) (770,191)
Other income (expense):
Investment and interest income 10,265 30,047
Interest expense (532,273) (8,038)
---------------------------
Total other income (expense) (522,008) 22,009
---------------------------
Net loss $(927,159) $(748,182)
===========================
</TABLE>
C. Investment in Physicians Clinical Laboratory, Inc.
The Company has acquired certain debt securities of Physicians Clinical
Laboratory, Inc., a Delaware corporation ("PCL"), which is a
full-service clinical laboratory capable of providing a comprehensive
battery of testing services. PCL is a publicly held corporation which,
until recently, filed reports with the Commission under the Securities
Exchange Ace of 1934, as amended. PCL is delinquent in its filings with
the Commission and has not filed any reports since the quarter ended
May 31, 1996. PCL has been operating as a debtor-in-possession under
Chapter 11 of the Bankruptcy Code since November 8, 1996.
Nu-Tech has reached an agreement (the "PCL Plan") with the holders of
the Senior Debt, Subordinated Debt and the management of PCL whereby
Nu-Tech will acquire a 52.6%
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<PAGE> 8
interest in PCL (see Note G). The terms of the agreement provide that
PCL would file a plan to effectuate the agreement. As required by the
aforementioned agreement, the Company purchased approximately
$13,300,000 of Senior Debt for $10,000,000 on November 7, 1996. In
accordance with the PCL Plan, certain holders of Senior Debt
contributed $10,000,000 in debtor-in-possession ("DIP") financing to
PCL, which under the terms of the reorganization, will be forgiven. The
PCL Plan also requires that the Company purchase an additional 17% of
capital stock of PCL for $5,000,000 upon the approval of the PCL Plan.
Pursuant to the PCL Plan, the debt purchased by Nu-Tech will be
converted into 35.6% of the common stock of PCL, which together with
the 17% purchased for $5,000,000, will result in Nu-Tech owning 52.6%
of the outstanding common stock of PCL. (See Note G)
On February 26, 1997, the Company completed the sale of its ownership
interest in MSI and received, among other things, a $5,000,000 secured
note receivable which may be used to satisfy its remaining $5,000,000
commitment to PCL (see Note B). The Company recognized a deferred gain
upon the sale of MSI to PCL, which was offset against the $5,000,000
promissory note to reach the net amount of $3,862,725.
D. Debt
On January 23, 1997, the Company obtained a new loan from a private
lender in the principal amount of $2,000,000, which funds were used to
repay the outstanding balance of a $2,500,000 loan obtained on December
2, 1996, obtained to repay Austin Financial Services, Inc. under the
MSI plan. The new loan was secured by a pledge of the Company's stock
ownership in MSI, as well as the Company's investment in Senior Debt of
PCL. In conjunction with the issuance of this note payable, the lenders
were issued warrants to purchase 100,000 shares of common stock at an
exercise price of $11.50 per share. In connection with this
transaction, the Company recorded a $494,000 interest charge
representing the fair value of warrants issued. On February 26, 1997,
in connection with the sale of MSI to PCL, the Company repaid the new
loan (see Note B).
E. Adoption of New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (FAS 128), which will be adopted
on December 31, 1997. FAS 128 requires companies to change the method
currently used to compute earnings per share and to restate all prior
periods for comparability. The adoption of FAS 128 is not expected to
have any impact on the Company's previously reported earnings per share
because common stock equivalents are excluded as their effect is
antidilutive.
F. Legal Claims
The Company had heretofore filed, and withdrew, a registration
statement relating to the shares of its Common Stock issuable upon
conversion of the Company's 14,000 shares of Series A Convertible
Preferred Stock ("Preferred Stock"). At the time of such filing, the
Page 8 of 20
<PAGE> 9
Company believed that it had not received valid written demand by a
majority of the holders of the Preferred Stock to require it to proceed
with such registration statement. The Company further believes that, at
the time such registration statement was withdrawn, and through and as
of the date hereof, it likewise did not receive a written demand by the
holders of a majority of Preferred Stock to file a registration
statement.
Several Preferred Shareholders have indicated that they intend to
commence an action against the Company arising out of the failure of
the Company to cause the conversion shares to be registered, seeking
unspecified damages and/or seeking to rescind their purchase of the
Preferred Stock. The Company believes that, if any such action is
commenced against it, it has good and meritorious defenses. In the
event any such action is brought against the Company, and the Company
does not prevail thereon, and is found to be responsible for the
damages or losses, such circumstances would have a material adverse
effect upon the Company's consolidated results of operations and
financial position. The Company has had, and continues to have
continuous discussions with representatives of the Preferred
Shareholders concerning a resolution of the dispute arising out of the
registration of the shares of the Company's Common Stock issuable upon
conversion of the Preferred Shares. While no assurance may be given
that such dispute will be satisfactorily resolved, the Company intends,
however, to prepare and file such registration statement as soon as
practicable to do so. The filing of such registration statement may
not, however, resolve the dispute to the satisfaction of the Preferred
Shareholders, and no assurance may be given that, even if such
registration statement is filed by the Company, that the Preferred
Shareholders may not thereafter commence an action against the Company.
G. Subsequent Events
On April 18, 1997, the Plan of Reorganization under Chapter 11 of the
United States Bankruptcy Code filed by Physicians Clinical Laboratory,
Inc., ("PCL") was approved by the United States Bankruptcy Court for
the Central District of California. Currently, the Company is awaiting
final documentation relating to the issuance of $55 million of secured
notes by PCL to the former holders of its senior debt and subordinated
debt. Upon the completion of the transaction, the Company will
consolidate the accounts of PCL in its consolidated financial
statements.
On April 29, 1997, the Company reduced the exercise price of previously
issued 1,076,979 warrants (the "Warrants") and 15,856 options (the
"Options"), respectively, to $1.76 per share, which price is equal to
75% of the average closing price for the Company's common stock for the
ten (10) days prior to such reduction. Upon the expiration of the 45
day period following such exercise price reduction, the option and/or
warrant exercise price of the Stock Options and the Warrants will
revert to and be exercisable at their original respective exercise
prices which range from $4.35 per share to $28.35 per share. None of
the Stock Options and the Warrants are directly or indirectly owned by
any officer or director of the Company.
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<PAGE> 10
Safe Harbor Statement
Certain statements in this Form 10-QSB, including information set forth
under this Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constitute or may constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Nu-Tech Bio-Med,
Inc. (the "Company") desires to avail itself of certain "safe harbor"
provisions of the Act and is therefore including this special note to
enable the Company to do so. Forward-looking statements included in
this Form 10-QSB or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, reports to
the Company's stockholders and other publicly available statements
issued or released by the Company involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual
results, performance (financial or operating) or achievements to differ
from the future results, performance (financial or operating)
achievements expressed or implied by such forward looking statement.
Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations.
These risks include, but are not limited to risks associated with
recently consummated acquisitions, potential acquisitions (including
Physicians Clinical Laboratory, Inc., ("PCL") and indirectly Medical
Science Institute ("MSI")), uncertainty of market acceptance of
Analytical Biosystems' FCA, dependence on reimbursement by third party
payers, uncertainty of eligibility for Medicare/Medicaid reimbursement,
need for additional capital, certain patent and technology
considerations, health care reform, competition and technological
changes, limited facilities, governmental regulations, dependence upon
key personnel, professional and product liability, uncertainty of
completion of the acquisition of PCL, the ability of the Company and/or
PCL to obtain additional debt or equity financing to fund ongoing
operations of PCL and indirectly MSI and other risks detailed in the
Company's Securities and Exchange Commission filings, including its
Annual Report on Form 10-KSB for the year ended December 31, 1996, each
of which could adversely affect the Company's business and the accuracy
of the forward looking statements contained herein. In addition the
report of the Company's independent auditors on the consolidated
financial statements of the Company for the year ended December 31,
1996, contains an explanatory paragraph that there are certain
conditions that raise substantial doubt about the ability to continue
as a going concern. The Company to date has been materially dependent
upon the efforts of its President and Chief Executive Officer, Mr. J.
Marvin Feigenbaum. The loss of Mr. Feigenbaum's services may have a
materially adverse effect upon the business or operations of the
Company.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS RELATING TO THE ACQUISITION AND DISPOSITION OF MEDICAL
SCIENCE INSTITUTE
On November 18, 1996, Nu-Tech Bio-Med, Inc. (the "Company") acquired
all of the capital stock of Medical Science Institute ("MSI") with the intent to
ultimately sell MSI to Physicians Clinical Laboratory, Inc., ("PCL"). The
Company had acquired MSI upon approval by the United States Bankruptcy Court of
the Central District of California (the "Court") (Case No. LA 95-37790 TD) of
the First Amended Plan of Reorganization (the "MSI Plan") of Medical Science
Institute. MSI is engaged in the medical laboratory business primarily in the
State of California and had been operating under Chapter 11 of the U.S.
Bankruptcy Code since October 26, 1995. MSI provides clinical laboratory testing
services, including testing of human tissue and fluid specimens to physicians,
managed-care organizations, hospitals and other health care providers. MSI is a
California corporation with its principal executive offices located in Burbank,
California.
Pursuant to the Plan, the holders of all of the MSI capital stock
(including any and all options, warrants and other convertible securities)
received 134,228 shares of Common Stock of the Company with an aggregate value
of $2,000,000. The number of shares of Common Stock to be issued under the Plan
are based upon the average closing price of a share of Common Stock for the 15
day period preceding November 18, 1996. The recipient of the Company's Common
Stock is entitled to "piggyback" registration rights with respect to such
shares. The sole holder of all capital stock of MSI was Fausto Mendez, Jr., the
former President of MSI. Mr. Mendez had the option to receive $275,000 in cash
with a concurrent reduction in the number of shares of the Company's Common
Stock, which he chose to exercise on April 30, 1997.
In addition, the Company agreed to make certain other payments to
creditors and assume certain obligations under the Plan. These payments include:
(i) approximately $750,000 to pay administrative claims of professionals, (ii)
an additional $425,000 for professional administrative claims payable over 12
months, (iii) approximately $572,000 payable for federal and state payroll
taxes, (iv) approximately $2,500,000 to Austin Financial Services, Inc., a
secured creditor of MSI, (v) trade payables in the amount of approximately
$738,000, (vi) $75,000 payable to the federal government in satisfaction of
certain claims, and (viii) $750,000 payable to general unsecured creditors. At
the hearing confirming the Plan held on November 18, 1996, the Company tendered
$2,250,000 to the Court with respect to such payments.
With respect to the sums payable under the Plan to Austin Financial,
the Company obtained a loan in the principal amount of $2,500,000 from a third
party lender on December 2, 1996. The loan bore interest at 15% per annum. All
principal and interest on the loan was payable on January 31, 1997. On January
23, 1997, the Company obtained a new loan in the principal amount of $2,000,000
from a private lender, the proceeds of which were used to repay the $2,500,000
loan. The new loan bore interest at 7.5% per annum and was due and payable 60
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<PAGE> 12
days from the date of the loan. The lender also received five year common stock
purchase warrants to purchase 100,000 shares of common stock at $11.50 per
share. On February 24, 1997, the new loan for $2,000,000 was repaid. In
connection with this transaction, the Company recorded a $494,000 interest
charge representing the fair value of warrants issued.
On February 26, 1997, the Company completed the sale of its ownership
interest in MSI to Physicians Clinical Laboratory, Inc., ("PCL"). PCL is
operating as a debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code (United States Bankruptcy Court, Central District of California,
Case No. SV96-23185-GM). The Company sold its interests in MSI to PCL for its
costs and certain expenses of the acquisition aggregating approximately
$7,643,000. The Company received approximately $2,643,000 in cash and a secured
promissory note of PCL, in the principal amount of $5,000,000. The note is
secured by all of the assets of PCL but is subordinate to certain other claims
and administrative expenses. The Company used approximately $2,013,000 of the
sale proceeds to repay the principal and interest on the $2,000,000 loan which
the Company had incurred to acquire MSI.
In the event the PCL Plan of Reorganization is consummated and such
plan provides that the Company shall become the owner of 52.6% of the
outstanding capital stock of PCL, and, in turn, the owner of 52.6% of MSI (or
such other terms as the Company may agree), the note (including all principal
and interest) will be forgiven. If the PCL Reorganization Plan is not
consummated by November 9, 1997, the note shall be payable in full. There can be
no assurance that the note will be repaid in full if the PCL Reorganization Plan
is not consummated.
As a result of the above transactions, during the first quarter of
1997, the Company owned MSI for the 57 day period beginning January 1, 1997 and
ending February 26, 1997. Therefore, Management's Discussion and Analysis of
Financial Condition and Results of Operations relating to the three months ended
March 31, 1997, and March 31, 1996, is presented on the basis of the Company's
temporary ownership of MSI.
Three months ended March 31, 1997, compared with three months ended
March 31, 1996
Results of Operations
Total revenues for the three months ended March 31, 1997, were
$1,942,832 compared to $23,730 for the three months ended March 31, 1996. The
increase in total revenues is primarily due to the inclusion of Medical Science
Institute's ("MSI") total revenues for the 57 day period beginning January 1,
1997 and ending February 26, 1997. Without the inclusion of MSI's transactions,
total revenues for the three months ended March 31, 1997, would have been
$144,471 as compared to $23,730 for the three months ended March 31, 1996. The
increase of $120,741 is primarily due to revenues of $109,081 generated by the
Company's medical billing services subsidiary, NTBM Billing Services, Inc.
("NTBM").
Assay sales, net of billing adjustments, from the processing of
Analytical Biosystems Corporation's assay, the Fluorescent Cytoprint Assay, were
$29,850 and $23,730 for the three months ended March 31, 1997, and 1996,
respectively. The amount of billing adjustments
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<PAGE> 13
relating to assay sales during the three months ended March 31, 1997, and 1996,
were approximately $3,772 and $7,795, respectively. The increase in net assay
sales is primarily due to increased reimbursement from third party payers.
Laboratory revenues, net of billing adjustments, were $1,798,361 for
the 57 day period beginning January 1, 1997, and ending February 26, 1997,
generated by the temporary ownership of MSI.
Medical billing services revenues were $109,081 for the three months
ended March 31, 1997, generated by the acquisition of NTBM during the last
quarter of 1996.
Total operating costs for the three months ended March 31, 1997, were
$2,749,068 compared to $793,921 for the three months ended March 31, 1996. The
increase in total operating costs includes MSI's total operating costs for the
57 day period beginning January 1, 1997, and ending February 26, 1997, of
$2,092,447. Without the inclusion of MSI's transactions, total operating costs
for the three months ended March 31, 1997, would have been $549,622 as compared
to $793,921 for the three months ended March 31, 1996. The decrease is primarily
due to a decrease in selling, general and administrative expenses of $352,644,
offset by medical billing services expenses of approximately $124,000.
Laboratory expenses for the three months ended March 31, 1997, were
$1,418,293 compared to $55,298 for the three months ended March 31, 1996. The
increase in laboratory expenses is primarily due to the inclusion of MSI's
laboratory expenses for the 57 day period beginning January 1, 1997, and ending
February 26, 1997. Without the inclusion of MSI's transactions, laboratory
expenses for the three months ended March 31, 1997, would have been $43,871 as
compared to $55,298 for the three months ended March 31, 1996. The decrease of
$11,427 is primarily due to a reduction in laboratory personnel costs.
Medical billing services expenses were $123,930 for the three months
ended March 31, 1997, as a result of the acquisition of NTBM during the last
quarter of 1996.
Selling, general and administrative expenses for the three months ended
March 31, 1997, were $1,190,235 compared to $717,855 for the three months ended
March 31, 1996. The increase is primarily due to the inclusion of MSI's selling,
general and administrative expenses of $718,025 for the 57 day period beginning
January 1, 1997, and ending February 26, 1997, offset by a decrease in non-MSI
selling, general and administrative expenses. Without the inclusion of MSI's
transactions, selling, general and administrative expenses for the three months
ended March 31, 1997, would have been $365,211 as compared to $717,855 for the
three months ended March 31, 1996. The decrease of $352,644 is primarily due to
a decrease in compensation expense of approximately $436,000, offset by an
increase in professional fees and franchise taxes. During the three months ended
March 31, 1996, the Company incurred a one time non-recurring charge associated
with the severance package of a former officer of the Company and compensation
expenses related to the 1995 grant of 100,000 restricted common stock shares
granted to an executive officer. In 1996, the Company exchanged 95,000
unrestricted common
Page 13 of 20
<PAGE> 14
stock shares which were remaining under the 1995 grant of restricted common
shares for 300,000 warrants.
Research and development expenses for the three months ended March 31,
1997, were $16,610 compared to $20,768 for the three months ended March 31,
1996.
Operating loss for the three months ended March 31, 1997, was $806,236
compared to $770,191 for the three months ended March 31, 1996. The increase in
operating loss includes MSI's operating loss for the 57 day period beginning
January 1, 1997, and ending February 26, 1997, of $401,086. Without the
inclusion of MSI's transactions, operating loss for the three months ended March
31, 1997, and 1996, would have been $405,151 and $770,191, respectively. The
decrease is primarily due to a decrease in selling, general and administrative
expenses as discussed above.
Investment and interest income for the three months ended March 31,
1997, was $10,265 compared to $30,047 for the three months ended March 31, 1996.
The decrease is primarily due to a decrease in cash and cash equivalents upon
which interest is earned.
Interest expense for the three months ended March 31, 1997, was
$529,010 compared to $8,038 for the three months ended March 31, 1996. The
increase is primarily due to the interest recorded for the fair value of
warrants issued in connection with debt and interest related to a loan in the
principal amount of $2,000,000 obtained by the Company to repay the outstanding
balance on a loan in the principal amount of $2,500,000. In conjunction with the
issuance of the $2,000,000 note payable, the lenders were issued warrants to
purchase 100,000 shares of common stock at an exercise price of $11.50 per
share.
Net loss for the three months ended March 31, 1997, was $1,324,981 as
compared to $748,182 for the three months ended March 31, 1996. The increase in
net loss includes MSI's operating loss for the 57 day period beginning January
1, 1997, and ending February 26, 1997, of $397,823. Without the inclusion of
MSI's transactions, net loss for the three months ended March 31, 1997 and 1996,
would have been $927,159 and $748,182, respectively. The increase is primarily
due to an increase in interest expense of approximately $521,000. In conjunction
with the issuance of the $2,000,000 note payable, the lenders were issued
warrants to purchase 100,000 shares of common stock at an exercise price of
$11.50 per share. In connection with this transaction, the Company recorded a
$494,000 interest charge representing the fair value of warrants issued. This
increase was offset by a decrease in selling, general and administrative
expenses of approximately $353,000. The decrease of $352,644 is primarily due to
a decrease in compensation expense of approximately $436,000, offset by an
increase in professional fees and franchise taxes. During the three months ended
March 31, 1996, the Company incurred a one time non-recurring charge associated
with the severance package of a former officer of the Company and compensation
expenses related to the 1995 grant of 100,000 restricted common stock shares
granted to an executive officer. In 1996, the Company exchanged 95,000
unrestricted common stock shares which were remaining under the 1995 grant of
restricted common shares for 300,000 warrants.
Page 14 of 20
<PAGE> 15
Net loss per share of Common Stock for the three months ended March 31,
1997, was $1.36 compared to $.43 for the three months ended March 31, 1996. This
increase is primarily due to an increase in net loss and a deemed dividend
associated with the conversion feature of the Series A Preferred Stock. Weighted
average shares were 2,192,690 and 1,728,069 for the three months ended March 31,
1997, and 1996, respectively.
Liquidity and Capital Resources
The Company had approximately $1,052,975 in cash and cash equivalents
at March 31, 1997.
Total current assets at March 31, 1997, and December 31, 1996, were
$1,235,159 and $3,743,997, respectively. This decrease of approximately
$2,508,838 is primarily due to the exclusion of MSI's balance sheet as a result
of the sale of MSI to PCL on February 26, 1997. Without the inclusion of MSI's
balance sheet at December 31, 1996, total current assets would have been
$1,235,159 and $1,636,811 at March 31, 1997, and December 31, 1996,
respectively. This decrease of approximately $401,652 is primarily due to the
utilization of cash during the period to support operating activities and the
payment and reduction of current liabilities.
Accounts receivable, net of allowances for doubtful accounts, at March
31, 1997, and December 31, 1996, were $73,922 and $1,751,230, respectively. This
decrease of approximately $1,677,308 is primarily due to the exclusion of MSI's
balance sheet as a result of the sale of MSI to PCL on February 26, 1997.
Without the inclusion of MSI's balance sheet at December 31, 1996, accounts
receivable, net of allowances for doubtful accounts, would have been $73,922 and
$76,846 at March 31, 1997, and December 31, 1996, respectively.
Inventory at March 31, 1997, and December 31, 1996, was $10,714 and
$219,428, respectively. This decrease of approximately $208,714 is primarily due
to the exclusion of MSI's balance sheet as a result of the sale of MSI to PCL on
February 26, 1997. Without the inclusion of MSI's balance sheet at December 31,
1996, inventory would have been $10,714 and $10,255 at March 31, 1997, and
December 31, 1996, respectively.
Net investment in senior debt of Physicians Clinical Laboratory, Inc.,
("PCL") at March 31, 1997, and December 31, 1996, was $13,287,164 and
$9,424,439, respectively. This increase of approximately $3,862,725 is the net
amount resulting from the sale of MSI to PCL. Upon the sale of MSI to PCL, a
$5,000,000 promissory note was issued by PCL to the Company, which obligation
will be satisfied once the PCL Plan has been effected. Additionally, the Company
recognized a deferred gain upon the sale of MSI to PCL, which was offset against
the $5,000,000 promissory note to reach the net amount of $3,862,725.
A note receivable of $100,000 was outstanding at March 31, 1997. On
February 10, 1997, a $100,000 loan was issued to the former sole stockholder and
president of MSI, as part of the employment agreement between the Company and
the stockholder. The loan is secured by the shares of common stock issued to the
stockholder under the MSI Plan.
Page 15 of 20
<PAGE> 16
Equipment and leasehold improvements, net of accumulated depreciation
and amortization, at March 31, 1997, and December 31, 1996, were $364,652 and
$1,766,842, respectively. This decrease of approximately $1,402,190 is primarily
due to the exclusion of MSI's balance sheet as a result of the sale of MSI to
PCL on February 26, 1997. Without the inclusion of MSI's balance sheet at
December 31, 1996, equipment and leasehold improvements, net of accumulated
depreciation and amortization, would have been $364,652 and $379,697 at March
31, 1997, and December 31, 1996, respectively.
Goodwill, net of accumulated amortization, at March 31, 1997, and
December 31, 1996, was $721,016 and $6,352,860, respectively. This decrease of
approximately $5,631,844 is primarily due to the exclusion of MSI's balance
sheet as a result of the sale of MSI to PCL on February 26, 1997. Without the
inclusion of MSI's balance sheet at December 31, 1996, goodwill, net of
accumulated amortization, would have been $721,016 and $739,913 at March 31,
1997, and December 31, 1996, respectively.
Total assets at March 31, 1997, and December 31, 1996, were $16,803,995
and $22,405,766, respectively. The decrease of approximately $5,601,771 is, in
part, due to the exclusion of MSI's balance sheet as a result of the sale of MSI
to PCL on February 26, 1997. Without the inclusion of MSI's balance sheet at
December 31, 1996, total assets would have been $16,803,995 and $18,841,295 at
March 31, 1997, and December 31, 1996, respectively.
Current liabilities at March 31, 1997, and December 31, 1996, were
$825,153 and $5,410,663, respectively. The decrease of approximately $4,585,510
is, in part, due to the exclusion of MSI's balance sheet as a result of the sale
of MSI to PCL on February 26, 1997. Without the inclusion of MSI's balance
sheets at December 31, 1996, current liabilities would have been $825,153 and
$3,130,937 at March 31, 1997, and December 31, 1996, respectively. The decrease
of approximately $2,305,784 is primarily due to the repayment of the $2,000,000
loan obtained by the Company to repay the outstanding balance on a loan in the
principal amount of $2,500,000.
Total liabilities at March 31, 1997, and December 31, 1996, were
$902,423 and $9,643,819, respectively. The decrease of approximately $8,741,396
is, in part, due to the exclusion of MSI's balance sheet as a result of the sale
of MSI to PCL on February 26, 1997. Without the inclusion of MSI's balance sheet
at December 31, 1996, total liabilities would have been $902,423 and $6,682,995
at March 31, 1997, and December 31, 1996, respectively. The decrease is
primarily due to the issuance of common stock shares which value of $3,422,500
had been recorded in 1996, and the issuance of the shares occurred in the first
quarter of 1997, as well as, the repayment of the $2,000,000 loan obtained by
the Company to repay the outstanding balance on a loan in the principal amount
of $2,500,000.
Page 16 of 20
<PAGE> 17
Plan of Operations
The consolidated financial statements of the Company have been prepared
on the basis that the Company will continue as a going concern. These conditions
have raised substantial doubt about the Company's ability to continue as a going
concern. Through March 31, 1997, the Company has expended cash in excess of cash
generated from operations and has not achieved sufficient revenues to support
future operations. During 1996, the Company generated net cash from financing
activities of approximately $16,407,000, which was principally utilized by the
Company is connection with the purchase of approximately $13,300,000 of senior
secured debt of PCL for $10,000,000 in connection with the proposed acquisition
by the Company of a majority interest in PCL; cash payments in connection with
its acquisition of MSI; acquisition costs of Prompt Medical Billing Inc.; and
general working capital purposes, including cash used from operations of the
Company and its principal subsidiaries Analytical Biosystems Corporation, NTBM
and cash used by MSI for a 44 day period of approximately $2,159,000. The
Company's remaining cash and cash equivalents at March 31, 1997, and December
31, 1996, were approximately $1,050,000 and $1,700,000, respectively. The
Company anticipates that it will need additional cash resources of approximately
$1,000,000 to sustain itself from March 31, 1997, through December 31, 1997. The
ability of the Company to obtain additional financing or to achieve an adequate
level of sales is dependent upon future events, the outcome of which is
presently not determinable. No assurance may be given that the Company's
Analytical Biosystems Corporation and NTBM Billing subsidiaries will be able to
generate adequate and sufficient revenues from operations to supplement the
Company's cash requirements. While the Company will seek to raise additional
funds through debt or equity financing, no assurance may be given that the
Company will be able to do so or, if that such financing is available, that same
will be on terms acceptable to the Company. The Company will seek, during the
balance of the calendar year 1997, to decrease its costs of operations and
thereby decrease the amount of additional cash resources that it may require.
However no assurance may be given that such decreases in costs can be
implemented at sufficient levels.
Effects of Inflation
The Company does not view the effects of inflation to have a material
effect upon its business.
(This space intentionally left blank)
Page 17 of 20
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company had heretofore filed, and withdrew, a registration
statement relating to the shares of its Common Stock issuable upon
conversion of the Company's 14,000 shares of Series A Convertible
Preferred Stock ("Preferred Stock"). At the time of such filing, the
Company believed that it had not received valid written demand by a
majority of the holders of the Preferred Stock to require it to proceed
with such registration statement. The Company further believes that, at
the time such registration statement was withdrawn, and through and as
of the date hereof, it likewise did not receive a written demand by the
holders of a majority of Preferred Stock to file a registration
statement.
Several Preferred Shareholders have indicated that they intend to
commence an action against the Company arising out of the failure of
the Company to cause the conversion share to be registered, seeking
unspecified damages and/or seeking to rescind their purchase of the
Preferred Stock. The Company believes that, if any such action is
commenced against it, it has good and meritorious defenses. In the
event any such action is brought against the Company, and the Company
does not prevail thereon, and is found to be responsible for the
damages or losses, such circumstances would have a material adverse
effect upon the Company's consolidated results of operations and
financial position. The Company has had, and continues to have
continuous discussions with representatives of the Preferred
Shareholders concerning a resolution of the dispute arising out of the
registration of the shares of the Company's Common Stock issuable upon
conversion of the Preferred Shares. While no assurance may be given
that such dispute will be satisfactorily resolved, the Company intends,
however, to prepare and file such registration statement as soon as
practicable to do so. The filing of such registration statement may
not, however, resolve the dispute to the satisfaction of the Preferred
Shareholders, and no assurance may be given that, even if such
registration statement is filed by the Company, that the Preferred
Shareholders may not thereafter commence an action against the Company.
Item 5. Other Information
On April 18, 1997, the Plan of Reorganization under Chapter 11 of the
United States Bankruptcy Code filed by Physicians Clinical Laboratory,
Inc., was approved by the United States Bankruptcy Court for the
Central District of California. Currently the Company is awaiting final
documentation relating to the issuance of $55 million of secured notes
by Physicians Clinical Laboratory, Inc., to the former holders of its
senior debt and subordinated debt.
Page 18 of 20
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the following reports
on Form 8-K were filed by the Registrant:
<TABLE>
<CAPTION>
Date of the Report Item Reported Description of Item
- ------------------ ------------- -------------------
<S> <C> <C>
January 27, 1997 Item 2. Acquisition or Disposition Proposed sale of
of Assets MSI to PCL
Item 5. Other Events Jesselson Loan
February 5, 1997 Item 5. Other Events Withdrawal of Form S-3
February 26, 1997 Item 2. Acquisition or Disposition Actual sale of
of Assets MSI to PCL
</TABLE>
Page 19 of 20
<PAGE> 20
SIGNATURES
In accordance with requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NU-TECH BIO-MED, INC.
(Registrant)
Dated: May 9, 1997 by: /s/ J. Marvin Feigenbaum
---------------------------
J. Marvin Feigenbaum
President, Chief Executive
and Chief Financial Officer
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000716778
<NAME> NU-TECH BIO-MED, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,052,975
<SECURITIES> 0
<RECEIVABLES> 80,277
<ALLOWANCES> 6,355
<INVENTORY> 10,714
<CURRENT-ASSETS> 1,235,159
<PP&E> 649,415
<DEPRECIATION> 284,763
<TOTAL-ASSETS> 16,803,995
<CURRENT-LIABILITIES> 825,153
<BONDS> 63,339
0
140
<COMMON> 24,273
<OTHER-SE> 15,877,159
<TOTAL-LIABILITY-AND-EQUITY> 16,803,995
<SALES> 1,937,292
<TOTAL-REVENUES> 1,942,832
<CGS> 0
<TOTAL-COSTS> 2,749,068
<OTHER-EXPENSES> (518,745)
<LOSS-PROVISION> 95,415
<INTEREST-EXPENSE> 529,010
<INCOME-PRETAX> (1,324,981)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,324,981)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,324,981)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
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