<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 18, 1996
NU-TECH BIO-MED, INC.
(Exact Name of Registrant as specified in charter)
Delaware 0-11772 25-1411971
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
500 Fifth Avenue, Suite 2424, New York, New York 10110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 391-2424
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously announced, on November 18, 1996, the United States
Bankruptcy Court of the Central District of California (the "Court")approved the
First Amended Plan of Reorganization (the "Plan") of Medical Science Institute
("MSI") pursuant to which Nu-Tech Bio-Med, Inc. (the "Company") acquired all of
the capital stock of MSI. The Company and MSI had submitted the Plan to the
Court on October 18, 1996. 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 place of
business located in Burbank California.
This Report on Form 8-K/A Amendment No. 1 includes the Financial
Statements and Pro Forma Financial Statements of MSI and Nu-Tech to reflect the
acquisition of MSI.
In addition, on January 14, 1997, the Company agreed to sell all of its
ownership interest in MSI to Physicians Clinical Laboratory ("PCL"). PCL is a
full service clinical laboratory operating as a debtor-in-possession under
Chapter 11 of the United States Bankruptcy Code. PCL filed for bankruptcy on
November 8, 1996. As previously announced, the Company purchased approximately
$13,300,000 of outstanding Senior Debt from certain holders of PCL debt for
$10,000,000 in advance of the filing with the bankruptcy court. PCL has filed
with the Bankruptcy Court a plan of reorganization ("PCL Plan") whereby, among
other things, Nu-Tech will become a 51% owner of PCL upon consummation of the
plan.
The accompanying Financial Statements and Pro Forma Combined Balance
Sheet and Statement of Operations do not include any adjustments to reflect the
sale of MSI to PCL or the acquisition of PCL by Nu-Tech.
Nu-Tech and PCL filed a motion with the PCL bankruptcy court on January
14, 1997 seeking permission to consummate the sale. On January 29, 1997 the
United States Bankruptcy Court approved the motion submitted by the Company and
PCL pursuant to which the Company will sell all of its interests in MSI to PCL
for its costs and certain expenses of the MSI acquisition aggregating
approximately $7,500,000 plus any additional sums paid by Nu-Tech to MSI since
its acquisition. Nu-Tech had agreed to the terms of this sale for strategic
business purposes. PCL will also assume 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. The Company expects a
closing to occur within a short period of time, subject to negotiation and
execution of a definitive agreement between the parties.
2
<PAGE> 3
As stated above, if the PCL Plan is approved by the bankruptcy court,
Nu-Tech will own 51% of the ownership interest of PCL, which in turn will own
MSI as a wholly-owned subsidiary.
Pursuant to the PCL Plan, J. Marvin Feigenbaum, President and Chief
Executive Officer of the Company, has been retained as crisis manager of PCL and
serves as the equivalent of the Chief Operating Officer of PCL. It is
contemplated that Mr. Feigenbaum will serve in such capacity pending the
bankruptcy court's determination of the PCL Plan.
The PCL Plan is subject to the approval of the bankruptcy court and
there can be no assurance such approval will be obtained, that the PCL Plan will
be approved as filed with the court or that the acquisition of PCL will be
consummated. There can be no assurance that the Company will be able to
successfully operate the business even if the PCL acquisition is consummated.
Should the PCL Plan not be consummated, Nu-Tech will be a creditor of PCL. Under
the terms of the PCL Plan, however, no competing offer for PCL may be accepted
by the bankruptcy court unless (i) such competing offer is at least $2.5 million
higher than the bid by Nu-Tech and (ii) on the effective date of the competing
plan Nu-Tech receives $1.88 million in cash as compensation for its time and
expense in pursuing the PCL Plan.
3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
a. Financial Statements of Businesses Acquired.
Pursuant to Item 7 of Form 8-K, the Company hereby files the required
Financial Statements for MSI.
99.1. Audited Financial Statements for the 9-month
period ended September 30, 1996 and the year ended
December 31, 1995, together with report of
independent accountants, Ernst & Young LLP.
b. Pro Forma Financial information.
Pursuant to Item 7 of Form 8-K, the Company has annexed hereto the
unaudited Pro Forma Combined Balance Sheet which has been prepared as if the
acquisition of MSI had been consummated as of September 30, 1996, and the
unaudited Pro Forma Combined Statements of Operation for the nine-month period
ended September 30, 1996 and year ended December 31, 1995 as if the acquisition
had been consummated as of the beginning of each respective period.
99.2 Pro Forma Combined Balance Sheet and Statement of
Operations of Nu-Tech Bio-Med, Inc.
4
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
January 31, 1997 NU-TECH BIO-MED, INC.
By: /s/ J. Marvin Feigenbaum
--------------------------------
J. Marvin Feigenbaum
Chairman of the Board,
President, Chief Executive
and Chief Financial Officer
5
<PAGE> 6
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
99.1. Audited Financial Statements for the 9-month period
ended September 30, 1996 and the year ended
December 31, 1995, together with report of
independent accountants, Ernst & Young LLP.
99.2 Pro Forma Combined Balance Sheet and Statement of
Operations of Nu-Tech Bio-Med, Inc.
<PAGE> 1
Financial Statements
Medical Science Institute
(Debtor-in-Possession)
Nine months ended September 30, 1996 and
year ended December 31, 1995
with Report of Independent Auditors
<PAGE> 2
Medical Science Institute
(Debtor-in-Possession)
Financial Statements
Nine months ended September 30, 1996 and
year ended December 31, 1995
CONTENTS
Report of Independent Auditors...............................................1
Audited Financial Statements
Balance Sheets...............................................................3
Statements of Operations.....................................................5
Statements of Shareholder's Deficit..........................................6
Statements of Cash Flows.....................................................7
Notes to Financial Statements................................................9
<PAGE> 3
Report of Independent Auditors
The Board of Directors
Medical Science Institute
We have audited the accompanying balance sheets of Medical Science Institute as
of September 30, 1996 and December 31, 1995, and the related statements of
operations, shareholder's deficit, and cash flows for the nine months ended
September 30, 1996 and the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Science Institute at
September 30, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the nine months ended September 30, 1996 and the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Medical
Science Institute will continue as a going concern. As discussed in Notes 1 and
8 to the financial statements, recurring losses, an accumulated deficit and lack
of liquidity caused the Company to seek protection under the Federal Bankruptcy
Laws in 1995. Management's Plan of Reorganization has been effectuated and the
Company's new parent has proposed the sale of the Company to an affiliated
entity that is also currently operating under protection of the Federal
Bankruptcy Laws; such sale requires approval of the Bankruptcy Court. Although
the Company believes that the sale will be approved
1
<PAGE> 4
there is no assurance that the transaction will be completed or, if completed,
that it will be on the same terms as proposed. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
January 7, 1997 ____________________________
2
<PAGE> 5
Medical Science Institute
(Debtor-in-Possession)
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 1,735 $ 42,552
Patient accounts receivable, net of allowance for doubtful
accounts of $960,000 in 1996 and $872,000 in 1995 2,577,813 2,780,760
Inventory of supplies 132,017 195,256
Prepaid expenses and other assets 72,684 41,610
-------------------------------------------
Total current assets 2,784,249 3,060,178
Deposits 70,828 68,625
Property and equipment, net 605,797 830,145
-------------------------------------------
Total assets $ 3,460,874 $ 3,958,948
===========================================
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S DEFICIT
Liabilities not subject to compromise:
Current liabilities:
Bank overdraft $ 199,287 $ 36,190
Accounts payable and accrued expenses 1,343,317 1,003,443
-------------------------------------------
Total current liabilities 1,542,604 1,039,633
Liabilities subject to compromise:
Borrowings under line of credit 2,428,172 2,236,576
Accounts payable and accrued expenses 5,669,193 4,613,299
Third-party settlement 575,000 507,500
Loan payable - shareholder, net of loan receivable of
$96,667 in 1996 and $86,772 in 1995 102,461 112,356
Note payable 309,090 309,090
Capital lease obligations 698,682 710,585
-------------------------------------------
Total liabilities subject to compromise 9,782,598 8,489,406
-------------------------------------------
Total liabilities 11,325,202 9,529,039
Commitments and contingencies
Shareholder's deficit:
Common stock, no par value, 1,000,000 shares authorized, 600
shares issued and outstanding 18,000 18,000
Accumulated deficit (7,882,328) (5,588,091)
-------------------------------------------
Total shareholder's deficit (7,864,328) (5,570,091)
-------------------------------------------
Total liabilities and shareholder's deficit $ 3,460,874 $ 3,958,948
===========================================
</TABLE>
See accompanying notes.
4
<PAGE> 7
Medical Science Institute
(Debtor-in-Possession)
Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
<S> <C> <C>
Net revenue $ 10,731,990 $ 19,055,559
Operating costs:
Salaries, wages and benefits 4,390,952 5,953,248
Supplies 1,864,530 3,589,090
Other operating costs 1,830,185 2,820,136
Provision for bad debts 399,553 1,710,925
Depreciation and amortization 228,728 349,074
-------------------------------------------
Total operating costs 8,713,948 14,422,473
Selling, general and administrative expenses 2,921,159 6,568,379
-------------------------------------------
Operating loss (903,117) (1,935,293)
Other expense (income):
Penalties 123,285 3,660
Interest expense 304,702 658,007
Interest income - (60)
Miscellaneous income - (86,494)
Loss on sale of asset - 4,048
-------------------------------------------
427,987 579,161
-------------------------------------------
Loss before reorganization items (1,331,104) (2,514,454)
Reorganization items:
Legal and accounting fees 963,133 157,456
-------------------------------------------
Net loss $ (2,294,237) $ (2,671,910)
===========================================
</TABLE>
See accompanying notes.
5
<PAGE> 8
Medical Science Institute
(Debtor-in-Possession)
Statements of Shareholder's Deficit
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
----------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 18,000 $ (2,916,181) $ (2,898,181)
Net loss for 1995 - (2,671,910) (2,671,910)
----------------------------------------------------------------
Balance at December 31, 1995 18,000 (5,588,091) (5,570,091)
Net loss for the nine months ended
September 30, 1996 - (2,294,237) (2,294,237)
----------------------------------------------------------------
Balance at September 30, 1996 $ 18,000 $ (7,882,328) $ (7,864,328)
================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 9
Medical Science Institute
(Debtor-in-Possession)
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(2,294,237) $ (2,671,910)
Adjustments to reconcile net loss to cash provided used in
by operating activities:
Depreciation and amortization 228,728 349,074
Provision for bad debt 399,553 1,710,925
Changes in operating assets and liabilities:
Patient accounts receivable (196,606) (1,271,204)
Inventory of supplies 63,239 119,448
Prepaid expenses and other assets (31,074) 470,884
Deposits (2,203) (19,086)
Bank overdraft 163,097 (288,469)
Accounts payable and accrued expenses 1,395,768 1,793,931
Third-party settlement 67,500 146,500
-------------------------------------------
Net cash provided by (used in) operating activities (206,235) 340,093
INVESTING ACTIVITIES
Acquisition of property and equipment (4,380) (50,033)
-------------------------------------------
Net cash used in investing activities (4,380) (50,033)
FINANCING ACTIVITIES
Net increase (decrease) in borrowings under line of credit
191,596 (89,367)
Payments on debt obligations (21,798) (206,445)
Borrowings under debt obligations - 38,800
-------------------------------------------
Net cash provided by (used in) financing activities 169,798 (257,012)
-------------------------------------------
Net increase (decrease) in cash (40,817) 33,048
Cash, beginning of period 42,552 9,504
-------------------------------------------
Cash, end of period $ 1,735 $ 42,552
===========================================
</TABLE>
7
<PAGE> 10
Medical Science Institute
(Debtor-in-Possession)
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
<S> <C> <C>
Interest (none capitalized) $ 141,716 $ 468,225
Income taxes $ 800 $ 800
</TABLE>
See accompanying notes.
8
<PAGE> 11
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements
September 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Medical Science Institute (the Company) is a California corporation providing
clinical laboratory testing services to physicians, managed-care organizations,
hospitals and other health care providers. The Company operates primarily in the
state of California.
On October 26, 1995, the Company filed petition for relief under Chapter 11 of
the Federal Bankruptcy Laws in the United States Bankruptcy Court. Under Chapter
11, certain claims against the Company in existence prior to the filing of the
petition for relief under the Federal Bankruptcy Laws are stayed while the
Company continues business operations as debtor-in-possession. These claims are
reflected in the balance sheets as "liabilities subject to compromise."
Additional claims (liabilities subject to compromise) may arise subsequent to
the filing date resulting from rejection of executory contracts, including
leases, and from the determination by the court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed amounts. Claims
secured against the Company's assets ("secured claims") also are stayed,
although the holders of such claims have the right to move the court for relief
from the stay. Secured claims are secured primarily by liens on the Company's
assets. Liabilities not subject to compromise reported in the accompanying
balance sheets will be continuing obligations of the Company subsequent to the
Company's emergence from bankruptcy.
The Company received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including employee wages. Credit
arrangements entered into subsequent to the Chapter 11 filings are described in
Note 8. As also described in Note 8, on November 18, 1996 Nu-Tech Bio Med, Inc.
(Nu-Tech) acquired the Company for certain consideration. No adjustments to the
recorded amounts of assets and liabilities that may result from the acquisition
have been included in the accompanying financial statements.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that Medical
Science Institute will continue as a going concern. Recurring losses, an
accumulated deficit and lack of liquidity caused the Company to seek protection
under the Federal Bankruptcy Laws in 1995. Management's Plan of Reorganization
has been effectuated, as described in Note 8, and the Company's new parent has
proposed the sale of the Company to an affiliated entity that is currently
operating under protection of the Federal Bankruptcy Laws; such sale requires
approval of the Bankruptcy Court. Although the
9
<PAGE> 12
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
Company believes that the sale will be approved there is no assurance that the
transaction will be completed or, if completed, that it will be on the same
terms as proposed. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
INVENTORY OF SUPPLIES
Supplies inventory is stated at cost, which approximates market value, on a
first-in, first-out (FIFO) basis. Supplies inventory consists primarily of
laboratory supplies.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which range from three to ten years, except for leasehold improvements
which are being amortized over the life of the lease. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts and any resulting gain or loss is
recognized in operations for the period. The cost of maintenance and repairs is
charged to expense as incurred, significant renewals and betterments are
capitalized.
INCOME TAXES
The liability method is used for accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
FAIR VALUES OF FINANCIAL INSTRUMENTS
For cash, patient accounts receivable and accounts payable the carrying amounts
approximate fair value. It was not practicable to estimate the fair value of the
Company's debt obligations due to such debt being in default (See Notes 4 and
5).
10
<PAGE> 13
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PATIENT ACCOUNTS RECEIVABLE
The Company provides services to patients even though they may participate in
programs that do not pay full charges. As a result, the Company is exposed to
certain credit risks. The Company manages such risk by regularly reviewing its
accounts and contracts, and by providing appropriate allowances. Actual results
could differ from those estimates. Significant concentrations of gross patient
accounts receivable were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
<S> <C> <C>
Medicare 29% 11%
Medi-Cal 20 30
Other negotiated contracts 15 15
Self-pay and commercial 36 44
===========================================
100% 100%
===========================================
</TABLE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------------------------------------
<S> <C> <C>
Laboratory equipment $ 1,330,414 $ 1,330,414
Furniture and fixtures 159,510 158,699
Computer equipment/software 778,365 777,481
Office equipment 5,240 4,554
Leasehold improvements 147,309 147,309
-------------------------------------------
2,420,838 2,418,457
Less accumulated depreciation and amortization (1,815,041) (1,588,312)
-------------------------------------------
$ 605,797 $830,145
===========================================
</TABLE>
11
<PAGE> 14
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
3. INCOME TAXES
At September 30, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $5,563,000 and $3,027,000
respectively, that are available to offset future income. The loss carryforwards
expire between the years 1997 and 2008 for federal and state income tax
purposes.
Significant components of the Company's deferred tax assets for federal and
state income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 2,173,000 $ 1,444,000
Allowance for doubtful accounts 337,000 346,000
Other 233,000 403,000
-----------------------------------------
Total deferred tax assets 2,743,000 2,193,000
Valuation allowance for deferred tax assets (2,743,000) (2,193,000)
-----------------------------------------
Net deferred tax assets $ - $ -
=========================================
</TABLE>
As discussed in Note 8 the Company has filed petition for relief under Chapter
11 of the Federal Bankruptcy Laws. To the extent that the Company is insolvent,
cancellation of indebtedness income arising from the Plan of Reorganization will
be offset against the federal net operating losses. Additionally, as a result of
the "change in ownership" provisions of the Tax Reform Act of 1986, a portion of
any remaining federal net operating loss carryover may be subject to an annual
limitation regarding their utilization against taxable income in future periods.
4. LINE OF CREDIT
The Company has a line of credit with a financial institution which provides for
maximum borrowings of $1,850,000 (or such amount as the parties may increase or
decrease by mutual consent) with interest due monthly at a rate equal to eight
percent per annum over the highest prime rates in effect from time to time
charged by a selected group of banks, with a minimum annual interest rate of
13%. The maximum amount of borrowings outstanding at any time is limited based
on certain accounts receivable of the Company. The line is secured by all assets
of the Company and personally guaranteed by the Company's majority shareholder.
At September 30, 1996 and December 31, 1995, the Company had an aggregate
outstanding balance of $2,428,172 and $2,236,576, respectively. The Company is
in default on the line of credit agreement. As discussed in
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<PAGE> 15
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
4. LINE OF CREDIT (CONTINUED)
Note 8 the Company has filed petition for relief under Chapter 11 of the Federal
Bankruptcy Laws. The line of credit is classified as a Class One: Secured Claim
under the Plan of Reorganization.
5. NOTE PAYABLE
As of September 30, 1996 and December 31, 1995, the Company has a note payable
to a former shareholder in the amount of $309,090 with payments of principal and
interest at 8% due in monthly installments of $3,446 through September 1, 2007.
The Company is in default on its note payable. As discussed in Note 8 the
Company has filed petition for relief under Chapter 11 of the Federal Bankruptcy
Laws. The note payable has been classified as a Class Three: Allowed General
Unsecured Claims under the Plan of Reorganization.
6. LEASE OBLIGATIONS
The majority of the Company's noncancellable operating leases have been
terminated or restructured with month to month payment terms. Future minimum
payments at September 30, 1996, by year and in the aggregate, under restructured
noncancellable operating leases with terms of one year or more consist of the
following:
<TABLE>
<S> <C>
Three months ended December 31, 1996 $ 19,201
1997 140,632
1998 112,690
1999 30,720
2000 11,124
2001 4,635
======================
Total minimum lease payments $ 319,002
======================
</TABLE>
As discussed in Note 8 the Company has filed petitions for relief under Chapter
11 of the Federal Bankruptcy Laws. The Company's capital lease obligations have
been classified as a Class Two: Other Secured Claims under the Plan of
Reorganization.
7. COMMITMENTS AND CONTINGENCIES
At September 30, 1996 there were various legal proceedings against the Company
which were resolved as part of the bankruptcy and Plan of Reorganization (see
Notes 1 and 8).
13
<PAGE> 16
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
8. PLAN OF REORGANIZATION
On November 18, 1996 (Confirmation date), the Bankruptcy Court confirmed the
Company's Plan of Reorganization. According to the Plan of Reorganization the
existing Allowed Interests in the Company is cancelled and 100% of the issued
and outstanding equity of the Company is issued to Nu-Tech. Nu-Tech acquired the
Company free and clear of all claims, liens and interests that have been
asserted prior to the Confirmation date, excluding liabilities not subject to
compromise in the accompanying balance sheet at September 30, 1996. In
consideration, Nu-Tech paid cash in accordance with the terms and treatment of
claims described below. Additionally, Nu-Tech shall issue stock to certain
interests (the sole shareholder of the Company).
The confirmed plan requires Nu-Tech to make the following approximate cash
payments on the Confirmation date to satisfy the liabilities subject to
compromise including the $9,782,598 in the accompanying balance sheet at
September 30, 1996. Additionally, certain capital leases have been restructured
in connection with the bankruptcy proceedings. Subsequent to the Confirmation
date, $668,356 of such capital lease obligations were recorded by the Company.
The corresponding property and equipment is included in the accompanying balance
sheet. Payments required by Nu-Tech were approximately as follows:
<TABLE>
<S> <C>
Borrowing and accrued interest under line of credit (Class One) $ 2,600,000
Allowed General Unsecured Claims (Class Three) 750,000
Administrative Claims One 750,000
Post-Petition Payroll Taxes (Administrative Claim Four) 572,000
False Claims Act (Administrative Claim Three) 75,000
Other 103,000
========================
Total to be paid $ 4,850,000
========================
</TABLE>
In addition, Nu-Tech is obligated for post Confirmation date payments of up to
an additional $425,000 in administrative expenses, $271,000 in federal payroll
taxes and $97,000 of state payroll and property taxes.
UNCLASSIFIED ADMINISTRATIVE CLAIMS
Unclassified Administrative Claims include the "actual, necessary costs and
expenses of preserving the estate" as determined by the Court after notice to
creditors of a request for payment and after a hearing thereon. The Code
requires that allowed administrative expenses be paid in full, to the extent
allowed by the Bankruptcy Court after notice and hearing, on the Confirmation
date unless the party holding the administrative claim agrees otherwise.
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<PAGE> 17
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
8. PLAN OF REORGANIZATION (CONTINUED)
UNCLASSIFIED ADMINISTRATIVE CLAIMS (CONTINUED)
With the exception of the Allowed Administrative Claims of Professionals
employed at the expense of the Estate, all Allowed Administrative Claims shall
be paid in cash: (a) on the latter of the Confirmation date or the date upon
which such Claim first becomes an allowed Claim; (b) in the ordinary course of
business; or (c) upon such terms and conditions as may be agreed to by the
holder of such claim.
Administrative Claims One: Professional Fees
At the Confirmation date, Nu-Tech is required to pay to the Disbursing Agent
$750,000 to be held and distributed exclusively for payment of Allowed
Administrative Claims of the professionals on a pro-rata basis.
As soon as reasonably practicable after the Court enters final orders allowing
their respective Professional Administrative Claims, the Disbursing Agent shall
remit to the Professionals a cash payment on account of their respective Allowed
Professional Administrative Claims, but not to exceed their pro-rata share, of
$750,000 except as otherwise may be agreed. Subject to the terms below, the
balance, if any of each professional's respective Allowed Administrative Claim,
in an aggregate amount not to exceed $425,000 (Unpaid Professional Fees), shall
be paid, without interest, in twelve equal monthly installments, commencing on
the fourth month after the Confirmation date and continuing through the
fifteenth month after the Confirmation date.
The Unpaid Professional Fees are secured and guaranteed by the following:
- Nu-Tech guaranty subject to separately executed guaranty on
behalf of each professional.
- The sole Company shareholder guaranty secured by a lien on the
Nu-Tech stock distributed to the shareholder.
- $300,000 of the $750,000 available to be distributed to Class
Three.
- Any recovery on the actions and other claims and causes of
action reserved to the Creditors committee.
15
<PAGE> 18
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
8. PLAN OF REORGANIZATION (CONTINUED)
UNCLASSIFIED ADMINISTRATIVE CLAIMS (CONTINUED)
Administrative Claim Two: United States Trustee Fees
The fees under 28 U.S.C. Section 1930 of the United States Trustee owed by the
Company on the Confirmation date shall be paid in full no later than 30 days
following entry of the Confirmation order. Thereafter, post-confirmation fees of
the United States Trustee shall be payable from the funds held by the Disbursing
Agent on account of the general unsecured creditors.
Administrative Claim Three: False Claims Act Claims
The Company has reached an agreement with the government, the holder of False
Claims Act Claims, subject to final documentation, approval by the Department of
Justice and court approval, to provide the holder of such claims, the following
treatment in full and complete satisfaction of all alleged Medicare and Medi-Cal
overbilling claims which have been or may be asserted against the Company by or
on behalf of the federal or any state government with respect to conduct
occurring on or before the Confirmation date. The terms of such agreement are as
follows:
- The government (both state and federal) shall receive an
allowed general administrative claim in the amount of $75,000
- The government (both state and federal) shall receive an
allowed general unsecured claim in the amount of $500,000
Administrative Claim Four: Post-Petition Payroll Taxes
Post-petition state and federal payroll taxes of $572,000 is required to be paid
in full on the Confirmation date by Nu-Tech.
Allowed Priority Claims
The Code requires that the holders of pre-petition personal property and
pre-petition payroll taxes claims receive cash payments over a period not
exceeding six years after the date of assessment of such claim, unless agreed
otherwise. 11 U.S.C. section 1129(a)99). All Allowed Priority Claims shall be
paid in cash as required by Bankruptcy Code 1129(a)(9). The Internal Revenue
Service (IRS) holds a pre-petition unsecured claim for payroll taxes for
approximately $271,000. Under the plan the IRS will be paid this amount together
with interest in equal monthly installments of $5,302 commencing on the
Confirmation date for 65 months.
16
<PAGE> 19
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
8. PLAN OF REORGANIZATION (CONTINUED)
CLASSIFIED CLAIMS
Class One: Secured Claim of Austin Financial Services, Inc.
The Allowed Secured Claim under the line of credit was paid in cash, on the
Confirmation date or upon such other terms and conditions as may be agreed to by
Austin Financial.
Class Two: Other Secured Claims
Class Two includes Allowed Secured Claims against the Company that are not
included in Class One. Each Allowed Secured Claim in Class Two will be
considered to be in its own separate subclass within Class Two, and each such
subclass shall be deemed to be a separate Class for purposes of this Plan.
Unless the holder of such a Claim agrees to less favorable treatment, each
Allowed Secured Claim in Class Two will, at the election of Nu-Tech in its sole
and absolute discretion, be treated as set forth below. Allowed Class Two
Secured Claims as to which Nu-Tech elects to treat under option (b) (as
described below) are impaired under the Plan.
Class Two Allowed Secured Claims shall receive one of the following treatments,
at the election of Nu-Tech: (a) cure and reinstatement, (b) payment of the
Allowed Secured Claim, with interest thereon from and after the Confirmation
date, over a period not to exceed four (4) years; (c) abandonment of the
collateral to the secured creditor in full and complete satisfaction of the
Allowed Secured Claim, or (d) such other treatment as may be agreed to by the
holder of such Claim.
Class Three: Allowed General Unsecured Claims
The holders of the Allowed General Unsecured Claims shall each receive their
pro-rata share of $750,000 in cash, net of payments made from the funds to
satisfy fees and expenses incurred on behalf of the Official Committee of
Unsecured Creditors (the Committee) from and after the Confirmation date in
administering and implementing the reorganization plan (including fees and
expenses incurred in objecting to general unsecured claims). In addition, Class
Three claims shall receive any recovery from the successful prosecution of
avoidance or other actions that may be undertaken in the sole and absolute
discretion of the Committee.
17
<PAGE> 20
Medical Science Institute
(Debtor-in-Possession)
Notes to Financial Statements (continued)
8. PLAN OF REORGANIZATION (CONTINUED)
CLASSIFIED CLAIMS (CONTINUED)
Class Three A: Administrative Convenience Class Claims
Class Three A claims will receive a single distribution on or about the
Confirmation date, or as soon as practical, equal to 20% of the allowed amount
of such claim up to a maximum allowed amount of $2,500, whichever is less.
Class Four: Shareholder Interests
On the Confirmation date, the existing Allowed Interests in the Company
(including warrants, options and any other rights to acquire the Company's
stock) shall be terminated and no longer of any effect. The Plan of
Reorganization also stipulates that the sole shareholder of the Company shall
receive restricted Nu-Tech stock with a value of approximately $2,000,000 in
full and complete satisfaction of said interests and any and all options,
warrants and other rights to purchase an interest in the Company.
The future management of Reorganized MSI will be named by Nu-Tech and will
include the sole shareholder, who shall be employed pursuant to an Employment
Agreement, whose terms shall be two years at a stipulated compensation,
including certain incentive based payments.
The Company will account for the reorganization using fresh-start reporting.
Accordingly, all assets and liabilities will be restated to reflect their
reorganization value, which approximates fair value at the date of
reorganization.
18
<PAGE> 1
NU-TECH BIO-MED., INC.
PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
(UNAUDITED)
BACKGROUND INFORMATION
Acquisition of Medical Science Institute
On November 18, 1996, the United States Bankruptcy Court of the Central District
of California approved the First Amended Plan of Reorganization (the "MSI Plan")
of Medical Science Institute ("MSI") pursuant to which the Company acquired all
of the capital stock of MSI. MSI provides clinical laboratory testing services.
MSI is a California corporation with its principal executive offices located in
Burbank, California. Pursuant to the MSI Plan, the holders of all of the MSI
capital stock (including any and all options, warrants, and other convertible
securities) will receive 134,228 shares of Common Stock of Nu-Tech with an
aggregate value of $2 million. The number of shares of Common Stock to be issued
under the MSI Plan are based on the average closing price of a share of Common
Stock on the NASDAQ SmallCap Market for the 15 day period preceding November 18,
1996.
The confirmed plan requires Nu-Tech to make the following approximate cash
payments on the Confirmation date to satisfy the liabilities subject to
compromise of approximately $9.8 million. Additionally, certain capital leases
have been restructured in connection with the bankruptcy proceedings. Subsequent
to the Confirmation date, approximately $668,000 of capital lease obligations
were recorded by the Company. Payments required by Nu-Tech were approximately
as follows:
<TABLE>
<S> <C>
Borrowing and accrued interest under line of credit $2,600,000
Allowed general unsecured claims 750,000
Administrative claims one 750,000
Post-petition payroll taxes 572,000
False Claims Act 75,000
Other 103,000
==========
Total to be paid $4,850,000
==========
</TABLE>
In addition, Nu-Tech is obligated to make post Confirmation date
payments of up to an additional $425,000 in administrative expenses and
$368,000 for payroll and property taxes. At the hearing confirming the MSI Plan
held on November 18, 1996, the Company tendered $2,250,000 to the Court. On
December 2, 1996, the Company tendered approximately $2,600,000 to the Court to
pay off the amount owed under the line of credit.
<PAGE> 2
Acquisition of assets of Prompt Medical Billing Services, Inc.
On October 21, 1996, Nu-Tech Bio-Med, Inc., a Delaware corporation (the
"Company" or "Nu-Tech") through a newly formed wholly owned subsidiary, NTBM
Billing Services, Inc. acquired substantially all of the operating assets of
Prompt Medical Billing Services, Inc. ("Prompt"), a medical billing service
business in Miami, Florida. The acquisition was in the form of a purchase. The
Company acquired the assets for a total consideration of $675,000 consisting of
$100,000 in cash and 37,404 shares of restricted common stock of the Company.
The number of shares may be subject to increase in the event the fair market
value of the shares at the termination of the two year period is less than
$500,000 or in the event the holders are unable to sell the shares.
Loan from Third Party Lendor
On December 2, 1996, Nu-Tech obtained a loan in the principal amount of
$2,500,000 from a third party lendor and utilized the loan proceeds to pay off
the line of credit, as required under the MSI Plan (see above).
BASIS OF ACCOMPANYING UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The Accompanying Unaudited Pro Forma Combined Financial Statements presents the
historical financial statements of Nu-Tech, Pro Forma Combined Financial
Statements, Nu-Tech and Prompt (which includes Nu-Tech and the acquisition of
Prompt taking into consideration pro forma adjustments), the historical
financial statements of MSI, the pro forma adjustments relating to the MSI
acquisition and Pro Forma Combined (which includes Nu-Tech and the acquisition
of Prompt and MSI taking into consideration pro forma adjustments).
The results of the acquired operations will be included in the Company's
operating results as of the closing dates of the acquisitions. The Unaudited Pro
Forma Combined Balance Sheet assumes that the acquisitions occurred on September
30, 1996. The Unaudited Pro Forma Combined Statements of Operations combines the
historical results of operations of the acquired companies for the year ended
December 31, 1995 and the nine months ended September 30, 1996 assuming the
acquisitions occurred on January 1, 1995 and January 1, 1996, respectively. The
unaudited pro forma combined statement of operations do not reflect cost savings
and synergies which might be achieved from the acquisitions. In addition, the
unaudited pro forma combined statement of operations do not consider
non-recurring charges, if any, which may result from the transaction and the
proposed integration of the acquired companies into the Company.
The Unaudited Pro Forma Combined Balance Sheet includes direct transaction costs
associated with the acquisitions. The actual allocation of the final purchase
price may be different from that reflected in the pro forma combined condensed
financial statements. For the purposes of these Pro Forma Financial Statements
the fair value of the fixed assets is assumed to approximate the book
value. The Company has not completed its evaluation of the carrying value of
fixed assets or intangible assets acquired. Such evaluation is expected to be
completed prior to the filing of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
<PAGE> 3
Management believes that the assumptions used in preparing these unaudited pro
forma combined financial statements provide a reasonable basis for presenting
all of the significant effects of the acquisitions. These unaudited pro forma
combined financial statements do not purport to be indicative of the results
which actually would have been obtained had the acquisitions been effected on
the date indicated or of those results which may be achieved in the future. The
pro forma combined financial statements should be read in conjunction
with the consolidated financial statements included in the Nu-Tech's Annual
Report on Form 10-KSB for the year ended December 31, 1995 and on Form 10-QSB
for the nine month period ended September 30, 1996.
Pro Forma Adjustments
A summary of the Pro Forma Adjustments is set forth as follows:
(a) To record the cost of the acquired assets (cash and common shares
issued) and the excess of such costs over the fair value of assets
acquired (goodwill); and to reflect the elimination of liabilities not
assumed in the acquisition.
(b) To record direct costs of the acquisition including legal and
accounting services.
(c) To record the cash payment made by Nu-Tech to the bankruptcy court used
to pay down liabilities subject to compromise.
(d) To record proceeds received from a third party notes payable.
(e) To record the Nu-Tech payment to pay off the line of credit to Austin
Financial on MSI's books.
(f) To record goodwill amortization expense.
<PAGE> 4
Nu-Tech Bio-Med, Inc.
Unaudited Pro Forma Combined Balance Sheet
September 30, 1996
<TABLE>
<CAPTION>
ProForma
Nu-Tech Combined MSI
Historical (Nu-Tech and Prompt) Historical
September 30, 1996 September 30, 1996 September 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,616,195 $ 3,516,155 $ 1,735
Accounts receivable, net 27,673 27,673 2,577,813
Inventory 132,017
Prepaid expenses 88,705 88,705 72,684
Other current assets 29,093 29,093
--------- --------- ---------
Total current assets 3,761,666 3,661,666 2,784,249
Equipment and leasehold improvements,
net 405,347 405,347 605,797
Deferred acquisition costs 170,878 170,878
Patents, net 140,450 140,450
Goodwill, net 252,566 967,566
Other assets 70,828
------------ ------------ ------------
Total Assets $ 4,730,907 $ 5,345,907 $ 3,460,874
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 117,838 $ 117,838 $ 199,287
Accrued expenses 731,305 771,305 1,343,317
Notes Payable
Liabilities subject to compromise 9,782,598
Other Current Liabilities 65,571 65,571
Current portion of long term debt 205,380 205,380
Current portion of capitalized
lease obligations 14,789 14,789
------------ ------------ ------------
Total current liabilities 1,134,883 1,174,883 11,325,202
Debt 164,452 164,452
Capitalized lease obligations 22,304 22,304
Deferred income 5,540 5,540
------------ ------------ ------------
Total liabilities 1,327,179 1,367,179 11,325,202
Stockholders' equity:
Preferred stock
Common stock 19,921 20,295 18,000
Capital in excess of par 20,171,241 20,745,867
Deferred consulting expense (110,000) (110,000)
Unvested common stock grant (243,303) (243,303)
Retained Earnings (Accumulated
Deficit) (16,434,131) (16,434,131) (7,882,328)
------------ ------------ ------------
Total stockholders' equity 3,403,728 3,978,728 (7,864,328)
============ ============ ============
Total Liabilities and Stockholders'
Equity $ 4,730,907 $ 5,345,907 $ 3,460,874
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
----------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $(2,350,000) c,d,e $ 1,167,930
Accounts receivable, net 2,605,486
Inventory 132,017
Prepaid expenses 161,389
Other current assets 29,093
---------- ---------
Total current assets (2,350,000) 4,095,915
Equipment and leasehold improvements,
net 1,011,144
Deferred acquisition costs 170,878
Patents, net 140,450
Goodwill, net 6,496,086 a,b 7,463,652
Other assets 70,828
------------ ------------
Total Assets $ 4,146,086 $ 12,952,867
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 317,125
Accrued expenses 200,000 b 2,314,622
Notes Payable 2,500,000 d 2,500,000
Liabilities subject to compromise (8,418,242) a,c,e 1,364,356
Other Current Liabilities 65,571
Current portion of long term debt 205,380
Current portion of capitalized
lease obligations 14,789
------------ ------------
Total current liabilities (5,718,242) 6,781,843
Debt 164,452
Capitalized lease obligations 22,304
Deferred income 5,540
------------ ------------
Total liabilities (5,718,242) 6,974,139
Stockholders' equity:
Preferred stock
Common stock (16,658) a 21,637
Capital in excess of par 1,998,658A 22,744,525
Deferred consulting expense (110,000)
Unvested common stock grant (243,303)
Retained Earnings (Accumulated
Deficit) 7,882,328 a (16,434,131)
------------ ------------
Total stockholders' equity 9,864,328 5,978,728
============ ============
Total Liabilities and Stockholders'
Equity $ 4,146,086 $ 12,952,867
============ ============
</TABLE>
<PAGE> 5
Nu-Tech Bio-Med, Inc
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
ProForma
Nu-Tech Combined MSI
Historical (Nu-Tech and Prompt) Historical
For the year ended For the year ended For the year ended Pro Forma Pro Forma
December 31, 1995 December 31, 1995 December 31, 1995 Adjustments Combined
----------------- ----------------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Assay sales $ 161,701 $ 161,701 $ 161,701
Laboratory revenues 19,055,559 19,055,559
Investment and
interest income 158,977 159,577 60 159,637
Fee income 202,185 202,185
Other 2,100 2,100 86,494 88,594
------------ ------------ ------------ ------------ ------------
Total revenues 322,778 525,563 19,142,113 -- 19,667,676
Expenses:
Selling, general and
administrative 1,430,354 1,590,391 6,568,379 8,158,770
Operating Costs 288,443 288,443 14,073,399 14,361,842
Interest 33,514 33,514 658,007 691,521
Reorganization Expense 157,456 157,456
Penalties 3,660 3,660
Loss (Gain) on sale
of asset 4,048 4,048
Depreciation and
amortization 659,424 725,924 349,074 649,609 1,724,607
------------ ------------ ------------ ------------ ------------
Total expenses 2,411,735 2,638,272 21,814,023 649,609(f) 25,101,904
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (2,088,957) $ (2,112,709) $ (2,671,910) $ (649,609) $ (5,434,228)
============ ============ ============ ============ ============
Net loss per common share $ (1.33) $ (3.12)
Weighted average common
shares outstanding 1,570,498 1,742,130
</TABLE>
<PAGE> 6
Nu-Tech Bio-Med
Unaudited Pro Forma Combined Statement of Operations
Nine Month Period Ended September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Nu-Tech Combined MSI
Historical (Nu-Tech and Prompt) Historical
For the 9 months ended For the 9 months ended For the 9 months ended
September 30, 1996 September 30, 1996 September 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Assay sales $ 74,508 $ 74,508
Revenues 10,731,990
Investment and interest income 129,347 129,736
Fee income 180,288
------------ ------------ ------------
Total revenues
203,855 384,532 10,731,990
Expenses:
Selling, general and administrative 1,366,283 1,489,711 2,921,159
Operating Costs 253,326 253,326 8,485,220
Deferred Acquisition Costs Charged Off 218,914 218,914
Interest 22,571 22,571 304,702
Reorganization Expenses 963,133
Penalties 123,285
Depreciation and amortization 900,370 950,245 228,728
------------ ------------ ------------
Total expenses 2,761,464 2,934,767 13,026,227
------------ ------------ ------------
Net income (loss) $ (2,557,609) $ (2,550,235) $ (2,294,237)
============ ============ ============
Net loss per common share $ (1.37)
Weighted average common shares outstanding 1,868,247
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
----------- --------
<S> <C> <C>
Revenues:
Assay sales $ 74,508
Revenues 10,731,990
Investment and interest income 129,736
Fee income 180,288
---------- --------------
Total revenues 11,116,522
--
Expenses:
Selling, general and administrative 4,410,870
Operating Costs 8,738,546
Deferred Acquisition Costs Charged Off 218,914
Interest 327,273
Reorganization Expenses 963,133
Penalties 123,285
Depreciation and amortization 487,206(f) 1,666,179
---------- --------------
Total expenses 487,206 16,448,200
---------- --------------
Net income (loss) $ (487,206) $ (5,331,678)
========== ==============
Net loss per common share $ (2.61)
Weighted average common shares outstanding 2,039,879
</TABLE>
