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U.S. 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 September 30, 2000
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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
UNITED DIAGNOSTIC, INC.
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(Exact name of registrant as specified in its charter)
Delaware 25-1411971
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
476 Main Street - Suite 3-DFL Wakefield, Rhode Island 02879
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 789-9995
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(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
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As of November 13, 2000, there were issued and outstanding 682,622
shares of common stock of the registrant.
Transitional small business disclosure format
Yes No X
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United Diagnostic, Inc.
Quarterly Report on Form 10-QSB
Table of Contents
<TABLE>
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PAGE
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
Exhibit 27 Financial Data Schedule 21
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United Diagnostic, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
2000 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 687,889 $ 1,709,067
Prepaid expenses and other current assets 20,610 69,642
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Total current assets 708,499 1,778,709
Investment in Solutions for DME, Inc. 196,101 --
Equipment, net 4,894 2,710
Deposits 950 950
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$ 910,444 $ 1,782,369
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIT)
Current liabilities:
Notes payable $ 75,888 $ 128,662
Accounts payable 158,504 230,157
Accrued expenses 83,516 176,998
Contract payable 55,571 55,571
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Total current liabilities 373,479 591,388
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Commitments and contingencies
Stockholders' equity (capital deficit):
Series A convertible preferred stock, $.01 par value;
2,000,000 authorized; 2,826 issued and outstanding
at September 30, 2000 (liquidation preference of
$2,826,000 at September 30, 2000) 28 28
Common stock, $.01 par value; 50,000,000
shares authorized; 682,622 shares issued and
outstanding at September 30, 2000 6,826 6,826
Capital in excess of par value 59,716,870 59,716,870
Accumulated deficit (59,186,759) (58,532,743)
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Total stockholders' equity (capital deficit) 536,965 1,190,981
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$ 910,444 $ 1,782,369
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</TABLE>
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United Diagnostic, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30 September 30 SEPTEMBER 30 September 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues: $ -- $ -- $ -- $ --
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Operating costs:
Selling, general and administrative
expenses 174,866 294,241 683,655 791,029
Depreciation and amortization 681 480 1,828 1,441
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Total operating costs 175,547 294,721 685,483 792,470
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Operating loss (175,547) (294,721) (685,483) (792,470)
Other income (expense):
Non-recurring miscellaneous revenue -- -- -- 3,250,000
Equity loss in investment (3,899) -- (3,899) (3,250,000)
Interest income 12,316 25,553 42,917 32,728
Interest expense (2,406) (2,393) (7,551) (87,311)
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Total other income (expense) 6,011 23,160 31,467 (54,583)
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Loss before income taxes (169,536) (271,561) (654,016) (847,053)
Income taxes expense -- -- -- (65,000)
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Net loss $(169,536) $(271,561) $(654,016) $ (912,053)
============================================================================
Net loss per common share - basic and
diluted $ (0.25) $ (0.40) $ (0.96) $ (1.34)
============================================================================
Weighted average shares outstanding 682,622 682,622 682,622 682,622
============================================================================
</TABLE>
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United Diagnostic, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30 September 30
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (654,016) $ (912,053)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,828 1,441
Interest expense from issuance of warrants -- 60,000
Equity in loss in subsidiary 3,899 3,250,000
Changes in operating assets and liabilities:
Prepaids, other current assets and deposits 49,032 51,133
Accounts payable and accrued expenses (165,135) (541,631)
----------------------------
Net cash (used in) provided by operating activities (764,392) 1,908,890
----------------------------
INVESTING ACTIVITIES:
Capital expenditures (4,012) --
Investment in Solutions for DME, Inc. (200,000) --
----------------------------
Net cash used in investing activities (204,012) --
FINANCING ACTIVITIES:
Repayment of notes payable and lease obligations (52,774) (256,166)
----------------------------
Net cash used in financing activities (52,774) (256,166)
----------------------------
Net (decrease) increase in cash and cash equivalents (1,021,178) 1,652,724
Cash and cash equivalents at beginning of period 1,709,067 176,848
----------------------------
Cash and cash equivalents at end of period $ 687,889 $ 1,829,572
============================
Supplemental disclosure of cash flow information:
Taxes paid $ 65,000 $ 1,336
Interest paid 7,551 46,299
</TABLE>
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United Diagnostic, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
United Diagnostic, Inc. ("United" or the "Company"), was originally
organized under the laws of the State of Delaware in September 1981 under the
name of "Applied DNA Systems, Inc." On November 16, 1994, the Company changed
its name to Nu-Tech Bio-Med, Inc. On December 23, 1998, the Company changed its
name to United Diagnostic, Inc.
The Company's annual report on Form 10-KSB for the year ended December
31, 1999, was filed on May 31, 2000, Form 10-QSB for the quarter ended March 31,
2000, was filed on July 11, 2000, and Form 10-QSB for the quarter ended June 30,
2000, was filed on August 9, 2000.
In the opinion of management of United Diagnostic, Inc., the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the financial position of the Company at September 30, 2000, and
the results of operations and cash flows for the nine months ended September 30,
2000, and 1999.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Analytical Biosystems Corporation
("ABC") (inactive since November 3, 1997), and NTBM Billing Services, Inc.
("NTBM") (inactive since April 1998). As of June, 1998, United's ownership in
Physicians Clinical Laboratory, Inc., ("PCL") (inactive since May 1999) was
reduced from 52.6% to 49.9% of the issued and outstanding shares of PCL. The
Company commenced to account for its remaining investment in PCL under the
equity method (Note 2). All material intercompany transactions and balances have
been eliminated. Where appropriate, prior year amounts have been reclassified
for comparative purposes.
ABC was a clinical oncology laboratory service and research company
located in Rhode Island (inactive since November 1997). NTBM was a medical
billing service business located in Florida (inactive since April 1998, Note
3b). PCL was a full service medical laboratory facility which operated
throughout the State of California (inactive since May 10, 1999, Note 3a).
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 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 nine month period ended September 30,
2000, are not
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necessarily indicative of the results that may be expected for the year ended
December 31, 2000. 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, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In June, 1998, the Company sold 67,500 shares of its Physicians
Clinical Laboratory, Inc. ("PCL") common stock to a senior lender and
significant stockholder of PCL for $750,000, in conjunction with a loan by that
stockholder of $4 million to PCL. As a result of the sale, United's ownership
was reduced from 52.6% to 49.9% of the issued and outstanding shares of PCL.
Subsequently, the Company commenced to account for its remaining investment in
PCL under the equity method of accounting, rather than the consolidation method.
Under the equity method, investments are recorded at cost reduced by the
Company's proportionate share of losses. Any losses in excess of the investment
are not recognized until future profits or additional investments occur. The
Company's share of PCL losses recognized from date of acquisition through June
10, 1998, exceeded its investment in PCL. In the deconsolidation of PCL, the
Company adjusted its negative investment to zero and recorded the remainder as
an adjustment to capital in excess of par value. On April 5, 1999, PCL entered
into an Asset Purchase Agreement for the sale of the business and substantially
all assets to Unilab Corp for a total purchase price of approximately $40
million. The sale closed on May 10, 1999. Concurrent with the sale, the
Stockholder Agreement was amended to provide payment to the Company of $3.25
million in cash upon satisfaction of certain conditions. The Company received
this payment in May 1999. The transaction was recorded by the Company as
non-recurring miscellaneous revenue with a corresponding charge for prior years'
unused equity loss in subsidiary. Such equity loss in subsidiary was recorded as
an adjustment to capital in excess of par value in May of 1999.
3. DISPOSITIONS
a. PHYSICIANS CLINICAL LABORATORY, INC.
In June, 1998, the Company sold 67,500 shares of its Physicians
Clinical Laboratory, Inc. ("PCL") common stock to a senior lender and
significant stockholder of PCL for $750,000, in conjunction with a loan by that
stockholder of $4 million to PCL. As a result of the sale, United's ownership
was reduced from 52.6% to 49.9% of the issued and outstanding shares of PCL.
On April 5, 1999, PCL entered into an Asset Purchase Agreement for the
sale of the business and substantially all assets to Unilab Corp for a total
purchase price of approximately $40 million. The sale closed on May 10, 1999.
Concurrent with the sale, the Stockholder Agreement was amended to provide
payment to the Company of $3.25 million in cash upon satisfaction of certain
conditions. The Company received this payment in May 1999.
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As a result of the above transaction, the Consolidated Financial
Statements relating to nine months ended September 30, 2000, and 1999, are
presented on the basis of the Company's 49.9% ownership of PCL under the equity
method of accounting as described in Note 2.
b. NTBM BILLING SERVICES, INC. (D/B/A PROMPT MEDICAL BILLING)
On July 22, 1998 an arbitration was commenced before the AAA in New
York, New York entitled NU-TECH BIO MED, INC. AND NTBM BILLING SERVICES, INC V.
JUDITH PRUSSIN, JEFFREY PRUSSIN AND PROMPT MEDICAL BILLING, INC. (Case No. 13
180 00703 98). The case arose from the purchase by the Company of the
respondents' business, PMBI, in October of 1996. Subsequent to the purchase, the
business lost its principal customer and ceased operations. In the arbitration,
the Company sought from the former owners of PMBI, INTER ALIA, a judgment which
constituted the return of the purchase price of PMBI (i.e., the return of
approximately $100,000 in cash and the right to certain stock held in escrow
pursuant to the Purchase Agreement). In an Award originally dated April 9, 1999
(and affirmed by the arbitrator on May 27, 1999), the arbitrator denied the
relief sought by the Company and refused to grant the relief sought by
respondents. On April 19, 1999, the Company initiated a Special Proceeding in
the Supreme Court of the State of New York, County of New York captioned IN RE
THE ARBITRATION OF CERTAIN CONTROVERSIES BETWEEN NU-TECH BIO MED, INC. AND NTBM
BILLING SERVICES, INC V. JUDITH PRUSSIN, JEFFREY PRUSSIN AND PROMPT MEDICAL
BILLING, INC. (Index No. 108158/99) to affirm the Award. The Court granted the
Company's petition to confirm the arbitration award and denied the request of
the respondents to vacate, alter or otherwise modify the arbitration award. As a
result of the Court's decision, the arbitration award stands as is. Following
the decision of the Court, the respondents served a notice of appeal, and the
appeal is presently pending.
4. DEBT
In March 1998, the Company obtained a loan in the principal amount of
$250,000. Principal and interest at 10% were due on the earlier of April 1999 or
consummation of a private placement with defined proceeds. Principal and
interest were paid in full on May 13, 1999. This loan was secured by a pledge of
125,000 shares of PCL stock. As a condition to making the loan, the lender
required, and the board approved, issuing the lender warrants to purchase 44,000
shares of common stock stated on a presumed post-reverse split basis. The
exercise price was to be equal to the closing bid of the common stock on the
first business day following the effective date of the reverse split, subject to
reduction if a private placement is made following the reverse split at a lower
price. The warrants are exercisable until the fifth anniversary of the reverse
split. The warrants have not been issued and the exercise price is not
determinable since the Company's common stock was delisted prior to the
effective date of the reverse split. The Company estimated the value of the
warrants using an exercise price based upon market price at the date of the loan
as adjusted for the reverse split. The Company recorded a discount on the debt
of $143,000 for the prorata warrant value and recognized approximately $60,000
in interest expense during the nine months ended September 30, 1999, relating to
the discount (non-cash item).
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5. INVESTMENT IN SOLUTIONS FOR DME, INC.
The Company, in May 2000, made a $200,000 investment for an initial
7.5% common stock interest in a newly formed company, controlled by Mr. J.
Marvin Feigenbaum (Chairman and stockholder of the Company). Such investment was
pursuant to an affirmative vote (with Mr. Feigenbaum abstaining) by the Board of
Directors at a meeting held April 17, 2000. For the nine months ended September
30, 2000, the Company recorded an equity loss against the investment in
Solutions for DME, Inc. of approximately $4,000.
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information set forth
under 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"). United Diagnostic, 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, the ability of the Company to identify and
obtain a viable business and all of the risks (known and unknown) relating to
any new and as yet unidentified business within the timeframe inherent in the
Company's cash limitations, beyond its current investment described in Note 5.
The Company, in the future, may need additional funds from loans and/or the sale
of equity securities. No assurance can be given that such funds will be
available or, if available, will be on commercially reasonable terms
satisfactory to the Company. Presently, the Company does not operate or have an
equity investment in a business which is a source of revenue from operations.
But for the Company's infusion of cash which the Company received as a result of
the sale by PCL of its business and assets, there is no assurance that the
Company would be able to sustain itself beyond December 31, 2000. For the fiscal
year ended December 31, 1998, and the years prior thereto, the Reports on the
Company's financial statements contained an explanatory paragraph based upon
substantial doubt existing about the Company's 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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRELIMINARY NOTES TO MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Presently, the Company does not operate or have an equity investment in
a business which is a source of revenue from operations.
1. HIGHLIGHTS
a. INVESTMENT IN SOLUTIONS FOR DME, INC.
The Company, in May 2000, made a $200,000 investment for an initial
7.5% common stock interest in a newly formed company, controlled by Mr. J.
Marvin Feigenbaum (Chairman and stockholder of the Company). Such investment was
pursuant to an affirmative vote (with Mr. Feigenbaum abstaining) by the Board of
Directors at a meeting held April 17, 2000. For the nine months ended September
30, 2000, the Company recorded an equity loss against the investment in
Solutions for DME, Inc. of approximately $4,000.
b. PHYSICIANS CLINICAL LABORATORY, INC.
On May 10, 1999, Physicians Clinical Laboratory, Inc. ("PCL"), which is
49.9% owned by the Company, disposed of substantially all of its assets to
Unilab Corporation ("Unilab") in exchange for a combination of cash, a
convertible promissory note of Unilab and Unilab common stock. The sale
consideration was valued in the aggregate at approximately $40 million. Until
the date of the sale of its assets, PCL had been engaged in the business of
providing clinical laboratory services in the State of California. The proceeds
of sale were principally used to satisfy a portion of PCL's secured
indebtedness, which aggregated approximately $70 million at the time of sale.
PCL was in default under all of this indebtedness at the time of the sale.
No proceeds of the sale of PCL assets were available for distribution
to the PCL shareholders. However, in connection with the sale, the Company
received a payment of $3,250,000 in cash from certain holders of PCL's secured
indebtedness.
2. DISPOSITIONS
In June, 1998, the Company sold 67,500 shares of its Physicians
Clinical Laboratory, Inc. ("PCL") common stock to a senior lender and
significant stockholder of PCL for $750,000, in conjunction with a loan by that
stockholder of $4 million to PCL. As a result of the sale, United's ownership
was reduced from 52.6% to 49.9% of the issued and outstanding shares of PCL.
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On April 5, 1999, PCL entered into an Asset Purchase Agreement for the
sale of the business and substantially all assets to Unilab Corp for a total
purchase price of approximately $40 million. The sale closed on May 10, 1999
(Note 1 above).
As a result of the above transactions, the Management's Discussion and
Analysis of Financial Condition and Results of Operations relating to the nine
months ended September 30, 2000, and 1999, are presented on the basis of the
Company's 49.9% ownership of PCL under the equity method of accounting as
described in Note 2.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In June, 1998, the Company sold 67,500 shares of its Physicians
Clinical Laboratory, Inc. ("PCL") common stock to a senior lender and
significant stockholder of PCL for $750,000, in conjunction with a loan by that
stockholder of $4 million to PCL. As a result of the sale, United's ownership
was reduced from 52.6% to 49.9% of the issued and outstanding shares of PCL.
Subsequently, the Company commenced to account for its remaining investment in
PCL under the equity method of accounting, rather than the consolidation method.
Under the equity method, investments are recorded at cost reduced by the
Company's proportionate share of losses. Any losses in excess of the investment
are not recognized until future profits or additional investments occur. The
Company's share of PCL losses recognized from date of acquisition through June
10, 1998, exceeded its investment in PCL. In the deconsolidation of PCL, the
Company adjusted its negative investment to zero and recorded the remainder as
an adjustment to capital in excess of par value. On April 5, 1999, PCL entered
into an Asset Purchase Agreement for the sale of the business and substantially
all assets to Unilab Corp for a total purchase price of approximately $40
million. The sale closed on May 10, 1999. Concurrent with the sale, the
Stockholder Agreement was amended to provide payment to the Company of $3.25
million in cash upon satisfaction of certain conditions. The Company received
this payment in May 1999. The transaction was recorded by the Company as
non-recurring miscellaneous revenue with a corresponding charge for prior years'
unused equity loss in subsidiary. Such equity loss in subsidiary was recorded as
an adjustment to capital in excess of par value in May of 1999.
THREE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
Results of Operations
The Company reported no operating revenues for the three months ended
September 30, 2000, and 1999.
Total operating costs for the three months ended September 30, 2000,
were $175,547 compared to $294,721 for the three months ended September 30,
1999. The decrease of $119,174 is primarily due to a decrease in selling,
general and administrative expenses.
Selling, general and administrative expenses for the three months ended
September 30, 2000, were $174,866 compared to $294,241 for the three months
ended September 30, 1999.
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The decrease of $119,375 is primarily due to a reduction in legal, travel and
salary expenses, offset by an increase in accounting expenses.
Operating loss for the three months ended September 30, 2000, was
$175,547 compared to $294,721 for the three months ended September 30, 1999. The
decrease of $119,174 is due to a decrease in total operating costs.
Interest income for the three months ended September 30, 2000, was
$12,316 compared to $25,553 for the three months ended September 30, 1999. This
decrease of $13,237 is primarily due to a decrease in cash and cash equivalents
upon which interest is earned.
Interest expense for the three months ended September 30, 2000, was
$2,406 compared to $2,393 for the three months ended September 30, 1999.
Loss before income taxes and net loss for the three months ended
September 30, 2000, was $169,536 as compared to $271,561 for the three months
ended September 30, 1999. The decrease in loss before income taxes is
primarily due to a decrease selling, general and administrative expenses
offset by a slight decrease in interest income.
Net loss per share of Common Stock for the three months ended September
30, 2000, was $.25 compared to $.40 for the three months ended September 30,
1999. The decrease is due to a reduction in net loss. Weighted average shares
were 682,622 for the three months ended September 30, 2000, and 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
Results of Operations
The Company reported no operating revenues for the nine months ended
September 30, 2000, and 1999.
Total operating costs for the nine months ended September 30, 2000,
were $685,483 compared to $792,470 for the nine months ended September 30, 1999.
The decrease of $106,987 is primarily due to a decrease in selling, general and
administrative expenses.
Selling, general and administrative expenses for the nine months ended
September 30, 2000, were $683,655 compared to $791,029 for the nine months ended
September 30, 1999. The decrease of $107,374 is primarily due to a reduction in
legal, travel, franchise tax and salary expenses.
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Operating loss for the nine months ended September 30, 2000, was
$685,483 compared to $792,470 for the nine months ended September 30, 1999. The
decrease of $106,987 is primarily due to a decrease in selling, general and
administrative expenses.
Non-recurring miscellaneous revenue for the nine months ended September
30, 1999, was $3,250,000. Concurrent with the sale of PCL assets to Unilab (Note
1b above), a payment was provided to the Company of $3.25 million in cash upon
satisfaction of certain conditions. The Company received this payment in May
1999. The transaction was recorded by the Company as non-recurring miscellaneous
revenue with a corresponding charge for prior years' unused equity loss in
subsidiary. Such equity loss in subsidiary was recorded as an adjustment to
capital in excess of par value.
Equity loss in investment for the nine months ended September 30, 2000,
was $3,899 compared to $3,250,000 for the nine months ended September 30, 1999.
In May 1999, concurrent with the sale of PCL assets to Unilab (Note 1b above), a
payment was provided to the Company of $3.25 million in cash upon satisfaction
of certain conditions. For the nine months ended September 30, 1999, the
transaction was recorded by the Company as non-recurring miscellaneous revenue
with a corresponding charge for prior years' unused equity loss in subsidiary.
Such equity loss in subsidiary was recorded as an adjustment to capital in
excess of par value. In May 2000, the Company made a $200,000 investment for an
initial 7.5% common stock interest in a newly formed company, controlled by Mr.
J. Marvin Feigenbaum (Chairman and stockholder of the Company). For the nine
months ended September 30, 2000, the Company recorded an equity loss against the
investment in Solutions for DME, Inc. of $3,899.
Interest income for the nine months ended September 30, 2000, was
$42,917 compared to $32,728 for the nine months ended September 30, 1999. This
increase is primarily due to an increase in cash and cash equivalents during the
quarter ended June 30, 1999, upon which interest is earned.
Interest expense for the nine months ended September 30, 2000, was
$7,551 compared to $87,311 for the nine months ended September 30, 1999. The
interest for the nine months ended September 30, 1999, is primarily related to a
loan in the principal amount of $250,000 obtained by the Company in March 1998.
This 1999 expense is comprised of accrued interest for the period and the
amortized portion of the original portion of debt discount recorded for the
original estimated value of warrants issued in connection with such debt.
Principal and interest were paid in full on May 13, 1999.
Loss before income taxes for the nine months ended September 30, 2000,
was $654,016 as compared to $847,053 for the nine months ended September 30,
1999. The decrease of $193,037 in loss before income taxes is primarily due to
decreases in interest and selling, general and administrative expenses.
Income taxes expense for the nine months ended September 30, 1999, was
$65,000. An estimated alternative minimum tax expense was incurred by the
Company upon the receipt of $3.25 million in non-recurring miscellaneous
revenue. Concurrent with the sale of PCL assets to
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Unilab (Note 1b above), a payment was provided to the Company of $3.25 million
in cash upon satisfaction of certain conditions.
Net loss for the nine months ended September 30, 2000, was $654,016 as
compared to $912,053 for the nine months ended September 30, 1999. The decrease
of $258,037 in net loss is primarily due to decreases in interest, income taxes
and selling, general and administrative expenses.
Net loss per share of Common Stock for the nine months ended September
30, 2000, was $.96 compared to $1.34 for the nine months ended September 30,
1999. The decrease is due to a reduction in net loss. Weighted average shares
were 682,622 for the nine months ended September 30, 2000, and 1999.
LIQUIDITY AND CAPITAL RESOURCES
Presently, the Company's sole source for liquidity and capital
resources is the balance of cash from the $3.25 million payment received in May
1999. The Company had utilized a portion of this payment to satisfy certain
outstanding debts and obligations. The remaining cash on hand will be used for
working capital.
The Company had $687,889 in cash and cash equivalents at September 30,
2000, as compared to $1,709,067 at December 31, 1999. The decrease of $1,021,178
is primarily due to a reduction in current liabilities, the use of funds to
support operating activities and an investment in a newly formed company (Note
5).
Total current assets were $708,499 at September 30, 2000, as compared
to $1,778,709 at December 31, 1999. The decrease of $1,070,210 is primarily due
to a decrease in cash and cash equivalents.
Prepaid expenses and other current assets were $20,610 at September 30,
2000, as compared to $69,642 at December 31, 1999.
Equipment, net of accumulated depreciation, was $4,894 at September 30,
2000, compared to $2,710 at December 31, 1999.
Deposits were $950 at September 30, 2000, and December 31, 1999.
Total assets at September 30, 2000, were $910,444 as compared to
$1,782,369 at December 31, 1999. The decrease of $871,925 is primarily due to a
decrease in cash and cash equivalents, offset by an Investment in Solutions for
DME, Inc.
Total current liabilities at September 30, 2000, were $373,479 as
compared to $591,388 at December 31, 1999. The decrease of $217,909 is primarily
due to decreases in notes payable of $52,774 and accounts payable and accrued
expenses of $165,135.
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PLAN OF OPERATIONS AND REQUIREMENT FOR ADDITIONAL FUNDS
Presently, the Company does not operate or have an equity investment in
a business which is a source of revenue from operations. But for the Company's
infusion of cash which the Company received as a result of the sale by PCL of
its business and assets, there is no assurance that the Company would be able to
sustain itself beyond December 31, 2000. For the fiscal year ended December 31,
1998, and the years prior thereto, the Reports on the Company's financial
statements contained an explanatory paragraph based upon substantial doubt
existing about the Company's ability to continue as a going concern.
Through September 30, 2000, the Company generated no cash from
operating activities and, therefore, has not achieved sufficient revenues to
support future operations. The Company had working capital of approximately
$335,000 at September 30, 2000.
On May 10, 1999, Physicians Clinical Laboratory, Inc. ("PCL"), which is
49.9% owned by the Company, disposed of substantially all of its assets to
Unilab (see Item 1, Note 3a). In connection with the sale of assets by PCL, the
Company received a payment of $3.25 million from certain holders of PCL's
secured indebtedness. Presently, the Company's sole source for liquidity and
capital resources is the balance of cash from the $3.25 million payment received
in May 1999. The Company had utilized a portion of this payment to satisfy
certain outstanding debts and obligations. The remaining cash on hand will be
used for working capital. The Company, in May 2000, made a $200,000 investment
for an initial 7.5% common stock interest in a newly formed company, controlled
by Mr. J. Marvin Feigenbaum (Chairman and stockholder of the Company). Such
investment was pursuant to an affirmative vote (with Mr. Feigenbaum abstaining)
by the Board of Directors at a meeting held April 17, 2000.
The Company's remaining cash and cash equivalents at September 30,
2000, and December 31, 1999, were approximately $688,000 and $1,709,000,
respectively. The Company believes its present cash position is adequate and
sufficient for the Company's current cash needs through December 31, 2000. There
can be no assurance that the Company will be able to identify and obtain a
viable business through which it can generate operating revenues within the
timeframe inherent in the Company's cash limitations, beyond its current
investment referred to in the aforementioned paragraph. Additionally, no
assurance can be given that such an investment would result in achieving
profitability or positive cash flows. The ability of the Company to obtain
additional financing or to achieve an adequate level of revenues is dependent
upon future events, the outcome of which is presently not determinable. While
the Company may 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.
EFFECTS OF INFLATION
The Company does not view the effects of inflation to have a material
effect upon its business.
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<PAGE>
HISTORICAL LOSSES AND ACCUMULATED DEFICIT OF UNITED
Since inception (February 1, 1982) through September 30, 2000, the
Company has incurred an accumulated deficit of approximately $59,187,000. For
the fiscal years ended December 31, 1999, 1998, and 1997, and the nine months
ended September 30, 2000, the Company incurred net losses of approximately
$1,025,600, $4,217,000, $31,626,000, and $654,000, respectively. The amount of
stockholders' equity at September 30, 2000, was approximately $537,000. The
amount of its working capital at September 30, 2000, was approximately $335,000.
There can be no assurance that the Company will be able to ultimately identify
or acquire any new business or the Company will have adequate financial
resources with which to consummate potential transactions that may become
available to the Company, beyond its current investment as described in Item 1,
Note 5. Additionally, for the fiscal year ended December 31, 1998, and the years
prior thereto, the Reports on the Company's financial statements contained an
explanatory paragraph based upon substantial doubt existing about the Company's
ability to continue as a going concern.
OTHER RISKS
PLEDGE OF PRINCIPAL ASSETS TO SECURE EXISTING LOANS FROM THE STATE OF
RHODE ISLAND
In connection with a series of loans obtained during 1993 and 1994 by
the Company from the State of Rhode Island Economic Development Small Business
Loan Fund Corporation ("SBLFC") in the principal aggregate amount of $791,000,
the Company executed two patent security agreements granting the SBLFC a
security interest in ABC's patents to secure $541,000 of the $791,000 of SBLFC
loans (the principal balance of which, as of September 30, 2000, was
approximately $76,000). All of the SBLFC loans, including those which are
subject to the patent security interest, are further secured by a security
interest in the Company's accounts receivable, inventory and equipment. Each of
these loans were for a term of five years from its respective loan date, bearing
interest at the rate of 5.4% and, as to each loan, after the first year is
amortized monthly as to principal and interest. In March 1998, the terms of
these loans were modified to 9.5% interest with principal due on demand. The
aggregate amount of monthly interest payments is approximately $1,000 per month.
In the event that the Company, for whatever reason, is unable to continue to
meet its loan repayment obligations, the assets which are pledged will be
subject to the rights of the SBLFC as a secured party. Further, until the SBLFC
loans are repaid, it is unlikely that the Company or ABC will be able to obtain
additional secured financing utilizing this collateral.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon the executive abilities of its Chairman,
J. Marvin Feigenbaum, to implement its present and anticipated future plans and
programs. The Company has entered into an employment agreement with Mr.
Feigenbaum for a term ending April 30, 2002. The loss of Mr. Feigenbaum's
services may have a materially adverse effect on the business or prospects of
the Company.
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<PAGE>
CLASSIFIED BOARD OF DIRECTORS
At the Annual Meeting of Stockholders held in June, 1997, Messrs.
Feigenbaum and Fagenson were elected Class 1 Directors to serve until the 2000
Annual Meeting of Stockholders. At the Annual Meeting of Stockholders held on
August 27, 1996, Mr. Sterling was elected Class 2 Director until the 1999 Annual
Meeting of Stockholders, which meeting has not been held to date. Due to the
financial position of the Company, the Company has been unable to attract and
retain any directors other than Messrs. Feigenbaum, Sterling and Fagenson.
DELISTING FROM THE NASDAQ SMALLCAP MARKET, CONVERSION OF SERIES A
CONVERTIBLE PREFERRED STOCK
On June 1, 1998, the Company's Common Stock was delisted from the
Nasdaq Small Cap Market, effective as of the close of business on June 1, 1998.
The Company believes that the delisting of the Common Stock has had a depressive
effect upon the market price of the Common Stock and adversely affected the
liquidity of the Common Stock because, subsequent to May 15, 1998, the Common
Stock has been quoted in the "pink sheets" maintained by National Quotation
Bureau, Inc., which is not an established trading market.
The Company currently has 2,826 shares of its Series A Convertible
Preferred Stock outstanding which is convertible into such number of shares of
common stock as shall equal $1,000 divided by a conversion rate equal to the
lesser of (i) 75% of the average closing price of the common stock for the 5
days immediately preceding the date of the holder's notice of conversion or (ii)
$1,225.00, subject to certain adjustments. Since the conversion price of the
preferred stock is related to the Nasdaq bid price for the common stock, a
conversion price is presently indeterminable; consequently, the Company has
suspended the acceptance of future conversions.
NO DIVIDENDS AND NONE ANTICIPATED
United has never declared nor paid a dividend on any shares of its
capital stock and the Board of Directors intends to continue this policy for the
foreseeable future.
Balance of Page Intentionally Left Blank
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<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On July 22, 1998 an arbitration was commenced before the AAA in New
York, New York entitled NU-TECH BIO MED, INC. AND NTBM BILLING SERVICES, INC V.
JUDITH PRUSSIN, JEFFREY PRUSSIN AND PROMPT MEDICAL BILLING, INC. (Case No. 13
180 00703 98). The case arose from the purchase by the Company of the
respondents' business, PMBI, in October of 1996. Subsequent to the purchase, the
business lost its principal customer and ceased operations. In the arbitration,
the Company sought from the former owners of PMBI, INTER ALIA, a judgment which
constituted the return of the purchase price of PMBI (i.e., the return of
approximately $100,000 in cash and the right to certain stock held in escrow
pursuant to the Purchase Agreement). In an Award originally dated April 9, 1999
(and affirmed by the arbitrator on May 27, 1999), the arbitrator denied the
relief sought by the Company and refused to grant the relief sought by
respondents. On April 19, 1999, the Company initiated a Special Proceeding in
the Supreme Court of the State of New York, County of New York captioned IN RE
THE ARBITRATION OF CERTAIN CONTROVERSIES BETWEEN NU-TECH BIO MED, INC. AND NTBM
BILLING SERVICES, INC V. JUDITH PRUSSIN, JEFFREY PRUSSIN AND PROMPT MEDICAL
BILLING, INC. (Index No. 108158/99) to affirm the Award. The Court granted the
Company's petition to confirm the arbitration award and denied the request of
the respondents to vacate, alter or otherwise modify the arbitration award. As a
result of the Court's decision, the arbitration award stands as is. Following
the decision of the Court, the respondents served a notice of appeal, and the
appeal is presently pending.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1* Amended and Restated Certificate of Incorporation
filed with the Secretary of State of Delaware on November 16,
1996 (Exhibit 3.1.5 to Amendment No. 1 to Registration
Statement on Form SB-2, file No. 33-84622)
3.2* Amended and Restated By-Laws effective November 16,
1996 (Exhibit 3.2.2 to Registration Statement on Form SB-2,
File No. 33-846221)
3.3* Amended and Restated Certificate of Incorporation
filed with the Secretary of State of Delaware on October 21,
1997 (Exhibit 3 on Form 8-K, file No. 001-13900)
27 Financial Data Schedule
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<PAGE>
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the following reports were
filed on Form 8-K by the Registrant:
<TABLE>
<CAPTION>
Date of the Report Item Reported Description of Item
------------------ ------------- -------------------
<S> <C> <C>
July 13, 2000 Item 5. Other Events Amended and Restated
By-Laws to reflect the State
Item 7. Exhibits of Delaware amendments
to facilitate the use of
electronic transmissions
</TABLE>
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<PAGE>
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.
UNITED DIAGNOSTIC, INC.
Dated: November 13, 2000 by: /s/ J. Marvin Feigenbaum
------------------------
J. Marvin Feigenbaum
President, Chief Executive
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