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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 MARCH 31, 1999
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 __ No X
As of March 31, 2000, there were issued and outstanding 682,622 shares
of common stock of the registrant, adjusted for a 70 for 1 reverse stock split
effected on December 23, 1998.
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
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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 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 25
Exhibit 27 Financial Data Schedule 26
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United Diagnostic, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31 December 31
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,963 $ 176,848
Prepaid expenses and other current assets 66,606 69,577
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Total current assets 111,569 246,425
Equipment, net 4,151 4,631
Deposits 950 4,371
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Total Assets $ 116,670 $ 255,427
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LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Current portion of long term debt $ 315,269 $ 276,970
Current portion of capitalized lease obligations - 1,165
Accounts payable 567,508 479,735
Accrued expenses 550,182 475,457
Contract payable 55,571 55,571
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Total current liabilities 1,488,530 1,288,898
------------------------------------
Commitments and contingencies - -
Stockholders' (deficit):
Series A convertible preferred stock, $.01 par
value; 2,000,000 authorized; 2,826 issued and
outstanding at March 31, 1999, and December 31, 1998
(liquidation preference of $2,826,000 at March 31, 1999) 28 28
Common stock, $.01 par value; 50,000,000
shares authorized; 682,622 shares issued and
outstanding at March 31, 1999, and December 31, 1998 6,826 6,826
Capital in excess of par value 56,466,870 56,466,870
Accumulated deficit (57,845,584) (57,507,195)
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Total stockholders' deficit (1,371,860) (1,033,471)
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Total liabilities and stockholders' deficit $ 116,670 $ 255,427
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United Diagnostic, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31 March 31
1999 1998
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Revenues:
Laboratory revenues, net $ - $ 15,747,736
Medical billing services revenues - 90,750
Total revenues, net - 15,838,486
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Operating costs:
Laboratory expenses - 10,460,777
Medical billing services expenses - 129,473
Sales, general and administrative expenses 285,663 4,536,456
Provision for bad debts - 1,202,576
Depreciation and amortization 480 890,507
Write down of intangibles - 645,472
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Total operating costs 286,143 17,865,261
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Operating loss (286,143) (2,026,775)
Other income (expense):
Investment and interest income - 28,319
Interest expense (52,246) (2,150,177)
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Total other income (expense) (52,246) (2,121,858)
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Net Loss before minority interest (338,389) (4,148,633)
Minority Interest - 1,473,214
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Net Loss $ (338,389) $ (2,675,419)
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Net loss per common share - basic and diluted $ (0.50) $ (3.92)
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Weighted average shares outstanding 682,622 682,622
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United Diagnostic, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
MARCH 31 March 31
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (338,389) $ (2,675,419)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, amortization and write down of intangibles 480 1,535,979
Provision for bad debt - 1,202,576
Amortization of debt discount 43,300 143,000
Minority interest - (1,473,214)
Changes in operating assets and liabilities:
Accounts receivable, prepaids, and other current
assets, inventory and deposits 6,392 (1,584,230)
Accounts payable and accrued expenses 162,498 2,282,231
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Net cash used in operating activities (125,719) (569,077)
INVESTING ACTIVITIES
Capital expenditures, net - (105,147)
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Net cash used in investing activities - (105,147)
FINANCING ACTIVITIES
Proceeds from issuance of debt - 250,000
Repayment of notes payable and lease obligations (6,166) (839,743)
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Net cash used in financing activities (6,166) (589,743)
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Net decrease in cash and cash equivalents (131,885) (1,263,967)
Cash and cash equivalents at beginning of period 176,848 1,524,942
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Cash and cash equivalents at end of period $ 44,963 $ 260,975
=======================================
Supplemental disclosure of cash flow information:
Taxes paid $ 1,200 $ 4,300
Interest paid 2,100 1,499
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Total $ 3,300 $ 5,799
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</TABLE>
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United Diagnostic, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1999
(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.
Due to a necessary delay in retaining new independent auditors, compounded
by the Company's acquisition of a majority interest in a significant subsidiary
in October 1997 which required audited financial statements of such acquired
subsidiary, the Company was unable to complete certain financial and textual
information required to be included in its annual report on Form 10-KSB for the
years ended December 31, 1997 and December 31, 1998, or its quarterly reports on
Form 10-QSB for the periods ended March 31, 1998, June 30, 1998, September 30,
1998, March 31, 1999, June 30, 1999, and September 30, 1999, within the time
which such reports were otherwise required to be filed. Accordingly, this report
on Form 10-QSB for the quarter ended March 31, 1999, is being filed late. The
Company's report on Form 10-KSB for the year ended December 31, 1997, was filed
on September 2, 1999, Form 10-QSB for the three months ended March 31, 1998, was
filed on October 15, 1999, Form 10-QSB A/1 for the three months ended March 31,
1998, was filed on January 26, 2000, Form 10-QSB for the six months ended June
30, 1998, was filed on October 29, 1998, Form 10-QSB A/1 for the six months
ended June 30, 1998, was filed on January 26, 2000, Form 10-QSB for the nine
months ended September 30, 1998, was filed on November 4, 1999, Form 10-QSB A/1
for the nine months ended September 30, 1998, was filed on January 26, 2000, and
Form 10-KSB for the year ended December 31, 1998, was filed on January 13, 2000.
The Company has determined that the inclusion by way of subsequent event notes
to its consolidated financial statements of certain events and transactions
subsequent to March 31, 1999, is necessary to make a fair presentation of the
business of the Company and to enable the reader to have a fair understanding of
the events and transactions that have transpired. Unless otherwise indicated, as
used herein, all references to shares of the Company's Common Stock and to
prices with respect to shares of the Company's Common Stock give effect to a
seventy to one reverse stock split effective December 23, 1998.
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 March 31, 1999, and the results
of operations and cash flows for the three months ended March 31, 1999 and 1998.
Page 6 of 27
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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). The 1998 consolidated financial statements also
include the accounts of Physicians Clinical Laboratory, Inc. ("PCL") originally
a 52.6%-owned subsidiary of the Company (as of October 3, 1997) and now a
49.9%-owned subsidiary (as of June 16, 1998) (inactive since May 10, 1999, when
substantially all of the assets of PCL were sold) (Note 3a). 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 consolidated financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company has generated no cash
from operations and, therefore, has not achieved sufficient revenues to support
future operations. The Company had a working capital deficiency at March 31,
1999. In addition, the Company's subsidiary is in default under a substantial
portion of its debt agreements, which allows its lenders the right to accelerate
the debt repayment. Subsequent to default, PCL sold all of its assets and the
consideration for the sale was paid to the debt holders. Historically, the
Company has reported consistent going concern opinions for the previous three
years. The Company does not have any present, ongoing business which is a source
of revenue from operations. These conditions may raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities or any other adjustments that might be necessary
should the Company be unable to continue as a going concern.
On December 23, 1998, the Company effected a seventy to one common stock
reverse split. An amount equal to the par value of the common shares
relinquished was transferred from the common stock account to capital in excess
of par value. All references to number of common shares and to per share
information in the consolidated financial statements have been adjusted to
reflect the stock reverse split on a retroactive basis.
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 three month period ended March 31,
1999, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further
Page 7 of 27
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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, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company commenced full consolidation of Physicians Clinical Laboratory,
Inc. ("PCL") in October 1997 upon its acquisition of a majority ownership
(52.6%) of PCL. During the time which the Company owned a majority interest in
PCL, the Company accounted for its investment in PCL under the consolidation
method, and continued to recognize its 52.6% share of PCL losses, through June
10, 1998. On June 10, 1998, the Company sold a portion of its share ownership in
PCL, and the Company's ownership percentage in PCL was reduced from 52.6% to
49.9%. As such, subsequent to June 10, 1998, 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.
For the three months ended March 31, 1999, the statement of operations
includes the operations of a subsidiary which is recorded under the equity
method of accounting. For the three months ended March 31, 1998, the statement
of operations includes the operations of a subsidiary which is recorded under
the consolidation method of accounting. Under the equity method, any positive
net investment is presented in the balance sheet, and the share of losses is
presented as one amount in the statements of operations. Any losses in excess of
the investment are not recognized until future profits or additional investments
occur. For the second quarter ending June 30, 1999, the Company's proportionate
share of PCL losses for the six months ended June 30, 1998, will be presented on
the statement of operations as equity loss in subsidiary. The three months ended
March 31, 1998, will be restated to reflect the deconsolidation and the six
months ended June 30, 1998, will present the Company's share of PCL losses for
the six months on the equity method.
3. ACQUISITIONS AND 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, (Note 5).
Concurrent with the sale, the
Page 8 of 27
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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.
As a result of the above transaction, the Consolidated Financial Statements
relating to three months ended March 31, 1999 and 1998, are presented on the
basis of the Company's 52.6% and 49.9% ownership of PCL under the consolidation
method and equity method of accounting, respectively, as described in Note 2.
b. NTBM BILLING SERVICES, INC. (d/b/a PROMPT MEDICAL BILLING)
On October 21, 1996, the Company, through a newly formed wholly-owned
subsidiary, NTBM Billing Services, Inc. ("NTBM"), acquired all of the medical
billing service assets of Prompt Medical Billing Services, Inc., a privately
owned Florida corporation engaged in the medical billing service business. The
Company entered into employment and consulting agreements with the former owners
of Prompt Medical Billing.
In late March 1998, the former owners ceased performing their duties. NTBM
subsequently lost its principal customer and ceased operations during the second
quarter of 1998. The Company has ceased paying the former owners under the
employment and consulting agreements.
On July 8, 1998 an arbitration was commenced before the AAA in Miami,
Florida entitled JUDITH PRUSSIN AND HEALTH SYSTEMS DEVELOPMENT CORPORATION
AGAINST NTBM BILLING SERVICES, INC AND NU-TECH BIO MED, INC. (Case No. 32 160
00219 98). The case concerned employment and consulting agreements between the
Company and claimants, which agreements were executed in conjunction with the
purchase by the Company of the claimants' business, Prompt Medical Billing, Inc.
("PMBI"), in October of 1996. Specifically in dispute were the amounts owed to
claimants in light of the cessation of PMBI's business operations. Claimants
sought damages in the amount of $44,187.28 along with interest, costs and
attorneys fees associated with the arbitration. The matter was settled by
confidential agreement of the parties, dated on or about May 28, 1999 and
formally dismissed on June 17, 1999. The settlement provided, among other items,
that the Company pay $35,000 to claimants and the claimants assign the right to
collect an outstanding account payable to PMBI in the amount of $70,000. The
first $10,000 collected from the outstanding account is to be paid to the
Company, with any additional amounts collected to be split 50/50 amongst
claimants and the Company. The right to collect the $70,000 reverts to the
Company if at least $10,000 has not been collected by November 1, 1999 and a
payment plan for the remainder is not in place.
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
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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
Special Proceeding is currently at the initial pleadings stage.
4. DEBT
In March 1998, the Company obtained a loan in the principal amount of
$250,000. Principal and interest at 10% are due on the earlier of April 1999 or
consummation of a private placement with defined proceeds. 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 $43,300
in interest expense during the three months ended March 31, 1999, relating to
the discount (non-cash item).
5. SUBSEQUENT EVENTS
SALE OF PCL ASSETS TO UNILAB
On April 5, 1999, Physicians Clinical Laboratory, Inc. ("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
(Note 3a). 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.
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
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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. 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.
In addition the report of the Company's independent auditors on the consolidated
financial statements of the Company for the year ended December 31, 1998,
contains an explanatory paragraph that there are certain conditions that raise
substantial doubt about the ability to continue as a going concern. The Company
to date has been materially dependent upon the efforts of its President and
Chief Executive Officer, Mr. J. Marvin Feigenbaum. The loss of Mr. Feigenbaum's
services may have a materially adverse effect upon the business or operations of
the Company.
Balance of Page Intentionally Left Blank
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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
1. HIGHLIGHTS
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
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(Note 1
above).
As a result of the above transaction, the Management's Discussion and
Analysis of Financial Condition and Results of Operations relating to the three
months ended March 31, 1999 and 1998, are presented on the basis of the
Company's 52.6% and 49.9% ownership of PCL under the consolidation method and
equity method of accounting, respectively, as described in Note 2.
B. NTBM BILLING SERVICES, INC. (d/b/a PROMPT MEDICAL BILLING)
On October 21, 1996, the Company, through a newly formed wholly-owned
subsidiary, NTBM Billing Services, Inc. ("NTBM"), acquired all of the medical
billing service assets of
Page 12 of 27
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Prompt Medical Billing Services, Inc., a privately owned Florida corporation
engaged in the medical billing service business. The Company entered into
employment and consulting agreements with the former owners of Prompt Medical
Billing.
In late March 1998, the former owners ceased performing their duties. NTBM
subsequently lost its principal customer and ceased operations during the second
quarter of 1998. The Company has ceased paying the former owners under the
employment and consulting agreements.
As a result, Management's Discussion and Analysis of Financial Condition
and Results of Operations relating to the three months ended March 31, 1998, do
include the operations of NTBM; however, the three months ended March 31, 1999,
do not include the operations of NTBM.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company commenced full consolidation of Physicians Clinical Laboratory,
Inc. ("PCL"), in October 1997 upon its acquisition of a majority ownership
(52.6%) of PCL. During the time which the Company owned a majority interest in
PCL, the Company accounted for its investment in PCL under the consolidation
method, and continued to recognize it's 52.6% share of PCL losses, through June
10, 1998. On June 10, 1998, the Company sold a portion of its share ownership in
PCL, and the Company's ownership percentage in PCL was reduced from 52.6% to
49.9%. As such, subsequent to June 10, 1998, 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.
For the three months ended March 31, 1999, the statement of operations
includes the operations of a subsidiary which is recorded under the equity
method of accounting. For the three months ended March 31, 1998, the statement
of operations includes the operations of a subsidiary which is recorded under
the consolidation method of accounting. Under the equity method, any positive
net investment is presented in the balance sheet, and the share of losses is
presented as one amount in the statements of operations. Any losses in excess of
the investment are not recognized until future profits or additional investments
occur. For the second quarter ending June 30, 1999, the Company's proportionate
share of PCL losses for the six months ended June 30, 1998, will be presented on
the statement of operations as equity loss in subsidiary. The three months ended
March 31, 1998, will be restated to reflect the deconsolidation and the six
months ended June 30, 1998, will present the Company's share of PCL losses for
the six months on the equity method.
Page 13 of 27
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THREE MONTHS ENDED MARCH 31, 1999, COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Results of Operations
The Company reported no revenues for the three months ended March 31, 1999.
Total revenues for the three months ended March 31, 1998, were $15,838,486. The
decrease in total revenues of $15,838,486 is primarily due to the inclusion of
Physician Clinical Laboratory, Inc.'s ("PCL") total revenues for the three
months ended March 31, 1998, of $15,747,736. Without the inclusion of PCL's
total revenues, total revenues for the three months ended March 31, 1998, would
have been $90,750. The decrease of $90,750 is primarily due to the loss of
medical billing services revenues upon the closure of NTBM Billing Services,
Inc. ("NTBM") during the second quarter of 1998.
The Company reported no laboratory revenues for the three months ended
March 31, 1999. Laboratory revenues for the three months ended March 31, 1998,
were $15,747,736. The decrease in laboratory revenues of $15,747,736 is
primarily due to the inclusion of PCL's laboratory revenues for the three months
ended March 31, 1998, of $15,747,736. Without the inclusion of PCL's laboratory
revenues, the Company would have reported no laboratory revenues for the three
months ended March 31, 1998.
The Company reported no medical billing services revenues for the three
months ended March 31, 1999, due to the loss of medical billing services
revenues upon the closure of NTBM during the second quarter of 1998. Medical
billing services revenues were $90,750 for the three months ended March 31,
1998.
Total operating costs for the three months ended March 31, 1999, were
$286,143 compared to $17,865,261 for the three months ended March 31, 1998. The
decrease in total operating costs of $17,579,118 is primarily due to the
inclusion of PCL's total operating costs for the three months ended March 31,
1998, of $16,740,179. Without the inclusion of PCL's total operating costs,
total operating costs for the three months ended March 31, 1999, would have been
$286,143 as compared to $1,125,082 for the three months ended March 31, 1998.
The decrease in total operating costs of $838,939 is primarily due to decreases
in medical billing services expenses of $129,473, write down of intangibles of
$645,472, selling, general and administrative expenses of $44,285 and
depreciation and amortization expenses of $19,700.
The Company reported no laboratory expenses for the three months ended
March 31, 1999. Laboratory expenses for the three months ended March 31, 1998,
were $10,460,777. The decrease in laboratory expenses of $10,460,777 is
primarily due to the inclusion of PCL's laboratory expenses for the three months
ended March 31, 1998, of $10,460,777. Without the inclusion of PCL's laboratory
expenses, the Company would have reported no laboratory expenses for the three
months ended March 31, 1998.
The Company reported no medical billing services expenses for the three
months ended March 31, 1999, due to the reduction of medical billing services
expenses upon the closure of NTBM during the second quarter of 1998. Medical
billing services expenses were $129,473 for the three months ended March 31,
1998.
Page 14 of 27
<PAGE>
Selling, general and administrative expenses for the three months ended
March 31, 1999, were $285,663 compared to $4,536,456 for the three months ended
March 31, 1998. The decrease in selling, general and administrative expenses of
$4,250,793 is primarily due to the inclusion of PCL's selling, general and
administrative expenses for the three months ended March 31, 1998, of
$4,206,508. Without the inclusion of PCL's selling, general and administrative
expenses, selling, general and administrative expenses for the three months
ended March 31, 1999, would have been $285,663 as compared to $329,948 for the
three months ended March 31, 1998. The decrease of $44,285 is primarily due to a
in travel, accounting, consultants, and office expenses, offset by an increase
in legal expenses.
The Company reported no write down of intangibles for the three months
ended March 31, 1999. For the three months ended March 31, 1998, write down of
intangibles was $645,472. During 1998, the Company charged off the balance of
the remaining goodwill relating to NTBM Billing Services, Inc.
Operating loss for the three months ended March 31, 1999, was $286,143
compared to $2,026,775 for the three months ended March 31, 1998. The decrease
in operating loss of $1,740,632 is primarily due to the inclusion of PCL's
operating loss for the three months ended March 31, 1998, of $988,426. Without
the inclusion of PCL's operating losses, operating losses for the three months
ended March 31, 1999, would have been $286,143 as compared to $1,038,349 for the
three months ended March 31, 1998. The decrease of $752,206 is primarily due to
a decrease in total operating costs of $838,939, primarily due to decreases in
medical billing services expenses of $129,473, write down of intangibles of
$645,472, selling, general and administrative expenses of $44,285 and
depreciation and amortization expenses of $19,700, offset by a net decrease in
total revenues of $86,733 due primarily to the loss of medical billing services
revenues upon the closure of NTBM during the second quarter of 1998.
The Company reported no investment and interest income for the three months
ended March 31, 1999. Investment and interest income for the three months ended
March 31, 1998, was $28,319. The decrease of $28,319 is primarily due to the
inclusion of PCL's investment and interest income for the three months ended
March 31, 1998, of $28,317.
Interest expense for the three months ended March 31, 1999, was $52,246
compared to $2,150,177 for the three months ended March 31, 1998. The decrease
in interest expense of $2,097,931 is primarily due to the inclusion of PCL's
interest expense for the three months ended March 31, 1998, of $2,147,883.
Without the inclusion of PCL's interest expense, interest expense for the three
months ended March 31, 1999, would have been $52,246 as compared to $2,294 for
the three months ended March 31, 1998. The increase of $49,952 is primarily due
to the interest related to a loan in the principal amount of $250,000 obtained
by the Company in March 1998, as well as the amortized portion of the debt
discount recorded for the estimated value of warrants issued in connection with
such debt.
Net loss for the three months ended March 31, 1999, was $338,389 as
compared to $2,675,419 for the three months ended March 31, 1998. The decrease
in net loss of $2,337,030 is primarily due to the inclusion of PCL's net loss
for the three months ended March 31, 1998, of $3,107,992 less the minority
interest of $1,473,214. Without the inclusion of PCL's net loss, net
Page 15 of 27
<PAGE>
loss for the three months ended March 31, 1998, would have been $1,040,641,
compared to $338,389 for the three months ended March 31, 1999. The decrease of
$702,252 in primarily due to a decrease in operating loss of $752,206, offset by
a net increase in interest expense of $49,954.
Net loss per share of Common Stock for the three months ended March 31,
1999, was $.50 compared to $3.92 for the three months ended March 31, 1998. The
decrease is primarily due to a decrease in net loss. Weighted average shares
were 682,622 for the three months ended March 31, 1999, and 1998.
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 $44,963 in cash and cash equivalents at March 31, 1999.
Total current assets were $111,569 at March 31, 1999, as compared to
$246,425 at December 31, 1998. The decrease of $134,856 is primarily due to the
use of funds to support operating activities and the payment and reduction of
current liabilities.
Prepaid expenses and other current assets were $66,606 at March 31, 1999,
as compared to $69,577 at December 31, 1998.
A note receivable of $100,000 was outstanding at March 31, 1999, and
December 31, 1998. During 1998, the Company recorded an allowance against the
receivable based upon an evaluation of collectibility and collateral.
Equipment, net of accumulated depreciation, was $4,151 at March 31, 1999,
compared to $4,631 at December 31, 1998.
Deposits were $950 at March 31, 1999, as compared to $4,371 at December 31,
1998.
Total assets at March 31, 1999, were $116,670 as compared to $255,427 at
December 31, 1998. The decrease of $138,757 is primarily due to a reduction of
cash and cash equivalents of $131,885.
Total current liabilities at March 31, 1999, were $1,488,530 as compared to
$1,288,898 at December 31, 1998. The increase of $199,632 is primarily due to a
new loan obtained by the Company in March 1998 in the principal amount of
$250,000, less a debt discount, as well as increases in accounts payable and
accrued expenses.
Page 16 of 27
<PAGE>
YEAR 2000 COMPLIANCE
The Company has no existing products and no material internal systems which
may be impacted by the Company's failure to effect Year 2000 ("Y2K") compliance.
The Company believes that no material expenditures will be required to address
Y2K compliance of the Company's internal computer systems. In the event the
Company acquires any assets or commences any operations which would require it
to address Y2K compliance, it will do so at such time. At this time, the Company
has not encountered any Y2K issues which would have a material adverse effect on
its business.
PLAN OF OPERATIONS AND REQUIREMENT FOR ADDITIONAL FUNDS
The consolidated financial statements of the Company have been prepared on
the basis that the Company will continue as a going concern. Historically, the
Company has reported consistent going concern opinions for the previous three
years. The Company does not have any present, ongoing business which is a source
of revenue from operations. These conditions have raised substantial doubt about
the Company's ability to continue as a going concern.
Through March 31, 1999, the Company generated no cash from operations and,
therefore, has not achieved sufficient revenues to support future operations.
The Company had a working capital deficiency of approximately $1,377,000 at
March 31, 1999. During the twelve months ended December 31, 1998, the Company
generated net cash from financing activities of approximately $173,100, which
was principally utilized by the Company for general working capital purposes,
including cash used from operations of the Company and its then principal
subsidiary, NTBM Billing Services, Inc. ("NTBM"). The Company's remaining cash
and cash equivalents at March 31, 1999, and December 31, 1998, were
approximately $45,000 and $177,000, respectively.
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 (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 (Note 3a). 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 believes its present cash position is
adequate and sufficient for the Company's current cash needs through December
31, 2000. However, no assurances can be given that this action will 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.
Page 17 of 27
<PAGE>
EFFECTS OF INFLATION
The Company does not view the effects of inflation to have a material
effect upon its business.
HISTORICAL LOSSES AND ACCUMULATED DEFICIT OF UNITED; GOING CONCERN
QUALIFICATION OF INDEPENDENT AUDITORS' REPORT
Through the third quarter ended September 30, 1996, the Company was
classified as a development-stage company for financial accounting purposes by
reason of the fact that it had not generated significant revenues from
operations prior to such date. As a result of the acquisition of Prompt Medical
Billing and its subsequent operations under NTBM Billing Services, Inc., and the
ownership, at that time, of MSI, the Company ceased to be classified as a
development-stage company as of December 31, 1996. Since 1990, the Company's
principal business had been conducted through its wholly-owned subsidiary, ABC.
Prior to 1990, the Company, through other subsidiary corporations, had engaged
in other unrelated businesses which have been discontinued. Since inception
(February 1, 1982) through March 31, 1999, the Company has incurred an
accumulated deficit of approximately $57,846,000. For the fiscal years ended
December 31, 1998, 1997, and 1996, and the three months ended March 31, 1999,
the Company incurred net losses of approximately $4,217,000, $31,626,000,
$7,788,000, and $338,000, respectively. The amount of stockholders' deficit at
March 31, 1999, was approximately $1,372,000. The amount of its working capital
deficiency at March 31, 1999, was approximately $1,377,000. 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. In
addition, the report of the Company's independent auditors on the consolidated
financial statements of the Company for the year ended December 31, 1998, in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998,
contains an explanatory paragraph that there are certain conditions that raise
substantial doubt about the 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 March 31, 1999, was approximately $82,000).
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
Page 18 of 27
<PAGE>
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.
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.
CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK, INCREASE OF AUTHORIZED
CAPITAL, DELISTING FROM THE NASDAQ SMALLCAP MARKET AND REVERSE STOCK SPLIT
As of December 19, 1997, the Company had 47,783,554 pre-reverse split
shares of its Common Stock issued and outstanding (including 45,099,336
pre-reverse split shares of Common Stock previously issued upon conversion of
11,174 shares of Preferred Stock). Consequently, the Company did not have a
sufficient number of unreserved shares of Common Stock to accommodate any
additional conversions of the Preferred Stock and suspended the acceptance of
future conversions.
On June 1, 1998, the Company was notified by The Nasdaq Stock Market that
the Company's Common Stock would be 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's Series A Convertible Preferred Stock 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
Page 19 of 27
<PAGE>
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
Page 20 of 27
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company had heretofore filed, and withdrew, a registration statement
relating to the shares of its Common Stock to be issued upon conversion of the
Company's 14,000 shares of Series A Convertible Preferred Stock ("Preferred
Stock"). At the time of such filing, the Company believed that it had not
received valid written demand by a majority of the holders of the Preferred
Stock to require it to proceed with such registration statement. The Company
further believes that, at the time such registration statement was withdrawn, it
did not receive a written demand by the holders of a majority of Preferred Stock
to file a registration statement. Subsequently, the Company did file a
Registration Statement relating to the shares of its Common Stock to be issued
upon conversion of the Company's 14,000 shares of Preferred Stock with the
Securities and Exchange Commission on July 21, 1997.
On February 4, 1998, a complaint was filed against the Company and others
in an action in the United States District Court for the Southern District of
New York captioned GORRA HOLDING AND BARRAS INVESTMENT V. NU-TECH BIO-MED, INC.,
J. MARVIN FEIGENBAUM AND ROBERT B. FAGENSON (Docket No. 98 Civ. 764 (JMP)). The
complaint alleged that the Company and the other defendants violated Section
10(b) and Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act")
and Rule 10b-5 promulgated thereunder. The complaint also alleged common law
fraud, conversion and breach of contract. These claims against the Company were
purportedly based on allegations that the Company participated in a scheme to
deprive its Series A Convertible Preferred Shareholders of their conversion and
registration rights. The complaint sought compensatory damages of at least $1.25
million and punitive damages of at least $3 million or, in the alternative, an
order for the Company to allow the plaintiffs to exercise certain conversion and
registration rights, together with reasonable costs and attorneys' fees. On
March 3, 1999, following dismissal of all claims other than breach of contract,
plaintiffs stipulated to a dismissal of the action without prejudice.
In a Current Report on Form 8-K, dated May 29, 1997, the Company reported a
complaint against the Company captioned MORDECHAI GURARY V. ISAAC WINEHOUSE,
ISAAC WINEHOUSE d/b/a WALL & BROAD EQUITIES AND NU-TECH BIO-MED, INC. (Docket
No. 97 Civ. 3803 (LBS)) filed on May 23, 1997 in the United States District
Court for the Southern District of New York. The complaint alleged that the
Company and the other defendants violated Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Section 349 of the General
Business Law of the State of New York (the "GBL"). The claims against the
Company under the Exchange Act and the GBL were purportedly based on allegations
that the Company knew of and failed to disclose, among other things, unlawful
trading activity in the Company's securities by the other defendants named in
the action. The complaint sought compensatory damages in an unstated amount,
sought to enjoin the Company from registering certain Series A Convertible
Preferred Stock until the determination of the action, and sought reasonable
attorneys' and expert fees as well as treble and punitive damages. On February
9, 1998, the court dismissed with prejudice the federal claims of violations of
Section 10(b) of the Exchange Act for failure to state a claim and dismissed the
state claims of violations of Section 349 of the GBL. The dismissal of this
action was appealed by the plaintiff. On August 24, 1999, the United States
Page 21 of 27
<PAGE>
Court of Appeals for the Second Circuit issued its opinion affirming the
district court's granting of summary judgment dismissing the complaint.
On July 6, 1999, an action was commenced in the Superior Court of the State
of Delaware in and for New Castle County entitled J & B ASSOCIATES PROFIT
SHARING PLAN & TRUST V. UNITED DIAGNOSTIC, INC., although it was not served upon
the defendant until July 20, 1999. The plaintiff, which purports to be an
Illinois corporation, alleges that it purchased 300 shares of Series A
Convertible Preferred Stock from the Company for $300,000 pursuant to a
Preferred Stock Securities Purchase Agreement dated November 19, 1996 (the
"Agreement"). While the plaintiff converted a portion of the Preferred Stock it
held into Common Stock, it alleges that it was unable to convert additional
shares of Preferred Stock because the Company's Common Stock was delisted from
the Nasdaq SmallCap Market ("NSCM"). The complaint alleges that in the
Agreement, the Company warranted that the Common Stock would remain listed on
the NSCM and, therefore, that it breached the terms of the Agreement. The
complaint alleges claims for breach of contract and unjust enrichment against
the Company, and seeks $200,000 in compensatory damages plus attorneys' fees and
costs. On the Company's motion, the complaint was dismissed, and the time to
appeal from the dismissal order has expired.
On July 8, 1998 an arbitration was commenced before the AAA in Miami,
Florida entitled JUDITH PRUSSIN AND HEALTH SYSTEMS DEVELOPMENT CORPORATION
AGAINST NTBM BILLING SERVICES, INC AND NU-TECH BIO MED, INC. (Case No. 32 160
00219 98). The case concerned employment and consulting agreements between the
Company and claimants, which agreements were executed in conjunction with the
purchase by the Company of the claimants' business, Prompt Medical Billing, Inc.
("PMBI"), in October of 1996. Specifically in dispute were the amounts owed to
claimants in light of the cessation of PMBI's business operations. Claimants
sought damages in the amount of $44,187.28 along with interest, costs and
attorneys fees associated with the arbitration. The matter was settled by
confidential agreement of the parties, dated on or about May 28, 1999 and
formally dismissed on June 17, 1999. The settlement provided, among other items,
that the Company pay $35,000 to claimants and the claimants assign the right to
collect an outstanding account payable to PMBI in the amount of $70,000. The
first $10,000 collected from the outstanding account is to be paid to the
Company, with any additional amounts collected to be split 50/50 amongst
claimants and the Company. The right to collect the $70,000 reverts to the
Company if at least $10,000 has not been collected by November 1, 1999 and a
payment plan for the remainder is not in place.
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
Page 22 of 27
<PAGE>
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 Special Proceeding is currently at the
initial pleadings stage.
On December 28, 1999, a motion was filed against the Company by Fausto
Mendez, Jr. ("Mendez") in the United States Bankruptcy Court for the Central
District of California to reopen the Chapter 11 Case of Medical Science
Institute ("MSI"). As part of MSI's Chapter 11 case, the Company purchased the
assets of MSI and entered into an Employment Agreement with Mendez, MSI's
president. By the Employment Agreement, Mendez was employed by MSI for a period
of two years from the effective date of MSI's First Amended Plan of
Reorganization ("the Plan"). Subsequent to the purchase of MSI, the Company sold
MSI to Physicians Clinical Laboratories, Inc. ("PCL"). The motion alleges that
under the Plan and the Employment Agreement, the Company was obligated (1) to
issue $2 million in restricted shares of the Company's common stock to Mendez
valued using the average market price per share for the fifteen days preceding
November 23, 1996, (2) to pay $271,561 of MSI's pre-petition payroll taxes, (3)
to provide Mendez term life insurance benefits for the two years of his
employment by MSI, (4) to appoint Mendez to a seat on MSI's Board of Directors,
and (5) to assume the cost of a certain computer system. The motion further
alleges that the Company, and PCL as successor to the Company in MSI, failed to
comply with their obligations under the Plan and the Employment Agreement. The
motion sought an order to reopen MSI's chapter 11 case in order to construe the
terms of the Plan and enforce its terms. On February 9, 2000, the Bankruptcy
Court, after a hearing, denied the motion in its entirety and declined to reopen
the Chapter 11 case.
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
Page 23 of 27
<PAGE>
(b) Reports on Form 8-K
During the quarter ended March 31, 1999, the following report was filed on
Form 8-K by the Registrant:
<TABLE>
<CAPTION>
DATE OF THE REPORT ITEM REPORTED DESCRIPTION OF ITEM
<S> <C> <C>
March 12, 1999 Item 5. Other Events Resignation from Chriss
Street as Director
</TABLE>
Subsequent to the quarter ended March 31, 1999, the following reports on
Form 8-K were filed by the Registrant:
<TABLE>
<S> <C> <C>
May 20, 1999 Item 5. Other Events Sale of Physicians Clinical
Laboratory, Inc.'s assets to
Unilab Corporation
June 23, 1999 Item 5. Other Events J. Marvin Feigenbaum's
Amended and Restated
Employment Agreement
Dated May 19, 1999
March 16, 2000 Item 4. Changes in Registrant's The Company reported the
(Form 8-K/A Amending Certifying Accountants termination of Grant
Form 8-K dated Thornton LLP and the
March 3, 2000) Item 7. Exhibits engagement of Richard A.
Eisner & Company, LLP as
the Company's independent
auditors.
</TABLE>
Page 24 of 27
<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: April 10, 2000 by: /S/ J. MARVIN FEIGENBAUM
------------------------
J. Marvin Feigenbaum
President, Chief Executive
Page 25 of 27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000716778
<NAME> UNITED DIAGNOSTIC, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 44,963
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 111,569
<PP&E> 4,151
<DEPRECIATION> 5,456
<TOTAL-ASSETS> 116,670
<CURRENT-LIABILITIES> 1,488,530
<BONDS> 0
0
28
<COMMON> 6,826
<OTHER-SE> (1,378,714)
<TOTAL-LIABILITY-AND-EQUITY> 116,670
<SALES> 0
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<TOTAL-COSTS> 286,143
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