<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 11, 1998
MEDICAL DEVICE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Utah 0-12365 58-1475517
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number Identification No.)
formation
9191 Towne Centre Drive, Suite 420, San Diego, California 92122
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 455-7127
-----------------------
9171 Towne Centre Drive, Suite 355, San Diego, California 92122
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
Item 1. Changes in Control of Registrant
--------------------------------
Not Applicable
Item 2. Acquisition or Disposition of Assets
------------------------------------
Not Applicable
Item 3. Bankruptcy or Receivership
--------------------------
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant
---------------------------------------------
Not Applicable
Item 5. Other Events
------------
Not Applicable
Item 6. Resignation of Registrant's Directors
-------------------------------------
Not Applicable
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
--------------------------------------------------------------
See Attachment Hereto
Item 8. Change of Fiscal Year
---------------------
Not Applicable
Item 9. Sales of Equity Securities Pursuant to Regulation S
---------------------------
Not Applicable
2
<PAGE>
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
This Amendment to Registrant's Form 8-K filed with the Securities Exchange
Commission ("the Commission") on July 15, 1998 (the Form 8-K) amends and
modifies Item 7 of the Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a) Audited Financial Statements of Business Acquired on July 14, 1998.
(b) Unaudited Financial Statements for the Six Months ended June 30,
1998.
(c) Pro Forma Financial Information.
1. Unaudited Pro-Forma Balance Sheet as of June 30, 1998,
2. Unaudited Pro-Forma Statement of Operations for the year ended
December 31, 1997,
3. Unaudited Pr-Forma Statement of Operations for the Six Months
Ended June 30, 1998.
4. Notes to Pro-Forma Consolidated Financial Statements.
3
<PAGE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Vision Diagnostics, Inc. and Affiliates
Orlando, Florida
We have audited the accompanying combined balance sheets of Vision Diagnostics,
Inc. and Affiliates as of December 31, 1996 and 1997, and the related combined
statements of income (loss), combined statements of changes in stockholders'
equity and partners' capital and combined statements of cash flows for the years
then ended. These financial statements are the responsibility of the Company's
and Affiliates' management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Vision Diagnostics,
Inc. and Affiliates as of December 31, 1996 and 1997, and the results of its
combined operations and combined cash flows for the years then ended, in
conformity with generally accepted accounting principles.
August 20, 1998
Winter Park, Florida
5
<PAGE>
TABLE OF CONTENTS
-----------------
Page
INDEPENDENT AUDITOR'S REPORT 5
FINANCIAL STATEMENTS:
Combined balance sheets 6-8
Combined statements of income (loss) 9-10
Combined statements of changes in stockholders' equity and
partners' capital 11-12
Combined statements of cash flows 13-14
NOTES TO COMBINED FINANCIAL STATEMENTS 15-33
6
<PAGE>
<TABLE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 2) $ 145,536 $ 80,731
Accounts receivable (notes 2, 6 and 10) 1,507,899 2,166,969
Accounts receivable advances (note 8) (134,053) -
Receivable from stockholder (notes 2 and 9) - 107,851
Receivable from related entity (note 9) 44,607 -
Other receivables 12,175 -
Prepaid expenses 5,960 4,000
Deferred income taxes (notes 2 and 5) - 2,986
-------------- --------------
Total current assets 1,582,124 2,362,537
-------------- --------------
Property and equipment (note 2):
Magnetic resonance imagers (note 6) 3,076,003 3,819,667
Computers and equipment 11,934 163,378
Furniture and fixtures 44,226 39,455
Leasehold improvements 489,644 553,104
-------------- --------------
3,621,807 4,575,604
Less: accumulated depreciation (1,144,661) (1,904,751)
-------------- --------------
Net property and equipment 2,477,146 2,670,853
-------------- --------------
Other assets:
Start-up and organizational costs, net (note 2) 275,621 258,978
Deposits (note 2) 69,417 96,080
Goodwill, net (note 2) 42,320 39,261
Other 12,279 23,388
-------------- --------------
Total other assets 399,637 417,707
-------------- --------------
Total assets $ 4,458,907 $ 5,451,097
============== ==============
</TABLE>
7
<PAGE>
<TABLE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
LIABILITIES, STOCKHOLDERS'
EQUITY AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses (note 9) $ 335,376 $ 673,511
Line of credit (notes 2 and 6) 200,000 700,978
Notes payable (notes 2 and 6) 393,550 514,285
Current portion of obligations under
capital leases (notes 2 and 6) 605,116 887,991
Payable to stockholders (notes 6 and 9) 140,073 -
Deferred income taxes (notes 2 and 5) 148,660 171,584
-------------- --------------
Total current liabilities 1,822,775 2,948,349
-------------- --------------
Long-term liabilities:
Obligations under capital leases (notes 2 and 6) 1,852,099 1,962,548
Notes payable (notes 2 and 6) 113,100 215,804
Deferred income taxes (notes 2 and 5) 25,042 -
-------------- --------------
Total long-term liabilities 1,990,241 2,178,352
-------------- --------------
Commitments and contingencies
(notes 3, 6, 9, 10, 11 and 12)
- -
Minority interest (note 2) 400,418 529,977
Stockholders' equity (notes 6 and 7):
Common stock (note 2) 3,000 3,010
Additional paid-in capital 217,546 217,546
Retained earnings 287,029 294,680
Accumulated adjustments (107,473) (234,756)
-------------- --------------
400,102 280,480
Less: treasury stock, at cost (note 9)
(36,000) (36,000)
-------------- --------------
Total stockholders' equity 364,102 244,480
Partners' capital (note 1) (118,629) (450,061)
-------------- --------------
Total stockholders' equity
and partners' capital 245,473 (205,581)
-------------- --------------
Total liabilities, stockholders' equity
and partners' capital $ 4,458,907 $ 5,451,097
============== ==============
</TABLE>
8
<PAGE>
<TABLE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1996 AND 1997
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Revenue:
Professional fees $ 3,033,802 $ 3,536,859
-------------- --------------
Operating expenses:
Depreciation and amortization (note 2) 728,607 842,312
Personnel costs 682,518 841,927
Reading fees (notes 3 and 9) 299,730 399,247
Professional fees (note 4) 80,306 249,965
Office rent (notes 3 and 9) 124,907 149,476
Office expense 116,142 132,932
Billing service (notes 3 and 9) 81,255 122,822
M.R.I. supplies and film 107,305 111,567
Collection fees (note 8) 136,316 102,322
Automobiles, travel and entertainment 78,047 101,947
Marketing 41,916 99,268
Taxes 34,592 55,196
Maintenance and repairs 20,971 51,066
Equipment rental 48,957 45,008
Insurance 38,503 39,803
Loan fees - 37,216
Other expenses 18,687 24,845
Licenses and fees 11,098 11,929
-------------- --------------
Total operating expenses 2,649,857 3,418,848
-------------- --------------
Other income (expense):
Interest expense (note 6) (342,847) (452,613)
Interest income 13,882 2,369
Penalties and late fees (14,558) -
Other income - 5,624
-------------- --------------
Total other income (expense) (343,523) (444,620)
-------------- --------------
Net income (loss) before income taxes and
minority interest 40,422 (326,609)
Income tax expense (benefit) (notes 2 and 5) 83,336 (5,104)
-------------- --------------
Net loss before minority interest (42,914) (321,505)
Minority interest in combined entity (note 2) (110,187) (129,559)
-------------- --------------
Net loss $ (153,101) $ (451,064)
============== ==============
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996 AND 1997
<CAPTION>
Additional
Common Paid-In Retained Accumulated
Stock Capital Earnings Adjustments
----------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 3,000 $ 50,000 $ 122,156 $ (38,208)
Contribution of paid-in capital - 167,546 - -
Contribution of partners' capital - - - -
Purchase of treasury stock - - - -
Net income (loss) - - 164,873 (69,265)
----------- ---------------- ------------- -------------------
Balance, December 31, 1996 (107,473)
3,000 217,546 287,029
Issuance of common stock 10 - - -
Net income (loss) - - 7,651 (127,283)
----------- ---------------- ------------- -------------------
Balance, December 31, 1997 $ 3,010 $ 217,546 $ 294,680 $ (234,756)
=========== ================ ============= ===================
</TABLE>
<TABLE>
<CAPTION>
Total
Total Stockholders'
Stockholders' Equity
Treasury Equity Partners' (Deficit) and
Stock (Deficit) Capital Partners' Capital
----------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ - $ 136,948 $ 80 $ 137,028
Contribution of paid-in capital - 167,546 - 167,546
Contribution of partners' capital - - 130,000 130,000
Purchase of treasury stock (36,000) (36,000) - (36,000)
Net income (loss) - 95,608 (248,709) (153,101)
----------- ---------------- ------------- -------------------
Balance, December 31, 1996 (36,000) 364,102 (118,629) 245,473
Issuance of common stock - 10 - 10
Net income (loss) - (119,632) (331,432) (451,064)
----------- ---------------- ------------- -------------------
Balance, December 31, 1997 $(36,000) $ 224,480 $ (450,061) $ (205,581)
=========== ================ ============= ===================
</TABLE>
10
<PAGE>
<TABLE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (153,101) $ (451,064)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 728,607 842,312
Minority interest in combined entity 110,187 129,559
(Increase) decrease in assets:
Accounts receivable (820,249) (659,070)
Accounts receivable advances 134,053 (134,053)
Receivable from stockholder - (107,851)
Receivable from related entity (4,141) 44,607
Other receivables (675) 12,175
Prepaid expenses 9,055 1,960
Deferred income taxes - (2,986)
Start-up and organizational costs (70,182) (53,920)
Deposits (1,200) (26,663)
Other (7,278) (11,109)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 132,789 338,135
Payable to stockholders (202,353) (140,073)
Payable to limited partner (41,271) -
Deferred income taxes 83,336 (2,118)
-------------- --------------
Net cash used in operating activities (102,423) (220,159)
-------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (41,434) (25,437)
-------------- --------------
Net cash used in investing activities (41,434) (25,437)
-------------- --------------
</TABLE>
11
<PAGE>
<TABLE>
VISION DIAGNOSTICS, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(CONTINUED)
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable $ 500,000 $ 671,300
Principal payments on bank notes payable (425,135) (447,861)
Proceeds from line of credit 200,000 700,978
Repayment of line of credit - (200,000)
Payments on obligations under capital leases (383,926) (543,636)
Proceeds from capital lease obligations 105,511 -
Issuance of common stock 167,546 10
Purchase common of treasury stock (36,000) -
Partners' capital contributions 130,000 -
-------------- --------------
Net cash provided by financing activities 257,996 180,791
-------------- --------------
Net increase (decrease) in cash and cash equivalents 114,139 (64,805)
Cash and cash equivalents, beginning 31,397 145,536
-------------- --------------
Cash and cash equivalents, ending $ 145,536 $ 80,731
============== ==============
</TABLE>
Supplemental disclosures of cash flow information: Income taxes paid were $0 in
1996 and 1997. Interest paid was $284,594 in 1996 and $498,507 in 1997.
Supplemental disclosures of non-cash investing and financing activities:
Capital lease obligations of $1,118,374 and $936,960 were incurred
for equipment under lease agreements in 1996 and 1997, respectively.
12
<PAGE>
NOTE 1 - ORGANIZATION:
The combined financial statements of Vision Diagnostics, Inc. and Affiliates
(the "Combined Company") include the financial statements of Vision MRI, Inc.,
Regional MRI of Orlando, Inc., Regional MRI of Jacksonville I, Ltd., West
Regional MRI Limited Partnership, Regional MRI of Jacksonville, Inc., Vision
Diagnostics, Inc. and Vision MRI of Toledo, Inc.
Vision MRI, Inc., is a Florida corporation and was incorporated in December 1993
and, prior to December 31, 1996, owned the majority of stock in Regional MRI of
Orlando, Inc. Effective December 31, 1996, these two entities merged.
Regional MRI of Orlando, Inc., is a Florida corporation ("Orlando MRI") and was
incorporated in August 1993. Orlando MRI began operations in January 1994.
Orlando MRI has one office located in Orlando, Florida and provides scanning and
reading services to the medical industry using a magnetic resonance imaging
machine ("MRI").
Regional MRI of Jacksonville I, Ltd., is a Florida limited partnership
("Jacksonville MRI") and was formed in January 1996. Jacksonville MRI began
operations in April 1996. Jacksonville MRI has one office located in
Jacksonville, Florida and provides scanning and reading services to the medical
industry using a magnetic resonance imaging machine. The terms of the limited
partnership agreement provide, among other things, that for profits and losses,
70% is allocated to the general partner and 30% to the limited partner.
West Regional MRI Limited Partnership, is an Illinois limited partnership ("West
Regional MRI") and was formed in January 1995. West Regional MRI began
operations in November 1995. West Regional MRI has one office located in Oak
Brook, Illinois and provides scanning and reading services to the medical
industry using a magnetic resonance imaging machine. The terms of the limited
partnership agreement provide, among other things, that losses be shared by the
partners having a positive capital account balance based on their relative
capital balance; thereafter, 50% is allocated to the general partner and 50% to
the limited partners and profits be allocated first to the aggregate deficit in
the partners' capital account on a relative basis and then to the limited
partners on a relative basis sufficient to increase the limited partners'
capital account to the limited partners' actual capital contribution and any
profits in excess of partners' capital contribution are allocated 50% to the
general partner and 50% to the limited partners' based on their relative
contributed capital to other limited partners.
Regional MRI of Jacksonville, Inc., is a Florida corporation and was
incorporated in June 1994. Regional MRI of Jacksonville, Inc. is the general
partner of Regional MRI of Jacksonville I, Ltd.
Vision Diagnostics, Inc., is a Florida corporation and was incorporated in
February 1995. Vision Diagnostics, Inc. is the general partner of West Regional
MRI Limited Partnership. Vision Diagnostics, Inc. is used for identification
purposes on these combined financial statements as the combining entity.
Regional MRI of Toledo, Inc. ("Toledo MRI") is a Florida Corporation and was
incorporated in May 1997. Toledo MRI began operations in November 1997. Toledo
MRI has one office located in Toledo, Ohio and provides scanning and reading
services to the medical industry using a magnetic resonance imaging machine.
13
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of combination
- --------------------
The corporations and the partnerships have similar members on their board of
directors and have certain common stockholders, either in the corporations or in
the corporations that are general partners in the partnerships. Therefore, those
entities identified in note 1 have been presented on a combined basis after all
significant intercompany transactions are eliminated in the combination.
Vision Diagnostics, Inc. is the 50% general partner in West Regional MRI Limited
Partnership. The combined financial statements reflect all of the assets,
liabilities, revenues and expenses of the partnership. The limited partners'
share of the partner's capital has been reflected as a minority interest on the
accompanying combined balance sheets at December 31, 1996 and 1997. The limited
partners' share of the partnership's net income has been shown as minority
interest in the accompanying combined statements of income (loss).
Basis of accounting
- -------------------
The accompanying financial statements are prepared on the accrual basis of
accounting in conformity with generally accepted accounting principles.
Cash and cash equivalents
- -------------------------
For purposes of the combined statements of cash flows, the Combined Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Accounts receivable
- -------------------
Accounts receivable are recorded at net realizable value and have been reduced
for known billing adjustments.
Common stock
- ------------
The par value, authorized shares and issued and outstanding shares for the
corporations included in the Combined Company are as follows:
<TABLE>
<CAPTION>
Issued and
Par Authorized Outstanding
Value Shares Shares Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Orlando MRI $ 1.00 1,000 1,000 $ 1,000
Vision MRI of Jasdonville, Inc. $ 1.00 1,000 1,000 $ 1,000
Vision Diagnostics, Inc. $ 0.10 1,000,000 10,000 $ 1,000
Toledo MRI $ 0.01 100,000 1,000 $ 10
</TABLE>
14
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Fair values of financial instruments
- ------------------------------------
The following methods and assumptions were used by the Combined Company in
estimating its fair value disclosures for financial instruments:
Cash and equivalents - The carrying amount approximates fair value because of
the short period to maturity of the instruments.
Receivables from stockholder, other receivables and payable to stockholders -
The fair value of receivables from stockholder, other receivables and payable to
stockholders approximates fair value because of the short period to maturity.
Short-term borrowings - The carrying amount approximates fair value since the
interest rate fluctuates with the lending banks' prime rate or matures in the
near future using current prevailing rates for similar borrowings.
Long-term debt, including capital leases - The fair value of long-term debt,
including capital leases, is estimated based on interest rates for the same or
similar debt offered to the Combined Company having the same or similar
remaining maturities and collateral requirements.
Use of estimates
- ----------------
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Receivable from stockholder
- ---------------------------
Receivable from stockholder in the amount of $107,851 at December 31, 1997, is
due from one stockholder at 8.0% interest with no specified maturity date or
payment arrangements.
Property and equipment
- ----------------------
Property and equipment is recorded at cost. Depreciation has been provided in
the financial statements on the straight-line method at rates based on
reasonable estimates of useful lives, which fall within the following ranges for
major asset classifications:
Magnetic resonance imagers 5 years
Computers and equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements 5 to 10 years
Maintenance, repairs and minor renewals are charged to earnings in the year in
which the expense is incurred. Additions, improvements and major renewals are
capitalized.
15
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Start-up costs and organizational costs
- ---------------------------------------
Start-up costs represent costs incurred prior to the commencement of operations
and, along with organizational costs, are amortized on a straight-line basis
over a five-year period. Start-up costs, organizational costs, accumulated
amortization and amortization expense were as follows at December 31, 1996 and
1997 and for the years then ended:
<TABLE>
<CAPTION>
Start-Up Organizational Accumulated Amortization
Year Costs Costs Amortization Net Expense
---- ----------- -------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
1996 $ 322,818 $ 17,219 $ (64,416) $ 275,621 $ 59,052
1997 $ 376,738 $ 17,219 $ (134,979) $ 258,978 $ 70,563
</TABLE>
Deposits
- --------
Deposits represent the prepayment of the last month's installment payment under
capital leases (see note 6) and office facility deposits.
Goodwill
- --------
Goodwill represents the excess cost over the fair market value of assets and
liabilities acquired and is amortized on a straight-line basis over a
fifteen-year period. Goodwill, accumulated amortization and amortization expense
were as follows at December 31, 1996 and 1997, and for the years then ended:
Accumulated Amortization
Year Goodwill Amortization Net Expense
---- ---------- ------------ ---------- ------------
1996 $ 45,889 $ (3,569) $ 42,320 $ 3,059
1997 $ 45,889 $ (6,628) $ 39,261 $ 3,059
Capital leases
- --------------
Included in property and equipment on the combined balance sheet are MRI
machines held under capital leases. At December 31, 1996 and 1997, these amounts
were as follows:
December 31, Amount
-------------------- ---------------
1996 $ 3,076,003
1997 $ 3,819,667
16
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Included in property and equipment on the combined balance sheet at December 31,
1997, are $105,012 in other medical equipment held under capital leases.
Lease obligations related to these assets are shown as current and long-term
liabilities as follows (see note 6):
December 31, Current Long-term Total
------------ ----------- ------------ ------------
1996 $ 605,116 $ 1,852,009 $ 2,457,215
1997 $ 887,991 $ 1,962,548 $ 2,850,539
Income taxes
- ------------
As applicable, during 1994, Orlando MRI and Vision MRI, Inc. adopted Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, as
required by the Financial Accounting Standards Board. Accordingly, income taxes
are provided for the tax effects of transactions reported in the combined
financial statements and consist of deferred taxes related primarily to
differences between using the cash basis of accounting for income tax purposes
and the accrual method of accounting for financial reporting. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Regional MRI of Jacksonville, Inc., Toledo MRI and Vision Diagnostics, Inc.,
with the consent of their stockholders, have elected under the Internal Revenue
Code to be S corporations. In lieu of corporation income taxes, the stockholders
of an S corporation are taxed on their proportionate share of the entity's
taxable income. Therefore, no provision or liability for Federal or state income
taxes has been included in the combined financial statements for these entities.
For Jacksonville MRI and Oak Brook MRI, under existing provisions of the
Internal Revenue Code, the income or loss of a partnership is recognized by the
partners for income tax purposes. Accordingly, no provision for income tax has
been provided in the accompanying combined financial statements for these
entities.
NOTE 3 - COMMITMENTS:
Office leases
- -------------
In January 1994, Orlando MRI signed an office lease agreement for the five-year
period from January 1994 through December 1998.. The lease requires monthly
rental payments of $4,000, including sales tax and their pro-rata share of
common area maintenance charges. Rent expense was $48,000 per year for the years
ended December 31, 1996 and 1997. Orlando MRI has an option to renew this lease
for two five-year periods.
In April 1994, Oak Brook MRI signed an office lease agreement for the five-year
period from June 1994 through July 1999. Beginning January 1996, the lease
required monthly rental payments of $4,945 including sales tax and their
pro-rata share of common area maintenance charges. The lease agreement requires
the lease payment to increase 5% per year upon the anniversary date of the
agreement. Rent charges incurred under this lease agreement were $50,080 and
$64,767 for the years ended December 31, 1996 and 1997, respectively. Oak Brook
MRI has a renewal option to extend the lease for an unspecified term.
17
<PAGE>
NOTE 3 - COMMITMENTS (CONTINUED):
Office leases (continued)
- -------------------------
In November 1994, Jacksonville MRI signed an office lease agreement for the
five-year period from January 1995 through December 1999. The lease requires
monthly rental payments of $1,283 in 1996, $1,467 in 1997, $1,650 in 1998 and
$1,833 in 1999, plus sales tax and their pro-rata share of common area
maintenance charges. Rent charges were $16,397 and $19,139 for the years ended
December 31, 1996 and 1997, respectively. In the first three months of 1996,
Jacksonville MRI capitalized these rental payments as start-up costs (see note
2). Jacksonville MRI has an option to renew this lease for a five-year period.
In March 1997, Toledo MRI signed an office lease agreement for a ten-year and
two-month period from March 1997 through May 2007. The agreement was entered
into by Vision Diagnostics, Inc. on behalf of Toledo MRI. The lease requires
monthly payments of $3,100 for years one through five and $3,300 for years six
through ten, plus their pro-rata share of common area maintenance charges. Rent
charges were $16,568 for the year ended December 31, 1997. Rent did not commence
until July 1997. Toledo MRI has an option to renew this lease for a ten-year
period. The lease is guaranteed by a stockholder, Vision Diagnostic, Inc. and a
certain stockholder.
Operating leases
- ----------------
The Combined Company has various operating leases for automobiles, office and
medical equipment, telephones, and furniture. These leases expire through
October 2000. Monthly payments range from $108 to $3,524. Rental charges under
these noncancellable lease agreements totaled $51,897 and $81,058 for the years
ended December 31, 1996 and 1997, respectively. A portion of these charges were
capitalized during the start-up phases for Jacksonville MRI in 1996 and Toledo
MRI in 1997.
Future minimum rental payments required under noncancellable operating leases as
of December 31, 1997 are as follows:
Year Amount
------------- ---------------
1998 $ 57,710
1999 26,212
2000 21,160
2001 -
2002 -
---------------
Total $ 105,082
===============
18
<PAGE>
NOTE 3 - COMMITMENTS (CONTINUED):
Other agreements
- ----------------
Orlando MRI has entered into a three-year agreement to utilize a former
stockholder for radiology services at a specified amount per MRI reading and
interpretation. This agreement expires in December 1999. In addition,
Jacksonville MRI has entered into a five-year agreement with a radiologist at a
specified amount per MRI reading and interpretation. This agreement expires in
March 2000.
In June 1997, the Combined Company entered into a twelve-month agreement with a
billing company for Orlando MRI, Jacksonville MRI, Toledo MRI and Oak Brook MRI.
The agreement provides for the billing company to receive 2% of collected
accounts receivable, up to a maximum of $15,000 per month. Total costs incurred
for billing services to this billing company were $39,315 for the year ended
December 1997.
In 1996, the Combined Company entered into an exclusive agreement with certain
financial consultants to provide capitalization and debt financing and to
implement the Combined Company's business plan. The agreement provided the
financial consultants with a certain percentage of common stock if a public
entity is obtained, private capital is obtained or an initial public offering is
made during the term of the agreement. In addition, the agreement specified fees
to the financial consultants if equity or debt financing is obtained. This
agreement was for a six-month period ended April 1997. In 1997, the Combined
Company terminated this agreement. In 1998, the financial consultants filed a
lawsuit against Vision Diagnostics, Inc., Vision MRI, Inc., West Regional MRI, a
stockholder and other individuals for negligent misrepresentation, a derivative
claim for breach of fiduciary duty and breach of contract. See note 13 for
information regarding this lawsuit.
NOTE 4 - SYNDICATION COSTS:
The Combined Company entered into a consulting agreement with Cove Hill
Consulting, Inc. in October 1996. The consulting agreement's objective was to
provide additional working capital and/or secure additional debt financing,
develop a business plan and secure a public entity for a merger. The consultant
was paid $6,000 per month, plus expenses. The agreement was terminated in June
1997. The Combined Company incurred $22,450 and $53,919 in 1996 and 1997,
respectively, under the agreement. These fees have been expensed as professional
fees in the accompanying combined statements of income (loss) for the years
ended December 31, 1996 and 1997.
The Combined Company entered into a two-year non-exclusive consulting agreement
with Grobel Development, Inc. in October 1997. The consulting agreement's
objective was to provide services towards the raising of capital and becoming a
publicly held entity. The consultant was to be paid $2,500 per month, plus
expenses, for six months. In addition, the consultant was to be paid a
percentage of amounts invested in the Combined Company. The Combined Company has
also granted the consultant an option to purchase a percentage of stock in
Vision Diagnostics, Inc. as of the date of the agreement. None of the conditions
for exercising this option have been met. The Combined Company incurred $2,500
under this agreement for the year ended December 31, 1997. This agreement was
terminated in 1998.
19
<PAGE>
NOTE 5 - INCOME TAX EXPENSE (BENEFIT):
Income tax expense (benefit) consists of the following at December 31, 1996 and
1997:
1996 1997
----------- -----------
Current $ 62,107 $ 4,896
Deferred 83,336 (5,104)
Tax benefit of net operating
loss carryforward (62,107) (4,896)
----------- -----------
$ 83,336 $ (5,104)
=========== ===========
Income tax expense for the years ended December 31, 1996 and 1997, contain a
charge in lieu of Federal and state income taxes resulting from the utilization
of operating loss carryforwards. The tax benefit of $62,107 and $4,896 for the
years ended December 31, 1996 and 1997, respectively, resulting from such
utilization is netted against the income tax expense.
Deferred income taxes result from the following temporary differences:
1996 1997
----------- -----------
Current:
Accrual to cash $ (148,660) $ (171,584)
----------- -----------
Long-term:
Depreciation (25,132) 2,986
Other 90 -
----------- -----------
(25,042) 2,986
----------- -----------
$ (173,702) $ (168,598)
=========== ===========
Deferred income taxes result from temporary differences in depreciation
recognized for book and tax purposes and temporary differences in the accrual
and cash basis of accounting. Federal and state income tax loss carryovers at
December 31, 1996 and 1997 of about $251,000 and $218,000, respectively, are
available to offset future Federal and state taxable income. These loss
carryforwards expire in the year 2010.
20
<PAGE>
NOTE 6 - INDEBTEDNESS:
Notes payable
- -------------
<TABLE>
At December 31, 1996 and 1997, notes payable are as follows:
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Note payable to National Association of Spinal Care,
interest-only payments at 6% per annum, payable quarterly,
no maturity date. $ 40,000 $ 35,000
Note payable to Comasa Associates, interest-only
payments at 10.5% per annum, payable monthly, collateralized
by a certain stockholder's common stock in Orlando
MRI and the personal guarantee of a certain stockholder,
originally due July 9, 1997. Outstanding balances
currently owed with interest at 12.5%. The Combined
Company is in default of this note. 250,000 81,981
Note payable to Bank of Winter Park, interest at prime
plus 2.0% per annum, due on demand or principal payments
of $6,250, plus interest, payable monthly with
outstanding balance due April 28, 1997, guaranteed
by Vision Diagnostics, Inc. and personally guaranteed by
certain stockholders and is cross-pledged and
cross-collateralized with two other loan agreements
with the same bank. 68,750 -
Note payable to Bank of Winter Park, interest at prime
plus 1.5% per annum, payable in 60 monthly principal
installments of $2,900, plus interest, collateralized by
accounts receivable of Orlando MRI, a second mortgage
lien on property owned by certain stockholders,
guaranteed by Vision Diagnostics, Inc. and personal
guarantees of certain stockholders, due February 29, 2001. 147,900 -
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Convertible unsecured note payable to an individual, interest
at 10.5% per annum, interest and principal due on
March 19, 1999. $ - $ 100,000
Note payable to SunTrust Bank, N.A., interest at prime
plus 2.0% per annum, principal and interest originally due
February 28, 1998 and extended to August 28, 1998,
collateralized by MRI machine and second lien on
accounts receivable of the Combined Company and
guaranteed by a certain stockholder. The Combined
Company is negotiating the renewal date of this note. - 90,904
Note payable to the Metamora State Bank, interest due
every three months beginning March 8, 1998, at 4.0% per
annum above discount rate in effect at the Federal Reserve
Bank of Cleveland, principal due June 8, 1998, guaranteed
by a certain stockholder. The Combined Company is
negotiating the renewal date of this note. - 75,040
Note payable to Monroe Bank & Trust, interest at 9.95%
per annum, principal and interest originally due February 1, 1998
and extended to August 18, 1998, guaranteed by a certain
stockholder. The Combined Company is negotiating the renewal
date of this note. - 75,000
Convertible unsecured note payable to an individual, interest
at 10.5% per annum, interest and principal due March 1999. - 25,000
Convertible unsecured note payable to an individual, interest
at 10.5% per annum, interest and principal due March 1999. - 40,988
Convertible unsecured note payable to an individual, interest
at 15% per annum, due in monthly installments of $5,500
through July 1998. - 30,554
</TABLE>
22
<PAGE>
NOTE 6 - INDEBTEDNESS (CONTINUED):
<TABLE>
Notes Payable (continued)
- -------------------------
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Convertible note payable to an individual trust, interest at 10.5%
per annum, interest and principal due in March 1998,
secured by a portion of the general partner's ownership interest
in Oak Brook MRI. The Combined Company is in default
of this note. $ - $ 93,000
Convertible unsecured note payable to an individual, interest
at 10.5% per annum, due in 21 monthly installments of
$2,460 through March 1999. - 32,233
Convertible unsecured various notes payable due to
individuals, interest at 10.5% per annum, interest and
principal due in March 1999. - 50,389
----------- -----------
Total 506,650 730,089
Less current portion 393,550 514,285
----------- -----------
Long-term portion $ 113,100 $ 215,804
=========== ===========
</TABLE>
Aggregate principal maturities required on notes payable at December 31, 1997,
are as
Year Amount
-------- ----------
1998 $ 514,285
1999 215,804
2000 -
2001 -
2002 -
----------
$ 730,089
==========
Subsequent to December 31, 1997, Jacksonville MRI entered into an agreement with
the radiologist performing reading services for payment of outstanding charges
incurred through June 1998. Terms of the agreement include interest at 10% per
annum, $10,000 due in August 1998 with monthly payments of $8,319 beginning
September 1998 and a balloon payment due in July 1999 (see note 9). The
outstanding balance owed to this radiologist at December 31, 1997, was $88,968.
23
<PAGE>
NOTE 6 - INDEBTEDNESS (CONTINUED):
Line of credit - Bank of Winter Park
- ------------------------------------
At December 31, 1996, the Combined Company had a $200,000 line of credit with
the Bank of Winter Park. Interest was payable monthly at prime plus 1.5% per
annum. The line of credit originally matured on April 30, 1997, and was
collateralized by accounts receivable of Orlando MRI, a second mortgage lien on
property owned by certain stockholders, guaranteed by Vision Diagnostics, Inc.
and personal guarantees of certain stockholders. At December 31, 1996, $200,000
was outstanding under this line of credit. In June 1997, this line of credit was
paid in full.
Line of credit - DVI Business Credit Corporation
- ------------------------------------------------
At December 31, 1997, the Combined Company and a related entity, Vision MRI of
San Jose, Inc., have a line of credit with DVI Business Credit Corporation
("DVI"). The Combined Company may borrow up to $1,500,000 or the "Borrowing
Base", whichever is less. The "Borrowing Base" is an amount equal to the sum of
eighty percent of the "Net Collectible Value", as defined, for each type of
eligible accounts receivable, as defined. In connection with the line of credit,
the Combined Company becomes a party to a lock box agreement, which provides for
the receipt and processing of account payments. As of December 31, 1997, the
Combined Company was in default of the lock box agreement due to the failure of
Vision MRI of San Jose, Inc. to send all cash collections to the lockbox. The
term of the line of credit is for a two-year period from June 1997 and is
renewable for consecutive one-year periods.
All advances under the DVI line of credit bear interest at prime plus 3% per
annum. At December 31, 1997, $700,978 was owed by the Combined Company and
$4,562 was still available under this line of credit.
The borrowings under the DVI line of credit are cross-collateralized. The
agreement requires the Combined Company to have at least $300,000 in tangible
net worth and a debt to equity ratio plus partners' capital of not greater than
10.0 to 1.0. The Combined Company, without Vision MRI of San Jose, Inc., is in
default of these terms.
In addition, the Combined Company is in default under the DVI line of credit
agreement due to the Combined Company being in default of other debt agreements.
24
<PAGE>
NOTE 6 - INDEBTEDNESS (CONTINUED):
Payable to stockholders
- -----------------------
Payable to stockholder in the amount of $140,073 at December 31, 1996, includes
$104,073 owed to a stockholder at 8.0% interest per annum with no specific
repayment terms. In addition, $36,000 is owed to another stockholder related to
the purchase of treasury stock (see note 9) with no specified maturity date or
payment arrangements.
Obligations under capital leases
- --------------------------------
The Combined Company has entered into five capital lease agreements for MRI
machines and two capital lease agreements for other medical equipment. The
leases are for terms of sixty months and have been capitalized using interest
rates ranging from 5.73% to 18.24%.
Future minimum lease payments on the above capital leases are as follows at
December 31, 1997:
1998 $ 1,232,356
1999 893,248
2000 829,042
2001 426,434
2002 183,489
-------------
Total minimum lease payments 3,564,569
Less: amount representing interest (714,030)
-------------
Total obligations under capital leases 2,850,539
Less: current portion of lease obligations (887,991)
-------------
Long-term portion of lease obligations $ 3,738,530
=============
Interest expense related to these capital leases was $274,813 and $318,216 for
the years ended December 31, 1996 and 1997, respectively.
These MRI leases are collateralized by the MRI machines and personal guarantees
of certain stockholders and partners and certain corporate guarantees. In
addition, the MRI lease agreement for Jacksonville MRI has been guaranteed by
the common stock of a stockholder and a $50,000 certificate of deposit owned by
this stockholder. At December 31, 1997, the Combined Company was in default of
the MRI lease agreements for Orlando MRI, Toledo MRI and Jacksonville MRI for
late payment of lease obligations currently due.
25
<PAGE>
NOTE 7 - WARRANTS:
In December 1996, Vision Diagnostics, Inc. issued 297,074 warrants to certain
individuals, corporations and partnerships. These warrants give the holder the
right to purchase common stock of Vision Diagnostics, Inc. for $1.50 per common
share and expire in December 2001. If Vision Diagnostics. Inc. has not, within
one year from the date of the warrant, completed a merger with a public entity
or undertaken an initial public offering, the holder of the warrant, exercisable
for a period of 180 days from the expiration of the one-year period, can
exchange their warrant for a new warrant to purchase an equal number of
convertible preferred stock of Vision Diagnostics, Inc. for $.75 per share with
a cumulative dividend of not less than 12% per annum. No warrants have been
exercised as of December 31, 1997.
NOTE 8 - ACCOUNTS RECEIVABLE ADVANCES:
In 1996, Jacksonville MRI and Oak Brook MRI entered into an agreement with a
company which provides advances against future collections on certain accounts
receivable. The advance company offsets collections on accounts receivable
against the advance. At December 31, 1996, the Combined Company owed the advance
company $134,053 in advances under this agreement. The amount owed to the
advance company was secured by the receivables of Oak Brook MRI and Jacksonville
MRI. The advance company charged a fee of 15% on the anticipated collection. In
June 1997, the Combined Company repaid all outstanding advances. For the years
ended December 31, 1996 and 1997, the Combined Company incurred $136,316 and
$99,647, respectively, in collection fee expense related to this agreement.
NOTE 9 - RELATED PARTY TRANSACTIONS:
Periodically, the Combined Company makes loans to and borrows funds from
stockholders. At December 31, 1996, the Combined Company owed $140,073 to two
stockholders and at December 31, 1997, owed $30,000 to one stockholder (see note
6).
The Combined Company has issued warrants (see note 7) to their corporate
attorney and to entities and individuals related to Cove Hill Consulting, Inc.
(see note 4). In addition, warrants were issued to Comasa Associates. The
Combined Company has a note payable with Comasa Associates (see note 6).
At December 31, 1996 and 1997, the Combined Company owed $36,000 and $30,000,
respectively, related to the purchase of treasury stock and at December 31,
1996, owed $27,000 in interest to a former stockholder in Vision MRI, Inc. These
liabilities are included as part of accounts payable in the accompanying
combined balance sheets at December 31, 1996 and 1997 (see note 11). In
addition, for the years ended December 31, 1996 and 1997, the Combined Company
incurred $184,765 and $216,579, respectively, in reading fee expense to a
radiology company owned by this former stockholder. In 1998, this former
stockholder and his corporation filed a lawsuit against Toledo MRI, Orlando MRI
and Oak Brook MRI for breach of contract related to a lack of payment on reading
fees, unjust enrichment, fraud, conversion and self dealing. See note 13 for
discussion of this litigation.
Jacksonville MRI leases their MRI machine from their limited partner. At
December 31, 1996 and 1997, Jacksonville MRI owed $1,072,378 and $910,028,
respectively, under this capital lease agreement (see note 6).
Subsequent to December 31, 1997, Jacksonville MRI entered into a note agreement
with a stockholder of the general partner of Jacksonville MRI for the payment of
reading fees (see note 6).
26
<PAGE>
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED):
Jacksonville MRI uses a radiologist to perform reading services who is a
stockholder of the general partner of Jacksonville MRI. Total charges incurred
with this stockholder were $71,025 and $125,243 for the years ended December 31,
1996 and 1997, respectively.
During 1996 and 1997, Orlando MRI leased their facility from an entity owned by
a stockholder. The rent expense totaled $48,000 per year.
At December 31, 1996, Orlando MRI was owed $44,607 from a related entity, Vision
MRI of San Jose, Inc. The receivable earned interest at 8.0% and was collected
in 1997.
NOTE 10 - CONCENTRATION OF CREDIT RISK:
The Combined Company operates and grants credit to customers in Central Florida,
Oak Brook, Illinois, Toledo, Ohio and Jacksonville, Florida. In addition, the
Combined Company files claims with numerous insurance carriers, managed care
groups and Medicare and Medicaid located throughout the United States. Financial
instruments subject to credit risk include accounts receivable. Consequently,
the Combined Company's ability to collect the amounts due from customers,
managed care groups, insurance companies and government agencies may be affected
by economic fluctuation and governmental regulations in the healthcare industry.
NOTE 11 - CONTINGENCIES:
The Combined Company has numerous debt obligations past due, currently due or
due in 1998. The Combined Company will need to obtain additional capital, secure
additional financing or extend the terms of these obligations to continue
operations. In addition, see note 12 where the Combined Company was purchased by
a publicly-held entity subsequent to December 31, 1997.
Orlando MRI has not complied with certain payment terms related to a stock
buy-back agreement with a former stockholder in Vision MRI, Inc. The payment
terms specified due dates for amounts owed to this former stockholder for
outstanding interest, the treasury stock purchase price and outstanding reading
fees. According to the buy-back agreement, failure to comply with the payment
terms will result in an immediate reversal of the stock transfer. Orlando MRI is
currently discussing the resolution of the violations with the former
stockholder. Management believes the terms of the buy-back agreement will be
amicably resolved and satisfied in 1998.
The Combined Company is in default of payment terms under several note
agreements (see note 6). The Combined Company plans to eliminate these defaults
by converting the amounts owed to capital (see note 12), extending the payment
terms or repaying the outstanding balances owed from the proceeds of a private
placement or secondary offering.
The Combined Company is in default under their lease agreements for MRI machines
in Toledo MRI, Orlando MRI and Jacksonville MRI. The Combined Company plans to
eliminate these defaults by refinancing the obligations, extending the payment
terms or paying the overdue balances from the proceeds of a private placement or
secondary offering.
27
<PAGE>
NOTE 12 - SALE OF COMBINED COMPANY:
In July 1998, the Combined Company entered into various agreements to sell the
common stock in Vision Diagnostics, Inc. and the majority of assets and
liabilities in Jacksonville MRI, Orlando MRI and Toledo MRI to a publicly-held
entity, Medical Device Technologies, Inc. ("MDT").
In connection with the agreement, MDT entered into a two-year consulting
agreement with a former stockholder.
MDT plans to raise additional capital through a private placement and/or a
secondary offering. A portion of the proceeds from the private placement and/or
secondary offering will be used to cure the defaults of the Combined Company and
to comply with the terms of their note and lease agreements (see notes 6 and
11).
NOTE 13 - LITIGATION:
The Combined Company is currently involved in several lawsuits. A description of
these lawsuits follows.
Certain financial consultants (see note 3) have filed a lawsuit against Vision
Diagnostics, Inc., Vision MRI, Inc., West Regional MRI, a stockholder and other
individuals, for negligent misrepresentation, a derivative claim for breach of
fiduciary duty and breach of contract. The financial consultants believe they
are owed finders fees and/or commissions related to financing arranged, equity
that could have been obtained and an aborted merger. In addition, one of the
financial consultants believes he was wrongfully terminated. Management plans to
vigorously defend against this lawsuit and believes the outcome will be in favor
of the above named defendants and will not have a material adverse effect on the
combined financial statements. The stockholder in Orlando MRI has agreed, in
connection with the sale of assets to MDT (see note 12), to pay for any
settlement of this lawsuit from a portion of the MDT shares received as a result
of that sale.
A former stockholder in Orlando MRI, who is the radiologist performing services
for Orlando MRI, Toledo MRI and West Regional MRI, and his related corporations
have a filed lawsuit against Toledo MRI, Orlando MRI and West Regional MRI for
breach of contract, unjust enrichment, fraud and conversion related to lack of
payment on reading fees. In addition, the former shareholder claims breach of
contract, fiduciary duty, self-dealing, conversion and fraud related to certain
stock ownership transactions. Management plans to vigorously defend against this
lawsuit and believes the outcome will be in favor of the above named defendants
and will not have a material adverse effect on the combined financial
statements. The stockholder in Orlando MRI has agreed, in connection with the
sale of assets to MDT (see note 12), to pay for any settlement of this lawsuit
from a portion of the MDT shares received as a result of that sale.
The limited partners in West Regional MRI have filed a lawsuit against Vision
Diagnostics, Inc., DVI Business Credit Corporation (see note 6) and Medical
Devices Technologies, Inc. (see note 12) to remove Vision Diagnostics, Inc. as
the general partner of the partnership, to declare the DVI line of credit
financing arrangement unenforceable against West Regional MRI, void the purchase
of Vision Diagnostics, Inc. by MDT and compensation for poor management by the
general partner. Management plans to vigorously defend against this lawsuit and
believes the outcome will be in favor of the defendants and will not have a
material adverse effect on the combined financial statements.
The lessor for the MRI machine in Toledo MRI has filed a lawsuit against Vision
Diagnostics, Inc. d/b/a Toledo MRI, San Jose MRI, Jacksonville MRI, Orlando MRI
and a certain stockholder for collection of amounts owed under this lease
agreement. The Combined Company is currently negotiating a potential resolution
to this lawsuit with the lessor and is seeking alternative financing for the MRI
machine. Management believes the resolution of the lawsuit will not have a
material adverse effect on the combined financial statements.
28
<PAGE>
Item 7. (b) Unaudited Financial Statements for Six Months ended June 30, 1998
Unaudited Balance Sheet as of June 30, 1998
Combined Vision
Diagnostics, Inc. &
Affiliates
-----------------------
ASSETS
Cash $ 54,582
Accounts Receivable - Net 2,500,334
Other Receivables & Assets 349,699
Property & Equipment - Net 2,211,088
Intangibles Assets - Net 269,762
-----------------------
TOTAL ASSETS $ 5,385,466
=======================
LIABILITIES
Accounts Payable/Accrued Expenses $ 877,426
Other Accrued Liabilities 221,858
Short-term Debt 2,169,394
Long-term Debt 1,859,675
-----------------------
TOTAL LIABILITIES 5,128,353
-----------------------
Minority Interest 649,390
-----------------------
EQUITY
Common Stock & APIC 199,556
Retained Earnings (Accumulated Deficit) (555,833)
Treasury Stock (36,000)
-----------------------
TOTAL EQUITY (392,277)
-----------------------
TOTAL LIABILITIES & EQUITY $ 5,385,466
=======================
29
<PAGE>
Unaudited Statement of Operations
For the Six Months Ended June 30, 1998
Combined Vision
Diagnostics, Inc. &
Affiliates
-----------------------
Net Sales $ 2,063,512
Operating Expenses:
Depreciation & Amortization 502,898
Sales, General & Administrative 1,296,431
-----------------------
Income from Continuing Operations 264,183
Other Income (Expense):
Other Income & Expense (21,938)
Interest Expense (255,288)
-----------------------
Net Loss Before Income Taxes and
Minority Interest (13,043)
Income Tax Expense 50,274
-----------------------
Net Loss Before Minority Interest (63,317)
Minority Interest in Combined Entity (110,672)
-----------------------
Net Loss $ (173,989)
=======================
30
<PAGE>
Item 7. (c) 1. Unaudited Pro-Forma Balance Sheet as of June 30, 1998,
<TABLE>
Unaudited Pro-Forma Balance Sheet as of June 30, 1998
<CAPTION>
Medical Device Combined Vision Pro-forma Pro-forma
Technologies, Inc. Diagnostics, Inc. & Adjustments Consolidated
Affiliates
-----------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Cash $ 108,452 $ 54,582 $ - $ 163,034
Accounts Receivable - Net 15,162 2,500,334 - 2,515,496
Inventory 189,074 - - 189,074
Other Receivables & Assets 80,772 349,699 (116,327) 314,144
Property & Equipment - Net 143,972 2,211,088 - 2,355,060
Intangibles Assets - Net 977,796 269,762 2,510,515 3,758,073
----------------- -------------------- --------------- ------------------
TOTAL ASSETS $ 1,515,228 $ 5,385,466 $ 2,394,187 $ 9,294,881
================= ==================== =============== ==================
LIABILITIES
Accounts Payable/Accrued Expenses $ 746,929 $ 877,426 $ - $ 1,624,355
Other Accrued Liabilities 177,083 221,858 (221,858) 177,083
Short-term Debt - 2,169,394 - 2,169,394
Long-term Debt - 1,859,675 (100,000) 1,759,675
----------------- -------------------- --------------- ------------------
TOTAL LIABILITIES 924,012 5,128,353 (321,858) 5,730,507
----------------- -------------------- --------------- ------------------
Minority Interest - 649,390 - 649,390
----------------- -------------------- --------------- ------------------
EQUITY
Common Stock & APIC 23,322,646 199,556 2,305,967 25,828,169
Retained Earnings (Accumulated Deficit) (22,731,430) - 374,078 (22,913,184)
Treasury Stock - (36,000) 36,000 -
----------------- -------------------- --------------- ------------------
TOTAL EQUITY 591,216 (392,277) 2,716,045 2,914,985
----------------- -------------------- --------------- ------------------
TOTAL LIABILITIES & EQUITY $ 1,515,228 $ 5,385,466 $ 2,394,187 $ 9,294,881
================= ==================== =============== ==================
</TABLE>
31
<PAGE>
<TABLE>
Item 7 (c) 2. Unaudited Pro-Forma Statement of Operations as of December 31, 1997.
Unaudited Pro-Forma Statement of Operations
For the Year Ended December 31, 1997
<CAPTION>
Medical Device Combined Vision Pro-forma Pro-forma
Technologies, Diagnostics, Inc. & Adjustments Consolidated
Inc. Affiliates
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 62,750 $ 3,536,859 $ - $ 3,599,609
Cost of Sales 174,990 - - 174,990
--------------- ------------------- ------------- ---------------
Gross Profit (Loss) (112,240) 3,536,859 - 3,424,619
Operating Expenses:
Research & Development 708,051 - - 708,051
Sales, General & Administrative 2,787,355 2,576,536 - 5,363,891
Depreciation & Amortization 358,106 842,312 167,368(1) 1,367,786
Loss on Impairment of License Agreement 487,784 - - 487,784
--------------- ------------------- ------------- ---------------
Income (Loss) from Continuing Operations (4,453,536) 118,011 (167,368) (4,502,893)
Other Income (Expense):
Other Income 25,000 5,624 - 30,624
Interest Income 51,687 2,369 - 54,056
Interest Expense (5,936) (452,613) - (458,549)
--------------- ------------------- ------------- ---------------
Net Loss Before Income Taxes
and Minority Interest (4,382,785) (326,609) (167,368) (4,876,762)
Income Tax Benefit - (5,104) - (5,104)
--------------- ------------------- ------------- ---------------
Net Loss Before Minority Interest (4,382,785) (321,505) (167,368) (4,871,658)
Minority Interest in Combined Entity - (129,559) - (129,559)
--------------- ------------------- ------------- ---------------
Net Loss $ (4,382,785) $ (451,064) $ (167,368) $ (5,001,217)
=============== =================== ============= ===============
Loss Per Share:
Add: Cumulative Preferred Stock Dividends 206,462 206,462
--------------- ---------------
Net Loss Attributable to Common Stock $ (4,589,247) $ (5,207,679)
=============== ===============
Basic and Diluted Loss Per Common Share $ (15.15) $ (1.60)
=============== ===============
Weighted Average Common Shares Outstanding 302,946 2,960,160 3,263,106
=============== ============= ===============
</TABLE>
(1) To record amortization expense of goodwill that resulted from the purchase
of Vision Diagnostics, Inc. and it's affiliates.
32
<PAGE>
<TABLE>
Item 7 (c) 3. Unaudited Pro-Forma Statement of Operations as of June 30, 1998.
Unaudited Pro-Forma Statement of Operations
For the Six Months Ended June 30, 1998
<CAPTION>
Medical Device Combined Vision Pro-forma Pro-forma
Technologies, Inc. Diagnostics, Inc. & Adjustments Consolidated
Affiliates
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 1,900 $ 2,063,512 $ - $ 2,065,412
Cost of Sales 619 - - 619
---------------- ------------------ -------------- --------------
Gross Profit 1,281 2,063,512 - 2,064,793
Operating Expenses:
Research & Development 35,589 - - 35,589
Depreciation & Amortization 130,408 502,898 167,368 (1) 800,674
Sales, General & Administrative 615,514 1,296,431 - 1,911,945
---------------- ------------------ -------------- --------------
Income (Loss) from Continuing Operations (780,230) 264,183 (167,368) (683,415)
Other Income (Expense):
Other Income & Expense - (21,938) - (21,938)
Interest Expense (30,161) (255,288) - (285,449)
---------------- ------------------ -------------- --------------
Net Loss Before Income Taxes and
Minority Interest (810,391) (13,043) (167,368) (990,802)
Income Tax Expense - 50,274 - 50,274
---------------- ------------------ -------------- --------------
Net Loss Before Minority Interest (810,391) (63,317) (167,368) (1,041,076)
Minority Interest in Combined Entity - (110,672) - (110,672)
---------------- ------------------ -------------- --------------
Net Loss $ (810,391) $ (173,989) $ (167,368) $ (1,151,748)
================ ================== ============== ==============
Loss Per Share:
Net Loss Attributable to Common Stock $ (810,391) $ (1,151,748)
----------------
Basic and Diluted Loss Per Common Share $ (1.49) $ (0.33)
================ ==============
Weighted Average Common Shares Outstanding 543,677 2,960,160 3,503,837
================ ============== ==============
</TABLE>
(1) To record amortization expense of goodwill that resulted from the purchase
of Vision Diagnostics, Inc. and it's affiliates.
33
<PAGE>
Item 7 (c) 4. Notes to Pro-Forma Consolidated Financial Statements.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
On July 14, 1998, Medical Device Technologies, Inc. (the "Company")
acquired either the stock or substantially all of the assets and liabilities of
Vision Diagnostics, Inc. Affiliates. Vision Diagnostics, Inc. and Affiliates
consist of four (4) separate entities, three (3) which are engaged in the
medical diagnostic service industry.
On July 14, 1998, Medical Device Technologies, Inc. (the "Company")
consummated the acquisition of certain assets (primarily related to accounts
receivable and property and equipment) and the assumption of certain liabilities
(primarily accounts payable and debt) from Regional MRI of Orlando, Inc.,
Regional MRI of Jacksonville, Ltd. and Regional MRI of Toledo, Inc. for a
purchase price of $2,336,976, consisting of $2,336,976 in common stock of the
Company (par value $.15 per share). The Company will account for the acquisition
using the purchase method of accounting with the assets acquired and the
liabilities assumed recorded at fair value, and the results of the acquired
entities included in the Company's consolidated financial statements from the
date of acquisition.
On July 14, 1998, Medical Device Technologies, Inc. (the "Company")
consummated the acquisition of 100% of the stock of Vision Diagnostics, Inc.
with the issuance of 1,168,000 shares of common stock of the Company. The
Company will account for the acquisition using the purchase method of accounting
and with the results of the acquired entity included in the Company's
consolidated financial statements from the date of acquisition.
The accompanying unaudited pro forma condensed consolidated financial
statements illustrate the effects of the acquisition on the Company's financial
position and results of operations. The pro forma condensed consolidated balance
sheet as of June 30, 1998 is based on the historical balance sheets of the
Company and the Sellers as of that date and assumes the acquisition took place
on that date. The pro forma condensed consolidated statements of operations for
the year ended December 31, 1997 and the six months ended June 30, 1998 are
based on the historical statements of operations of the Company and the acquired
entities, Vision Diagnostics, Inc. and Affiliates for that period. The pro forma
condensed consolidated statements of operations assume the acquisition took
place on January 1, 1997.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition. In particular, the pro
forma condensed consolidated financial statements are based on management's
current estimate of the allocation of the purchase price, the actual allocation
of which may differ.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of the
Company and the Acquired entities, Vision Diagnostics, Inc. and Affiliates.
34
<PAGE>
NOTE A - The pro forma adjustments to the consolidated balance sheet are as
follows:
(1) Other Receivables and Assets
Eliminate asset not purchased, receivable written-off and
deferred income taxes of acquired entity. $ 116,327
(2) Intangible Assets - Net
Record goodwill from acquisition $ 2,510,515
(3) Other Accrued Liabilities
Eliminated deferred taxes of acquired entity $ 221,858
(4) Long-term Debt
Eliminate debt not assumed $ 100,000
(5) Equity
Record 1,792,160 shares of common stock for the asset
purchases and eliminate common stock and APIC of the
acquired entities under asset purchase agreements $ 2,305,967
Eliminate accumulated deficit of acquired entities under
asset purchase agreements and adjust for receivable
written-off $ 374,078
Eliminate treasury stock $ 36,000
-----------
$ 2,716,045
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized and caused the undersigned to sign this
report on the Registrant's behalf.
MEDICAL DEVICE TECHNOLOGIES, INC.
By: /s/ Albert Perry, Jr.
- ----------------------------------------
Albert Perry, Jr., Chief Financial Officer
Dated: September 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains proforma financial information extracted from 8K/A and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 163034
<SECURITIES> 0
<RECEIVABLES> 2515496
<ALLOWANCES> 0
<INVENTORY> 189074
<CURRENT-ASSETS> 3064835
<PP&E> 2355060
<DEPRECIATION> 0
<TOTAL-ASSETS> 9294881
<CURRENT-LIABILITIES> 3490832
<BONDS> 0
0
0
<COMMON> 432891
<OTHER-SE> 2482094
<TOTAL-LIABILITY-AND-EQUITY> 2914985
<SALES> 2065412
<TOTAL-REVENUES> 2065412
<CGS> 619
<TOTAL-COSTS> 619
<OTHER-EXPENSES> 2880818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (285449)
<INCOME-PRETAX> (990802)
<INCOME-TAX> 50274
<INCOME-CONTINUING> (1041076)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1151748)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
