<PAGE>
P R O S P E C T U S
MIRACOR DIAGNOSTICS, INC.
9191 Towne Centre Drive - Suite 400
San Diego, California 92122
(858) 455-7127
THE OFFERING
The resale of up to 11,360,000 shares of common stock in the
over-the-counter market at the prevailing market price or in negotiated
transactions.
o up to 10,000,000 shares are issuable to Swartz Private Equity,
LLC ("Swartz"),
o up to 1,360,000 shares are issuable upon the exercise of
warrants issuable to Swartz,
We may receive proceeds from the sale of shares to Swartz and, if
exercised, will receive proceeds from the sale of shares issuable upon the
exercise of warrants by Swartz.
TRADING SYMBOL
MRDG (Over-the-counter Electronic Bulletin Board)
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE
The Securities and Exchange Commission (SEC) and state securities regulators
have not approved these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Please read this prospectus carefully. It describes our Company, finances and
services. Federal and state securities laws require that we include in this
prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained in this prospectus to make
your investment decision. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. The
following table of contents has been designed to help you find important
information contained in this prospectus. We have included subheadings to aid
you in searching for particular information you might want to return to. We
encourage you to read the entire prospectus.
This prospectus is dated July 7, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 3
About our Company 3
About our Investment Agreement 3
Key facts 3
RISK FACTORS 4
PLAN OF DISTRIBUTION 7
SALES BY SELLING SHAREHOLDER 8
Investment agreement 8
Overview 8
Put rights 8
Warrants 8
Limitations and conditions precedent to our put rights 8
Short sales 8
Cancellation of puts 9
Shareholder approval 9
Termination of investment agreement 9
Restrictive covenants 9
Right of first refusal 9
Swartz's right of indemnification 9
Selling Shareholder 10
THE COMPANY 10
General 10
Acquisitions 11
Risks 11
Business 12
USE OF PROCEEDS 14
LITIGATION 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
PLAN OF OPERATION 20
MANAGEMENT 21
EXECUTIVE COMPENSATION 23
PRINCIPAL SHAREHOLDERS 23
SECURITY OWNERSHIP 24
CERTAIN TRANSACTIONS 26
TRADING MARKET AND RELATED MATTERS 26
DESCRIPTION OF SECURITIES 27
LEGAL MATTERS 28
EXPERTS 28
AVAILABLE INFORMATION 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
2
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References in this document to "us," "we," or "the Company" refer to
Miracor Diagnostics, Inc., its predecessor and its subsidiaries.
PROSPECTUS SUMMARY
ABOUT OUR COMPANY
We were previously a development stage medical device company. In the
third quarter of 1998, we redefined our business focus to medical diagnostic
imaging services and emerged as an operating company through the acquisition of
medical resonance imaging (MRI) centers in Orlando and Jacksonville, Florida,
Toledo, Ohio, and the general partnership interest of another center in Oak
Brook, Illinois. In April 1999, we acquired the remaining 50% limited
partnership interest in the Oak Brook center. On February 9, 2000, we closed the
acquisition of three centers located in Palm Harbor, St. Petersburg and Tampa,
Florida. These newly acquired centers have approximately $2,500,000 in annual
revenues.
The use of MRI has become the medical imaging modality of choice for a
rapidly increasing list of applications and continues to exhibit rapid growth.
Unlike x-ray and computer aided tomography (CT), MRI is not a radiation-based
imaging technology and thus safer to patients. Manufacturers of MRI equipment
are continuing investment in new technology and upgrades to further improve MRI
capabilities.
During 1999, our activities focused on improvement of our capital
structure and operations of the acquired MRI centers. As a result, the acquired
debt from the MRI acquisitions was reduced, equity was increased $1 million and
used for working capital and quarterly losses of approximately $400,000 in the
first and second quarters were reduced to approximately $75,000 in the fourth
quarter.
We plan to seek, investigate and acquire additional controlling
interests in business opportunities that are similar in nature to our existing
medical diagnostic imaging centers in order to further grow ourselves.
ABOUT OUR INVESTMENT AGREEMENT
We have been seeking additional financing for our working capital
requirements, expansion of our existing operations and acquisition of additional
MRI centers. We have entered into an investment agreement with Swartz to raise
up to $15 million through a series of sales of our common stock. The dollar
amount of each sale is limited by our common stock's trading volume, and a
minimum period of time must elapse between each sale. Each sale will be to
Swartz. In turn, Swartz will either hold our stock in their own portfolio, sell
our stock in the open market, or place our stock through negotiated transactions
with other investors. This prospectus covers the resale of our stock by Swartz
either in the open market or to other investors.
KEY FACTS
<TABLE>
<CAPTION>
<S> <C>
Shares being offered for resale to the public 10,000,000
Total shares outstanding prior to the offering 10,698,168 as of March 31, 2000
Total shares outstanding after the offering 20,698,168
Total shares outstanding after the offering and 22,058,168
exercise of Swartz warrants
Price per share to the public Market price at time of resale
Total proceeds raised by offering None, however up to $15 million may be
received from Swartz under the investment
agreement and additional amounts may
be received from the exercise of warrants
Our investment agreement with Swartz was Investment agreement
registration statement included as an exhibit to this
Dividend policy No dividends expected
</TABLE>
3
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RISK FACTORS
The common shares being offered for resale by Swartz are highly
speculative in nature, involve a high degree of risk and should be purchased
only by persons who can afford to lose their entire investment in the common
shares. Before purchasing any of the common shares, you should carefully
consider the following factors relating to our business and prospects.
History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability; Going Concern Issue
We have historically operated at a loss and incurred a loss for the
fiscal year ended December 31, 1999. At December 31, 1999, we had an accumulated
deficit of approximately $25,000,000, which includes losses from our prior
operations in the oil and gas business. We expect losses to continue until such
time as our MRI centers can successfully generate sufficient operating revenues.
There can be no assurance that we will be successful in our operations.
Our ability to achieve profitability depends upon our ability to
successfully market our MRI businesses, of which there can be no assurance. In
addition, we will seek to continue to acquire additional MRI operations, but
there can be no assurances that we will be able to identify any additional
operations that we may deem suitable for acquisition, or that if we do identify
such operations, that any of them will be successfully acquired, developed and
commercialized. Further, our independent certified public accountants' report on
our financial statements for the year ended December 31, 1999 includes an
explanatory paragraph that our recurring losses from operations raise
substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Need for Additional Capital; Possible Issuance of
Securities and Corresponding Possible Future, Substantial Dilution
Our cash requirements continue to be significant. In order for us to
satisfy our capital needs for the next 12 months, we must increase revenues from
our MRI operations and raise additional capital. There can be no assurance that
additional capital can be obtained on terms acceptable to us, or at all. Failure
by us to realize significant revenues and achieve profitability from our MRI
operations or obtain additional capital, would have a material adverse effect on
us. Further, in the event that we obtain any additional financing, such
financings will most likely have a dilutive effect on the holders of our
securities, which dilution could be substantial.
Uncertainty of Corporate Development; Corporate Inexperience
Development of our new operations will be subject to all of the risks
associated with new operational development, including unanticipated delays,
expenses, technical problems, or other difficulties that could result in
continuing losses. Given the uncertainties inherent in the development of new
operations, there can be no assurances that we will be successful in developing
its operations. Investors should be aware of the potential problems, delays and
difficulties often encountered by any company in this phase of its development.
As a consequence, problems may arise that may be beyond the experience or
control of management and accordingly, our prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by such companies
in the establishment of a new business in a highly competitive industry.
Accordingly, there can be no assurance that our development and
commercialization activities of our MRI operations will be successful, or that
we will ever achieve significant levels of revenue or profits, if any.
4
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No Assurance of Identification or Acquisition of Additional Operations
From time to time, if our resources allow, we intend to explore the
acquisition of additional imaging operations. There can be no assurance,
however, that we will be able to identify any additional imaging operations and,
even if suitable operations are identified, there can be no assurance that we
will have sufficient funds to acquire any such operations or that any such
operations will ultimately be viable.
Government Regulations
Our operations are subject to extensive government regulations. In
order to operate MRI devices, we must satisfy numerous mandatory procedures,
regulations, and safety standards established by the federal and state
regulatory agencies. There can be no assurance that we can successfully comply
with all government regulations.
Competition
The diagnostic imaging industry is intensely competitive, particularly
in terms of price, quality and marketing. Most of our competitors are better
established and have substantially greater financial, marketing and other
resources than us. Further, most of our competitors have been in existence for a
substantially longer period of time and may be better established in those
markets where we intend to sell our services. As a result of our relative lack
of experience, financial, marketing and other resources there can be no
assurance that we will be able to market our MRI services successfully, or
compete in the diagnostic imaging industry.
Health Care Reform and Related Measures; Uncertainty of Product Pricing and
Reimbursement
The levels of revenues and profitability of diagnostic imaging
operations may be affected by the continuing efforts of governmental and third
party payors to contain or reduce the costs of health care through various means
and the initiatives of third party payors with respect to the availability of
reimbursement. In the United States there have been, and we expect that there
will continue to be, a number of federal and state proposals to implement
similar governmental control. Although we cannot predict what legislative
reforms may be proposed or adopted or what actions federal, state or private
payors for health care products may take in response to any health care reform
proposals or legislation, the existence and pendency of such proposals could
have a material adverse effect on the Company.
Whether a medical procedure is subject to reimbursement from third
party payors impacts upon the likelihood that a service will not be purchased.
Third party payors are increasingly challenging the prices charged for medical
procedures. There can be no assurance that any of our diagnostic imaging
services will continue to be reimbursable. To the extent any or all of our
medical procedures are not reimbursable by third party payors, our ability to
sell its services on a competitive basis will be adversely affected, which could
have a material adverse effect on us.
Dependence On Key Personnel
Our success will depend to a large extent upon our ability to retain
Mr. M. Lee Hulsebus, our Chief Executive Officer and Chairman of the Board. The
loss or unavailability of the services of Mr. Hulsebus would have a material
adverse effect on our business and operations.
5
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No Dividends With Respect to Common Stock
We have not paid any cash dividends with respect to our Common Stock,
and it is unlikely that we will pay any dividends on our Common Stock in the
foreseeable future. Earnings, if any, that we may realize will be retained in
the business for further development and expansion.
Anti-Takeover Provisions; Poison Pill Issuance of Preferred Stock; Utah
Anti-Takeover Provisions
Our Articles of Incorporation and By-Laws contain provisions that may
make the acquisition of control of us by means of tender offer, over-the-counter
market purchases, a proxy fight or otherwise, more difficult. This could prevent
securityholders from realizing a premium on their securities of us. We also have
a staggered Board of Directors, which is a further impediment to a change in
control.
We have adopted a so-called "poison pill." Specifically, the poison
pill significantly increases the cost to an unwanted party to acquire control of
us upon the acquisition by such unwanted suitor of 15% of the outstanding voting
power of us.
In addition, the Board of Directors may issue one or more series of
preferred stock without any action on the part of our shareholders, the
existence and/or terms of which may adversely affect the rights of holders of
the Common Stock. In addition, the issuance of any such additional preferred
stock may be used as an "anti-takeover" device without further action on the
part of the shareholders. Issuance of preferred stock, which may be accomplished
through a public offering or a private placement to parties favorable to current
management, may dilute the voting power of holders of Common Stock and the
Preferred Stock (such as by issuing preferred stock with super voting rights)
and may render more difficult the removal of current management, even if such
removal may be in our shareholders' best interests. We are subject to the
provisions of Sections 61-6-3 through 61-6-12 of the Utah Control Shares
Acquisition Act, an anti-takeover statute. Sections 61-6-3 through 61-6-12
effectively provide that in the event a person acquires ownership or the power
to effect, directly or indirectly, the exercise of 20% or more of the voting
power of a Utah corporation in connection with the election of directors, then
such person shall only be entitled to vote to the extent expressly agreed to by
the majority of the other shareholders of the corporation. Accordingly,
potential acquirors of us may be discouraged from attempting to effect
acquisitions of our voting securities, thereby possibly depriving holders of our
securities of certain opportunities to sell or otherwise dispose of such
securities at above_market prices.
Shares Eligible for Future Sale
There are presently 7,148,233 shares of Common Stock that were issued
and outstanding that are "restricted securities" as that term is defined by Rule
144 of the Securities Act, all of which are currently eligible for resale in
compliance with Rule 144 of the Securities Act. Of these shares, 9.78% are owned
by our current officers and directors.
Rule 144 provides that, in general, a person holding restricted
securities for a minimum period of one (1) year may, every three (3) months
thereafter, sell in brokerage transactions an amount of shares which does not
exceed the greater of one percent (1%) of our then outstanding Common Stock or
the average weekly trading volume of the Common Stock during the four (4)
calendar weeks immediately prior to such sale. Rule 144 also permits, under
certain circumstances, the sale of shares without any quantity limitations by a
person who is not an affiliate of us and was not an affiliate at any time during
the ninety (90) day period immediately prior to such sale, and who has satisfied
a two (2) year holding period. Sales of our Common Stock by shareholders under
Rule 144 may have a depressive effect on the market price of our Common Stock.
6
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Forward-Looking Statements and Associated Risk
This prospectus includes "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934, and the Private Securities Litigation Reform
Act of 1995, and we desire to take advantage of the "safe harbor" provisions in
those laws. Therefore, we are including this statement for the express purpose
of availing ourselves of the protections of these safe harbor provisions with
respect to all of the forward-looking statements we make. The forward-looking
statements in this prospectus reflect our current views with respect to possible
future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties, including specifically the absence
of significant revenues, financial resources, a history of losses, significant
competition, trading risks of low-priced stocks and those other risks and
uncertainties discussed herein that could cause our actual results to differ
materially from our historical results or those we anticipate. In this
prospectus, the words "anticipates," "believes,""expects," "intends," "future"
and similar expressions identify certain forward-looking statements. You are
cautioned to consider the specific risk factors described in "Risk Factors" and
elsewhere in this prospectus and not to place undue reliance on the
forward-looking statements contained in this prospectus, which speak only as of
the date of this prospectus. We undertake no obligation to publicly revise these
forward-looking statements to reflect the effect of events or circumstances that
may arise after the date of this prospectus. All written and oral
forward-looking statements made subsequent to the date of this prospectus and
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this section.
PLAN OF DISTRIBUTION
Swartz is free to offer and sell its common shares at such times, in
such manner and at such prices as it may determine. The types of transactions in
which the common shares are sold may include transactions in the
over-the-counter market (including block transactions), negotiated transactions,
the settlement of short sales of common shares, or a combination of such methods
of sale. The sales will be at market prices prevailing at the time of sale or at
negotiated prices. Such transactions may or may not involve brokers or dealers.
Swartz has advised us that it has not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of its securities. Swartz does not have an underwriter or coordinating
broker acting in connection with the proposed sale of the common shares. Swartz
may effect such transactions by selling common stock directly to purchasers or
to or through broker-dealers, which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from Swartz. It may also receive compensation from the purchasers
of common shares for whom such broker-dealers may act as agents or to whom they
sell as principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
Swartz is, and any broker-dealer that acts in connection with the sale
of common shares may be deemed to be, an "underwriter" within the meaning of
Section 2(11) of the Securities Act. Any commissions received by such
broker-dealers and any profit on the resale of the common shares sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions. Because Swartz is deemed to be an "underwriter" within the meaning
of Section 2(11) of the Securities Act, Swartz will be subject to prospectus
delivery requirements.
We have informed Swartz that the anti-manipulation rules of the SEC,
including Regulation M promulgated under the Securities and Exchange Act, may
apply to its sales in the market and has provided Swartz with a copy of such
rules and regulations.
Swartz may resell all or a portion of the common shares in open market
transactions in reliance upon Rule 144 under the Securities and Exchange Act,
provided it meets the criteria and conform to the requirements of such Rule.
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SALES BY SELLING SHAREHOLDER
SWARTZ INVESTMENT AGREEMENT
OVERVIEW. On April 13, 2000 we entered into an investment agreement
with Swartz. The investment agreement entitles us to issue and sell our common
stock for up to an aggregate of $15 million from time to time during a
three-year period, beginning on the effective date of this Registration
Statement. This is also referred to as a put right.
PUT RIGHTS. In order to invoke a put right, we must have an effective
registration statement on file with the SEC registering the resale of the common
shares which may be issued as a consequence of the invocation of that put right.
Additionally, we must give at least ten but not more than twenty business days
advance notice to Swartz of the date on which we intend to exercise a particular
put right and we must indicate the number of shares of common stock we intend to
sell to Swartz. At our option, we may also designate a maximum dollar amount of
common stock (not to exceed $2 million) which we will sell to Swartz during the
put and/or a minimum purchase price per common share at which Swartz may
purchase shares during the put. The number of common shares sold to Swartz may
not exceed 15% of the aggregate daily reported trading volume during a period
which begins on the business day immediately following the day we invoke the put
right and ends on and includes the day which is twenty business days after the
date we invoke the put right or 15% of the aggregate daily reported trading
volume during the twenty business days preceding the day we invoke the put
right. In addition, Swartz shall in no event be required to purchase an amount
of shares which, when added to the number of shares acquired by Swartz during
the thirty-one days preceding the day we invoke the put right, would exceed
9.99% of the number of shares of common stock outstanding.
For each common share, Swartz will pay us the lesser of:
- the market price for such put, minus $.075 or
- 91% of the market price, which is defined as the lowest closing bid
price for the common stock during the pricing period which is the twenty
business days following the date notice of the put was provided to Swartz.
However, the price may not be less than the designated minimum per share price,
if any, that we indicated in our notice.
WARRANTS. Within five business days after the end of each pricing
period, we are required to issue and deliver to Swartz a warrant to purchase a
number of shares of common stock equal to 10% of the common shares issued to
Swartz in the applicable put. Each warrant will be exercisable at a price which
will initially equal 110% of the market price for the applicable pricing period.
The warrants will have semi-annual reset provisions. Each warrant will be
immediately exercisable and have a term beginning on the date of issuance and
ending five years thereafter.
LIMITATIONS AND CONDITIONS PRECEDENT TO OUR PUT RIGHTS. Swartz is not
required to acquire and pay for any common shares with respect to any particular
put for which:
- we have announced or implemented a stock split or combination of our
common stock;
- we have paid a common stock dividend;
- we have made a distribution of our common stock or of all or any
portion of our assets between the put notice date and the date the particular
put closes; or
- we have consummated a major transaction (including a transaction,
which constitutes a change of control) between the advance put notice date and
the date the particular put closes.
SHORT SALES. Swartz and its affiliates are prohibited from engaging in
short sales of our common stock unless they have received a put notice and the
amount of shares involved in a short sale does not exceed the number of shares
specified in the put notice.
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CANCELLATION OF PUTS. We must cancel a particular put between the date
of the advance put notice and the last day of the pricing period if:
- we discover an undisclosed material fact relevant to Swartz's
investment decision;
- the registration statement registering resales of the common shares
becomes ineffective; or
- shares are delisted from the then primary exchange.
However, we will be required to issue common shares equal to the lesser of:
- 15% of the aggregate daily reported trading volume during a period
which begins on the business day immediately following the day we invoke the put
right and ends on and includes the day which is twenty business days after the
date we invoke the put right or 15% of the aggregate daily reported trading
volume during the twenty business days preceding the day we invoke the put
right.
- the number of shares of common stock put to Swartz which when
multiplied by the applicable put share price equals the designated maximum
dollar amount for the put; or
- an amount of shares which, when added to the number of shares
acquired by Swartz during the thirty-one days preceding the day we invoke the
put right, would exceed 9.99% of the number of shares of common stock
outstanding.
SHAREHOLDER APPROVAL. We may issue more than 20% of our outstanding
shares. If we become listed on the Nasdaq Small Cap Market or Nasdaq National
Market, then we must get shareholder approval to issue more than 20% of our
outstanding shares. Since we are currently a bulletin board company, we do not
need shareholder approval.
TERMINATION OF INVESTMENT AGREEMENT. We may also terminate our right to
initiate further puts or terminate the investment agreement by providing Swartz
with notice of such intention to terminate; however, any such termination will
not affect any other rights or obligations we have concerning the investment
agreement or any related agreement.
RESTRICTIVE COVENANTS. During the term of the investment agreement and
for a period of one-year thereafter, we are prohibited from certain
transactions. These include the issuance of any debt or equity securities in a
private transaction which are convertible or exercisable into shares of common
stock. We are also prohibited from entering into any private equity line type
agreements similar to the investment agreement without obtaining Swartz's prior
written approval.
RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to purchase
certain securities offered by us in any private transaction which closes on or
prior to one year after the termination of the investment agreement.
SWARTZ'S RIGHT OF INDEMNIFICATION. We are obligated to indemnify Swartz
(including their stockholders, officers, directors, employees and agents) from
all liability and losses resulting from any misrepresentations or breaches we
made in connection with the investment agreement, our registration rights
agreement, other related agreements, or the registration statement.
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SELLING SHAREHOLDER
The following table sets forth certain information with respect to the
selling shareholder as of June 15, 2000. Except as shown below, the selling
shareholder currently is not an affiliate of ours, or has had a material
relationship with us during the past three years. The selling shareholder is not
and was not affiliated with registered broker-dealers.
<TABLE>
<CAPTION>
Amount and
Percentage of
Beneficial Maximum Number Common Stock
Ownership of of Shares of After the Sale
Common Stock as Common Stock --------------
Name of June 15, 2000 Offered for Sale Number %(1)
---- ---------------- ---------------- --------------
<S> <C> <C> <C>
Swartz Private Equity, LLC(2) 11,360,000 11,360,000 None
</TABLE>
(1) Assumes that the selling shareholders will sell all of the shares of
common stock offered hereby. We cannot assure you that the selling
shareholders will sell all or any of the shares offered hereunder.
(2) This number includes 360,000 shares of common stock issuable upon
exercise of outstanding warrants which are currently exercisable, which
represents 3% of our issued and outstanding common stock as of April
30, 2000. This number also includes (solely for purposes of this
prospectus) up to an aggregate of 11,000,000 shares of our common stock
that we may sell to Swartz pursuant to the investment agreement and
warrants issuable in connection with the investment agreement, which
shares would not be deemed beneficially owned within the meaning of
Sections 13(d) and 13(g) of the Exchange Act before their acquisition
by Swartz. It is expected that Swartz will not beneficially own more
than 9.9% of our outstanding common stock at any time.
THE COMPANY
GENERAL
The Company
-----------
We were previously a development stage medical device company. In the
third quarter of 1998, we redefined our business focus to medical diagnostic
imaging services and emerged as an operating company through the acquisition of
medical resonance imaging (MRI) centers in Orlando and Jacksonville, Florida,
Toledo, Ohio, and the general partnership interest of another center in Oak
Brook, Illinois. In April 1999, the Company acquired the remaining 50% limited
partnership interest in the Oak Brook center. On February 9, 2000, we closed the
acquisition of three centers located in Palm Harbor, St. Petersburg and Tampa,
Florida. These newly acquired centers have approximately $2,500,000 in annual
revenues.
The use of MRI has become the medical imaging modality of choice for a
rapidly increasing list of applications and continues to exhibit rapid growth.
Unlike x-ray and computer aided tomography (CT), MRI is not a radiation-based
imaging technology and thus safer to patients. Manufacturers of MRI equipment
are continuing investment in new technology and upgrades to further improve MRI
capabilities.
During 1999, our activities focused on improvement of its capital
structure and operations of the acquired MRI centers. As a result, the acquired
debt from the MRI acquisitions was reduced, equity was increased $1 million and
used for working capital and quarterly losses of approximately $400,000 in the
first and second quarters were reduced to approximately $75,000 in the fourth
quarter. Additionally, we identified suitable acquisition targets to position us
for growth.
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We plan to seek, investigate and acquire additional controlling
interests in business opportunities that are similar in nature to its existing
medical diagnostic imaging centers in order to further grow us.
In the immediate future, we are seeking additional financing for our
working capital requirements, for expansion of our existing operations and
acquisition of more MRI centers.
Acquisitions
------------
On July 14, 1998, we acquired either the stock or substantially all of
the assets and liabilities of Vision Diagnostics, Inc. and Affiliates. Vision
Diagnostics, Inc. and Affiliates was in the business of providing medical
diagnostic services. The affiliated group of companies includes Vision
Diagnostic, Inc., Regional MRI of Orlando, Inc., Regional MRI of Jacksonville,
Ltd. and Regional MRI of Toledo, Inc. In addition, Vision is the general partner
in West Regional MRI Limited Partnership located in Oak Brook, Illinois.
Vision Diagnostics, Inc. is the 50% general partner in West Regional
MRI Limited Partnership. On April 7, 1999, we acquired the remaining 50%
interest in West Regional MRI Limited Partnership at a purchase price of
$1,300,000 and recorded goodwill associated with this transaction of $762,265.
The consolidated financial statements reflect all of the assets, liabilities,
revenues and expenses of the partnership. Prior to this acquisition, the limited
partners' share of the partner's capital had been reflected as a minority
interest on the accompanying consolidated balance sheet at December 31, 1998.
The limited partners' share of the partnership's net income has been presented
as minority partners share of income consolidated partnership interest in the
accompanying consolidated statement of operations for the years ended December
31, 1999 and 1998.
On February 9, 2000, we acquired 80% ownership in Ultra MRI &
Diagnostics Services ("Ultra") with a combination of 20% in the form of a
convertible note and 80% in Restricted Rule 144 common stock. Ultra is a
multi-site diagnostic imaging business with offices in Palm Harbor, St.
Petersburg and Tampa, Florida. Ultra had approximately $2.5 million in revenue
in 1999. Total assets were approximately $1.8 million and total liabilities were
approximately $1.3 million as of December 31, 1999. The convertible notes are
payable to the principals in an aggregate amount of $125,000 on August 9, 2000,
$125,000 on November 9, 2000 and $130,601 due November 9, 2001.
We plan to seek, investigate and, if such investigation warrants, to
acquire controlling interest in business opportunities that are similar in
nature to our existing medical diagnostic imaging centers. We plan to
concentrate our search to opportunities that are located near our existing
centers, but will not restrict our search in other geographical locations. We
may seek a business opportunity in the form of firms which have recently
commenced operations or are mature businesses.
In seeking business opportunities, we will base our decision upon the
objectives of seeking long-term appreciation in our market value. The analysis
of new business opportunities will be pursued under guidelines and objectives
established by our officers and directors, and will attempt to analyze all
relevant factors and make a determination based upon reasonable investigative
measures and available data. Our management will utilize the services of its
present attorney and accountants in the investigation of prospective
acquisitions. We may also utilize the services of hired consultants.
Risks
-----
As we acquire additional diagnostic imaging centers with existing
revenue streams and additional financing transactions, our working capital
requirements can be expected to increase. Our ability to collect the accounts
receivable associated with providing diagnostic imaging services will be a
significant factor in meeting our working capital needs.
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We may incur operating losses in the coming year. In the immediate
future, in order to fund our current working capital deficit, expand our
existing operations and acquire additional diagnostic imaging centers, we intend
to complete additional private placements of debt and/or equity securities. Our
ability to obtain additional sources of financing cannot be assured. Our growth
is dependent on its ability to obtain additional funding to expand our existing
operations and acquire other diagnostic imaging centers.
BUSINESS
Corporate History
-----------------
We were incorporated on February 6, 1980, under the laws of the State
of Utah, initially under the name of Gold Probe, Inc. In September 1981, we and
the Hailey Oil Company, Inc., a Mississippi corporation, entered into an
Agreement and Plan of Reorganization whereby we acquired Hailey Oil Company,
Inc. and exchanged 4,500,000 shares of its common stock for all the issued and
outstanding shares of Hailey Oil Company, Inc. Also, pursuant to the
reorganization in January 1982, we changed our name to Hailey Energy
Corporation, effected a one (1) for five (5) reverse split of its common stock,
and decreased our authorized number of shares to 25,000,000. In October 1986,
our authorized shares increased to 100,000,000. In November 1990, we effected a
one (1) for thirty (30) reverse split of our common stock and increased the par
value of our common stock to $0.15 per share. In November 1992, we changed our
name from "Hailey Energy Corporation" to "Cytoprobe Corporation". In January
1994, we effected a one (1) for six (6) reverse split of our common stock. In
April 1995, we changed our name to Medical Device Technologies, Inc. to reflect
our broadening base of medical products. In June 1996, we effected a one (1) for
two (2) reverse split of our common stock. On March 6, 1998, we effected a one
(1) for thirty-five (35) reverse split of our common stock. The par value of our
common stock remained at $0.15 per share and the number of authorized shares of
common stock (100,000,000) remained unchanged. In October 1999, we changed our
name to Miracor Diagnostics, Inc. to reflect our focus in medical diagnostic
imaging services.
Prior to 1992, our business was the exploration and production of
hydrocarbons. As of June 1, 1992, we re-entered the development stage. Effective
January 1, 1994, we completed the divestiture of all oil and gas properties and
was no longer in the hydrocarbon business. Since that time, we have been
exclusively a medical based company.
Prior to 1998, we engaged in the development of three innovative
medical devices. The Fluid Alarm System (FAS), formerly called the Personal
Alarm System (PAS), monitored the integrity of infection control barriers, such
as surgical gloves and gowns worn during medical procedures. The Cell Recovery
System (CRS), was a cell "brushing" and retrieval system that used an automated
biopsy brush for the collection of specimen cells for diagnostic purposes,
primarily (but not limited to) cancer detection. We received FDA clearance for
the FAS during the year ended December 31, 1995 and received FDA clearance for
the CRS in March 1996. We initiated further clinical trials on the CRS in
1997.The Intracranial Pressure Monitoring System (ICP), was intended to measure
pressures within the skull non-invasively. We determined that the licensed ICP
technology was not effective. As a result, we recorded an impairment loss on the
ICP license in 1997 and deemed the ICP license to have no future value. In 1998,
coincident with the purchase of Vision Diagnostics, Inc. and Affiliates,
described in the next paragraph, we wrote off the costs associated with the FAS
and the CRS licenses, including certain fixed assets and inventory costs, and
recognized impairment losses in the amount of $725,458, and $616,093,
respectively. However, we continue to retain the rights to the use of the
licenses through 2005 and 2008, respectively. Therefore, we may elect to
reintroduce either product at a later date.
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On July 14, 1998, we acquired either the stock or substantially all of
the assets and liabilities of Vision Diagnostics, Inc. and Affiliates (Vision).
Vision Diagnostics, Inc. and Affiliates is in the business of providing medical
diagnostic services. The affiliated group of companies includes Vision
Diagnostic, Inc., Regional MRI of Orlando, Inc., Regional MRI of Jacksonville,
Ltd. and Regional MRI of Toledo, Inc. In addition, Vision is the general partner
in West Regional MRI Limited Partnership located in Oak Brook, Illinois.
We 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 1,893,356 shares of Restricted Rule 144 common stock. We have
accounted 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 our consolidated financial
statements from July 14,1998. Goodwill associated with this transaction amounted
to $2,170,550.
Additionally, at this date, we acquired 100% of the stock of Vision
Diagnostics, Inc. with the issuance of 1,568,000 shares of Restricted Rule 144
common stock. We accounted for the acquisition using the purchase method of
accounting with the results of operations of the acquired entity included in our
consolidated financial statement from the date of acquisition. Goodwill
associated with this transaction amounted to $1,577,477.
During the first quarter of 1999, an additional 200,000 shares of
Restricted Rule 144 common stock, valued at $87,500, were issued in connection
with the acquisition of Vision Diagnostics, Inc. Accordingly, goodwill
associated with this transaction was increased by $87,500.
On April 7, 1999, we acquired the remaining ownership of West Regional
MRI Limited Partnership at a purchase price of approximately $1,300,000.
Associated with this transaction, the Company recorded goodwill of $762,265,
warrants and the related deferred interest valued at $105,250, additional notes
payable for $500,000 due to the limited partners and refinanced a capital lease
agreement for an additional $650,000 due to a finance company. The deferred
interest is being amortized over sixty months, which is the term of the
associated note payable. The $500,000 limited partnership note payable has an
interest rate of 8.5%, payable in quarterly installments of $41,665, final
payment due June 15, 2002. The $650,000 note payable to a finance company has an
interest rate of 12.92% and was added to the refinance of a capital lease with
an additional $100,000 representing the purchase option price of the equipment.
It has a revised sixty month payment of $27,119 with final payment due March
2004. Warrant amortization to interest expense related to the above note payable
amounted to $15,788 as of December 31, 1999.
We acquired 80% ownership in Ultra MRI & Diagnostics Services ("Ultra")
as of February 9, 2000 with a combination of 20% in the form of a convertible
note and 80% in Restricted Rule 144 common stock. Ultra is a multi-site
diagnostic imaging business with offices in Palm Harbor, St. Petersburg and
Tampa, Florida. Ultra had approximately $2.5 million in revenue in 1999. Total
assets were approximately $1.8 million and total liabilities were approximately
$1.3 million as of December 31, 1999. The acquisition has been accounted for as
a purchase in 2000.
As of March 31, 2000, our common stock, par value $.15 per share, is
traded over-the-counter under the symbol "MRDG". Our Redeemable Common Stock
Purchase Warrants (the "Redeemable Warrants") and common stock, which previously
traded on the National Association of Securities Dealers Automated Quotation
(NASDAQ) SmallCap Market under the symbols MEDDW and MEDD were delisted by
NASDAQ on September 30, 1997 and March 26, 1998, respectively. Our 6% Cumulative
Convertible Series A Preferred Stock, par value $.01 per share (the "Preferred
Stock"), which previously traded on the NASDAQ SmallCap Market under the symbol
"MEDDP", converted to common stock at a ratio of 4/35 (four thirty-fifths)
shares of common stock to 1 (one) share of Preferred Stock on July 24, 1997.
There were no shares of Preferred Stock outstanding at December 31, 1999.
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FACILITIES
We lease our diagnostic imaging equipment and have offices in San
Diego, California, Toledo Ohio, Oak Brook, Illinois, and Jacksonville, Orlando,
Tampa, St. Petersburg and Palm Harbor, Florida. Our total lease obligation is
currently approximately $110,000 per month with certain leases extending through
2006.
EMPLOYEES
As of March 31, 2000, we have five full-time and two part-time
corporate employees, and thirty-three full-time and seven part-time employees at
seven diagnostic imaging centers.
Our future success depends in significant part upon the continued
service of our key technical and senior management personnel. The competition
for highly qualified personnel is intense, and there can be no assurance that we
will be able to retain our key managerial and technical employees or that we
will be able to attract and retain additional highly qualified technical and
managerial personnel in the future. None of our employees is represented by a
labor union, and we consider our relations with our employees to be good. None
of our employees is covered by key man life insurance policies.
GOVERNMENT REGULATION
We are not subject, as a company, to any material governmental
regulation or approvals. However, diagnostic imaging devices and operations are
subject to inspection and evaluation by regulatory authorities who have
jurisdiction over such standards. Such authorities are on the federal, state,
and local level, in the United States, where we market our products. Our
operations have already been inspected and evaluated by all applicable
governmental authorities in the areas in which we operate or plan to operate in
the near future. Therefore, the impact of governmental regulation is not
expected to be material to our operations.
We have not incurred costs associated with environmental laws and do
not anticipate such laws will have any significant effect on our future
business.
USE OF PROCEEDS
We expect to sell to Swartz $15,000,000 of common stock under the
investment agreement, subject to the terms and limitations previously described.
Additional amounts may be received if the warrants to purchase common stock are
exercised. Net proceeds are determined after deducting all expenses of the
offering (estimated to be $65,000).
We intend, in the following order of priority, to use the net proceeds
from this offering as follows:
Acquisition $ 13,100,000
Public Relations 300,000
Working capital and general corporate purposes 1,535,000
-------------
Total $ 14,935,000
=============
The amount and timing of working capital expenditures may vary
significantly depending upon numerous factors such as:
- Revenues generated from existing and anticipated MRI centers,
- The development of marketing and sales resources,
- Administrative and legal expenses, and
- Other requirements not now known or estimable.
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<PAGE>
We believe that our available cash and existing sources of funding,
together with the proceeds of this offering and interest earned thereon, will be
adequate to maintain our current and planned operations for at least the next 3
years.
LITIGATION
In March 1998, a lawsuit was filed against us for "false designation"
in connection with the use of the name Medical Device Technologies, Inc. During
the first quarter of 1999, the lawsuit was settled whereby we agreed to cease
using the name of Medical Device Technologies, Inc. effective on June 18, 1999.
We obtained approval from our shareholders to change our name to Miracor
Diagnostics, Inc. In October 1999, the Company completed the process of changing
our name to Miracor Diagnostics, Inc.
In June 1999, we reached a mutually agreeable settlement regarding the
January 1998 Superior Court of the State of California, County of Ventura
Lawsuit. We issued 250,000 shares of Restricted Rule 144 common stock in full
settlement of such lawsuit. Accordingly, we reclassified the related $93,000
accrued liability to common stock and additional paid-in capital on the
accompanying 1999 consolidated balance sheet.
In July 1999, we instituted suit for non-payment of fees. In August
1999, the defendant filed a cross-complaint for damages. We have no serious
financial exposure to this claim. The suit is presently before a mediator for
settlement.
Except as described above, we are not aware of any legal matter or
claim pending or threatened that would have a material adverse effect on our
consolidated financial position or results of operations. There are no other
legal proceedings, to which we are a party, which could have a material adverse
effect on us.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the notes thereto appearing in this Prospectus Forward-Looking
Statements
--------------------------
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REGARDING
US, OUR BUSINESS, PROSPECTS AND RESULTS OF OPERATIONS THAT ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES POSED BY MANY FACTORS AND EVENTS THAT COULD
CAUSE OUR ACTUAL BUSINESS, PROSPECTS AND RESULTS OF OPERATIONS TO DIFFER
MATERIALLY FROM THOSE THAT MAY BE ANTICIPATED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY AFFECT SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION: THE IMPACT OF COMPETITION ON OUR REVENUES, CHANGES IN LAW OR
REGULATORY REQUIREMENTS THAT ADVERSELY AFFECT OR PRECLUDE CUSTOMERS FROM USING
OUR SERVICES FOR CERTAIN APPLICATIONS; ABILITY TO ACQUIRE ADDITIONAL MEDICAL
DIAGNOSTIC IMAGING CENTERS; AND FAILURE BY US TO KEEP PACE WITH EMERGING
TECHNOLOGIES.
WHEN USED IN THIS DISCUSSION AS WELL AS IN OTHER ITEMS IN THIS
PROSPECTUS, WORDS SUCH AS "BELIEVES", "ANTICIPATES", "EXPECTS", "INTENDS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE
NOT THE EXCLUSIVE MEANS OF IDENTIFYING FORWARD-LOOKING STATEMENTS. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE OF THIS REPORT. WE UNDERTAKE NO OBLIGATION TO REVISE
ANY FORWARD-LOOKING STATEMENTS IN ORDER TO REFLECT EVENTS OR CIRCUMSTANCES THAT
MAY SUBSEQUENTLY ARISE. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE
VARIOUS DISCLOSURES MADE BY US IN THIS REPORT AND OTHER REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION THAT ATTEMPT TO ADVISE INTERESTED PARTIES OF
THE RISKS AND FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS.
15
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General
-------
From our incorporation in 1980 until June 1992, we engaged exclusively
in oil and gas activities. In June 1992, we commenced certain initial activities
with respect to the medical device business and in November 1992, changed our
name to "Cytoprobe Corporation" to reflect this business change. Thereafter, we
continued to increase our activities in the medical device field while
simultaneously decreasing its oil and gas activities. On January 1, 1994, we
disposed of all our oil and gas interests and ceased all activities related
thereto, commenced on a full-time basis our current medical device operations.
We changed our name in May 1995, to "Medical Device Technologies, Inc., and at
that time we were considered, for accounting purposes to have emerged as a
development stage company. In the third quarter of 1998, we redefined our
business focus to medical diagnostic imaging services and emerged as an
operating company through the acquisition of medical resonance imaging (MRI)
centers in Orlando and Jacksonville, Florida, Toledo, Ohio, and the general
partnership interest of another center in Oak Brook, Illinois. In April 1999, we
acquired the remaining 50% limited partnership interest in the Oak Brook Center.
In October 1999, we changed our name to Miracor Diagnostics, Inc. to reflect our
change in focus to diagnostic imaging services.
During 1999, our activities focused on improvement of our capital
structure and operations of the acquired MRI centers. As a result, the acquired
debt from the MRI acquisitions was reduced, equity was increased $1 million and
used for ongoing working capital and quarterly losses of approximately $400,000
in the first and second quarters were reduced to approximately $75,000 in the
fourth quarter. Additionally, we identified suitable acquisition targets to
position us for growth.
On February 9, 2000, we acquired 80% ownership in Ultra MRI &
Diagnostics Services ("Ultra") with a combination of 20% in the form of a
convertible note and 80% in Restricted Rule 144 common stock. Ultra is a
multi-site diagnostic imaging business with offices in Palm Harbor, St.
Petersburg and Tampa, Florida. Ultra had approximately $2.5 million in revenue
in 1999. Total assets were approximately $1.8 million and total liabilities were
approximately $1.3 million as of December 31, 1999. The convertible notes are
payable to the principals in an aggregate amount of $125,000 on August 9, 2000,
$125,000 on November 9, 2000 and $130,601 due November 9, 2001.
We may incur operating losses in the coming year. In the immediate
future, in order to fund expansion of our existing operations and acquire
additional diagnostic imaging centers, we intend to complete additional private
placements of debt and/or equity securities. Our ability to obtain additional
sources of financing cannot be assured. Our growth is dependent on our ability
to obtain additional funding to expand our existing operations and acquire other
diagnostic imaging centers.
The following management discussion and analysis and plan of operation
should be read in conjunction with the consolidated financial statements and
notes thereto.
Results of Operations
---------------------
Quarter ended March 31, 2000 compared to quarter ended March 31, 1999
and the year ended December 31, 1999 compared to year ended December 31, 1998.
Revenues
--------
Our net revenues for the three months ended March 31, 2000 were
$1,746,307 compared to $803,686 for the three months ended March 31, 1999. The
increase of 117.3% is primarily attributed to business growth through increased
marketing and to a lesser extent, the acquisition of Ultra MRI Diagnostic
Services as of February 9, 2000. Revenue from the MRI centers generated from
providing scanning, X-ray and reading services for the medical industry
accounted for all of the net revenues in the first quarter of 2000 and 1999.
16
<PAGE>
Our net revenues for the year ended December 31, 1999 were $3,924,987
compared to $1,869,374 for the year ended December 31, 1998. The increase of
110% is primarily attributed to revenues resulting from the July 1998
acquisition of Vision Diagnostics, Inc. and affiliates. The operations of which
were included for the entire year of 1999 as compared to only six months of
1998. Revenue from the MRI centers generated from providing scanning and reading
services for the medical industry accounted for all of the net revenues in 1999.
The product sales from the FAS represented $1,900 of the sales revenue in 1998
with the remaining revenues representing sales from the MRI centers.
Operating Expenses
------------------
Research and Development
We had no research and development costs for the quarter ended March
31, 2000. Research and development costs in 1999 were $0 as compared to $102,293
in 1998, representing a decrease of 100%. In 1998, research and development
activities were postponed and the only costs were associated with the carrying
costs for maintaining ownership of the FAS and CRS licenses. There were no
current year costs associated with research and development due to the cessation
in late 1998 of all activity related to the FAS and CRS. The ceased and the
associated licenses were written-off at that time to reflect our focus on
medical diagnostic imaging service centers.
Sales, General and Administrative
Sales, general and administrative costs were $1,640,944 in the first
quarter of 2000 as compared to $1,168,824 in the first quarter of 1999,
representing an increase of 40.4%. This increase was primarily attributed to the
operating costs resulting from the February 9, 2000 acquisition of Ultra MRI
Diagnostics Services and the increased corporate costs associated with the
acquisition process as well as with providing services to the newly acquired
centers.
Sales, general and administrative costs were $4,977,308 in 1999 as
compared to $2,967,114 in 1998, representing an increase of 67.7%. This increase
was primarily the result of operating the MRI centers for a full year compared
to only six months in 1998. The increase was partially offset by the
discontinued royalties expense and amortization of licenses related to the FAS
and CRS. There were no current year costs associated with FAS and CRS licenses
and royalties due to the cessation in late 1998 of all activity related to the
FAS and CRS.
Write-Off of License Agreements
In 1998, coincident with the purchase of Vision Diagnostics, Inc. and
Affiliates, we wrote-off the FAS and the CRS licenses as well as other related
assets and recorded an impairment loss of $1,341,551.
Net Loss
Our net loss for the three month period ended March 31, 2000 was
($45,157) as compared to ($417,821) for the three month period ended March 31,
1999, representing a 89.2% decline. The decrease in net loss was primarily
attributable to increased revenues. The increase of 117.3% in revenue is
primarily attributed to business growth through increased marketing and to a
lesser extent, the acquisition of Ultra MRI Diagnostic Services as of February
2000. Loss per common share for the first quarter of 2000 was ($0.01) as
compared to a ($0.09) loss per common share for the first quarter of 1999. This
reduction in loss per common share was attributable to the reduced net loss in
the first three month period of 2000 compared to the same period in 1999 and to
the increase in the weighted average number of common shares outstanding as of
March 31, 2000 as compared to March 31, 1999.
17
<PAGE>
Our net loss for the year ended December 31, 1999 was ($1,305,208) as
compared to ($2,833,850) for the year ended December 31, 1998, representing a
53.9% decline. The decrease in net loss was primarily attributable to increased
revenues as well as the discontinuance of research and development, royalties,
and license amortization related to the FAS and CRS products. This decrease was
partially offset by the increased costs associated with providing services and
operating the MRI centers for a full year. Loss per common share for 1999 was
($0.20) as compared to a ($0.93) loss per common share 1998. This reduction in
loss per common share was attributable to the reduced net loss in 1999 compared
to 1998 and to the increase in the weighted average number of common shares
outstanding in 1999 as compared to 1998.
Liquidity and Capital Resources
-------------------------------
To date, we have funded our capital requirements for our current
medical diagnostic imaging operations from cash flows from our operations and
the public and private sale of debt and equity securities and the issuance of
common stock in exchange for services. Our cash position at March 31, 2000 was
$105,915 as compared to $19,122 at March 31, 1999, representing a 454% increase.
In the first quarter of 2000, $48,238 of net cash was provided by operating
activities. We received $54,772 from increases in the line of credit and
$191,016 from the proceeds of Restricted Rule 144 common stock issued during the
first three months of 2000. Net cash provided by operating activities in the
first three months of 2000 included a net loss of ($45,157). Contributing to
this net loss was a decrease in other net assets (excluding cash) of ($613,117),
which was offset by $706,512 in common stock paid for services and interest in
lieu of cash, depreciation/amortization, minority interest, bad debt expense and
accrued compensation expense. Changes in current assets and current liabilities
resulted in a deficit in the Company's working capital position of $95,316 at
March 31, 2000 as compared to a negative working capital of $1,258,564 at
December 31, 1998.
Our cash position at December 31, 1999 was $106,517 as compared to
$77,906 at December 31, 1998, representing a 36.7% increase. In 1999, $288,207
of net cash was provided by operating activities. We received $150,000 from the
proceeds of notes payable and $485,000 from the proceeds of Restricted Rule 144
common stock issued during 1999. Net cash provided by operating activities in
1999 consisted principally of a net loss of ($1,305,208). Contributing to this
net loss was a decrease in other net assets (excluding cash) of ($299,068),
which was offset by $1,892,483 in common stock paid for services and interest in
lieu of cash, depreciation /amortization, minority interest, bad debt expense,
write-off of notes payable, cancellation of restricted Rule 144 common stock and
accrued compensation expense. Changes in current assets and current liabilities
resulted in a deficit in our working capital position of $544,186 at December
31, 1999 as compared to a negative working capital of $1,258,564 at December 31,
1998. Our current deficit in working capital requires us to obtain funds in the
short-term , and in the longer term to continue to provide services in our
current MRI centers and to acquire additional MRI centers. We are seeking to
fund these and other operating needs in the next 12 months from funds to be
obtained through the proceeds of additional private placements or public
offerings of debt or equity securities, or both.
In the immediate future, in order to fund our current working capital
deficit, expansion of our existing operations as well as acquire additional
diagnostic imaging sites for growth, we intend to seek to complete this offering
of equity securities. Our ability to obtain additional sources of financing
cannot be assured. Our growth is dependent on our ability to obtain such
additional funding.
Pursuant to an investment letter dated February 23, 1999 with an
individual, we received $25,000 for the purchase of 62,500 shares of Restricted
Rule 144 common stock at a purchase price of $.40 per share. Pursuant to an
investment letter dated March 8, 1999 with an individual, we received $100,000
for the purchase of 250,000 shares of Restricted Rule 144 common stock at a
purchase price of $.40 per share. Pursuant to an investment letter dated March
12, 1999 with an individual, we received $10,000 for the purchase of 25,000
18
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shares of Restricted Rule 144 common stock at a purchase price of $.40 per
share. Pursuant to investment letters dated May 25, 1999 and June 7, 1999 with a
limited liability company, we received $100,000 for the purchase of 250,000
shares and $50,000 for the purchase of 125,000 shares, respectively. Both
investment letters were to purchase shares of Restricted Rule 144 common stock
at a purchase price of $.40 per share. Pursuant to an investment letter dated
May 25, 1999 with a corporation, we received $100,000 for the purchase of
250,000 shares of Restricted Rule 144 common stock at a purchase price of $.40
per share. Pursuant to an investment letter dated September 15, 1999 with a
limited liability company, we received $50,000 for the purchase of 66,667 shares
of Restricted Rule 144 common stock at a purchase price of $.75 per share.
Pursuant to an investment letter dated December 4, 1999 with a limited liability
company, we received $50,000 for the purchase of 111,111 shares of Restricted
Rule 144 common stock at a purchase price of $.45 per share. As of December 31,
1999, all 1,140,278 shares had been issued.
Pursuant to an investment letter dated February 7, 2000 with an
individual, we received $50,000 for the purchase of 125,000 shares of Restricted
Rule 144 common stock at a purchase price of $.40 per share. Pursuant to an
investment letter dated February 8, 2000 with an individual, we received $50,000
for the purchase of 125,000 shares of Restricted Rule 144 common stock at a
purchase price of $.40 per share. Pursuant to investment letters dated March 10,
2000 with six individuals, we received $90,000 for the total purchase of 138,600
shares of Restricted Rule 144 common stock at a purchase price of $.65 per
share. As of March 31, 2000, all 388,6000 shares had been issued.
During the fourth quarter of 1997, we issued $100,000 ($50,000 to three
of our directors) in principal amount of 36% short-term convertible notes
payable, due May 18, 1998, to five individuals to finance operations until a
corporate acquisition could be completed. Until payment in full, the unpaid
principal amount of these notes, or any portion may, at the election of the
noteholder at any time, be converted at the conversion price per share of fifty
(50%) percent of the previous thirty day average trading bid price as of the
date of conversion (as amended). As additional consideration for these loans,
the individual lenders, including the directors, were awarded an aggregate of
warrants to purchase 1,429 shares of common stock for every $12,500 loaned to us
at an exercise price of $4.20 per share. In connection with the issuance of the
warrants to the individuals, we did not recognize additional interest expense,
as the value of the warrants was deemed to be immaterial. The interest rate and
terms of these notes were made at arms length.
On June 19, 1998, 164,096 shares of Restricted Rule 144 common stock
were issued in order to convert all of these 1997 notes including principal and
accrued interest payable. No cash was paid to these individuals nor to the
directors for interest. Restricted Rule 144 common stock paid to these
individuals and to the directors for interest was $21,300 at December 31, 1998
and $0 for the year ended December 31, 1999. Accrued interest was $0 for the
year ended December 31, 1998. All of the noteholders did not elect to exercise
the related warrants, thus, all such warrants expired on May 18, 1998.
During the year ended December 31, 1998, we issued $240,020 in
principal amount of short-term convertible notes payable, due one year from the
date of the related note or the date we receive funding from any offering or
merger with another corporation, to four individuals to finance operations until
a corporate acquisition could be completed. Until payment in full, the unpaid
principal and accrued interest amounts of these notes, may be converted, at the
option of the noteholder, into our common shares at any time prior to repayment
thereof at a conversion price per share of fifty (50%) percent of the previous
thirty day average trading bid price as of the date of conversion. These notes
accrue interest at a rate per annum equal to one (1%) percent over the
referenced prime lending rate announced from time to time by Bank of America in
San Francisco, California. As additional consideration for these loans, the
individual lenders were awarded 6,250 Restricted Rule 144 common stock for every
$12,500 loaned to us.
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<PAGE>
During the second and third quarters of 1998, 391,858 shares (including
the additional consideration shares) of Restricted Rule 144 common stock were
issued in order to convert all of these 1998 short-term convertible notes,
including principal and accrued interest payable, except for one note for
$15,000, which was still outstanding at December 31, 1998. Cash paid to these
individuals for interest was $0 for the year ended December 31, 1998. Restricted
Rule 144 common stock paid to these individuals for interest was $13,708 during
the year ended December 31, 1998. Accrued interest amounted to $1,248 as of
December 31, 1998.
Pursuant to an investment letter dated June 26, 1998 with an
individual, the Company received $55,000 for the purchase of 55,000 shares of
Restricted Rule 144 common stock at a purchase price of $1.00 per share. As of
December 31, 1998, all such shares had been issued.
Pursuant to an investment letter dated February 23, 1999 with an
individual, we received $25,000 for the purchase of 62,500 shares of Restricted
Rule 144 common stock at a purchase price of $.40 per share. Pursuant to an
investment letter dated March 8, 1999 with an individual, we received $100,000
for the purchase of 250,000 shares of Restricted Rule 144 common stock at a
purchase price of $.40 per share. Pursuant to an investment letter dated March
12, 1999 with an individual, we received $10,000 for the purchase of 25,000
shares of Restricted Rule 144 common stock at a purchase price of $.40 per
share. Pursuant to investment letters dated May 25, 1999 and June 7, 1999 with a
limited liability company, we received $100,000 for the purchase of 250,000
shares and $50,000 for the purchase of 125,000 shares, respectively. Both
investment letters were to purchase shares of Restricted Rule 144 common stock
at a purchase price of $.40 per share. Pursuant to an investment letter dated
May 25, 1999 with a corporation, we received $100,000 for the purchase of
250,000 shares of Restricted Rule 144 common stock at a purchase price of $.40
per share. Pursuant to an investment letter dated September 15, 1999 with a
limited liability company, we received $50,000 for the purchase of 66,667 shares
of Restricted Rule 144 common stock at a purchase price of $.75 per share.
Pursuant to an investment letter dated December 4, 1999 with a limited liability
company, we received $50,000 for the purchase of 111,111 shares of Restricted
Rule 144 common stock at a purchase price of $.45 per share. As of December 31,
1999, all 1,140,278 shares had been issued.
In September 1999, we issued $50,000 in principal amount of 10%
Promissory notes payable, due March 31, 2000, to two directors and an individual
to finance operations. As additional consideration for these loans, the
individual lenders, including the directors, were awarded total warrants to
purchase 40,000 shares of common stock at an exercise price of $0.625 per share.
In connection with the issuance of the warrants to the individuals, we are
recognizing additional interest expense of $10,938, which is being amortized
over the terms of the loans. Accrued interest expense and warrant amortization
to interest expense related to these loans amounted to $1,667 and $1,944,
respectively, as of December 31, 1999.
PLAN OF OPERATION
Emergence from a Development Stage Company
------------------------------------------
We emerged in 1998 from a development stage to an operating company
through the corporate acquisition of Vision Diagnostics, Inc. and affiliates.
Our Capital Requirements
------------------------
Our greatest cash requirements during 2000 will be for funding growth
through expansion of our existing operations and for future acquisitions of
additional diagnostic imaging centers.
We are seeking to fund activities and other operating needs in the next
thirty-six months from funds to be obtained through our investment agreement
with Swartz Private Equity, LLC.
20
<PAGE>
Subsequent to the next thirty-six months, we plan to finance our
long-term operations and capital requirements with the profits and funds
generated from the revenues of our MRI centers. We may obtain future funding
through new private financings and public offerings of debt and equity
securities.
Year 2000 Compliance
--------------------
In the past, many computers, software programs, and other information
technology ("IT systems"), as well as other equipment relying on microprocessors
or similar circuitry ("non-IT systems"), were written or designed using two
digits, rather than four, to define the applicable year. As a result, if not
addressed these systems may not have been able to properly interpret dates
beyond the Year 1999, which may have led to business disruptions. Accordingly,
we identified and performed all needed material modifications and testing of
significant systems, and communicated with customers, suppliers, banks and
others with whom we do significant business to determine their Year 2000
readiness and the extent to which we were vulnerable to any other organization's
Year 2000 issues.
We consider the transition into the year 2000 successful from the
perspective of its systems. In addition to the changeover to January 1, 2000, it
has been shown that certain other dates may also present similar problems for
some systems. We continue to monitor the situation. To date, we have not
experienced any material Year 2000 issues with respect to our systems, customers
or suppliers.
We estimate that the total cost to us of Year 2000 activities has been
less than $10,000.
MANAGEMENT
Our Directors and Executive Officers, on March 31, 2000, and their
ages, positions held with the Company, length of time in such positions, and
term of office are set forth below:
Name and Age Current Position Director Since Officer Since
------------ ---------------- -------------- -------------
M. Lee Hulsebus Chairman of the Board, 11/11/94 8/31/94
Age 61 Chief Executive Officer,
President
Richard E. Sloan Vice President of 3/15/96
Age 50 Operations and New
Business Development
Ross S. Seibert Chief Financial Officer 2/21/00
Age 37
Don L. Arnwine Director 3/6/95
Age 67
Arthur E. Bradley Director 9/26/86
Age 66
Thomas E. Glasgow Director 11/11/94
Age 46
Robert S. Muehlberg Director 3/11/99
Age 46
21
<PAGE>
The principal occupations and positions for the past several years of
each of our executive officers and directors are as follows:
M. Lee Hulsebus has been in the health care field for 34 years. >From
January 1990 until he joined the Company in August 1994, he was the President
and owner of his own health care consulting firm. From 1990 to 1992, Mr.
Hulsebus also served as President and Chief Operating Officer of Sports Support,
Inc., a sports medicine company. From 1988 until 1990, he served as Medical
Group President (worldwide operations) for Teleflex, Inc. For 22 years prior to
that, Mr. Hulsebus was employed by Becton-Dickinson & Co. and C.R. Bard, Inc.,
both of which are leading companies in the health care industry. Mr. Hulsebus
has served in the capacity of President/Chief Executive Officer for the past 20
years for various companies.
Richard E. Sloan has been Vice President of New Business Development
since March 1996 and Vice President of Operations since July 14, 1998. Mr. Sloan
was also a consultant to the Company from August 1995 to March 1996. >From March
1995 to July 1995, Mr. Sloan served as Chief Executive Officer of WorldWide
Products, Inc., a private Los Angeles based development and marketing firm that
distributes pharmaceutical products to plastic surgeons and dermatologists.
Prior thereto, from March 1992 to March 1995 he served as corporate marketing
director and general manager for Industrial Products of UniFET Incorporated, a
private company based in San Diego, California involved in the development of
solid-state sensor-based medical products. From December 1989 through March
1992, Mr. Sloan managed his own mergers and acquisition business with First
Pacific Group, located in Carlsbad, California, which provided investment and
financial services to privately-held companies in southern California. Prior to
that Mr. Sloan had held various management positions with Baxter International,
Deerfield, IL and IVAC Corporation, San Diego, CA.
Ross S. Seibert has been Chief Financial Officer since February, 2000.
Mr. Seibert was with Deloitte & Touche since 1986 and served as Senior Manager.
He received a BS in accounting from Indiana University and a MBA in finance from
San Diego State University.
Don L. Arnwine has been President of Arnwine Associates of Irving,
Texas, a company he founded to provide specialized advisory services to the
health care industry, since 1988. Mr. Arnwine served as Chairman and Chief
Executive Officer from 1985 until 1988 of Voluntary Hospitals of America (VHA),
a company he joined in 1982. Prior to joining VHA, Mr. Arnwine served as
President and Chief Executive Officer of Charleston Area Medical Center, a
1000-bed regional facility care center in the State of West Virginia. Mr.
Arnwine holds a BS degree in Business Administration from Oklahoma Central State
University and a Masters degree in Hospital Management from Northwestern
University.
Arthur E. Bradley, DDS has been a practicing dentist since 1961. Dr.
Bradley has been involved for his own account in real estate investments for
twenty years and has been active in oil and gas investments for fifteen years.
Dr. Bradley graduated from the University of Mississippi at Hattiesburg and
obtained his degree in Dentistry from Loyola University Dental School.
Thomas E. Glasgow has been President and co-owner of Integrated Trade
Systems ("ITS"), a Chicago, Illinois company from April 1992 to the present. Mr.
Glasgow and another individual purchased ITS from its parent company in 1992.
ITS is a logistics management company specializing in the development and
marketing of import and export document generation systems. From 1989 through
1991, Mr. Glasgow was a partner with Wharton Resource Group and a consultant
with ITS. Wharton Resource Group is a strategic management company specializing
in the development of early stage companies. Prior to these activities, he was a
director with Federal Express Corporation for 11 years in various senior
management capacities.
Robert S. Muehlberg has been President and Chief Executive Officer of
Envision Management, Inc. of Las Vegas, NV, a company that provides management
and consulting services to the health care industry since 1997. Mr. Muehlberg
served as Chairman and Chief Executive Officer from 1994 until 1997 of Medical
Imaging Centers of America, Inc. (MICA), a company he joined in 1985. Prior to
joining MICA, Mr. Muehlberg held various management positions at International
Imaging, Inc., Chicago, IL and American Medical International (AMI) Clearwater,
FL. Mr. Muehlberg holds a Bachelor's degree in Health Science from the
University of Missouri and a Masters degree in Business Administration from Nova
Southeastern University.
22
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the Summary Compensation Table for our
Chief Executive Officer and the next most highly compensated executive officer
other than the Chief Executive Officer who were serving as executive officers at
the end of the last completed fiscal year. No other compensation not covered in
the following table was paid or distributed by the Company to such persons
during the period covered. Employee Directors receive stock compensation for
service on the Board of Directors. Directors who are not employees receive a fee
of 3,000 shares per quarter plus travel expenses for each Board Meeting.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Other
Annual LTIP All
Compen- Restricted Options Other
Salary sation Stock SARs Compen-
Name Position Year $(1) Bonus $ (2) Awards sation $ (3)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
M. Lee Hulsebus(1) President 1999 $162,000 -0- $23,177(2) $56,573 120,000 -0- -0-
1998 $112,154 -0- -0- -0- -0- -0-
1997 $162,000 $16,800 $15,411(4) -0- 5,714 $19,500 -0-
Richard E. Sloan(5) Vice Pres 1999 $115,500 -0- $6,354(2) $9,885(2) 50,000 -0- -0-
1998 $78,696 -0- -0- $1,767 -0- -0- -0-
1997 $105,300 $5,400 $4,954(6) $9,629 2,143 $1,950 -0-
</TABLE>
(1) In August, 1994, we entered into an exclusive four-year term employment
agreement with Mr. M. Lee Hulsebus. Under his employment agreement, Mr.
Hulsebus is to serve as our Chief Executive Officer and President and
to receive a base salary of $162,000 per annum. In addition, in 1994,
we entered into a severance agreement with Mr. Hulsebus. Such severance
agreement provides, among other things, that in the event of a change
in control of us or Mr. Hulsebus is involuntarily terminated, suffers a
disability while employed by us or dies while employed by us, then Mr.
Hulsebus is entitled to receive certain benefits from us. Such benefits
may include some or all of the following: an amount based on Mr.
Hulsebus' base salary as provided for in Mr. Hulsebus's employment
agreement; an amount based on the bonus paid or payable to Mr. Hulsebus
as provided for in Mr. Hulsebus' employment agreement; the right to
receive common stock that shall vest immediately; the right to exercise
any warrants or stock options held by or granted to Mr. Hulsebus under
Mr. Hulsebus' employment agreement or any of our stock option plans or
both; health insurance and disability insurance. Mr. Hulsebus will not
receive any benefits if Mr. Hulsebus voluntarily terminates his
employment with us or we terminate Mr. Hulsebus "for cause," which is
defined as the conviction of Mr. Hulsebus after appeal of a felony. On
August 2, 1999, the Board of Directors extended the term of Mr.
Hulsebus' employment agreement and severance agreement for an
additional one (1) year period, or until August 31, 2002.
23
<PAGE>
(2) Represents Rule 144 stock paid as 1999 bonus compensation.
(3) Represents incentive stock option granted pursuant to Incentive Stock
Option Plan.
(4) Represents a common stock grant of 22,400 shares.
(5) In March, 1996, we entered into an exclusive employment agreement with
Mr. Richard E. Sloan under which he is to serve as our Vice President
of Operations and New Business Development. Mr. Sloan receives a base
salary of $118,000 per annum.
(6) Represents a common stock grant of 7,200 shares
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
We have an Audit Committee and a Compensation Committee of the Board of
Directors. Both committees were activated in 1996. The Audit Committee held one
meeting prior to the fiscal year end. The Compensation Committee held three
meetings prior to the fiscal year end.
The members of the Audit Committee are Don L. Arnwine and Thomas E.
Glasgow.
The members of the Compensation Committee are Don L. Arnwine, Thomas E.
Glasgow and M. Lee Hulsebus.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth the number of shares of our Common Stock
beneficially owned by (i) each person who, as of March 31, 2000, was known by us
to own beneficially more than five percent (5%) of our Common Stock; (ii) our
individual directors and (iii) our officers and directors as a group. As of
March 31, 2000, there were a total of 10,698,168 shares of Common Stock issued
and outstanding.
24
<PAGE>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)(2) CLASS
------------------- --------------------------- ----------
M. Lee Hulsebus 469,528 4.38
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Arthur E. Bradley, DDS 15,000 *
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Thomas E. Glasgow 30,125 *
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Don L. Arnwine 9,000 *
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Robert S. Muelberg 81,525 *
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Ross S. Seibert 15,000 *
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Richard E. Sloan 78,850 .74
9191 Towne Centre Drive
Suite 400
San Diego, CA 92122
Fred Bergmann 800,000 7.74
4914 N. Armenia Avenue
Tampa, FL 33603
John McCoskrie 800,000 7.74
4914 N. Armenia Avenue
Tampa, FL 33603
Larry M. Lammers (3) 1,665,383 15.57
715 Ironwood Court
Winter Springs, FL 32708
All officers and directors as a Group 699,028 6.53
(seven persons)
* Less than one percent
(1) All ownership is beneficial and of record, unless indicated otherwise
and includes shares issuable upon exercise of outstanding options,
warrants or other common stock equivalents which are exercisable within
60 days.
(2) Beneficial owners listed above have sole voting and investment power
with respect to the shares shown, unless otherwise indicated.
(3) Includes 1,316,537 shares held in trust for the benefit of Dr. Lammers
as to which Mr. Hulsebus, on behalf of our Board of Directors,
maintains share voting power. Does not include 447,011 shares that were
interpleaded into the court for satisfaction of a pending lawsuit.
25
<PAGE>
CERTAIN TRANSACTIONS
There were no transactions, or series of transactions, during fiscal
1998 or 1999, nor are there any currently proposed transactions, or series of
transactions, to which we are a party, in which the amount exceeds $60,000, and
in which to our knowledge any director, executive officer, nominee, five percent
or greater shareholder, or any member of the immediate family of any of the
foregoing persons, has or will have any direct or indirect material interest.
TRADING MARKET AND RELATED MATTERS
Our common stock is traded over-the-counter under the symbol MRDG. The
following table sets forth, for the periods indicated, the high and low bid
prices for the common stock, as reported by the OTC Bulletin Board during 1998
and 1999. Common stock prices have been adjusted to reflect the one for
thirty-five reverse split effective March 6, 1998.
Bid Price
High Low
----------------------------
1998
----
First Quarter $ 2.50 $ .55
Second Quarter $ 2.31 $ 1.14
Third Quarter $ 2.13 $ .94
Fourth Quarter $ 1.06 $ .56
1999
----
First Quarter $ 1.68 $ .68
Second Quarter $ 2.15 $ .65
Third Quarter $ 2.37 $ .94
Fourth Quarter $ 1.56 $ .59
On June 30, 2000, the closing bid and asked prices of our Common Stock,
as reported by the OTC Bulletin Board, were $.032 and $.035 per share,
respectively.
We received notice from NASDAQ, at the close of business on March 24,
1998, that our stock, which had previously traded on the Small Cap Market, was
being delisted as of the date of notification for failure to meet the minimum
requirement for tangible net assets value.
On March 31, 2000, there were approximately 1,213 holders of record of
our Common Stock.
We have not paid any cash dividends with respect to our common stock,
and it is unlikely we will pay any dividends on our common stock in the
foreseeable future. We were required to pay a 6% cumulative, semi-annual
dividend with respect to our Preferred Stock in shares of common stock, and,
through July 24, 1997, the date the Preferred Stock converted, by its terms, to
four/thirty-fifths (4/35 rounded to the nearest whole number of shares) shares
of common stock for each share of Preferred Stock, we made each of such dividend
payments. Earnings, if any, that we may realize will be retained in the business
for further development and expansion.
26
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized stock consists of 100,000,000 authorized shares of
Common Stock, par value $.15 per share, 10,698,168 shares of which were
outstanding as of March 31, 2000; and 10,000,000 authorized shares of Preferred
Stock par value .01 per share, of which no shares of Preferred Stock were
outstanding.
Common Stock
------------
Each share of Common Stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by the owners thereof at a
meeting of the shareholders, including the election of directors. The holders of
Common Stock (i) have equal, ratable rights to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors of the
Company; (ii) are entitled to share ratably in all of our assets available for
distribution to holders of Common Stock upon liquidation, dissolution or winding
up of our affairs; (iii) do not have preemptive or redemption provisions
applicable thereto; and (iv) are entitled to one non-cumulative vote per share
on all matters on which shareholders may vote at all meetings of shareholders.
All shares of Common Stock issued and outstanding are, and those
offered hereby, when issued, will be fully paid and nonassessable, with no
personal liability attaching to the ownership thereof.
Preferred Stock
---------------
6% Cumulative Convertible Series A Preferred Stock
--------------------------------------------------
We originally issued 1,847,500 shares of 6% Cumulative Convertible
Series A Preferred Stock, par value $.01 per share (the "Preferred Stock")
pursuant to an underwritten public offering ("Offering") on June 24, 1996. Each
share of Preferred Stock was convertible into four (4) shares of Common Stock at
a price of $1.25 per share of Common Stock. In accordance with their terms and
conditions of the Preferred Stock on July 24, 1997, any and all shares of
Preferred Stock were automatically converted into shares of Common Stock.
Accordingly, there are currently no shares of Preferred Stock issued and
outstanding, and all of the originally issued 1,847,500 shares of Preferred
Stock have been retired and have become authorized but unissued shares of
Preferred Stock.
Other Preferred Stock
---------------------
As of the date hereof, we have no shares of preferred stock issued and
outstanding. Our Articles of Incorporation authorizes the issuance of "blank
check" preferred stock in one or more classes or series with such designations,
rights, preferences and restrictions as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors may, without prior
shareholder approval, issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the relative
voting power or other rights of the holders of the Preferred Stock or the Common
Stock. Preferred stock could be used, under certain circumstances, as a method
of discouraging, delaying or preventing a change in our control. Although we
have no present intention of issuing any shares of preferred stock, there can be
no assurance that it will not do so in the future. If we issue preferred stock,
such issuance may have a dilutive effect upon the common shareholders, and the
purchasers of the securities offered thereby.
27
<PAGE>
Transfer Agent
--------------
We have appointed Corporate Stock Transfer, Inc., 3200 Cherry Creek
Drive, Suite 430, Denver, Colorado 80209 as our transfer agent. Their phone
number is (303) 282-4800.
LEGAL MATTERS
David Wagner & Associates, P.C., Attorneys at Law, Englewood, Colorado,
has rendered its opinion that the securities offered pursuant to this Prospectus
will, when issued as described in this Prospectus, be duly authorized, validly
issued, fully paid and non-assessable shares. This firm and one of its
affiliates own a total of 29,000 of our Common shares.
EXPERTS
The financial statements included in this Prospectus have been examined
by Parks, Tschopp, Whitcomb & Orr, P.A., Maitland, Florida, independent
certified public accountant, as set forth in their report herein and are
included herein in reliance upon the authority of said firm as an expert in
accounting and auditing.
AVAILABLE INFORMATION
We file reports, proxy statements and other information with the SEC,
and these reports may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. You may obtain information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330. The same information may be obtained
at the following Regional Offices of the SEC: 75 Park Place, New York, New York
10007, and the Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of such material may be obtained from the Public
Reference Section of the SEC's Washington, D.C. office at prescribed rates.
We mail a copy of our audited Annual Report on Form 10-KSB along with a
proxy statement to our shareholders prior to our annual meeting.
We have filed a registration statement on Form SB-2, of which this
prospectus is a part, with the SEC. This registration statement or any part
thereof may also be inspected and copied at the public reference facilities of
the SEC.
28
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
------ March 31, December 31,
2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 105,915 $ 106,517
Accounts receivable (net of allowance of $1,749,182
and $1,308,016) 3,750,478 2,723,306
Prepaid expenses and other assets 64,255 33,965
--------------- ---------------
Total current assets 3,920,648 2,863,788
--------------- ---------------
Property and equipment:
Equipment under capital leases 4,235,633 3,398,458
Machinery and equipment 252,320 211,706
Leasehold improvements 528,599 426,632
Furniture and fixtures 41,938 33,799
--------------- ---------------
5,058,490 4,070,595
Less accumulated depreciation (2,005,029) (1,866,309)
--------------- ---------------
Net property and equipment 3,053,461 2,204,286
Intangible assets:
Goodwill 6,293,352 4,788,143
Organization costs 160,930 160,930
Less accumulated amortization (365,654) (319,427)
--------------- ---------------
6,088,628 4,629,646
Other assets 264,584 231,015
--------------- ---------------
Total assets $ 13,327,321 $ 9,928,735
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------ March 31, December 31,
2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 867,213 $ 849,560
Accrued expenses 390,279 491,470
Lines of credit 634,556 506,384
Due to Shareholders - current portion 250,000 -
Notes payable - current portion 1,029,098 939,112
Capital lease obligations - current portion 844,818 669,307
--------------- ---------------
Total current liabilities 4,015,964 3,455,833
--------------- ---------------
Other liabilities:
Due to Shareholders - long term 130,160 -
Note payable - long term 597,724 683,656
Capital lease obligations - long term 3,192,960 2,683,535
--------------- ---------------
Total liabilities 7,936,808 6,823,024
--------------- ---------------
Minority interest 121,907 -
--------------- ---------------
Commitments and contingencies (note 6)
Stockholders' equity
Series I convertible preferred stock (247,500 shares
authorized; 0 issued and outstanding) - -
6% cumulative convertible Series A preferred stock,
and $.01 par value (1,972,500 shares authorized;
0 shares issued and outstanding) - -
Preferred stock, $.01 par value (10,000,000 shares
authorized; 0 shares issued and outstanding) - -
Common stock, $.15 par value (100,000,000 shares
authorized; 10,698,810 and 7,980,956 outstanding) 1,604,822 1,197,143
Common stock to be issued (935,170 and 770 shares) 584,134 23,494
Warrants 122,750 122,750
Additional paid-in capital 28,943,750 27,705,952
Deferred stock compensation 32,534 30,599
Accumulated deficit (26,019,384) (25,974,227)
--------------- ---------------
Total stockholders' equity 5,268,606 3,105,711
--------------- ---------------
Total liabilities and stockholders' equity $ 13,327,321 $ 9,928,735
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months ended March 31,
2000 1999
--------------- ---------------
Patient service revenue $ 2,326,158 $ 1,093,560
Discounts and allowances (579,851) (289,874)
--------------- ---------------
Net revenues 1,746,307 803,686
--------------- ---------------
Operating expenses:
Sales, general and administrative 1,640,944 1,168,826
--------------- ---------------
Total operating expenses 1,640,944 1,168,826
--------------- ---------------
Income/(Loss)from operations 105,363 (365,140)
Other income (expense):
Interest expense (168,360) (84,262)
Other income 27,524 11,932
--------------- ---------------
Loss before minority interest (35,473) (437,470)
Minority interest (9,684) 19,649
--------------- ---------------
Net loss $ (45,157) $ (417,821)
=============== ===============
Loss per share:
Basic and diluted loss per common share $ (0.01) $ (0.09)
=============== ===============
Weighted average common shares outstanding 8,034,824 4,782,417
=============== ===============
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months ended March 31, 2000
(unaudited)
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL COMMON
------------------------- ------------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL TO BE ISSUED
------------ ------------ ------------ ------------ ------------- ------------
<S> <C><C> <C> <C> <C> <C>
Balance, January 1, 2000 - $ - 7,980,956 $ 1,197,143 27,705,952 $ 23,494
Common stock issued for compensation, interest,
principal of notes payable and services - - 300,429 45,064 232,690 -
Restricted Section 144 common stock issued
for compensation, interest and services - - 302,575 45,387 122,492 -
Restricted Section 144 common stock sold - - 388,600 58,290 131,710 -
Restricted Section 144 common stock issued for
principal and accrued interest on capital
lease obligation - - 125,000 18,750 30,078
Restricted Section 144 common stock issued
for acquisition of Ultra MRI & Diagnostics
Services - - 1,600,000 240,000 720,000 560,640
Common Stock issued for the conversion of employee
stock options - - 1,250 188 828
Accrued stock compensation - - - - - -
Net loss - - - - - -
------------ ------------ ------------ ------------ ------------- ------------
Balance, March 31, 2000 - $ - 10,698,810 $ 1,604,822 $ 28,943,750 $ 584,134
============ ============ ============ ============ ============= ============
</TABLE>
(continued below)
<TABLE>
<CAPTION>
WARRANTS DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 2000 $ 122,750 $ 30,599 $(25,974,227) $ 3,105,711
Common stock issued for compensation, interest,
principal of notes payable and services - - - 277,754
Restricted Section 144 common stock issued
for compensation, interest and services - - - 167,879
Restricted Section 144 common stock sold - - - 190,000
Restricted Section 144 common stock issued for principal
and accrued interest on capital lease obligation - - - 48,828
Restricted Section 144 common stock issued
for acquisition of Ultra MRI & Diagnostics Services - - - 1,520,640
Common Stock issued for the conversion of employee
stock options - - - 1,016
Accrued stock compensation - 1,935 - 1,935
Net loss - - (45,157) (45,157)
------------ ------------ ------------- -------------
Balance, March 31, 2000 $ 122,750 $ 32,534 $(26,019,384) $ 5,268,606
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months ended March 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (45,157) $ (417,821)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock paid for services and interest 371,737 253,138
Compensation recognized relating to accrued
employee stock grants and warrants 1,935 -
Minority interest 9,684 (19,649)
Bad debt expense 131,489 -
Depreciation and amortization 191,667 163,893
Changes in assets and liabilities excluding
net assets acquired:
Accounts receivable (343,744) 157,959
Prepaid expenses and other current assets 17,569 (195,166)
Other assets (56,186) (12,135)
Accounts payable and accrued expenses (230,756) (52,001)
--------------- ---------------
Net cash provided by (used in) operating activities 48,238 (121,782)
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (17,870) -
Cash acquired in purchase of company 1,083 -
--------------- ---------------
Net cash used in investing activities (16,787) -
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable - 100,000
Principal payments on notes payable (68,470) (33,396)
Increase in line of credit 54,772 -
Proceeds from issuing common stock 191,016 135,000
Principal payments on capital lease obligations (209,371) (138,606)
--------------- ---------------
Net cash provided by (used in) financing activities (32,053) 62,998
--------------- ---------------
Net decrease in cash and cash equivalents (602) (58,784)
Cash and cash equivalents, beginning of period 106,517 77,906
--------------- ---------------
Cash and cash equivalents, end of period $ 105,915 $ 19,122
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months ended March 31,
2000 1999
--------------- ---------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
PAYMENTS FOR:
Interest $ 117,421 $ 69,617
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION:
STOCK ISSUED FOR:
Legal, professional and employee services and interest 371,737 253,138
Principal payments on notes payable and capital lease obligations 122,724 -
--------------- ---------------
$ 494,461 $ 253,138
=============== ===============
</TABLE>
During the period ended March 31, 2000, the Company acquired the net assets of
Ultra MRI & Diagnostics Services in exchange for 2,534,400 shares of Restricted
Rule 144 common stock and a payable of $380,160. The net assets acquired were as
follows:
Cash $ 1,083
Accounts receivable 814,917
Property and equipment 970,025
Other Assets 31,963
Accounts payable and other liabilities (93,916)
Capital lease obligations (943,135)
Notes payable (146,421)
Lines of credit (73,400)
----------------
$ (561,116)
================
Common stock issued $ 1,520,640
Due to shareholders 380,160
Direct costs of acquisition 53,302
Minority interest 112,223
Goodwill (1,505,209)
----------------
$ 561,116
================
During the first quarter ended 2000 and 1999, deferred compensation expense of
$1,935 and $0, respectively, were recorded relating to accrued employee stock
grants in order to value such shares at the estimated fair market value at the
date of grant.
During the first quarter of 1999, short-term convertible notes payable in the
amount of $15,000 were converted along with accrued interest payable of $1,608
into 55,119 shares of Restricted Rule 144 common stock.
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
F-6
<PAGE>
On April 7, 1999, the Company acquired the remaining ownership of West Regional
MRI Limited Partnership at a purchase price of approximately $1,300,000.
Associated with this transaction, the Company recorded goodwill of $762,265,
warrants and the related deferred interest valued at $105,250, additional notes
payable for $500,000 due to the limited partners and refinanced a capital lease
agreement for an additional $650,000 due to a finance company. The deferred
interest is being amortized over sixty months, which is the term of the
associated note payable. The $500,000 limited partnership note payable has an
interest rate of 8.5%, payable in quarterly installments of $41,665, final
payment due June 15, 2002. The $650,000 note payable to a finance company has an
interest rate of 12.92% and was added to the refinance of a capital lease with
an additional $100,000 representing the purchase option price of the equipment.
It has a revised sixty month payment of $27,119 with final payment due March
2004. Warrant amortization to interest expense related to the above note payable
amounted to $15,788 for the year ended December 31, 1999 and $5,263 for the
three months ended March 31, 2000.
In September 1999, the Company issued $50,000 in principal amount of 10%
Promissory notes payable, due March 31, 2000, to two directors and an individual
to finance operations. As additional consideration for these loans, the
individual lenders, including the directors, were awarded total warrants to
purchase 40,000 shares of common stock at an exercise price of $0.625 per share.
In connection with the issuance of the warrants to the individuals, the company
is recognizing additional interest expense of $10,938, which is being amortized
over the terms of the loans. Accrued interest payable and warrant amortization
to interest expense related to these loans amounted to $1,667 and $1,944,
respectively, as of December 31, 1999. Accrued interest payable and warrant
amortization to interest expense related to these loans amounted to $2,917 and
$1,457, respectively, as of March 31, 2000.
In 1999, the Company entered into a capital lease agreement with a financing
company. Such agreement finances MRI equipment with a purchase price of $905,700
over a sixty-month period with interest of 3.9% and monthly payment of $16,747.
See notes to consolidated financial statements.
F-7
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the Three Months Ended March 31, 2000 and 1999
(1) STATEMENT OF INFORMATION FURNISHED
----------------------------------
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal and recurring
accruals) necessary to present fairly the Company's financial position for the
interim reporting period as of March 31, 2000, and the results of operations for
the three month period ended March 31, 2000 and 1999 and cash flows for the
three month period March 31, 2000 and 1999. These results have been determined
on the basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's 1999 Annual
Report on Form 10-KSB.
The results of operations for the three month period ended March 31, 1999 are
not necessarily indicative of the results to be expected for any other period or
for the full year.
Certain amounts in the 1999 Financial Statements have been reclassified to
conform with the 2000 presentation.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1999.
(2) LOSS PER COMMON SHARE
---------------------
Loss per common share has been computed based upon the weighted average number
of common shares outstanding during the years presented. Common stock
equivalents resulting from the issuance of the stock options and warrants have
not been included in the per share calculations because such inclusion would be
antidilutive.
(3) GOODWILL
--------
In connection with the Vision and Ultra acquisitions, consideration paid
exceeded the estimated fair value of the assets acquired (including estimated
liabilities assumed as part of the transaction) by approximately $6,100,000. The
excess of the consideration paid over the fair value of the net assets acquired
has been recorded as goodwill and is being amortized on a straight line basis
over 40 years.
(4) LINE OF CREDIT
--------------
The Company has a line of credit with a finance company at prime plus 3% under
which the Company may borrow up to $1,500,000 or the "borrowing base" as
defined. Balance due August 2000, renewable for consecutive one-year periods. At
March 31, 2000 and December 31, 1999, the outstanding balance was $562,658 and
$506,384, respectively.
The Company has a line of credit with a bank at prime plus 1.75% under which the
Company may borrow up to $50,000. At March 31, 2000, the outstanding balance was
$50,000.
The Company has a line of credit with a bank at 10.5% under which the Company
may borrow up to $25,000. At March 31, 2000, the outstanding balance was
$21,898.
F-8
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
(5) NOTES PAYABLE
-------------
Notes payable consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Note payable to individuals, interest at 8.5%, quarterly payments of
$41,665, due March 2003. $ 394,156 $ 447,376
Note payable to an individual, interest at 10%, monthly principal payments
of $9,809 plus accrued interest with a final balloon payment October 2000. 284,448 313,873
Note payable to a finance company, interest at 10%, monthly payments of
$10,000, due March 2002. 209,753 234,059
Note payable to an individual, monthly payments of $15,000, due
September 2000. 112,039 114,019
Note payable to bank, with interest at prime plus 2%. Balance was due
August 1998. 102,378 100,047
Note payable to a finance company, interest at 10.5%, monthly payments of
$2,150, Due March 2004. 83,950 88,121
Note payable to an individual, interest at 2.79%, monthly payments of $2,500,
Due December 2002. 79,336 86,250
Note payable to a bank, with interest at 9.75%, monthly payments of $3,027
beginning May 2000, due October 2002. 78,055 81,239
Note payable to a bank, interest at 4% above discount rate, quarterly
principal payments of $9,311 plus accrued interest beginning April 2000,
due January 2002. 74,489 75,060
Notes payable to directors, interest at 10%,due March 2000. 50,000 50,000
Note payable to a bank, interest at 8.5%, monthly payments of $1,819, due
June 2002. 43,273 -
Note payable to a bank, interest at 8%, monthly payments of $1,429, due
December 2001. 29,139 -
Note payable to a bank, interest at 13.9%, monthly payments of
$1,249, due May 2002. 23,288 -
Note payable to a bank, with a variable interest rate, monthly
payments of $1,629, due May 2001. 20,127 -
Note payable to a bank, interest at 12.25%, monthly payments of $796,
due December 2001. 14,962 -
Note payable to a bank, interest at 10%, monthly payments of $372,
due October 2001. 6,555 -
Other, interest ranging from 6% to 10%. 20,874 32,724
--------------- ---------------
$ 1,626,822 $ 1,622,768
Less current portion 1,029,098 $ 939,112
--------------- ---------------
Long-term portion $ 597,724 $ 683,656
=============== ===============
</TABLE>
F-9
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
On April 7, 1999, the Company acquired the remaining ownership of West Regional
MRI Limited Partnership at a purchase price of approximately $1,300,000.
Associated with this transaction, the Company recorded goodwill of $762,265,
warrants and the related deferred interest valued at $105,250, additional notes
payable for $500,000 due to the limited partners and refinanced a capital lease
agreement for an additional $650,000 due to a finance company. The deferred
interest is being amortized over sixty months, which is the term of the
associated note payable. The $500,000 limited partnership note payable has an
interest rate of 8.5%, payable in quarterly installments of $41,665, final
payment due June 15, 2002. The $650,000 note payable to a finance company has an
interest rate of 12.92% and was added to the refinance of a capital lease with
an additional $100,000 representing the purchase option price of the equipment.
It has a revised sixty month payment of $27,119 with final payment due March
2004. Warrant amortization to interest expense related to the above note payable
amounted to $15,788 for the year ended December 31, 1999 and $5,263 for the
quarter ended March 31, 2000.
F-10
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
(6) STOCKHOLDERS' EQUITY
--------------------
PREFERRED STOCK
In April 1995, the Company amended its Articles of Incorporation to authorize
10,000,000 shares of $.01 par value preferred stock. In December 1995, the
Company further amended its Articles of Incorporation to authorize 187,500 of
Series I convertible preferred stock in conjunction with its private placement
offering, the Company issued 153,750 shares of Series I convertible preferred
stock with an assigned value of $384,375 (see note 3). On January 19, 1996, the
Company again amended its Articles of Incorporation to increase the authorized
shares of Series I convertible preferred stock from 187,500 to 247,500. On
January 24, 1996, the Company issued an additional 93,750 shares of Series I
convertible preferred stock. These preferred shares were considered an original
issue discount associated with the notes payable and were amortized over
approximately the first five months of 1996.
On June 24, 1996, the Company completed a public offering of 1,500,000 shares of
6% cumulative convertible Series A preferred stock (the "Preferred Stock") and
1,500,000 redeemable common stock purchase warrants (the "Redeemable Warrants")
resulting in gross proceeds of $7.65 million. The Company received approximately
$4 million after repayment of short-term debt and costs associated with the
offering. The Preferred Stock is convertible into four thirty-fifths (4/35)
share of common stock $43.75 per share and for a total of $131.25. As part of
the terms of this offering, the holders of the Series I convertible preferred
stock exchanged their preferred stock for the Preferred Stock on a one for one
basis at no cost. Each share of Preferred Stock, by its terms, automatically
converted into four thirty-fifths (4/35) share of common stock on July 24, 1997.
During the first quarter of 1997, 94,920 shares of Preferred Stock were
converted into 10,848 shares of common stock; and during the second quarter of
1997, 31,927 shares of Preferred Stock were converted into 3,649 shares of
common stock. On July 24, 1997, each of the then-outstanding shares of Preferred
Stock, by their terms, automatically converted into four thirty-fifths (4/35)
share of common stock.
COMMON STOCK
On June 20, 1996, the directors of the Company approved a one-for-two reverse
split of the common stock. On March 6, 1998, the directors of the Company
approved an additional one-for-thirty-five reverse split of the common stock of
the Company. There was no change in the common stock voting rights, par value or
authorized shares. All share balances have been retroactively restated in the
accompanying consolidated financial statements to reflect the reverse stock
splits.
F-11
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
(6) CONTINUED
---------
COMMON STOCK - CONTINUED
On September 9, 1996, the Company issued 2,047 shares of common stock as a
dividend for the period through August 31, 1996 for the Preferred Stockholders
of record as of August 12, 1996. On November 11, 1996, the Company declared a
common stock dividend of 3,186 shares to Preferred Stockholders of record as of
December 10, 1996. On June 12, 1997 the Company declared a common stock dividend
of 4,345 shares to Preferred Stockholders of record as of June 27, 1997 and on
July 24, 1997 declared a common stock dividend of 571 shares to Preferred
Stockholders of record as of July 24, 1997. The shares for November 1996
dividend and for the June 1997 dividend were issued in January 1997 and July
1997, respectively and, accordingly, were recorded as common stock dividend
distributable and additional paid-in capital at December 31, 1996 and at June
20, 1997, respectively. The number of shares paid on the Preferred Stock as a
dividend was calculated based on the 10 day moving average price of the common
stock during the 30 days prior to the declaration date, subject to a maximum
price of $105.00 and minimum price of $42.00 per share. Fractional shares were
rounded up.
During the year ended December 31, 1996, as a result of individuals exercising
4,643 private warrants, the Company issued 4,643 shares of common stock for
$275,000. No warrants were exercised in 1999, 1998 or 1997.
Pursuant to certain employment agreements in January and September 1997, 7,856
and 536 shares of accrued employee common stock grants were issued,
respectively. Accordingly, deferred stock compensation of $247,500 and $25,444
was reclassified to common stock and additional paid-in capital in the first and
third quarters of 1997, respectively.
Pursuant to an investment letter dated June 26, 1998 with an individual, the
Company received $55,000 for the purchase of 55,000 shares of Restricted Rule
144 Common Stock at a purchase price of $1.00 per share. As of December 31,
1998, all such shares had been issued.
F-12
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
(6) CONTINUED
---------
COMMON STOCK - CONTINUED
On July 14, 1998, the Company acquired either the stock or substantially all of
the assets and liabilities of Vision Diagnostics, Inc. and Affiliates for a
total of 3,461,356 Restricted Rule 144 common shares. At December 31, 1998,
2,599,677 shares have been issued and 861,679 are to be issued upon the
completion of escrow requirements. As of March 31, 2000, 861,624 of the escrow
shares have been issued.
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
Pursuant to an investment letter dated February 23, 1999 with an individual, the
Company received $25,000 for the purchase of 62,500 shares of Restricted Rule
144 common stock at a purchase price of $.40 per share. Pursuant to an
investment letter dated March 8, 1999 with an individual, the Company received
$100,000 for the purchase of 250,000 shares of Restricted Rule 144 common stock
at a purchase price of $.40 per share. Pursuant to an investment letter dated
March 12, 1999 with an individual, the Company received $10,000 for the purchase
of 25,000 shares of Restricted Rule 144 common stock at a purchase price of $.40
per share. Pursuant to investment letters dated May 25, 1999 and June 7, 1999
with a limited liability company, the Company received $100,000 for the purchase
of 250,000 shares and $50,000 for the purchase of 125,000 shares, respectively.
Both investment letters were to purchase shares of Restricted Rule 144 common
stock at a purchase price of $.40 per share. Pursuant to an investment letter
dated May 25, 1999 with a corporation, the Company received $100,000 for the
purchase of 250,000 shares of Restricted Rule 144 common stock at a purchase
price of $.40 per share. Pursuant to an investment letter dated September 15,
1999 with a limited liability company, the Company received $50,000 for the
purchase of 66,667 shares of Restricted Rule 144 common stock at a purchase
price of $.75 per share. Pursuant to an investment letter dated December 4, 1999
with a limited liability company, the Company received $50,000 for the purchase
of 111,111 shares of Restricted Rule 144 common stock at a purchase price of
$.45 per share. As of December 31, 1999, all 1,140,278 shares had been issued.
Pursuant to an investment letter dated February 7, 2000 with an individual, the
Company received $50,000 for the purchase of 125,000 shares of Restricted Rule
144 common stock at a purchase price of $.40 per share. Pursuant to an
investment letter dated February 8, 2000 with an individual, the Company
received $50,000 for the purchase of 125,000 shares of Restricted Rule 144
common stock at a purchase price of $.40 per share. Pursuant to investment
letters dated March 10, 2000 with six individuals, the Company received $90,000
for the total purchase of 138,600 shares of Restricted Rule 144 common stock at
a purchase price of $.65 per share. As of March 31, 2000, all 388,6000 shares
had been issued.
On February 9, 2000, the Company acquired 80% ownership in Ultra MRI &
Diagnostics Services ("Ultra") with a combination of a $380,160 payable and
2,534,400 shares of Restricted Rule 144 common stock. At March 31, 2000,
1,600,000 shares have been issued and 934,400 shares are to be issued upon the
completion of escrow requirements.
In each of the four most current years, the Company's board of directors has
annually approved a stock compensation plan, the most recent which registered
500,000 shares of common stock under Form S-8 on May 5, 2000, whereby services
are obtained in exchange for issuance of free trading stock of the Company.
Shares may be awarded under this plan until May 1, 2005. During the three months
ended March 31, 2000 and 1999, 300,429 and 178,700 shares, respectively, of
common stock under Form S-8 registrations were issued for directors fees,
employee bonus, compensation, interest, legal and professional services provided
to the Company.
F-13
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
(7) ULTRA ACQUISITION
-----------------
On February 9, 2000, the Company acquired 80% ownership in Ultra MRI &
Diagnostics Services with a combination of 20% in the form of a payable and 80%
in Restricted Rule 144 common stock. The purchase price was $1,900,800 and
goodwill associated with this transaction was recorded at $1,505,209, which
included direct costs associated with the purchase. Total assets were
approximately $1.8 million and total liabilities were approximately $1.3 million
as of February 9, 2000. The amount payable to the principals in aggregate is
$125,000 on August 9, 2000, $125,000 on November 9, 2000 and $130,160 is due
November 9, 2001. The principals' share of the shareholders' capital had been
reflected as a minority interest on the accompanying consolidated balance sheet
at March 31, 2000. The principals' share of the corporation's net income has
been presented as minority interest share of income in the accompanying
consolidated statement of operations for the three month period ended March 31,
2000. Ultra is a multi-site diagnostic imaging business with offices in Palm
Harbor, St. Petersburg and Tampa, Florida. Ultra had approximately $2.5 million
in revenue in 1999.
Had the acquisition occurred January 1, 1999, consolidated revenues for the
three months ended March 31, 1999 would have been approximately $1.7 million,
net loss would have been approximately ($350,000) and loss per share would have
been ($0.07).
Had the acquisition occurred January 1, 2000, consolidated revenues for the
three months ended March 31, 2000 would have been approximately $2.7 million,
net income would have been approximately $18,000 and earnings per share would
have been $0.01.
(8) SUBSEQUENT EVENT
----------------
In April 2000, the Company entered into a $15 million private equity line for
the purchase of common stock, subject to registration and certain other
conditions and limited to a percentage of trading volume.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Miracor Diagnostics, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheet of Miracor
Diagnostics, Inc. and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Medical Device
Technologies, Inc. and subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations, negative
working capital and lack of long-term financing raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
By /S/ PARKS, TSCHOPP, WHITCOMB & ORR, P.A.
----------------------------------------
PARKS, TSCHOPP, WHITCOMB & ORR, P.A.
Maitland, Florida
March 7, 2000
F-15
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<CAPTION>
ASSETS
------
1999 1998
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 106,517 $ 77,906
Accounts receivable (net of allowance of $1,308,016
and $1,487,172) 2,723,306 2,536,042
Prepaid expenses and other assets 81,824 72,180
--------------- ---------------
Total current assets 2,911,647 2,686,128
--------------- ---------------
Property and equipment:
Furniture and fixtures 33,799 33,799
Machinery and equipment 211,706 188,546
Equipment under capital leases 3,398,458 2,380,038
Leasehold improvements 426,632 406,082
--------------- ---------------
4,070,595 3,008,465
Less accumulated depreciation (1,866,309) (1,197,268)
--------------- ---------------
Net property and equipment 2,204,286 1,811,197
Intangible assets:
Goodwill 4,788,143 3,938,378
Organization costs 160,930 160,930
Deferred Interest 122,750 -
Less accumulated amortization (337,159) (175,867)
--------------- ---------------
4,734,664 3,923,441
Other assets 78,138 134,822
--------------- ---------------
Total assets $ 9,928,735 $ 8,555,588
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 849,560 $ 817,368
Accrued expenses 491,470 563,472
Line of credit 506,384 562,538
Note payable - current portion 939,112 1,391,303
Capital lease obligations - current portion 669,307 610,011
--------------- ---------------
Total current liabilities 3,455,833 3,944,692
--------------- ---------------
Other liabilities:
Convertible debt - 15,000
Note payable - long term 683,656 -
Capital lease obligations - long term 2,683,535 1,552,378
--------------- ---------------
Total liabilities 6,823,024 5,512,070
--------------- ---------------
Minority interest - 643,252
--------------- ---------------
Commitments and contingencies (note 8)
Stockholders' equity
Series I convertible preferred stock (247,500 shares
authorized; 0 issued and outstanding) - -
6% cumulative convertible Series A preferred stock,
and $.01 par value (1,972,500 shares authorized;
0 shares issued and outstanding) - -
Preferred stock, $.01 par value (10,000,000 shares
authorized; 0 shares issued and outstanding) - -
Common stock, $.15 par value (100,000,000 shares
authorized; 7,980,956 and 4,370,905 outstanding) 1,197,143 655,636
Common stock to be issued (770 and 862,394 shares) 23,494 866,162
Warrants 122,750 -
Additional paid-in capital 27,705,952 25,607,914
Deferred stock compensation 30,599 25,443
Accumulated deficit (25,974,227) (24,754,889)
--------------- ---------------
Total stockholders' equity 3,105,711 2,400,266
--------------- ---------------
Total liabilities and stockholders' equity $ 9,928,735 $ 8,555,588
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999 and 1998
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Patient service revenue $ 5,290,004 $ 2,670,534
Product sales - 1,900
Discounts and allowances (1,365,017) (803,060)
--------------- ---------------
Net revenues 3,924,987 1,869,374
--------------- ---------------
Cost of sales - (619)
--------------- ---------------
Gross profit 3,924,987 1,868,755
--------------- ---------------
Operating expenses:
Research and development - 102,293
Sales, general and administrative 4,977,308 2,967,114
Loss on impairment of license agreements - 1,341,551
--------------- ---------------
Total operating expenses 4,977,308 4,410,958
--------------- ---------------
Loss from operations (1,052,321) (2,542,203)
Other income (expense):
Other income 222,774 7,332
Interest income - 64
Interest expense (495,310) (269,851)
--------------- ---------------
Loss before minority interest (1,324,857) (2,804,658)
Minority interest 19,649 (29,192)
--------------- ---------------
Net loss (1,305,208) (2,833,850)
=============== ===============
Loss per share:
Basic and diluted loss per common share (0.20) (0.93)
=============== ===============
Weighted average common shares outstanding 6,395,241 3,038,968
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL COMMON
------------------------- ------------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL TO BE ISSUED
------------ ------------ ------------ ------------ ------------- ------------
<S> <C><C> <C> <C> <C> <C>
Balance, January 1, 1998 - $ - 436,262 $ 65,439 $ 22,603,053 $ 23,440
Common stock issued as a result of the rounding
of shares for the thirty-five to one
reverse stock split - - 839 126 - -
Common stock issued for research and
development, compensation, and services - - 345,311 51,797 344,883 -
Restricted Section 144 common stock issued for
the conversion of principal and accrued
interest on convertible notes payable - - 933,816 140,072 460,695 -
Common stock issued for cash - - 55,000 8,250 46,750 -
Restricted Section 144 common stock issued
for Acquisition of Vision Diagnostic,
Inc. & Affiliates - - 2,599,677 389,952 2,152,533 842,722
Accrued stock issuance - - - - - -
Net loss - - - - - -
------------ ------------ ------------ ------------ ------------- ------------
Balance, December 31, 1998 - $ - 4,370,905 $ 655,636 $ 25,607,914 $ 866,162
============ ============ ============ ============ ============= ============
</TABLE>
(continued below)
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, January 1, 1998 $ 22,792 $ (21,920,913) $ 793,811
Common stock issued as a result of the rounding
of shares for the thirty-five to one
reverse stock split - (126) -
Common stock issued for research and
development, compensation, and services - - 396,680
Restricted Section 144 common stock issued for
the conversion of principal and accrued
interest on convertible notes payable - - 600,767
Common stock issued for cash - - 55,000
Restricted Section 144 common stock issued for
Acquisition of Vision Diagnostic,
Inc. & Affiliates - - 3,385,207
Accrued stock issuance 2,651 2,651
Net loss - (2,833,850) (2,833,850)
--------------- --------------- ---------------
Balance, December 31, 1998 $ 25,443 $ (24,754,889) $ 2,400,266
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years ended December 31, 1999 and 1998
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL COMMON
------------------------- ------------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL TO BE ISSUED
------------ ------------ ------------ ------------ ------------- ------------
<S> <C><C> <C> <C> <C> <C>
Balance, January 1, 1999, as previously reported - $ - 4,370,905 $ 655,636 $ 25,607,914 $ 866,162
Add adjustment for prior period error - - - - - -
------------ ------------ ------------ ------------ ------------- ------------
Balance, January 1, 1999, as restated - - 4,370,905 655,636 25,607,914 866,162
Common stock issued for compensation, interest
principal of notes payable and services - - 1,386,363 207,954 1,050,015 -
Restricted Rule 144 common stock issued for the
conversion of principal and accrued interest
on convertible notes payable - - 55,119 8,268 8,140 -
Restricted Rule 144 common stock issued for cash - - 1,140,278 171,042 313,958 -
Restricted Rule 144 common stock issued for
acquisition of Vision Diagnostics, Inc. &
affiliates - - 200,000 30,000 57,500 -
Restricted Rule 144 common stock issued from the
escrow account related to the acquisition of
Vision Diagnostics, Inc. & affiliates - - 861,624 129,243 713,425 (842,668)
Restricted Rule 144 common stock cancelled
related to the acquisition of
Vision Diagnostics, Inc. & Affiliates - - (33,333) (5,000) (45,000) -
Warrants issued for notes payable - - - - - -
Accrued stock issuance - - - - - -
Net loss for the year ended December 31, 1999 - - - - - -
------------ ------------ ------------ ------------ ------------- ------------
Balance, December 31, 1999 - $ - 7,980,956 $ 1,197,143 $ 27,705,952 $ 23,494
============ ============ ============ ============ ============= ============
</TABLE>
(continued below)
<TABLE>
<CAPTION>
WARRANTS DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 as previously reported - $ 25,443 $ (24,754,889) $ 2,400,266
Prior period adjustment (Note 3) - - 85,870 85,870
-------------- -------------- -------------- --------------
Balance, January 1, 1999, as restated - 25,443 (24,669,019) 2,486,136
Common stock issued for compensation, interest,
principal of notes payable and services - - - 1,257,969
Restricted Rule 144 common stock issued for the
conversion of principal and accrued interest
on convertible notes payable - - - 16,408
Restricted Rule 144 common stock issued for cash - - - 485,000
Restricted Rule 144 common stock issued for
acquisition of Vision Diagnostics, Inc. &
affiliates - - - 87,500
Restricted Rule 144 common stock issued from the
Escrow account related to the acquisition of
Vision Diagnostics, Inc. & affiliates - - - -
Restricted Rule 144 common stock cancelled
related to the acquisition of
Vision Diagnostics, Inc. & Affiliates - - - (50,000)
Warrants issued for notes payable 122,750 - - 122,750
Accrued stock issuance - 5,156 - 5,156
Net loss for the year ended December 31, 1999 - - (1,305,208) (1,305,208)
-------------- -------------- -------------- --------------
Balance, December 31, 1999 $ 122,750 $ 30,599 $ (25,974,227) $ 3,105,711
============== ============== ============== ==============
</TABLE>
F-20
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,305,208) $ (2,833,850)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock paid for services and inter 1,097,226 396,680
Compensation recognized relating to
accrued employee stock grants and warrants 5,156 2,651
Minority interest (19,647) 29,192
Bad debt expense 280,327 -
Depreciation and amortization 669,040 623,853
Loss on disposal of inventory - 189,638
Loss (gain) on disposal of fixed assets - 116,074
Loss on impairment of license agreement - 927,074
Write-off of notes payable (89,619) -
Cancellation of Restricted Rule 144 stock related to the
acquisition of Vision Diagnostics and Affiliates (50,000) -
Increase (decrease) from changes in assets and liabilities excluding
net assets acquired:
Accounts receivable (467,591) (14,348)
Prepaid expenses and other current assets (9,644) (27,789)
Other assets 217,977 61,531
Accounts payable and accrued expenses (39,810) 470,092
--------------- ---------------
Net cash provided by (used in) operating activities 288,207 (59,202)
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (56,429) -
Purchase of an investment in limited partnership (150,000) -
--------------- ---------------
Net cash used in investing activities (206,429) -
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 150,000 240,020
Principal payments on notes payable and line of credit (222,920) (49,226)
Proceeds from issuing common stock 485,000 55,000
Principal payments on capital lease obligations (465,247) (154,191)
--------------- ---------------
Net cash provided by (used in) financing activities (53,167) 91,603
--------------- ---------------
Net increase in cash and cash equivalents 28,611 32,401
Cash and cash equivalents, beginning of period 77,906 45,505
--------------- ---------------
Cash and cash equivalents, end of period $ 106,517 $ 77,906
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
<TABLE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
PAYMENTS FOR:
Interest $ 365,958 $ 283,560
Income taxes $ 800 $ 800
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION:
STOCK ISSUED FOR:
SERVICES AND INTEREST:
Research and development $ - $ 170,675
Legal, professional and employee services and interest 993,201 178,610
Directors' fees 59,776 47,395
Repurchase of Restricted Rule 144 stock 44,249 -
--------------- ---------------
OTHER: 1,097,226 396,680
--------------- ---------------
Principal payments on notes payable 160,743 -
--------------- ---------------
$ 1,257,969 $ 396,680
=============== ===============
</TABLE>
During the year ended December 31 1998, the Company acquired the net assets of
other companies in exchange for 3,461,356 shares of common stock.
The net assets acquired were as follows:
Accounts receivable $ 2,506,532
Property and equipment 2,211,088
Other Assets 179,519
Accounts payable and other liabilities (2,846,114)
Capital lease obligations (2,604,196)
----------------
$ (553,171)
================
During 1998, short-term convertible notes payable in the amount of $494,229 were
converted along with accrued interest payable of $37,435 into 835,096 shares of
Restricted Rule 144 common stock.
During the years ended 1999 and 1998, deferred compensation expense of $5,156
and $2,651, respectively, were recorded relating to accrued employee stock
grants in order to value such shares at the estimated fair market value at the
date of grant.
During the first quarter of 1999, short-term convertible notes payable in the
amount of $15,000 were converted along with accrued interest payable of $1,608
into 55,119 shares of Restricted Rule 144 common stock.
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
During the second quarter of 1999, management discovered additional 1998
expenses that should have been allocated to the limited partners of the West
Regional MRI limited Partnership. Therefore, the net effect of this adjustment
is to reduce the 1998 Accumulated Deficit at December 31, 1998 by $85,870.
F-22
<PAGE>
On April 7, 1999, the Company acquired the remaining ownership of West Regional
MRI Limited Partnership at a purchase price of approximately $1,300,000.
Associated with this transaction, the Company recorded goodwill of $762,265,
warrants and the related deferred interest valued at $105,250, additional notes
payable for $500,000 due to the limited partners and refinanced a capital lease
agreement for an additional $650,000 due to a finance company. The deferred
interest is being amortized over sixty months, which is the term of the
associated note payable. The $500,000 limited partnership note payable has an
interest rate of 8.5%, payable in quarterly installments of $41,665, final
payment due June 15, 2002. The $650,000 note payable to a finance company has an
interest rate of 12.92% and was added to the refinance of a capital lease with
an additional $100,000 representing the purchase option price of the equipment.
It has a revised sixty month payment of $27,119 with final payment due March
2004. Warrant amortization to interest expense related to the above note payable
amounted to $15,788 as of December 31, 1999.
In September 1999, the Company issued $50,000 in principal amount of 10%
Promissory notes payable, due March 31, 2000, to two directors and an individual
to finance operations. As additional consideration for these loans, the
individual lenders, including the directors, were awarded total warrants to
purchase 40,000 shares of common stock at an exercise price of $0.625 per share.
In connection with the issuance of the warrants to the individuals, the company
is recognizing additional interest expense of $10,938, which is being amortized
over the terms of the loans. Accrued interest expense and warrant amortization
to interest expense related to these loans amounted to $1,667 and $1,944,
respectively, as of December 31, 1999.
In 1999, the Company entered into a capital lease agreement with a financing
company. Such agreement finances MRI equipment with a purchase price of $905,700
over a sixty-month period with interest of 3.9% and monthly payment of $16,747.
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a) DESCRIPTION OF BUSINESS
The Company, previously a development stage medical device company operating
under the name Medical Device Technologies, Inc., is a public company
incorporated in Utah on February 6, 1980 and headquartered in San Diego,
California. In the third quarter of 1998, the Company redefined its business
focus to medical diagnostic imaging services and emerged as an operating company
through the acquisition of medical resonance imaging (MRI) centers in Orlando
and Jacksonville, Florida, Toledo, Ohio, and the general partnership interest of
another center in Oak Brook, Illinois. In April 1999, the Company acquired the
remaining 50% limited partnership interest in the Oak Brook Center. In April
1999, the Company acquired the remaining 50% limited partnership interest in the
Oak Brook Center.
During 1999, the Company's activities focused on improvement of its capital
structure and operations of the acquired MRI centers. As a result, the acquired
debt from the MRI acquisitions was reduced, approximately $1 million in equity
financing was raised for ongoing working capital and quarterly losses of
approximately $400,000 in the first and second quarters were reduced to
breakeven by year-end. Additionally, the Company identified suitable acquisition
targets to position the Company for growth. On February 8, 2000, the Company
closed the acquisition of three centers located in Palm Harbor, St. Petersburg
and Tampa, Florida. These newly acquired centers have approximately $2,000,000
in annual revenues.
Prior to 1998, the Company engaged in the development of three innovative
medical devices. The Fluid Alarm System (FAS), formerly called the Personal
Alarm System (PAS), monitored the integrity of infection control barriers, such
as surgical gloves and gowns worn during medical procedures. The Cell Recovery
System (CRS), was a cell "brushing" and retrieval system that used an automated
biopsy brush for the collection of specimen cells for diagnostic purposes,
primarily (but not limited to) cancer detection. The Company received FDA
clearance for the FAS during the year ended December 31, 1995 and received FDA
clearance for the CRS in March 1996. The Company initiated further clinical
trials on the CRS in 1997. The Intracranial Pressure Monitoring System (ICP),
was intended to measure pressures within the skull non-invasively. The Company
determined that the licensed ICP technology was not effective. As a result, the
Company recorded an impairment loss on the ICP license in 1997 and deemed the
ICP license to have no future value. In 1998, coincident with the purchase of
Vision Diagnostics, Inc. and Affiliates, described in the next paragraph, the
Company wrote off the costs associated with the FAS and the CRS licenses,
including certain fixed assets and inventory costs, and recognized impairment
losses in the amount of $725,458, and $616,093, respectively. However, the
company continues to retain the rights to the use of the licenses through 2005
and 2008, respectively.
F-24
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(1) CONTINUED
---------
(a) DESCRIPTION OF BUSINESS - CONTINUED
Additionally, at this date, the Company acquired of 100% of the stock of Vision
Diagnostics, Inc. with the issuance of 1,568,000 shares of Restricted Rule 144
common stock. The Company has accounted for the acquisition using the purchase
method of accounting with the results of operations of the acquired entity
included in the Company's consolidated financial statements from the date of
acquisition. Goodwill associated with this transaction amounted to $1,577,477.
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
Vision Diagnostics, Inc. was the 50% general partner in West Regional MRI
Limited Partnership. On April 7, 1999, the Company acquired the remaining 50%
interest in West Regional MRI Limited Partnership at a purchase price of
$1,300,000 and recorded goodwill associated with this transaction of $762,265.
The consolidated financial statements reflect all of the assets, liabilities,
revenues and expenses of the partnership. Prior to this acquisition, the limited
partners' share of the partner's capital had been reflected as a minority
interest on the accompanying consolidated balance sheet at December 31, 1998.
The limited partners' share of the partnership's net income has been presented
as minority partners share of income consolidated partnership interest in the
accompanying consolidated statement of operations for the year ended December
31, 1999.
(b) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is being provided on a
straight line basis over the estimated useful lives of the related assets which
range from three to nine years.
(c) LICENSE AGREEMENTS
The Company has entered into various license agreements whereby the Company has
acquired the exclusive worldwide rights to develop, commercialize, manufacture,
and sell its products. In addition, the Company paid finder's fees relating to
two of its products. These costs, along with legal costs to register the related
patents, had been capitalized and were being amortized over the estimated useful
life of the license agreements, prior to writing off the licenses in 1998 and
1997.
In 1998, coincident with the purchase of Vision Diagnostics, Inc. and
Affiliates, the Company has concentrated its efforts in the MRI centers, and
accordingly has written off the costs associated with the FAS and the CRS
licenses, including certain fixed assets and inventory costs, and recognized
impairment losses in the amount of $725,458, and $616,093, respectively.
However, the company continues to retain the rights to the use of the licenses
through 2005 and 2008, respectively.
The Intracranial Pressure Monitoring System (ICP), was intended to measure
pressures within the skull non-invasively. During 1997, the Company determined
that the licensed ICP technology was not effective. As a result, the Company
recorded an impairment loss on the ICP license in the amount of $487,784 in
1997. The Company deemed the ICP license to have no future value.
F-25
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(1) CONTINUED
---------
(d) INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes", (SFAS No. 109). This
statement employs an asset and liability approach for financial accounting and
reporting of deferred income taxes. Generally, SFAS No. 109 allows for
recognition of deferred tax assets in the current period for the future benefit
of net operating loss carryforwards and items for which expenses have been
recognized for financial statement purposes but will be deductible in future
periods. A valuation allowance is recognized if, on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
(e) CASH FLOWS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
(f) REVENUE RECOGNITION
During 1999 and 1998, the principal sources of revenues are from magnetic
resonance imaging which are recognized as performed. The Company is presently
operating in this one business segment and only in the United States.
(g) FINANCIAL INSTRUMENTS FAIR VALUE, CONCENTRATION OF BUSINESS AND CREDIT RISKS
The carrying amount reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses approximates fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
amount reported in the accompanying balance sheet for notes payable approximates
fair value because the actual interest rate do not significantly differ from
current rates offered for instruments with similar characteristics. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of accounts receivable. The Company operates and
grants credit to customers in Central Florida, Oak Brook, Illinois, Toledo, Ohio
and Jacksonville, Florida. In addition, the Company files claims with numerous
insurance carriers, managed care groups, Medicare and Medicaid located
throughout the United States.
Consequently, the 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.
F-26
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(1) CONTINUED
---------
(h) USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(i) LOSS PER COMMON SHARE
Loss per common share have been computed based upon the weighted average number
of common shares outstanding during the years presented. Common stock
equivalents resulting from the issuance of the stock options and warrants have
not been included in the per share calculations because such inclusion would be
antidilutive.
(j) RECLASSIFICATION
Certain amounts in the 1998 Financial Statements have been reclassified to
conform with the 1999 presentation.
F-27
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(2) GOING CONCERN
-------------
These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has recurring losses from operations,
negative working capital and is in default with respect to the terms of certain
obligations. Further, the continued viability of the Company is dependent on the
success of its MRI centers which were acquired in July 1998. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company is seeking to fund its immediate and longer-term working capital
needs from funds to be obtained through a corporate acquisition or merger with
another entity with greater financial resources or from the proceeds of
additional private placements or public offerings of debt or equity securities.
However, neither the consummation nor the success of an acquisition or merger,
nor the receipt of additional funds can be assured. Therefore, the long-term
viability of the Company is dependent on its ability to profitably operate its
MRI centers and to obtain the financing necessary to fund its anticipated
growth.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount of
liabilities that might be necessary should the Company be unable to continue in
existence.
(3) PRIOR PERIOD ADJUSTMENT
-----------------------
During the second quarter of 1999, management discovered additional 1998
expenses that should have been allocated to the limited partners of the West
Regional MRI limited Partnership. Therefore, the net effect of this adjustment
is to reduce the 1998 Accumulated Deficit at December 31, 1998 by $85,870.
(4) INTANGIBLE ASSETS
-----------------
LICENSE AGREEMENTS
In 1998, coincident with the purchase of Vision Diagnostics, Inc. and
Affiliates, the Company has concentrated its efforts in the MRI centers, and
accordingly has written off the costs associated with the FAS and the CRS
licenses, including certain fixed assets and inventory costs, and recognized
impairment losses in the amount of $725,458, and $616,093, respectively.
However, the company continues to retain the rights to the use of the licenses
through 2005 and 2008, respectively.
Amortization expense related to license agreements written off in 1998 was
$152,168 for the year ended December 31, 1998.
GOODWILL
In connection with the Vision acquisitions, consideration paid exceeded the
estimated fair value of the assets acquired (including estimated liabilities
assumed as part of the transaction) by approximately $4,600,000. The excess of
the consideration paid over the fair value of the net assets acquired has been
recorded as goodwill and is being amortized on a straight line basis over 40
years.
F-28
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(5) LINE OF CREDIT
--------------
The Company has a line of credit with a finance company at prime plus 3% under
which the Company may borrow up to $1,500,000 or the "borrowing base" as
defined. Balance due August 2000, renewable for consecutive one-year periods. At
December 31, 1999 and 1998, the outstanding balance was $506,384 and $562,538,
Respectively.
(6) NOTES PAYABLE
-------------
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Note payable to individuals, interest at 8.5%, quarterly payments of
$41,665, due March 2003. $ 447,376 -
Note payable to an individual, interest at 10%, monthly principal payments
of $9,809 plus accrued interest with a final balloon payment October 2000. 313,873 $ 487,732
Note payable to a finance company, interest at 10%, monthly payments of
$10,000, due March 2002. 234,059 287,618
Note payable to an individual, monthly payments of $15,000 beginning March
2000 through September 2000. 114,019 103,249
Note payable to bank, with interest at prime plus 2%. Balance was due
August 1998. 100,047 94,129
Note payable to a finance company, interest at 10.5%, monthly payments of
$2,150, Due March 2004. 88,121 -
Note payable to an individual, interest at 2.79%, monthly payments of $2,500,
Due December 2002. 86,250 100,000
Note payable to bank, with interest at 9.75%, monthly payments of $3,027
beginning May 2000, due October 2002. 81,239 79,689
Note payable to bank, interest at 4% above discount rate, quarterly principal
payments of $9,311 plus accrued interest beginning April 2000,
due January 2002. 75,060 77,171
Notes payable to directors, interest at 10% due March 2000(see note 13). 50,000 -
Note payable originally due June 1997 with interest at 12.5%, written
off in 1999. - 59,619
Other, interest ranging from 6% to 10%. 32,724 102,096
--------------- ---------------
$ 1,622,768 $ 1,391,303
Less current portion 939,112 $ 1,391,303
--------------- ---------------
Long-term portion $ 683,656 $ -
=============== ===============
</TABLE>
F-29
<PAGE>
At December 31, 1999, future minimum annual principal payments on the notes
payable are as follows:
Year-ending December 31,
------------------------
2000 $ 939,112
2001 372,686
2002 267,293
2003 37,341
2004 6,336
---------------
$ 1,622,768
===============
On April 7, 1999, the Company acquired the remaining ownership of West Regional
MRI Limited Partnership at a purchase price of approximately $1,300,000.
Associated with this transaction, the Company recorded goodwill of $762,265,
warrants and the related deferred interest valued at $105,250, additional notes
payable for $500,000 due to the limited partners and refinanced a capital lease
agreement for an additional $650,000 due to a finance company. The deferred
interest is being amortized over sixty months, which is the term of the
associated note payable. The $500,000 limited partnership note payable has an
interest rate of 8.5%, payable in quarterly installments of $41,665, final
payment due June 15, 2002. The $650,000 note payable to a finance company has an
interest rate of 12.92% and was added to the refinance of a capital lease with
an additional $100,000 representing the purchase option price of the equipment.
It has a revised sixty month payment of $27,119 with final payment due March
2004. Warrant amortization to interest expense related to the above note payable
amounted to $15,788 as of December 31, 1999.
F-30
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(7) LEASES
------
The Company is currently leasing its MRI machines under capital lease agreements
and its offices under operating leases which expire at various dates.
At December 31, 1999, future minimum annual rental commitments under
noncancellable lease obligations are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year-ending December 31, Leases Leases
------------------------ ----------- -----------
<S> <C> <C>
2000 $ 923,845 252,599
2001 871,366 188,004
2002 861,798 188,004
2003 848,065 184,354
2004 395,897 108,609
Thereafter 217,000 107,353
----------- -----------
Total minimum lease payments 4,117,972 $1,028,923
Less amounts representing interest (at rates of 3.9% to
12.92%) 765,130
-----------
Present value of net minimum lease payments 3,352,842
Less current portion 669,307
-----------
Capital lease obligations $2,683,535
===========
</TABLE>
Rent expense for operating leases, including month to month leases, was $279,470
and $154,449 for the years ended December 31, 1999 and 1998, respectively.
F-31
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
LICENSE AGREEMENTS
In prior years, the Company entered into license agreements in connection with
the acquisition of the FAS and CRS devices. Through December 31, 1997, the
Company had paid $620,000 and issued 6,514 shares of common stock pursuant to
the original CRS license agreement.
In connection with the 1998 write-off of the FAS and CRS licenses, the
associated license agreements were terminated. License expense associated with
the CRS license amounted to $90,212 in 1998.
EMPLOYEE AGREEMENTS
In August 1994, the Company entered into a severance agreement with the Chief
Executive Officer. The severance agreement provides, among other things, that in
the event a change in control of the Company occurs or the Chief Executive
Officer is involuntarily terminated, suffers a disability while employed by the
Company or dies while employed by the Company, then the Chief Executive Officer
is entitled to receive certain benefits from the Company. Such benefits may
include some or all of the following: an amount based on the base salary as
provided for in the employment agreement; an amount based on the bonus paid or
payable to the Chief Executive Officer as provided for in the employment
agreement; the right to receive common stock that shall vest immediately; and
the right to exercise any warrants or stock options held by or granted to the
Chief Executive Officer under the employment agreement or any stock option plan
of the Company or both, health insurance and disability insurance. The Chief
Executive Officer will not receive any benefits upon voluntarily termination of
employment with the Company or if the Company terminates the Chief Executive
Officer "for cause", which is defined as the conviction of the Chief Executive
Officer after appeal of a felony.
On August 2, 1999, the Board of Directors extended the Employment and Severance
Agreements with the Chief Executive Officer through August 31, 2002.
In March 1996, the Company entered into an exclusive employment agreement with
the Vice President of New Business Development for a three-year term providing
for a base salary of $108,000 per annum. In March 1998, the term of this
agreement was extended to March 2001. In 1999, the base salary was increased to
$117,000 per annum.
LEGAL MATTERS
>From time to time the Company has been named as a defendant in a lawsuit. As of
December 31, 1999, all such lawsuits have been dismissed or settled through
agreed upon payment terms. The Company is not aware of any legal matter or claim
pending or threatened that would have a material adverse effect on its
consolidated financial position or results of operations. There are no other
legal proceedings, to which the Company is a party, which could have a material
adverse effect on the Company.
F-32
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(9) STOCKHOLDERS' EQUITY
--------------------
PREFERRED STOCK
In April 1995, the Company amended its Articles of Incorporation to authorize
10,000,000 shares of $.01 par value preferred stock. In December 1995, the
Company further amended its Articles of Incorporation to authorize 187,500 of
Series I convertible preferred stock in conjunction with its private placement
offering, the Company issued 153,750 shares of Series I convertible preferred
stock with an assigned value of $384,375 (see note 3). On January 19, 1996, the
Company again amended its Articles of Incorporation to increase the authorized
shares of Series I convertible preferred stock from 187,500 to 247,500. On
January 24, 1996, the Company issued an additional 93,750 shares of Series I
convertible preferred stock. These preferred shares were considered an original
issue discount associated with the notes payable and were amortized over
approximately the first five months of 1996.
On June 24, 1996, the Company completed a public offering of 1,500,000 shares of
6% cumulative convertible Series A preferred stock (the "Preferred Stock") and
1,500,000 redeemable common stock purchase warrants (the "Redeemable Warrants")
resulting in gross proceeds of $7.65 million. The Company received approximately
$4 million after repayment of short-term debt and costs associated with the
offering. The Preferred Stock is convertible into four thirty-fifths (4/35)
share of common stock $43.75 per share and for a total of $131.25. As part of
the terms of this offering, the holders of the Series I convertible preferred
stock exchanged their preferred stock for the Preferred Stock on a one for one
basis at no cost. Each share of Preferred Stock, by its terms, automatically
converted into four thirty-fifths (4/35) share of common stock on July 24, 1997.
During the first quarter of 1997, 94,920 shares of Preferred Stock were
converted into 10,848 shares of common stock; and during the second quarter of
1997, 31,927 shares of Preferred Stock were converted into 3,649 shares of
common stock. On July 24, 1997, each of the then-outstanding shares of Preferred
Stock, by their terms, automatically converted into four thirty-fifths (4/35)
share of common stock.
COMMON STOCK
On June 20, 1996, the directors of the Company approved a one-for-two reverse
split of the common stock. On March 6, 1998, the directors of the Company
approved an additional one-for-thirty-five reverse split of the common stock of
the Company. There was no change in the common stock voting rights, par value or
authorized shares. All share balances have been retroactively restated in the
accompanying consolidated financial statements to reflect the reverse stock
splits.
F-33
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(9) CONTINUED
---------
COMMON STOCK - CONTINUED
On September 9, 1996, the Company issued 2,047 shares of common stock as a
dividend for the period through August 31, 1996 for the Preferred Stockholders
of record as of August 12, 1996. On November 11, 1996, the Company declared a
common stock dividend of 3,186 shares to Preferred Stockholders of record as of
December 10, 1996. On June 12, 1997 the Company declared a common stock dividend
of 4,345 shares to Preferred Stockholders of record as of June 27, 1997 and on
July 24, 1997 declared a common stock dividend of 571 shares to Preferred
Stockholders of record as of July 24, 1997. The shares for November 1996
dividend and for the June 1997 dividend were issued in January 1997 and July
1997, respectively and, accordingly, were recorded as common stock dividend
distributable and additional paid-in capital at December 31, 1996 and at June
20, 1997, respectively. The number of shares paid on the Preferred Stock as a
dividend was calculated based on the 10 day moving average price of the common
stock during the 30 days prior to the declaration date, subject to a maximum
price of $105.00 and minimum price of $42.00 per share. Fractional shares were
rounded up.
During the year ended December 31, 1996, as a result of individuals exercising
4,643 private warrants, the Company issued 4,643 shares of common stock for
$275,000. No warrants were exercised in 1999, 1998 or 1997.
Pursuant to certain employment agreements in January and September 1997, 7,856
and 536 shares of accrued employee common stock grants were issued,
respectively. Accordingly, deferred stock compensation of $247,500 and $25,444
was reclassified to common stock and additional paid-in capital in the first and
third quarters of 1997, respectively.
Pursuant to an investment letter dated June 26, 1998 with an individual, the
Company received $55,000 for the purchase of 55,000 shares of Restricted Rule
144 Common Stock at a purchase price of $1.00 per share. As of December 31,
1998, all such shares had been issued.
F-34
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(9) CONTINUED
---------
COMMON STOCK - CONTINUED
On July 14, 1998, the Company acquired either the stock or substantially all of
the assets and liabilities of Vision Diagnostics, Inc. and Affiliates for a
total of 3,461,356 Restricted Rule 144 common shares. At December 31, 1998,
2,599,677 shares have been issued and 861,679 are to be issued upon the
completion of escrow requirements. As of December 31, 1999, 861,624 of the
escrow shares have been issued.
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
Pursuant to an investment letter dated February 23, 1999 with an individual, the
Company received $25,000 for the purchase of 62,500 shares of Restricted Rule
144 common stock at a purchase price of $.40 per share. Pursuant to an
investment letter dated March 8, 1999 with an individual, the Company received
$100,000 for the purchase of 250,000 shares of Restricted Rule 144 common stock
at a purchase price of $.40 per share. Pursuant to an investment letter dated
March 12, 1999 with an individual, the Company received $10,000 for the purchase
of 25,000 shares of Restricted Rule 144 common stock at a purchase price of $.40
per share. Pursuant to investment letters dated May 25, 1999 and June 7, 1999
with a limited liability company, the Company received $100,000 for the purchase
of 250,000 shares and $50,000 for the purchase of 125,000 shares, respectively.
Both investment letters were to purchase shares of Restricted Rule 144 common
stock at a purchase price of $.40 per share. Pursuant to an investment letter
dated May 25, 1999 with a corporation, the Company received $100,000 for the
purchase of 250,000 shares of Restricted Rule 144 common stock at a purchase
price of $.40 per share. Pursuant to an investment letter dated September 15,
1999 with a limited liability company, the Company received $50,000 for the
purchase of 66,667 shares of Restricted Rule 144 common stock at a purchase
price of $.75 per share. Pursuant to an investment letter dated December 4, 1999
with a limited liability company, the Company received $50,000 for the purchase
of 111,111 shares of Restricted Rule 144 common stock at a purchase price of
$.45 per share. As of December 31, 1999, all 1,140,278 shares had been issued.
F-35
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(10) OPTIONS AND WARRANTS
--------------------
The Company has issued options and warrants in connection with various private
placements, the public offering in 1996, certain debt securities and certain
other agreements with compensation to employees and consultants. The Company's
options and private warrants allow the holder to purchase one share of the
Company's common stock at a specified price.
Options and private and public warrants granted and issued by the Company
consisted of:
Weighted
Average
Number Price
----------- -----------
Balance outstanding, January 1, 1998 97,850 49.08
Options granted - -
Options expired (2,285) 20.65
Warrants granted - -
Warrants expired (12,286) 5.86
-----------
Balance outstanding, December 31, 1998 83,279 56.12
Options granted 490,000 0.81
Options expired (118,286) 2.20
Warrants granted 140,000 0.19
Warrants expired (62,563) 64.48
-----------
Balance outstanding, December 31, 1999 532,430 1.50
===========
Options and warrants exercisable 152,161 3.20
Compensation expense was not recorded for any issuance of options and warrants
to officers or employees in 1999 and 1998 as the fair market value of the
options and warrants was at or below the exercise price on their respective
dates of issuance.
F-36
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(10) CONTINUED
---------
Information relating to options and warrants at December 31, 1999 summarized by
exercise price is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
Weighted Average Weighted Average
Exercise Price Equiv. Life Exercise Equiv. Exercise
Per Share Shares (Year) Price Shares Price
<S> <C> <C> <C> <C> <C>
$ 0.01 100,000 5.0 0.01 100,000 0.01
0.63 40,000 3.0 0.63 40,000 0.63
0.69 25,000 9.3 0.69 0 0.69
0.81 355,000 9.0 0.81 0 0.81
28.00 9,573 4.0 28.00 9,304 28.00
70.00 2,857 2.6 70.00 2,857 70.00
------- -------
532,430 8.0 1.50 152,161 3.20
</TABLE>
Had compensation cost for stock-based compensation been determined based on the
fair value at the grant dates consistent with the method of SFAS No. 123, the
Company's net loss and loss per share for the years ended December 31, 1999 and
1998 would have been increased to the pro forma amounts presented below:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Net loss:
As reported $ (1,305,208) $ (2,833,850)
Pro forma (1,324,722) (2,924,708)
Loss attributable to common stockholders
As reported (1,305,208) (2,833,850)
Pro forma (1,324,722) (2,924,708)
Basic and diluted loss per share
As reported (.20) (.93)
Pro forma (.21) (.96)
</TABLE>
F-37
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(10) CONTINUED
---------
The fair value of options and warrants is estimated on the date of grants
utilizing the Black-Scholes option pricing model with the following weighted
average assumptions for years ended December 31, 1999 and 1998: expected life of
10 years; expected volatility of 90%; risk-free interest rate of 5.25%; and a 0%
dividend yield. The weighted average fair value at the date of grant of the
options and warrants granted during 1999 approximated $1.05 per option and
warrant.
Due to the fact that the Company's warrants vest over several years and
additional awards are made each year, the above pro forma numbers are not
indicative of the financial impact had the disclosure provisions of SFAS No. 123
been applicable to all years of previous warrant grants. The above numbers do
not include the effect of warrants granted prior to 1996 that vested in 1998 and
1999.
(11) EMPLOYEE BENEFIT PLANS - COMPENSATORY STOCK BENEFIT PLANS
---------------------------------------------------------
In each of the four most current years, the Company's board of directors has
annually approved a stock compensation plan, the most recent which registered
500,000 shares of common stock under Form S-8 on October 29, 1999, whereby
services are obtained in exchange for issuance of free trading stock of the
Company. Shares may be awarded under this plan until October 1, 2004. During
1999 and 1998, 778,095 and 345,311 shares, respectively, of common stock under
Form S-8 registrations were issued for directors fees, research and development,
employee bonus, compensation, interest and legal and professional services
provided to the Company.
Compensation recognized relating to accrued employee stock grants and warrants
is based on the pro-rata common stock and warrants earned and the market value
of the Company's stock at the time of issuance (fair value method) and amortized
over the applicable period.
F-38
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(12) DEFINED CONTRIBUTION PLAN
-------------------------
In August 1996, the Company adopted the Medical Device Technologies, Inc.
Employee Retirement Savings and Profit Sharing Plan (the "Plan"). The Plan is a
defined contribution profit sharing plan which allows the employee to
participate once hired. Total expense for its full time employees amounted to $0
and $3,077 for the years ended December 31, 1999 and 1998, respectively. In
1998, the Plan was terminated and no contributions were made to the Plan by the
Company during 1998.
(13) RELATED PARTY TRANSACTIONS
--------------------------
During the fourth quarter of 1997, the Company issued $100,000 in principal
amount of 36% short-term convertible notes payable, due April 18, 1998, to five
individuals, including three directors, to finance operations until a corporate
acquisition could be completed. Until payment in full, the unpaid principal
amount of these notes, or any portion may, at the election of the noteholder at
any time before the due date, be converted at the conversion price of $2.35 per
share of common stock. As additional consideration for these loans, the
individual lenders, including the directors, were awarded an aggregate of
warrants to purchase 1,429 shares of common stock for every $12,500 loaned to
the Company at an exercise price of $4.20 per share. In connection with the
issuance of the warrants, the Company did not recognize additional interest
expense, as the value of the warrants was deemed to be immaterial. The interest
rate and terms of these notes were made at arms length. The notes were converted
to common stock in 1998.
In 1998, one director received compensation of $8,600 for general corporate
consulting services. Pursuant to the Vision acquisition agreement, another
director received $65,000 for corporate consulting fees in 1998. Per the terms
of such agreement, this director will continue to receive $13,000 per month
until July 15, 2000.
In September 1999, the Company issued $50,000 in principal amount of 10%
Promissory notes payable, due March 31, 2000, to two directors and an individual
to finance operations. As additional consideration for these loans, the
individual lenders, including the directors, were awarded total warrants to
purchase 40,000 shares of common stock at an exercise price of $0.625 per share.
In connection with the issuance of the warrants to the individuals, the company
is recognizing additional interest expense of $10,938, which is being amortized
over the terms of the loans. Accrued interest expense and warrant amortization
to interest expense related to these loans amounted to $1,667 and $1,944,
respectively, as of December 31, 1999.
Pursuant to the Vision acquisition agreement and prior to resigning from the
board of directors on June 23, 1999, a director received $74,600 for corporate
consulting fees in 1999. After June 23, 1999, this individual received an
additional $40,000 in corporate consulting fees during 1999.
F-39
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(14) INCOME TAXES
------------
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the net
deferred tax asset and liability, and their approximate tax effects, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Bad debt reserve 492,000 559,623
Net operating loss carryforwards 8,836,000 8,654,900
--------------- ---------------
9,328,000 9,214,523
Valuation allowance (9,328,000) (9,214,523)
--------------- ---------------
Total $ - -
=============== ===============
</TABLE>
At December 31, 1999, the Company had approximately $23,500,000 in net operating
loss carryovers to offset future taxable income. These carryovers will expire in
various years through 2019. As a result of a change in ownership, federal tax
rules impose limitations on the use of net operating losses. The limitations
will reduce the amount of these benefits that will be available to offset future
taxable income each year, starting with the year of an ownership change, for
which the issuance of the preferred stock in the Company's June 1996 public
offering was deemed to be. The dollar amount of these limitations is
indeterminable at this time. In addition, the Company provides a valuation
allowance for deferred tax assets when it is more likely than not, based on
available evidence, that some portion or all of the deferred tax assets will not
be realized. In management's opinion, it cannot determine if it is more likely
than not that the Company will generate sufficient future taxable income before
2019, the year after which all current available net operating loss
carryforwards expire, to utilize all of the Company's deferred assets. A
valuation allowance has been recognized for the full amount of the deferred tax
asset at December 31, 1999 and 1998.
F-40
<PAGE>
MIRACOR DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998
(15) SUBSEQUENT EVENTS
-----------------
The Company acquired 80% ownership in Ultra MRI & Diagnostics Services ("Ultra")
as of February 9, 2000 with a combination of 20% in the form of a convertible
note and 80% in Restricted Rule 144 common stock. Ultra is a multi-site
diagnostic imaging business with offices in Palm Harbor, St. Petersburg and
Tampa, Florida. Ultra had approximately $2 million in revenue in 1999. Total
assets were approximately $2.1 million and total liabilities were approximately
$1.3 million as of December 31, 1999. The acquisition will be accounted for as a
purchase in 2000.
The convertible notes are payable to the principals in an aggregate amount of
$125,000 on August 9, 2000, $125,000 on November 9, 2000 and any remaining
amount due November 9, 2001.
F-41
<PAGE>
================================================================================
Until the completion of the resale of the common stock included in this
prospectus, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 3
RISK FACTORS 4
PLAN OF DISTRIBUTION 7
SALES BY SELLING SHAREHOLDER 8
THE COMPANY 10
USE OF PROCEEDS 14
LITIGATION 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
PLAN OF OPERATION 20
MANAGEMENT 21
EXECUTIVE COMPENSATION 23
PRINCIPAL SHAREHOLDERS 23
SECURITY OWNERSHIP 24
CERTAIN TRANSACTIONS 26
TRADING MARKET AND RELATED MATTERS 26
DESCRIPTION OF SECURITIES 27
LEGAL MATTERS 28
EXPERTS 28
AVAILABLE INFORMATION 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
================================================================================
<PAGE>
The Resale of
11,360,000 Shares
of
Common Stock
Offered by
Selling Shareholder
MIRACOR DIAGNOSTICS, INC.
PROSPECTUS
July 7, 2000
