UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 24, 1995
HEART LABS OF AMERICA, INC.
(Exact name of registrant as specified in its Charter)
FLORIDA 0-20356 65-0158479
(State or other jurisdiction (Commission file no.) (IRS Employer Id
of incorporation) Number)
1903 S. CONGRESS AVE, SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code 561-737-2227
<PAGE>
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
(a) Description of Acquisition
In October 1995, the Company acquired through Technomed, Inc., pursuant
to a Share Exchange Agreement, Essential Medical Centers, Inc. ("Essential") and
Prime Dental Care, Inc. ("Prime"). This Agreement was amended May 8, 1996.
Pursuant to the terms of the Amended Exchange Agreement, the Company was
required to issue 575,526 shares of its common stock for 100% of Essential and
100% Prime outstanding common stock. In addition, two parcels of real property
with building improvements were purchased for an additional 252,132 shares.
Should Prime and Essential have pre-tax earnings of $350,000 for their fiscal
year ended July 31, 1996, the Company will issue 375,000 shares of Technomed at
$1.00 per value, convertible preferred stock, convertible into shares of the
Company's common stock, to one of the Prime/Essential shareholders. If the
pre-tax earnings are less than $350,000, the number of preferred shares to be
issued will decrease proportionately. The Company originally was required to
issue an additional 375,000 shares of Technomed convertible preferred stock to
Harry Kobrin, the other Prime/Essential shareholder, however, since Mr. Kobrin
was appointed as the Company's Vice President of Acquisitions, and as such is no
longer in control of the day-to-day operations of Prime/Essential, he has waived
his rights to the convertible preferred shares. The Company will compensate Mr.
Kobrin for his performance in 1996 through the issuance of stock options to
purchase 264,000 shares at .375 per share.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of the business acquired, prepared pursuant to
Rule 3.05 of Regulation S-X and provided to Heart Labs of America, Inc. by
Essential Care Medical Centers, Inc. and Prime Dental Care, Inc.:
AUDITED FINANCIAL STATEMENTS OF
ESSENTIAL CARE MEDICAL CENTERS, INC. AND PRIME DENTAL CENTERS, INC.
DECEMBER 31, 1994
Report of Earl M. Cozen, Certified Public Accountant
Combining Balance Sheet
Combined Statement of Operations and (Deficit)
Combining Statement of Cash Flows
Notes to Combining Financial Statements
AUDITED FINANCIAL STATEMENTS OF PRIME DENTAL CENTERS, INC.
DECEMBER 31, 1993
Report of Earl M. Cohen, Certified Public Accountant
Balance Sheet
Statement of Operations and (Deficit)
Statement of Cash Flows
Notes to Financial Statements
(b) Pro forma financial information required pursuant to Article II of
Regulation S-X:
Pro forma Condensed Combined Balance Sheet as of December 31, 1994
Pro forma Condensed Statement of Operations and Retained earnings for the twelve
months ended December 31, 1994.
The unaudited pro forma condensed combined balance sheet as of December
31, 1994 and the unaudited pro forma condensed combined statement of operations
for the twelve months ended December 31, 1994 give effect to the acquisition,
accounted for as a purchase, as if it had occurred on January 1, 1994. The pro
forma information is based on historical financial statements of Essential,
Prime and Heart Labs of America, Inc. after giving effect to the proposed
transaction using the purchase method of accounting and the assumptions and
adjustments in the accompanying notes to the pro forma financial statements. The
pro forma financial statements have been prepared on the basis of preliminary
estimates.
The pro forma statements have been prepared by Heart Labs of America,
based upon the financial statements of Essential Care Medical Centers, Inc. and
Prime Dental Centers, Inc., which have been provided by Essential and Prime.
These pro forma statements may not be indicative of the results that actually
would have occurred if the combination had been in effect on the dates indicated
or which may be obtained in the future. The pro forma financial statements
should be read in conjunction with the audited financial statements and notes to
the Essential, Prime and audited financial statements of Heart Labs of America,
Inc.
(c) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.1 Share Exchange Agreement*
10.2 Amendment to Share Exchange Agreement
--------------
** Filed as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Heart Labs of America, Inc.
Date: June 28, 1996 By: /s/ DAWN DELLA
Chief Financial Officer
<PAGE>
EXHIBIT 1
AUDITED FINANCIAL STATEMENTS OF
ESSENTIAL CARE MEDICAL CENTERS, INC.
AND
PRIME DENTAL CENTERS, INC.
AND
PRO FORMA FINANCIAL INFORMATION
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
CONTENTS
PAGE
----
Independent Auditor's Report ..................................... 1
Financial Statements:
Combining Balance Sheet ........................................ 2
Combining Statement of Operations
and (Deficit) ................................................. 3
Combining Statement of Cash Flows .............................. 4-5
Notes to Combining Financial Statements ........................ 6-10
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Essential Care Medical Center, Inc
Prime Dental Centers, Inc.
Miami, Florida
I have audited the accompanying combining balance sheet of Essential Care
Medical Center, Inc and Prime Dental Centers, Inc. as of December 31, 1994 and
the related combining statements of operations and (deficit) and cash flows for
the periods from January 1, 1994 through December 31, 1994. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial positions of Essential Care Medical Center, Inc
and Prime Dental Centers, Inc. as of December 31, 1994 and the results of its
operations and cash flows for the periods from January 1, 1994 through December
31, 1994 in conformity with generally accepted accounting principles.
/s/ EARL M. COLEN
CPA PA.
June 10, 1996
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
COMBINING BALANCE SHEET
DECEMBER 31, 1994
ASSETS
ESSENTIAL
CARE PRIME
MEDICAL DENTAL
CENTER CENTERS,
INC. INC. TOTAL
--------- -------- ---------
CURRENT ASSETS
Cash .................................... $ 2,955 $ 785 $ 3,740
Accounts receivable ..................... 87,880 7,231 95,111
--------- -------- ---------
Total Current Assets ............. 90,835 8,016 98,851
PROPERTY AND EQUIPMENT ................... 25,919 9,843 35,762
--------- -------- ---------
TOTAL ASSETS ............................. $ 116,754 $ 17,859 $ 134,613
========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable ......... $ 3,783 $ -- $ 3,783
Accounts payable ........................ 32,191 1,212 33,403
Payroll taxes payable ................... 15,755 5,312 21,067
--------- -------- ---------
Total Current Liabilities ........ 51,729 6,524 58,253
--------- -------- ---------
NOTE PAYABLE, LESS CURRENT PORTION ....... 12,543 -- 12,543
--------- -------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 7,500
shares authorized, 1,000 shares
issued ................................. 1 -- 1
Common stock, $1 par value, 100
shares authorized and issued ............ -- 100 100
Additional paid-in capital ............... 129,191 98,782 227,973
(Deficit) ................................ (76,710) (87,547) (164,257)
--------- -------- ---------
Total Stockholders Equity ........ 52,482 11,335 63,817
--------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .................................. $ 116,754 $ 17,859 $ 134,613
========= ======== =========
Read accompanying Notes to Combining Financial Statements.
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
COMBINING STATEMENT OF OPERATIONS AND (DEFICIT)
PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1994
ESSENTIAL
CARE PRIME
MEDICAL DENTAL
CENTER CENTERS,
INC. INC. TOTAL
--------- -------- ---------
NET FEE INCOME ..................... $ 380,175 $ 54,528 $ 434,703
EXPENSES
Professional services and
medical/dental supplies .......... 361,730 86,976 448,706
General and administrative ........ 90,098 4,355 94,453
Depreciation and amortization ..... 2,275 4,865 7,140
Interest expense .................. 2,782 -- 2,782
--------- -------- ---------
Total Expenses ............. 456,885 96,196 553,081
--------- -------- ---------
NET (LOSS) ......................... (76,710) (41,668) (118,378)
(DEFICIT) - BEGINNING .............. -- (45,879) (45,879)
--------- -------- ---------
(DEFICIT) - ENDING ................. $ (76,710) $(87,547) $(164,257)
========= ======== =========
Read accompanying Notes to Combining Financial Statements.
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
COMBINING STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1994
ESSENTIAL
CARE PRIME
MEDICAL DENTAL
CENTER CENTERS,
INC. INC. TOTAL
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) .............................. $ (76,710) $(41,668) $(118,378)
Adjustments to reconcile cash to
net cash used in operating
activities:
Depreciation and amortization ......... 2,275 4,865 7,140
(Increase) in accounts
receivable .......................... (87,880) (7,231) (95,111)
Increase in:
Accounts payable .................... 32,191 1,212 33,403
Payroll taxes payable ............... 15,755 3,325 19,080
--------- -------- ---------
NET CASH FLOWS USED IN OPERATIONS ........ (114,369) (39,497) (153,866)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ..... (10,702) -- (10,702)
Issuance of common stock ................ 1 -- 1
Increase in additional paid-in
capital ................................ 129,191 39,765 168,956
--------- -------- ---------
NET CASH FLOWS PROVIDED BY INVESTING
ACTIVITIES .............................. 118,490 39,765 158,255
--------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of note payable .............. (1,166) -- (1,166)
--------- -------- ---------
NET INCREASE IN CASH ..................... 2,955 268 3,223
CASH - BEGINNING ......................... -- 517 517
--------- -------- ---------
CASH - ENDING ............................ $ 2,955 $ 785 $ 3,740
========= ======== =========
Read accompanying Notes to Combining Financial Statements.
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
COMBINING STATEMENT OF CASH FLOWS (CONTINUED)
PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1994
ESSENTIAL
CARE PRIME
MEDICAL DENTAL
CENTER CENTERS,
INC. INC. TOTAL
------- --- -------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest ................................. $ 668 $-- $ 668
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING ACTIVITIES:
Note payable incurred upon
purchase of transportation
equipment ................................. $17,492 $-- $17,492
Read accompanying Notes to Combining Financial Statements.
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION AND NATURE OF BUSINESS
Essential Care Medical Center, Inc. (Essential) and Prime Dental
Centers, Inc. (Prime) were incorporated under the laws of the
State of Florida on June 22, 1992 and April 1, 1992,
respectively. Located in Miami, Florida, Essential operates a
walk-in medical center and Prime operates a dental office. These
companies receive its fee income from Medicare/Medicaid, health
maintenance organizations, private insurance and fee for service.
The combining financial statements include the operations of
Essential for the period from June 1, 1994 through December 31,
1994 and Prime for the period from January 1, 1994 through
December 31, 1994. There were no intercompany receivables or
payables as of December 31,
1994.
REVENUE RECOGNITION
The Companies recognize revenue when the service is rendered.
Revenues are adjusted for differences between the Companies'
established rates for covered services and the amounts paid by
third parties.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable is recorded net of an allowance for doubtful
accounts. However, as of December 31, 1994, there was no
allowance for doubtful accounts. Third party providers represent
substantially all of the Companies' billings and any rate
adjustments by third party providers are reflected as fee
adjustments.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for
major betterments and additions are capitalized while
replacements, maintenance and repairs which do not improve or
extend the life of the respective assets, are charged to expense
currently.
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation is computed by the accelerated and straight-line
methods including the modified accelerated cost recovery system
using various rates based generally on the estimated useful lives
of the assets. The estimated useful lives are summarized as
follows:
Medical equipment 5 to 7 years
Dental equipment 5 years
Furniture and fixtures 7 years
Transportation equipment 5 years
Leasehold improvements 5 years
Although the use of the modified accelerated cost recovery system
is not generally accepted accounting principles, the effect on
depreciation is immaterial.
INCOME TAXES
The Companies, with the consent of its stockholders, have elected
under the Internal Revenue Code to an S corporation. In lieu of
corporation income taxes, the stockholders of an S corporation
are taxed on their proportionate share of the Companies' taxable
income. Therefore, no provision (benefit) or liability for
federal or state income taxes have been included in these
financial statements.
STATEMENT OF CASH FLOWS
For purposes of this statement, the Company considers all highly
liquid investments with an original maturity of three months or
less to be cash equivalents.
ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES (CONTINUED)
liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary
from the estimates that were assumed in preparing the financial
statements.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1994 consisted of the
following:
ESSENTIAL PRIME TOTAL
------- ------- -------
Medical equipment ....................... $ 7,737 $ -- $ 7,737
Dental equipment ........................ -- 12,434 12,434
Furniture and fixtures .................. 2,965 4,101 7,066
Transportation equipment ................ 17,492 -- 17,492
Leasehold improvements .................. -- 8,797 8,797
------- ------- -------
28,194 25,332 53,526
Accumulated depreciation and
amortization ........................... 2,275 15,489 17,764
------- ------- -------
TOTAL ................................... $25,919 $ 9,843 $35,762
======= ======= =======
NOTE 3. NOTE PAYABLE
Note payable as of December 31, 1994 consisted of the following:
11.7% note payable, collateralized by
transportation equipment, $458 payable
in sixty monthly installments including
interest, due August, 1998 ................................... $16,326
Current portion ............................................... 3,783
TOTAL ......................................................... $12,543
=======
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 3. NOTE PAYABLE (CONTINUED)
Principal maturities of the note payable subsequent to December
31, 1994 are summarized as follows:
DECEMBER 31, AMOUNT
------------ -------
1995 $ 3,783
1996 4,252
1997 4,779
1998 3,512
-------
$16,326
=======
NOTE 4. COMMITMENT AND RELATED PARTY TRANSACTIONS
OPERATING LEASES
Essential leases medical and office equipment under operating
leases expiring through 1997. Future minimum lease payments due
under these leases for the years ending subsequent to December
31, 1994 are as follows:
DECEMBER 31, AMOUNT
------------ ------
1995 $ 9,633
1996 9,633
1997 1,647
-------
$20,913
=======
MEDICAL AND DENTAL FACILITIES
The Companies' maintain their medical and dental facilities in a
building owned by a company wholly owned by Essential and Prime's
stockholders. No rent is charged by this company.
<PAGE>
ESSENTIAL CARE MEDICAL CENTER, INC.
AND
PRIME DENTAL CENTERS, INC.
NOTES TO COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 5. SUBSEQUENT EVENTS
SHARE EXCHANGE AGREEMENT
On June 5, 1995, the stockholders of Essential and Prime entered
into a Share Exchange Agreement with TechnoMED, Inc. (TechnoMED)
which closed on October 24, 1995. TechnoMED exchanged 575,526
common shares of Heart Labs of America, Inc. (Heart Labs), a
public company controlled by TechnoMED, for all outstanding
shares of Essential and Prime. As a result of this agreement, the
Companies' status as an S corporation was terminated on October
24, 1995.
NOTES AND LOANS PAYABLE
ESSENTIAL CARE MEDICAL CENTER, INC.
1. On December 22, 1995 the Company financed the purchase of
transportation equipment amounting to $19,121.
2. The Company's stockholders and through their wholly-owned
entity (Note 4) made noninterest bearing loans totalling
$77,000. These loans were repaid in March, 1996.
3. Subsequent to December 31, 1994, Heart Labs made noninterest
bearing advances totalling $365,919.
4. Subsequent to December 31, 1994, other noninterest and
interest bearing loans and notes totalling $17,000 were
advanced to the Company.
PRIME DENTAL CENTERS, INC.
1. Subsequent to December 31, 1994, the Company's stockholders
and through their wholly-owned entity (Note 4) made
noninterest bearing loans totalling $12,000.
2. Subsequent to December 31, 1994, Heart Labs made noninterest
bearing advances totalling $10,148.
<PAGE>
PRIME DENTAL CENTERS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1993
<PAGE>
PRIME DENTAL CENTERS, INC.
CONTENTS
PAGE
----
Independent Auditor's Report ....................................... 1
Financial Statements:
Balance Sheet .................................................... 2
Statement of Operations and (Deficit) ............................ 3
Statement of Cash Flows .......................................... 4
Notes to Financial Statements .................................... 5-7
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Prime Dental Centers, Inc.
Miami, Florida
I have audited the accompanying balance sheet of Prime Dental Centers, Inc. as
of December 31, 1993 and the related statements of operations and (deficit) and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial positions of Prime Dental Centers, Inc. as of
December 31, 1993 and the results of its operations and cash flows for the year
then ended conformity with generally accepted accounting principles.
June 10, 1996 /s/ EARL COLEN
CPA PA.
<PAGE>
PRIME DENTAL CENTERS, INC.
BALANCE SHEET
DECEMBER 31, 1993
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 517
PROPERTY AND EQUIPMENT ..................................... 14,708
TOTAL ASSETS ............................................... $ 15,225
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Payroll taxes payable ..................................... $ 1,987
--------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 100
shares authorized and issued ............................. 100
Additional paid-in capital ................................. 59,017
(Deficit) .................................................. (45,879)
--------
Total Stockholders Equity .......................... 13,238
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .................................................... $ 15,225
========
Read accompanying Notes to Financial Statements.
<PAGE>
PRIME DENTAL CENTERS, INC.
STATEMENT OF OPERATIONS AND (DEFICIT)
YEAR ENDED DECEMBER 31, 1993
NET FEE INCOME ............................................. $ 46,678
EXPENSES
Professional services and dental
supplies ................................................. 29,168
General and administrative ................................ 4,757
Depreciation and amortization ............................. 6,743
--------
Total Expenses ..................................... 40,668
NET INCOME ................................................. 6,010
(DEFICIT) - BEGINNING ...................................... (51,889)
--------
(DEFICIT) - ENDING ......................................... $(45,879)
========
Read accompanying Notes to Financial Statements.
<PAGE>
PRIME DENTAL CENTERS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 6,010
Adjustments to reconcile cash to
net cash provided by operating
activities:
Depreciation and amortization ............................ 6,743
(Decrease) in:
Accounts payable ....................................... (1,846)
Payroll taxes payable .................................. (2,013)
NET CASH FLOWS PROVIDED BY OPERATIONS ....................... 8,894
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in additional paid-in
capital ................................................... (8,516)
NET INCREASE IN CASH ........................................ 378
CASH - BEGINNING ............................................ 139
-------
CASH - ENDING ............................................... $ 517
=======
Read accompanying Notes to Financial Statements.
<PAGE>
PRIME DENTAL CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION AND NATURE OF BUSINESS
Prime Dental Centers, Inc. (Prime) was incorporated under the
laws of the State of Florida on April 1, 1992. Located in Miami,
Florida, Prime operates a dental office. The Company receives its
fee income from Medicare/Medicaid, health maintenance
organizations, private insurance and fee for service.
REVENUE RECOGNITION
The Company recognizes revenue when the service is rendered.
Revenues are adjusted for differences between the Company's
established rates for covered services and the amounts paid by
third parties.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable is recorded net of an allowance for doubtful
accounts. However, as of December 31, 1993, there was no
allowance for doubtful accounts. Third party providers represent
substantially all of the Company's billings and any rate
adjustments by third party providers are reflected as fee
adjustments.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for
major betterments and additions are capitalized while
replacements, maintenance and repairs which do not improve or
extend the life of the respective assets, are charged to expense
currently.
Depreciation is computed by the accelerated and straight-line
methods including the modified accelerated cost recovery system
using various rates based generally on the estimated useful lives
of the assets. The estimated useful lives are summarized as
follows:
Dental equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements 5 years
<PAGE>
PRIME DENTAL CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Although the use of the modified accelerated cost recovery system
is not generally accepted accounting principles, the effect on
depreciation is immaterial.
INCOME TAXES
The Company, with the consent of its stockholders, have elected
under the Internal Revenue Code to an S corporation. In lieu of
corporation income taxes, the stockholders of an S corporation
are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision (benefit) or liability for
federal or state income taxes have been included in these
financial statements.
STATEMENT OF CASH FLOWS
For purposes of this statement, the Company considers all highly
liquid investments with an original maturity of three months or
less to be cash equivalents.
ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were assumed in
preparing the financial statements.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1993 consisted of the
following:
<PAGE>
PRIME DENTAL CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 2. PROPERTY AND EQUIPMENT (CONTINUED)
Dental equipment .......................................... $12,434
Furniture and fixtures .................................... 4,101
Leasehold improvements .................................... 8,797
-------
25,332
Accumulated depreciation
and amortization ......................................... 10,624
TOTAL .................................................... $14,708
=======
NOTE 3. RELATED PARTY TRANSACTION
The Company maintains its dental facilities in a building owned
by a company wholly owned by Prime's stockholders. No rent is
charged by this company.
NOTE 4. SUBSEQUENT EVENTS
SHARE EXCHANGE AGREEMENT
On June 5, 1995, the stockholders of Prime and Essential Care
Medical Center, Inc. (Essential), a company related by virtue of
common ownership, entered into a Share Exchange Agreement with
TechnoMED, Inc. (TechnoMED) which closed on October 24, 1995.
TechnoMED exchanged 575,526 common shares of Heart Labs of
America, Inc. (Heart Labs), a public company controlled by
TechnoMED, for all outstanding shares of Essential and Prime. As
a result of this agreement, the Company's status as an S
corporation was terminated on October 24, 1995.
NOTES AND LOANS PAYABLE
1. Subsequent to December 31, 1993, the Company's stockholders
and through their wholly-owned entity (Note 3) made
noninterest bearing loans totalling $12,000.
2. Subsequent to December 31, 1993, Heart Labs made noninterest
bearing advances totalling $10,148.
3. In December, 1995, Essential made noninterest advances
totalling $4,500.
<PAGE>
HEART LABS OF AMERICA, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
ESSENTIAL CARE ADJUSTMENTS
HEART LABS MEDICAL AND PRIME INCREASE PRO FORMA
OF AMERICA DENTAL CARE (DECREASE) COMBINED
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash 216,348 3,740 220,088
Accounts Receivable 421,311 95,111 516,422
Inventories 66,210 66,210
Prepaid expenses and other - -
current assets 75,103 75,103
Income tax receivable 137,316 137,316
-----------------------------------------------------------
Total current assets 916,288 98,851 1,015,139
Property and equipment, net 2,242,686 35,762 2,278,448
Investment in Essential/Prime a 705,019 705,019
b -705,019 -705,019
Goodwill, net 202,670 b 369,561 572,231
Patent rights, net 249,001 249,001
Other assets 61,327 61,327
-----------------------------------------------------------
Total assets 3,671,972 134,613 369,561 4,176,146
===========================================================
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable 659,054 33,403 692,457
Notes payable 16,735 3,784 20,519
Long-term debt and capital lease -
obligations in default 1,135,991 1,135,991
Current portion of long-term debt 13,293 13,293
Current portion of capital lease - -
obligations 49,335 49,335
Accrued liabilities 164,049 21,067 185,116
Note payable to related party 58,737 58,737
-----------------------------------------------------------
Total current liabilities 2,097,194 58,254 2,155,448
-
Long-term debt, net 9,952 12,543 22,495
Capital lease obligations, net 94,792 94,792
Minority interest 33,157 33,157
-
Shareholders' equity: 1,436,877 63,816 (a) 705,019 2,205,712
(b) -335,458 -335,458
Total liabilities and shareholders' -
equity 3,671,972 134,613 369,561 4,176,146
===========================================================
</TABLE>
HEART LABS OF AMERICA, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
ESSENTIAL CARE ADJUSTMENTS
HEART LABS MEDICAL AND PRIME INCREASE PRO FORMA
OF AMERICA DENTAL CARE (DECREASE) COMBINED
<S> <C> <C> <C> <C>
Revenue:
Revenue from operations ............... 3,582,968 434,703 4,017,671
Interest income ....................... 120,562 -- 120,562
Other revenue ......................... 20,303 -- 20,303
--------------------------------------------------------
Total Revenue ........................... 3,723,833 434,703 4,158,536
Cost and expenses:
Cost of services ...................... 2,149,251 448,706 2,597,957
General and Administrative ............ 1,946,151 94,453 2,040,604
Depreciation and Amortization ......... 805,925 7,140 (c) 36,956 850,021
Provision for bad debts ............... 745,051 -- 745,051
Write off of goodwill ................. 560,482 -- 560,482
Interest expense ..................... 119,980 2,782 122,762
--------------------------------------------------------
Total cost and expenses ................. 6,326,840 553,081 6,879,921
Other income (losses):
Loss on sale of investments ........... -92,360 -- -92,360
Write-off of notes receivable
and investment ...................... -927,460 -- -927,460
--------------------------------------------------------
-1,019,820 -- -1,019,820
Loss before income taxes ............... -3,622,827 -118,378 -3,741,205
Benefit for income taxes
Current ............................... -59,000 -- -59,000
Deferred .............................. -- -- --
--------------------------------------------------------
-59,000 -- -59,000
Net loss ................................ -3,563,827 -118,378 -3,682,205
========================================================
Loss per share .......................... 1.67 1.24
Weighted average common shares
outstanding, excluding contingently
issuable shares ....................... 2,131,467 2,959,125
</TABLE>
HEART LABS OF AMERICA, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(a) The following pro forma adjustments reflect Heart Labs of America, Inc.'s
("Heart Labs") purchase of Essential Care Medical Centers, Inc. ("Essential")
and Prime Dental Centers, Inc. ("Prime"):
Common stock issued $705,019
Investment in Essential and Prime $705,019
(b) The following pro forma adjustments are made to reflect estimated fair value
adjustments at December 31, 1994 and to estimate Heart Labs' investment in
Essential and Prime:
Essential and Prime-net assets as reported $335,458
Fair value adjustments
Goodwill $369,561
Investment in Essential and Prime $705,019
Pursuant to Article 11 of Regulation S-X (Reg. 210-11-02) the Company
has furnished a pro forma statement of operations for the twelve months ended
12/31/94 for Heart Labs of America, Inc. and the twelve months ended 12/31/94
for Essential Care Medical Centers, Inc. and Prime Dental Care, Inc.The
statement of operations has been prepared as if the acquisition occurred as of
the beginning of their respective periods.
(c) The following pro forma adjustments are incorporated in the pro forma
condensed statement of operations:
Year ended
December 31, 1994
1. Increase in amortization $(36,956)
