Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file number 0-20356
HEART LABS OF AMERICA, INC.
(exact name of small business issuer as specified in its charter)
Florida 65-0158479
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1903 S. Congress Avenue, Suite 400, Boynton Beach, Florida 33426
(Address of principal executive offices)
(407)737-2227
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 19,499,885 shares of common
stock, no par value, were outstanding as of June 26, 1996.
<PAGE>
HEART LABS OF AMERICA, INC.
10-QSB- QUARTER ENDED MARCH 31, 1996
INDEX
FORM 10-QSB FORM 10-QSB FORM 10-QSB
PART NO. ITEM NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----------- --------
I. FINANCIAL INFORMATION
1. Financial Statements
- Condensed Consolidated Balance
Sheet as of March 31, 1996 .............. 3
- Condensed Consolidated Statements of
Operations and Accumulated deficit
for the Three Months Ended March 31,
1996 and 1995............................ 4
- Condensed Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1996 and 1995............ 5
- Notes to Condensed Consolidated
Financial Statements .................... 6
2. Management's Discussion and Analysis
or Plan of Operations ................... 8
II. OTHER INFORMATION
1. Legal Information ................... 10
2. Changes in Securities ............... 11
3. Default Upon Senior Securities ...... 11
4. Submission of Matters to a Vote
of Security Holders ................. 11
5. Other Information ................... 11
Signatures
<PAGE>
HEART LABS OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31,
1996
ASSETS (UNAUDITED)
-----------
Current Assets:
Cash ............................................... 3,761,519
Trade accounts receivable, net of allowance ........ 515,395
for doubtful accounts of $32,851
Notes receivable ................................... 651,243
Inventories of medical supplies .................... 15,030
Income tax receivable .............................. 80,198
Prepaid expenses and other current assets .......... 510,144
-----------
Total current assets ........................................... 5,533,529
Property & Equipment:
Mobile cardiac catheterization laboratories
and medical equipment ......................... 2,807,702
Building ........................................... 556,399
Furniture and office equipment and other assets .... 1,163,777
-----------
4,527,878
Less: accumulated depreciation and amortization ... (2,689,812)
-----------
1,838,066
Notes receivable ............................................... 76,318
Investment in Westmark Group Holdings, Inc. .................... 2,970,579
Goodwill, net .................................................. 903,423
Other assets ................................................... 57,770
-----------
4,008,090
Total assets ................................................... 11,379,685
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... 395,793
Accrued liabilities ................................ 348,363
Dividends payable .................................. 44,957
Current portion of note payable .................... 1,385,742
Current portion of capital lease obligations ....... 520,719
-----------
Total current liabilities ...................................... 2,695,574
Long term liabilities:
Long-term debt, net of current portion ............. 180,049
Capital lease obligations, net of current portion .. 99,632
Minority interest .................................. 27,786
-----------
Total long term liabilities ........................ 307,467
Shareholders' equity:
Preferred Stock--Series B, $10 stated value ........ 1,020,000
Preferred Stock--Series C, $10 stated value ........ 5,775,000
Common Stock, no par value, authorized 20,000,000 .. 14,449,761
shares; issued and outstanding 13,568,814
Accumulated deficit ................................ (12,868,117)
-----------
Total shareholders' equity ..................................... 8,376,644
-----------
Total liabilities and shareholders' equity ..................... 11,379,685
===========
See accompanying notes
<PAGE>
HEART LABS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OFFERATIONS AND ACUMULATED DEFICIT
Three Months Ended
March 31,
(Unaudited)
1996 1995
----------- ----------
Revenue:
Revenue from operations .............. 760,785 1,337,710
Interest income ...................... 14,976 3,915
----------- ----------
Total revenue ........... 775,761 1,341,625
Expenses:
Cost of services ..................... 327,108 823,699
General and administrative expenses .. 984,393 597,871
Depreciation and amortization ........ 220,075 241,186
Interest expense ..................... 85,029 40,147
----------- ----------
Total expenses .......... 1,616,605 1,702,903
Other income (loss):
Other income (loss) .................. (153,409) --
(Loss) gain on sale of equipment ..... (3,440) --
----------- ----------
Total other income (loss) (156,849) --
Loss before income taxes .......................... (997,693) (361,278)
(Accumulated deficit)-beginning of year ........... (11,870,424) (3,027,082)
Dividends declared:
Preferred stock ($.06 per share in
1995)........................................... -- (29,364)
(Accumulated deficit)-end of 1st quarter .......... (12,868,117) (3,417,724)
=========== ==========
Loss per common share ............................. (0.10) (0.16)
=========== ==========
Weighted average common shares outstanding,
excluding contingently issuable shares ....... 9,619,045 2,186,347
=========== ==========
See accompanying notes.
<PAGE>
HEART LABS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
1996 1995
----------- ---------
Operating activities:
Net loss ......................................... (997,693) (361,278)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization ............. 220,075 241,186
Minority Interest ........................ (4,095) (1,906)
Changes in assets and liabilities:
Trade accounts receivable ........... 187,118 (307,283)
Inventories of medical supplies ..... -- (23,512)
Income tax receivable ............... -- 57,118
Prepaid expenses and other
current assets .................... (453,707) (3,494)
Other assets ........................ 16,747 (3,594)
Accounts payable .................... (429,297) 299,577
Accrued liabilities ................. (32,408) (10,173)
----------- ---------
Net cash used by operating
activities .......................... (1,493,260) (113,359)
Investing activities
Payment of note payable .......................... (183,369) --
Loss in equity of investment ..................... 134,900 --
Purchase of property and equipment ............... (15,665) (179,356)
----------- ---------
Net cash used by investing
activities ......................... (64,134) (179,356)
Financing activities
Issuance of notes receivable ..................... (590,000) --
Payment of notes receivable ...................... 78,420 --
Conversion of debt to preferred stock
in Westmark Group Holdings, Inc. ............. (700,000)
Issuance of common stock ......................... 1,931,028 35,155
Issuance of preferred stock ...................... 5,775,000 --
Payments of capital lease obligations ............ (244,168) (137,270)
Proceeds from capital lease obligations .......... -- 232,731
Payments of long term debt ...................... (955,798) (20,758)
----------- ---------
Net cash provided by financing
activities ......................... 5,294,482 109,858
Net increase (decrease) in cash .................. 3,737,088 (182,857)
Cash at the beginning of period .................. 24,431 216,348
----------- ---------
Cash at the end of period ........................ 3,761,519 33,491
=========== =========
Supplemental information:
Interest paid .................................... $ 74,631 $ 20,018
=========== =========
<PAGE>
HEART LABS OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Heart Labs of America, Inc. (the "Company"), incorporated in the State of
Florida on September 29, 1989, commenced operations on February 27, 1990. The
Company's operations consist of mobile cardiac catheterization services to
hospitals on a shared user basis, managed care centers, and management
information systems. Hospital and Management information systems ("HIS/MIS")
which aid in operating hospital and medical office practices as well as
performing billing and collection services.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to state fairly the consolidated financial
position and consolidated results of operations as of and for the periods
indicated. These consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto for year
ended December 31, 1995, included in the Company's Form 10-KSB as filed with the
Securities and Exchange Commission.
Loss per Common Share
Loss per common share is calculated by dividing net loss by the weighted average
common shares outstanding, excluding contingently issuable shares. Contingently
issuable shares, are considered common stock equivalents and have been excluded
from the primarily loss per share computation since the conditions for their
issuance have not been met. The effect of contingently issuable shares on fully
diluted earnings per common share is anti-dilutive. Also, stock purchase
warrants underlying 710,000 common shares, Directors stock options underlying
60,000 shares, employee stock options underlying 400,000 common shares and other
stock options underlying 150,000 common shares have been excluded from the
primary earnings per share computation since the conditions from common stock
issuance have not been met and their effect on fully diluted earnings per common
share is anti-dilute.
Estimates
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2 - Income Taxes
The Company accounts for income taxes in accordance with FAS 109, accounting for
income taxes.
Note 3 - Continuing Operations
The consolidated financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's ability to continue
as a going concern continues to depend upon its ability to obtain profitable
operations and to realize its investment in Westmark Group Holdings, Inc. If the
Company is unsucessful in its efforts, it may be unable to meet its obligations,
making it necessary to undertake such other actions as may be appropriate to
preserve asset values.
Note 4 - Stock Transactions
The Company sold 834,500 shares of Series C convertible preferred stock in
January through March 1996 at $10 per share in a private placement of its
securities to offshore investors under Regulation S. The Company raised
$8,345,000 less costs associated with the raise of $1,122,400 for a net of
$7,222,600. In 1996, certain of the shares have been converted.
In February 1996, the company sold 357,143 shares of its common stock to
offshore investors in a private placement. Net proceeds to the Company were
$357, 185.
In March 1996, the Company converted $700,000 of its advances to Westmark Group
Holdings, Inc. to 10% convertible preferred stock. Subsequent to March 31, 1996,
the Company advanced Westmark $1,063,000.
Note 5 - Business Acquisitions
In April 1996, the Company acquired 100% of the outstanding common stock of
Greenworld Technologies, Inc., ("Greenworld"). Greenworld is the owner of
world-wide licensing rights to the Talon RMS product, a product which lowers
emergency and operating room temperatures while, at the same time, reducing
energy costs. Consideration for the purchase included (1) the funding of 4
lawsuits involving the Talon Refrigerant Management System ("Talon RMS"); (2)
issue to seller, ECS International, Inc. ("ECS") 50,000 shares of the Company's
preferred stock ($250,000 par value) and 100,000 shares of the Company's common
stock; (3) provide $100,000 to Greenworld for operating capital; (4) provide up
to $300,000 to establish the Talon RMS patent worldwide; (5) grant ECS options
to purchase 900,000 shares of the Company's common stock at $1.50 per share and
(6) cancel a bridge loan note in the amount of $100,000.
In addition, the Company agrees that once Greenworld gross sales exceed
$100,000,000, it will transfer 51% of Greenworld back to ECS and distribute the
other 49% to its shareholders as a dividend.
In May 1996, the Company acquired the assets and business operations of Donn
Wells, M.D. healthcare clinic. Consideration for the sale included the issuance
of 256,293 shares of the Company's common stock.
Note 6 - Subsequent Events
Subsequent to March 31, 1996, the Company entered into an agreement to purchase
the medical equipment for a mobile cardiac catheterization laboratory
aggregating $756,000. In May and June 1996, the Company started up three
healthcare clinics in South Florida area and one on the west coast of Florida.
In June 1996, the Company was informed by certain shareholders of a subsidiary
that the purchase agreement had been breached. The Company is presently
discussing these assertions and does not believe there will be any material
adverse impact on the Company's financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
During 1995, the Company principally derived its revenues from its mobile
cardiac catheterization operations. The acquisitions of Technomed expanded the
Company's medical services to include managed care centers and management
information systems and hospital information systems.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND MARCH 31, 1995
Total revenues decreased 43% to $775,761 for the three months ended
March 31, 1996 from $1,341,625 for the three months ended March 31, 1995,
principally as a result of the loss in revenue from the sale of the CPM division
and the neurological testing operation in 1995. The loss of these sales was
offset by the increase of $467,253 from the managed care center and from the
HIS/MIS operations.
Cost of Services, which includes medical supplies, technical and sales
personnel salaries and benefits and other expenses directly associated with the
Company's services decreased to $327,108 from $823,699 for the three months
ended March 31, 1996 and 1995, respectively.
The decrease is due to the sale of the CPM division in 1995. The CPM division
was labor intensive and was marketed by a salaried sales force, thus increasing
cost of services. As a percentage of revenues from operations, cost of services
decreased to 42% for the three months ended March 31, 1996 from 61% for the
three months ended March 31, 1995 primarily due to the sale of the CPM division
in 1995.
General and Administrative expenses increased 64% to $984,393 for the
three months ended March 31, 1996 principally as a result of an increase in
professional fees of $323,724 which accounted for 83% of the total increase in
general and administrative expense. The professional fee increase is principally
due to various consulting agreements.
Depreciation and amortization decreased to $220,075 in 1996 as compared
to $241,180 in 1995 primarily from the sale of the CPM division.
Interest expense increased to $85,029 in 1996 as compared to $40,147 in
1995. This increase in primarily due to short term debt that was acquired in the
third and fourth quarters of 1995 that was paid in the later part of the first
quarter of 1996.
The Company had a working capital surplus of $2,837,955 at March 31,
1996 compared to working capital deficiency of $1,455,584 at March 31, 1995.
Working capital in 1996 included $3,761,519 cash that was received from a
Regulation S offering during the quarter.
The Company's ability to continue as a going concern continues to depend
upon its ability to obtain profitable operations and realize its investment in
Westmark Group Holdings, Inc. ("Westmark"). If the Company is unsuccessful in
its efforts, it may be unable to meet its obligations, making it necessary to
undertake such other actions as may be appropriate to preserve asset values.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In January 1995, Thera-Kinetics, Inc. ("TK"), a competitor of the
Company's CPM division filed actions against the Company's wholly owned
subsidiary, U.S. BioInnovations, Inc. and three of its employees in the United
States District Court for the Eastern District of Virginia-Alexandria Division.
The complaint, alleged, among other things, violations by the employees (each of
whom was previously employed by TK) of restrictive covenants, tortuous
interference by the Company's subsidiary and misappropriation of trade secrets
and confidential information. In July 1995, the Company settled the lawsuit with
TK by selling substantially all of its Continuous Passive Motion operations to
TK. Consideration for the sale included a promissory note for $250,000 and the
assumption of approximately $400,000 in equipment leases. Currently, TK has not
assumed any of the leases and is in default on its promissory note. TK alleges
that the Company failed to deliver certain equipment under this Settlement
Agreement. The Company currently is considering all of the remedies available to
enforce the provisions of the settlement agreement.
In December 1995, Codise, Inc. ("Codise") filed a complaint in the 11th
Judicial Circuit in and for Dade County, Florida. The complaint names HLOA
Diagnostic, Inc., the former name of the Company's neurological testing
subsidiary, Cortex Diagnostic Services, Inc. Codise filed its lawsuit against
the Company for failure to redeem stock issued by the Company as partial
consideration for the purchase of assets of Codise, Inc. The Company contends
that it was misled in connection with the 1993 redemption payment and that
Codise is not entitled to any further consideration. Codise is seeking $65,190
in damages. The Company presently has a motion to dismiss pending. In the event
that the motion is denied the Company intends to vigorously defend the lawsuit
and to file a counter claim seeking recovery of the excess redemption payment
paid for 1993.
In February 1996, a lawsuit was filed in the Circuit Court for Broward
County, Florida by Oakmont Financial against the Company alleging default under
an equipment lease and asking for damages in the amount of $50,000, attorney's
fees, and costs. The case is presently in the discovery stage. This lawsuit
relates to medical equipment that was used in the CPM division that was sold in
1995.
In April 1996, suit was filed in the Court of Common Pleas for Somerset,
Pennsylvania against the Company alleging default and conversion under an
equipment lease guarantee relating to its former subsidiary, BioInnovations.
Damages are requested in excess of $25,000, including attorney fees and costs.
The Company has filed an answer and intends to vigorously defend this action.
ITEM 2 CHANGES IN SECURITIES
NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
NONE
ITEM 5 OTHER INFORMATION
In October 1995, the Company acquired through a Share Exchange Agreement,
Essential Care 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% Essential and 100% of 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 Executive Vice President 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.
Essential and Prime are healthcare clinics located in the South Florida
area. Essential and Prime have several contracts with area Health Maintenance
Organizations ("HMO"). In addition, the Company has opened or is in the process
of opening four additional Essential centers in Florida. These Centers will be
staffed on a per diem basis instead of a salaried basis, thereby reducing their
costs. In addition to the new Essential Centers discussed below, the Company
plans to rehabilitate one of its buildings in order to open a hospice to serve
the AIDS population. The Clinical Care division currently and in the future will
derive its revenues from a variety of sources. The main source of revenue is and
will be managed care contracts. The revenue from these contracts is generated by
the amount of patients contracted to the Centers from various HMO's. The
Clinical Care division, to a lesser extent, also generates revenue on a fee for
service basis whereby the Company will be paid at the time services are
rendered.
SYSDACOMP
Sysdacomp has been in operation since 1982. It provides data processing
services to the healthcare industry. Sysdacomp's products include: hospital
financial software which serves as an accounting package for the hospital,
hospital order entry software that networks all departments in the hospital for
ordering all patient services and Physician Practice Management software for all
functions necessary in a physicians office, including scheduling.
In addition to the hospital software, Sysdacomp provides collection
software and processing services for collection agencies and healthcare billing
services. Services for the collection agencies include: Complete account
activity history on line, letter printing and mailing, accounting reports and
credit reporting. Billing services include: Printing and mailing of the billing
forms, electronic submission of claims and accounts receivable management
services.
In June 1996, the Company was informed by the prior shareholders of
Sysdacomp (the "Prior Holders") that Technomed, prior to its acquisition by the
Company, had breached the Agreement pursuant to which Technomed acquired
Sysdacomp. The alleged breaches are: (i) failure to issue the correct number of
shares to the Prior Holders, (ii) failure to merge Sysdacomp with Technomed and
Technomed with the Company; and (iii) failure of the company to register or buy
back the Heart Lab shares issued to the Prior Holders pursuant to the Company's
acquisition of Technomed.
The Company is presently negotiating with the Prior Holders to rescind
the transaction. The Company does not believe that such recision will have a
material adverse impact on the Company's financial condition.
WESTMARK GROUP HOLDINGS, INC.
In November 1995, the Company signed a Share Exchange Agreement with
Westmark Group Holdings, Inc. ("Westmark"). Westmark is a publicly traded
company (NASDAQ-WGHI). This Share Exchange Agreement gave the Company 49%
interest or 1,298,388 shares of Westmark common stock in Westmark in exchange
for $1,210,000 in cash and cash equivalents a note in the amount of $315,000 and
200,000 shares of the Company's Series B preferred stock, with a stated value of
$10. The Stock Exchange Agreement provides that the Company's ownership
position, equal to 49%, will not be diluted and that Westmark is obligated to
issue additional shares to maintain such ownership position. Westmark owns
and/or operates three wholly owned subsidiaries. Also see Item 12. "Certain
Relationships and Related Transactions".
Westmark Mortgage is engaged in the business of originating, purchasing
and selling mortgage loans secured primarily by single family, multi-family and
condominium residences. Westmark Mortgage is registered and/or licensed to
originate, purchase closed loans, underwrite, fund or sell residential mortgage
loans in the states of Alabama, California, Colorado, Florida, Georgia, Hawaii,
Idaho, Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Nevada, Ohio,
Oregon, Utah, Washington and Wyoming. Westmark Mortgage pools and sells loans to
third-party investors including the Federal Home Loan Mortgage Corporation
(Freddie Mac or FHLMC), the Federal National Mortgage Association (Fannie Mae),
the Department of Housing and Urban Development (HUD), its lending agency the
Government National Mortgage Association (Ginnie Mae) and various non-conforming
mortgage conduits.
Network Capital, a wholly owned subsidiary of Westmark is basically
inactive except for its real estate holdings in California.
In March 1996, Westmark incorporated Westmark Leasing for the purpose of
financing equipment for physicians, labs and testing facilities.
In the first and second quarter of 1996 the Company provided Westmark
with additional financing in an aggregate amount of $2,143,000 million to be
used for Westmark's operations and financing activities. The financing was to be
provided in the form of short-term advances which the Company may, at its
option, convert to equity. As of this date, $700,000 of the loan amounts have
been converted to 200,000 shares of Westmark's Series C Preferred Stock .
FLEMMING PHARMACEUTICAL
During 1994, under the prior management and Board of Directors, the
Company's CPM division invested $610,000 in Flemming Pharmaceutical, Inc.
("Flemming"), a start-up generic and brand name pharmaceutical company that had
the license rights to the product CAPSIN. CAPSIN is an FDA approved, all-natural
lotion made from oleoresins of chili peppers with the primary ingredient being
Capsiacin. CAPSIN is used for the relief of pain connected with strains,
backache, arthritis and general pain management. In connection with its
investment, the Company was granted the world-wide marketing rights to CAPSIN
for use above the neck, primarily for relief of pain connected with the
temporomandibular joint ("TMJ") disease, which would be marketed along with the
CPM division's TheraPacer product. Terms of this transaction are more
specifically set forth in the Company's 1994 10-KSB.
In February 1996, the Company recovered 10% of their investment in Faro
Pharmaceutical, Inc. (Flemming changed its name in 1995). The Company is
reviewing the Flemming investment transaction in order to determine if it should
seek to recover the unrecovered portion of its investment from the former
directors.
REGULATION S OFFERING
In fiscal 1996, the Company sold an aggregate of 834,500 shares of
Series C preferred stock (the "Preferred") and 357,143 shares of common stock
pursuant to Regulation S Offerings for gross proceeds in aggregate amount of
$8,845,000 (net $7,579,785). The Preferred Stock is convertible into shares of
the Company's common stock at the lesser of (i) 75% of the closing bid price of
the Company's common stock, as reported by NASDAQ on the date of the closing of
the Regulation S Offering or (ii) 65% of the average closing bid price for the
five trading days immediately preceding the date of conversion. During the first
and second quarter the bid price of the Company's common stock fell and the
Company received notices to convert 625,000 shares of Preferred Stock in an
aggregate of 16,357,573 shares of common stock. Although , the Company does not
have an adequate number of shares authorized to effectuate the conversion, it
has negotiated a mutually agreeable solution with the Regulation S subscribers
whereby it will issue the remaining authorized shares to the Regulation S
subscribers, pro rata, and seek shareholder approval to increase the number of
authorized shares of common in order to issue the balance of the converted
shares. Since the Regulation S subscribers have not waived any legal remedies
they may have, the Company may be subject to a lawsuit which if not resolved to
the Company's benefit, could materially impact the Company's financial
condition.
POSSIBLE NASDAQ DELISTING
On June 11, 1996 the Company received a notification from NASDAQ that,
due to its delinquency in filing its Form 10-KSB and its March Form 10-QSB, the
Company's securities would be delisted from NASDAQ effective June 21, 1996. The
Company has requested an oral hearing on the delisting which will stay the
delisting. The Company anticipates that the hearing will occur July 9, 1996. The
Company anticipates that the filing of the Form 10-KSB and the Form 10-QSB will
resolve the Company's non-compliance and that NASDAQ will find that the
Company's securities warrant continued listing, however, there can be no
assurances in this regard. If the Company's securities are delisted from NASDAQ
they will continue trading in the over-the-counter market, however, this may
limit market activity in that brokers may not be able to solicit buy orders.
SIGNATURES
In accordance with 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, thereunto duly authorized.
HEART LABS OF AMERICA, INC.
(Registrant)
June 29, 1996 By: /s/ HARRY KOBRIN
(Date) Harry Kobrin, Executive Vice
President & Director
June 29, 1996 By: /s/ DAWN M. DRELLA
(Date) Dawn M. Drella, Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,761,519
<SECURITIES> 0
<RECEIVABLES> 515,395
<ALLOWANCES> 32,851
<INVENTORY> 15,030
<CURRENT-ASSETS> 5,533,529
<PP&E> 4,527,878
<DEPRECIATION> 2,689,812
<TOTAL-ASSETS> 11,379,685
<CURRENT-LIABILITIES> 2,695,574
<BONDS> 0
0
6,795,000
<COMMON> 14,449,761
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<INCOME-CONTINUING> (997,693)
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<NET-INCOME> (997,693)
<EPS-PRIMARY> (0.10)
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</TABLE>
