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): August 23, 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
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
(a) Description of Acquisition
On August 23, 1995, the Company finalized an Exchange Agreement, dated
August 16, 1995, with Technomed, Inc. Consideration for 100% ownership
(7,422,500 shares of common stock) in Technomed, Inc. was the issuance of
2,739,003 unregistered shares of the Company's common stock.
The following directors of the Company owned or had a controlling
interest in shares of Technomed, Inc. in the following amounts:
SHARES IN CONVERTED INTO
TECHNOMED HLOA
---------- --------------
Edwin F. Russo 50,000 20,000
Jean Johnstone 1,950,000 (a) 780,000
Frank Dolney 750,000 (b) 300,000
(a) Jean Johnstone is the sole shareholder of Medical Industries Corporation
which owns 750,000 shares of Technomed, Inc.
(b) Frank Dolney's wife, D.Ann Janssen is the owner of 750,000 of Technomed
common stock as to which shares Mr. Doleny disclaims any beneficial
interest.
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 CJ
Holdings, Inc. d/b/a A/R Mediquest and Sysdacomp, Inc.:
AUDITED FINANCIAL STATEMENTS OF CJ HOLDINGS, INC. D/B/A A/R MEDIQUEST
DECEMBER 31, 1994
Report of Ernst and Young, LLP, Certified Public Accountants
Balance Sheet
Statement of Operations
Statements of Capital Deficiency
Statements of Cash Flows
Notes to Financial Statements
AUDITED FINANCIAL STATEMENTS OF SYSDACOMP, INC.
MARCH 31, 1995
Report of Ernst and Young, LLP, Certified Public Accountants
Balance Sheet
Statement of Operations
Statement of Shareholders' Equity (Deficit)
Statement of Cash Flows
Notes to Financial Statements
2
(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 for the twelve months ended December
31, 1994 for Heart Labs of America, Inc. and CJ Holdings, Inc. d/b/a A/R
Mediquest ("CJ") and for the twelve months ended March 31, 1995 for Sysdacomp,
Inc. ("Sysdacomp").
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 for Heart labs and CJ and March
31, 1995 for Sysdacomp 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 CJ, Sysdacomp 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 CJ Holdings, Inc. d/b/a A/R Mediquest and
Sysdacomp, Inc. which have been provided by CJ and Sysdacomp. 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
2 Share Exchange Agreement*
* Pursuant to Item 601(b)(2) of Regulation S-B, the exhibits
and schedules to the Asset Purchase Agreement have been
omitted. The registrant agrees to furnish to the
Securities and Exchange Commission on a supplemental basis
a copy of any exhibit omitted.
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: August 13, 1996 By: /s/ DAWN M. DRELLA
Dawn M. Drella
Chief Financial Officer
3
<PAGE>
EXHIBIT 1
AUDITED FINANCIAL STATEMENTS OF
CJ HOLDINGS, INC. D/B/A A/R MEDIQUEST
AND
SYSDACOMP, INC.
AND
PRO FORMA FINANCIAL INFORMATION
<PAGE>
CJ HOLDINGS, INC. D/B/A/ AR/MEDIQUEST
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1993
CONTENTS
Report of Independent Auditors........................................... 1
Audited Financial Statements
Balance Sheet............................................................ 2
Statements of Operations................................................. 3
Statements of Capital Deficiency......................................... 4
Statements of Cash Flows................................................. 5
Notes to Financial Statements............................................ 6
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CJ Holdings, Inc. d/b/a AR/Mediquest
We have audited the accompanying balance sheet of CJ Holdings, Inc. d/b/a
AR/Mediquest as of December 31, 1994 and the related statements of operations,
capital deficiency and cash flows for each of the two years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
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 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 financial statements referred to above present fairly,
in all material respects, the financial position of CJ Holdings, Inc. d/b/a
AR/Mediquest at December 31, 1994 and the consolidated results of its operations
and its cash flows for the each of the two years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company's recurring
losses from operations and net capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans as to these
matters are also described in Note 2. The 1994 financial statements do not
include any adjustments that might results from the outcome of this uncertainty.
ERNST & YOUNG LLP
January 29, 1996
1
CJ HOLDINGS, INC. D/B/A AR/MEDIQUEST
BALANCE SHEET
DECEMBER 31, 1994
ASSETS
Current assets:
Trade accounts receivable....... $ 32,532
------------
Total current assets................. 32,532
Property and equipment:
Computer equipment.............. 24,478
Less accumulated depreciation... (18,388)
------------
6,090
------------
Total assets......................... $ 38,622
============
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued
expenses....................... $ 27,007
Note payable.................... 81,000
Loan from shareholder........... 255,242
------------
Total current liabilities............ 363,249
Capital deficiency:
Common Stock, $1.00 par
value -- authorized 60,000
shares;
issued and outstanding 60
shares......................... 60
Accumulated deficit............. (324,687)
------------
Total capital deficiency............. (324,627)
------------
Total liabilities and capital
deficiency......................... $ 38,622
============
SEE ACCOMPANYING NOTES.
2
CJ HOLDINGS, INC. D/B/A AR/MEDIQUEST
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
--------------------------
1994 1993
------------ ------------
Revenue.............................. $ 81,996 $ 272,266
Cost and expenses:
Salary and wages................ 179,446 232,369
General and administrative
expenses....................... 21,801 111,295
Insurance....................... 14,080 18,981
Rent............................ 28,093 26,916
Depreciation.................... 2,199 2,944
------------ ------------
Total cost and expenses.............. 245,619 392,505
------------ ------------
Net loss............................. $ (163,623) $ (120,239)
============ ============
SEE ACCOMPANYING NOTES.
3
CJ HOLDINGS, INC. D/B/A AR/MEDIQUEST
STATEMENTS OF CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- ACCUMULATED CAPITAL
SHARES AMOUNT DEFICIT DEFICIENCY
------ ------ ----------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1993........... 60 $ 60 $ (40,825) $ (40,765)
Net loss........................ -- -- (120,239) (120,239)
------ ------ ----------- ----------
Balance at December 31, 1993......... 60 60 (161,064) (161,004)
Net income...................... -- -- (163,623) (163,623)
------ ------ ----------- ----------
Balance at December 31, 1994......... 60 $ 60 $ (324,687) $ (324,627)
====== ====== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
4
CJ HOLDINGS, INC. D/B/A AR/MEDIQUEST
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
--------------------------
1994 1993
------------ ------------
OPERATING ACTIVITIES
Net loss............................. $ (163,623) $ (120,239)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Depreciation.................... 2,199 2,944
(Increase) decrease in accounts
receivable..................... 13,097 (1,346)
(Increase) decrease in accounts
payable and accrued expenses... 17,636 (734)
------------ ------------
Net cash used in operating
activities......................... (130,691) (119,375)
------------ ------------
FINANCING ACTIVITIES
Proceeds from note payable........... 81,000 --
Loans from shareholder............... 38,039 117,243
------------ ------------
Net cash used in financing
activities......................... 119,039 117,243
------------ ------------
Net decrease in cash................. (11,652) (2,132)
Cash, beginning of year.............. 11,652 13,784
------------ ------------
Cash, end of year.................... $ -- $ 11,652
============ ============
SEE ACCOMPANYING NOTES.
5
CJ HOLDINGS, INC. D/B/A/ AR/MEDIQUEST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
CJ Holdings, Inc. d/b/a/ AR/Mediquest (the Company) is engaged in the
development and sales of software to health care providers, primarily acute-care
hospitals.
REVENUE RECOGNITION
The Company recognizes revenue from sales of software licenses upon
delivery of the software product to a customer, unless the Company has
significant related obligations remaining, such as installation services. When
significant obligations remain after the software product has been delivered,
revenue is not recognized until such obligations have been completed or are no
longer significant.
Revenue from postcontract customer support is recognized over the period
the customer support services are provided and software services revenue is
recognized as services are performed.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of computer equipment and software
and are stated at cost. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets.
CONCENTRATIONS OF CREDIT RISK
The Company provides services to hospitals and other healthcare providers.
The Company has no geographic concentration and extends credit based on an
evaluation of the provider's financial condition without requiring collateral.
Exposure to losses on accounts receivable is principally dependent on each
provider's financial condition. The Company monitors its exposure for credit
losses and records its accounts receivable net of amounts considered to be
uncollectible.
SOFTWARE DEVELOPMENT COSTS
The Company expenses software development costs as incurred.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. MANAGEMENT'S PLAN
On June 1, 1995, the Company entered into a share exchange agreement (the
Agreement) with SYSDACOMP, Inc. (SYSDACOMP) whereby the shareholders of
SYSDACOMP exchanged all the outstanding shares of SYSDACOMP stock for an equal
number of shares of the Company's stock. Also on June 1, 1995, the Company
entered into an agreement with Technomed, Inc. (Technomed) whereby the
shareholders of the Company exchanged all shares of its common stock for 3.2
million shares of Technomed common stock. On August 23, 1995, the shareholders
of Technomed exchanged all their outstanding shares for 998,550 shares of common
stock of Heart Labs of America, Inc. (Heart Labs) and the voting rights to an
additional 902,000 shares of Heart Labs common stock. As a result, effective
August 23, 1995, the Company became a wholly-owned subsidiary of Heart Labs.
Management's plans as a result of these transactions is to create a
financial network for health care providers. Through Heart Labs, the Company and
its affiliates will develop, market and support financial
6
software designed for health care providers and will purchase the accounts
receivable of its customers through factoring arrangements. There can be no
assurance that Heart Labs' efforts will be successful.
3. NOTE PAYABLE
Note payable consists of noninterest bearing advances received from an
unrelated party with no specific repayment terms. Consequently these amounts are
classified as a current liability in the accompanying balance sheet.
4. LOANS FROM SHAREHOLDER
Loan from shareholder consists of noninterest bearing advances with no
specific repayment terms. Consequently these amounts are classified as a current
liability in the accompanying balance sheet.
5. INCOME TAXES
Effective January 1, 1993, the Company adopted the liability method of
accounting for income taxes as required by SFAS 109. The effect of adopting SFAS
109 was a net deferred tax benefit offset by an equal valuation allowance. Thus,
the net cumulative effect was zero.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1994 are as
follows:
Net operating loss................... $ 143,700
Depreciation......................... 1,300
----------
Net deferred tax assets.............. 145,000
Valuation allowance.................. (145,000)
----------
Net deferred taxes................... $ --
==========
At December 31, 1993, the net deferred tax asset was $87,000 offset by a
valuation allowance of the same amount. At December 31, 1994, the Company's net
operating loss was approximately $400,000 which expires in various years between
2007 and 2009.
7
SYSDACOMP, INC.
FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995 AND 1994
CONTENTS
Report of Independent Auditors....... 1
Audited Financial Statements
Balance Sheet........................ 2
Statements of Operations............. 3
Statements of Shareholders' Equity
(Deficit)............................ 4
Statements of Cash Flows............. 5
Notes to Financial Statements........ 6
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SYSDACOMP, Inc.
We have audited the accompanying balance sheet of SYSDACOMP, Inc. as of
March 31, 1995 and the related statements of operations, shareholders' equity
(deficit) and cash flows for each of the two years in the period ended March 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 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 financial statements referred to above present fairly,
in all material respects, the financial position of SYSDACOMP, Inc. at March 31,
1995 and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
January 29, 1996
1
SYSDACOMP, INC.
BALANCE SHEET
MARCH 31, 1995
ASSETS
Current assets:
Cash............................ $ 21,083
Trade accounts receivable....... 18,867
----------
Total current assets................. 39,950
Property and equipment:
Computer equipment.............. 192,793
Automobiles..................... 99,199
----------
291,992
Less accumulated depreciation... (246,343)
----------
45,649
Loans to shareholders and
employees............................ 24,461
----------
Total assets......................... $ 110,060
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses....................... $ 15,836
Note payable to shareholder..... 8,505
Current portion of long-term
debt........................... 21,122
----------
Total current liabilities............ 45,463
Long-term debt, net of current
portion............................ 13,060
Shareholders' equity:
Common Stock, $1.00 par
value -- authorized 50,000
shares; issued and
outstanding 6,475 shares...... 6,475
Retained earnings............... 45,062
----------
Total shareholders' equity........... 51,537
----------
Total liabilities and shareholders'
equity............................. $ 110,060
==========
SEE ACCOMPANYING NOTES.
2
SYSDACOMP, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31
------------------------
1995 1994
---------- ------------
Revenue.............................. $ 583,578 $ 584,330
Cost and expenses:
Salary and wages................ 316,535 403,469
General and administrative
expenses....................... 80,483 43,538
Insurance....................... 47,868 37,739
Rent............................ 15,600 15,600
Repairs and maintenance......... 13,942 30,499
Supplies........................ 17,788 10,539
Telephone....................... 21,384 28,168
Travel.......................... 32,220 35,549
Depreciation.................... 28,174 101,476
Interest expense................ 2,879 18,863
---------- ------------
Total cost and expenses.............. 576,873 725,440
---------- ------------
Income (loss) before extraordinary
item............................... 6,705 (141,110)
Extraordinary item -- gain on
settlement of long-term debt in
default............................ 92,092 --
---------- ------------
Net income (loss).................... $ 98,797 $ (141,110)
========== ============
SEE ACCOMPANYING NOTES.
3
SYSDACOMP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
------------------ EARNINGS SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY (DEFICIT)
------ ------ -------- ----------------
<S> <C> <C> <C> <C>
Balance at April 1, 1993............. 6,475 $6,475 $ 87,375 $ 93,850
Net loss........................... -- -- (141,110) (141,110)
------ ------ -------- ----------------
Balance at March 31, 1994............ 6,475 6,475 (53,735) (47,260)
Net income......................... -- -- 98,797 98,797
------ ------ -------- ----------------
Balance at March 31, 1995............ 6,475 $6,475 $ 45,062 $ 51,537
====== ====== ======== ================
</TABLE>
SEE ACCOMPANYING NOTES.
4
SYSDACOMP, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31
------------------------
1995 1994
---------- ------------
CASH FLOWS USED IN OPERATING
ACTIVITIES
Net income (loss).................... $ 98,797 $ (141,110)
Adjustments to reconcile net income
(loss) to net cash provided by used
in operating activities:
Depreciation.................... 28,174 101,476
Extraordinary item -- gain on
settlement of long-term debt in
deficit........................ (92,092) --
(Increase) decrease in trade
accounts receivable............ (9,670) 6,356
(Decrease) increase in accounts
payable and accrued expenses... (32,989) 10,938
---------- ------------
Net cash used in operating
activities......................... (7,780) (22,340)
CASH FLOWS USED IN INVESTING
ACTIVITIES
Purchase of automobile............... -- (15,694)
---------- ------------
Net cash used in investing
activities......................... -- (15,694)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt......... -- 13,730
Principal payments on long-term
debt............................... (22,889) (13,518)
Repayment of loans to shareholders
and employees...................... -- 350
Loan from shareholder................ 8,505 --
---------- ------------
Net cash (used in) provided by
financing activities............... (14,384) 562
---------- ------------
Net decrease in cash................. (22,164) (37,472)
Cash, beginning of year.............. 43,247 80,719
---------- ------------
Cash, end of year.................... $ 21,083 $ 43,247
========== ============
SEE ACCOMPANYING NOTES.
5
SYSDACOMP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SYSDACOMP, Inc. (the Company) develops and markets software and provides
software support to health care providers.
REVENUE RECOGNITION
The Company recognizes revenue from sales of software licenses upon
delivery of the software product to a customer, unless the Company has
significant related obligations remaining, such as installation services. When
significant obligations remain after the software product has been delivered,
revenue is not recognized until such obligations have been completed or are no
longer significant.
Revenue from postcontract customer support is recognized over the period
the customer support services are provided. Software services revenue is
recognized as services are performed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" requires
software development costs to be capitalized upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs requires
considerable judgment by management with respect to certain external factors
such as anticipated future revenue, estimated economic life and changes in
software and hardware technologies. Capitalized software development costs have
not been significant and have been expensed as incurred.
CONCENTRATIONS OF CREDIT RISK
The Company provides services to hospitals and other acute-care providers
primarily located in the State of Michigan and extends credit based on an
evaluation of the provider's financial condition without requiring collateral.
Exposure to losses on receivables is principally dependent on each provider's
financial condition. The Company monitors its exposure for credit losses and
records its accounts receivable net of amounts considered to be uncollectible.
RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The amounts charged against income were approximately
$231,000 and $181,000 for the years ended March 31, 1995 and 1994, respectively.
2. BUSINESS COMBINATION
On June 1, 1995, the Company entered into a share exchange agreement (the
Agreement) with C.J. Holdings, Inc. d/b/a AR Mediquest (Mediquest) whereby each
shareholder of the Company received one share of Mediquest stock in exchange for
one share of the Company's stock. Also on June 1, 1995, Mediquest entered into
an agreement with Technomed, Inc. (Technomed) whereby the shareholders of
Mediquest exchanged all shares of its common stock for 3.2 million shares of
Technomed common stock.
6
On August 23, 1995, the shareholders of Technomed exchanged all their
outstanding shares for 998,550 shares of common stock of Heart Labs of America,
Inc. (Heart Labs) and the voting rights to an additional 902,000 shares of Heart
Labs common stock. As a result, effective August 23, 1995, SYSDACOMP became a
wholly-owned subsidiary of Heart Labs.
3. LOANS TO SHAREHOLDERS AND EMPLOYEES
Loans to shareholders and employees are non-interest bearing with no
specific repayment terms. Consequently these amounts are classified as
noncurrent in the accompanying balance sheets.
4. EXTRAORDINARY GAIN
In February 1995, the Company entered into a settlement agreement with the
holders of approximately $196,000 of long-term debt in default whereby the
Company returned certain equipment (with a net book value at the date of
settlement of approximately $89,000) in exchange for forgiveness of the
outstanding principal balance plus accrued interest of approximately $35,000 and
the payment by the Company of an additional $35,000 plus $624 per month for the
next 24 months. As a result of this settlement, the Company recognized an
extraordinary gain of $92,092.
5. LONG-TERM DEBT
Long term debt at March 31, 1995 consists of the following:
7.95% to 11.00% installment notes
payable at various dates through
April 26, 1997, collateralized by
automobiles with a carrying value
of $27,962......................... $ 20,432
Noninterest bearing debt (see Note 5)
payable in monthly installments of
$624 per month..................... 13,750
---------
34,182
Less current portion................. 21,122
---------
$ 13,060
=========
6. NOTE PAYABLE TO SHAREHOLDER
Note payable to shareholder consists of noninterest bearing advances with
no specific repayment terms. Consequently these amounts are classified as
current in the accompanying balance sheets.
7
7. INCOME TAXES
Effective April 1, 1993, the Company adopted the liability method of
accounting for income taxes as required by SFAS 109. The effect of adopting SFAS
109 was a net deferred tax benefit offset by an equal valuation allowance. Thus,
the net cumulative effect was zero.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of March 31, 1995 are as
follows:
Accounts payable..................... $ 4,201
Net operating loss................... 17,956
Accounts receivable.................. (5,005)
---------
Net deferred tax assets.............. 17,152
Valuation allowance.................. (17,152)
---------
Net deferred taxes................... $ --
=========
At March 31, 1994, the net deferred tax asset was $43,362 offset by a
valuation allowance of the same amount. The Company's net operating loss expires
in 2009.
8
Heart Labs of America, Inc.
Pro Forma Condensed Balance Sheet
December 31, 1994
<TABLE>
<CAPTION>
Heart Labs CJ Pro Forma
Assets of America Sysdacomp Holdings Adjustments Combined
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ............ 216,348 12,997 -- -- 229,345
Accounts receivable .................. 421,311 23,888 32,532 -- 477,731
Income tax receivable ................ 137,316 -- -- -- 137,316
Other current assets ................. 141,313 -- -- -- 141,313
-----------------------------------------------------------
Total current assets .............. 916,288 36,885 32,532 -- 985,705
Property and equipment, net .......... 2,242,686 160,869 6,090 -- 2,409,645
Investment in CJ and Sysdacomp ....... -- -- -- (a) 4,313,930
-- -- -- (b) 4,313,930
Goodwill, net ........................ 202,670 -- -- (b) 4,615,528 4,818,198
Patent rights, net ................... 249,001 -- -- -- 249,001
Other assets ......................... 61,327 -- -- -- 61,327
-----------------------------------------------------------
Total assets ......................... 3,671,972 197,754 38,622 4,615,528 8,523,876
===========================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable ..................... 659,054 -- 27,007 -- 686,061
Long term debt and capital lease
obligations in default ............... 1,135,991 -- -- -- 1,135,991
Liabilities in excess of net
assets ............................. --
Note payable ......................... 164,049 174,725 81,000 -- 419,774
Other current liabilities ............ 138,100 -- 255,242 -- 393,342
------------------------------- ---------
Total current liabilities ......... 2,097,194 174,725 363,249 -- 2,635,168
Long term debt ....................... 137,901 -- -- -- 137,901
Shareholders' equity ................. 1,436,877 23,029 (324,627) (a) 4,313,930 5,750,807
-- -- -- (b) 301,598
-----------------------------------------------------------
Total liabilities and
shareholders' equity ............... 3,671,972 197,754 38,622 4,615,528 8,523,876
===========================================================
<PAGE>
Heart Labs of America, Inc.
Pro Forma Condensed Statement of Operations (Unaudited)
For the twelve months ended December 31, 1994 for Heart Labs of
America, Inc. and CJ Holdings d/b/a A/R Mediquest
and for the twelve months ended March 31, 1995 for Sysdacomp, Inc.
Revenue:
Revenue from operations ............. 3,582,968 583,578 81,996 -- 4,248,542
Interest income ..................... 120,562 -- -- -- 120,562
Other revenue ....................... 20,303 -- -- -- 20,303
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Total revenue ....................... 3,723,833 583,578 81,996 -- 4,389,407
Costs and expenses:
Cost of services .................... 2,149,251 -- 179,446 -- 2,328,697
General and administrative expenses . 1,946,151 545,820 63,974 -- 2,555,945
Depreciation and amortization ....... 805,925 28,174 2,199 (c) 461,553 1,297,851
Provision for bad debts ............. 745,051 -- -- -- 745,051
Write off of goodwill ............... 560,482 -- -- -- 560,482
Interest expense .................... 119,980 2,879 -- -- 122,859
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Total costs and expenses ......... 6,326,840 576,873 245,619 461,553 7,610,885
Other income (losses):
Loss on sale of investments ......... (92,360) 0 0 -- (92,360)
Write-off of notes receivable and
investment .......................... (927,460) 0 0 -- (927,460)
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Total other income (losses) ...... (1,019,820) 0 0 0 (1,019,820)
Benefit of income taxes ............. (59,000) 0 0 -- (59,000)
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0
Net income (loss) before extra- ..... (3,563,827) 6,705 (163,623) (461,553) (4,182,298)
ordinary item
Extraordinary item-gain on settlement
of long-term debt ................... 0 92,092 -- -- 92,092
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Net income (loss) ................... (3,563,827) 98,797 (163,623) (461,553) (4,090,206)
Loss per share ...................... (1.67) -- -- -- (0.84)
Weighted average common shares
outstanding, excluding contingently
issuable shares ..................... 2,131,467 -- -- -- 4,870,470
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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 CJ Holdings, Inc. d/b/a A/R Mediquest ("CJ") and
Sysdacomp, Inc.("Sysdacomp"):
Common stock issued $4,313,930
Investment in CJ and Sysdacomp $4,313,930
(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 CJ
and Sysdacomp:
CJ and Sysdacomp-net assets as reported ($301,598)
Fair value adjustments
Goodwill $4,615,528
Investment in CJ and Sysdacomp $4,313,930
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 CJ Holdings, Inc. and the twelve
months ended 3/31/95 for Sysdacomp. 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 $(461,553)
