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 1934
Date of Report: June 5, 1996
U.S. DIAGNOSTIC LABS INC.
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(Exact name of registrant as specified in charter)
DELAWARE
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(State of other jurisdiction of incorporation)
1-13392 11-3146389
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(Commission File Number) (IRS Employer Identification No.)
777 South Flagler Drive, Suite 1006,
West Tower, West Palm Beach, Florida 33401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (407) 832-0006
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Attached hereto are the audited financial statements of U.S Imaging Inc. and
Subsidiaries and L.E. Richey & Associates as of December 31, 1995 and for the
year ended December 31, 1995.
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<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.
U.S. DIAGNOSTIC LABS INC.
/s/ Jeffrey A. Goffman
-----------------------------
Jeffrey A. Goffman, Chairman
Dated: August 15, 1996
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INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
U.S. Diagnostic Labs Inc.
We have audited the accompanying combined balance sheet of
U.S. Imaging, Inc. and Subsidiaries and L.E. Richey & Associates as of
December 31, 1995, and the related combined statements of operations,
stockholders' equity, and cash flows for the year then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred
to above present fairly, in all material respects, the combined financial
position of U.S. Imaging, Inc. and Subsidiaries and L.E. Richey & Associates
as of December 31, 1995, and the combined results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
June 6, 1996
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U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
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COMBINED BALANCE SHEET AS OF DECEMBER 31, 1995.
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ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 238,486
Accounts Receivable [Net of Estimated
Uncollectibles of $2,865,189] 5,349,824
Prepaid Expenses 191,570
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TOTAL CURRENT ASSETS 5,779,880
PROPERTY AND EQUIPMENT - NET 5,498,077
INTANGIBLES 141,821
OTHER ASSETS 157,128
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TOTAL ASSETS $ 11,576,906
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 309,331
Accrued Expenses 664,538
Demand Notes payable 264,505
Current Portion of Long-Term Debt 861,877
Current Portion of Capital Lease Obligations 757,135
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TOTAL CURRENT LIABILITIES 2,857,386
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LONG-TERM LIABILITIES:
Long-Term Debt - Net of Current Portion 686,195
Obligation Under Capital Leases - Net of Current Portion 2,240,301
Deferred Income Taxes 1,787,632
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TOTAL LONG-TERM LIABILITIES 4,714,128
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TOTAL LIABILITIES 7,571,514
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STOCKHOLDERS' EQUITY:
Common Stock, .01 Par Value, 5,615 Shares Authorized,
Issued and Outstanding 56
Additional Paid-in Capital 2,875,952
Retained Earnings 1,129,384
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TOTAL STOCKHOLDERS' EQUITY 4,005,392
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,576,906
===============
See Notes to Combined Financial Statements.
2
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U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
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COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995.
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REVENUE - [NET OF ALLOWANCES] $ 10,583,089
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OPERATING EXPENSES:
General and Administrative 5,853,762
Depreciation and Amortization 1,119,402
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TOTAL OPERATING EXPENSES 6,973,164
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INCOME FROM OPERATIONS 3,609,925
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OTHER INCOME [EXPENSE]:
Interest [Expense] (528,076)
Other Income [Expense] 16,069
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TOTAL OTHER [EXPENSE] (512,007)
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INCOME BEFORE PROVISION FOR INCOME TAXES 3,097,918
PROVISION FOR INCOME TAXES 1,074,309
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NET INCOME $ 2,023,609
===============
See Notes to Combined Financial Statements.
3
<PAGE>
U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
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COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
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STOCKHOLDERS' EQUITY - DECEMBER 31, 1994 $ 1,981,783
Net Income 2,023,609
---------------
STOCKHOLDERS' EQUITY - DECEMBER 31, 1995 $ 4,005,392
===============
See Notes to Combined Financial Statements.
4
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U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
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COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995.
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OPERATING ACTIVITIES:
Net Income $ 2,023,609
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Adjustments to Reconcile Net Income to Net
Cash Provided [Used] by Operating Activities:
Depreciation and Amortization Expense 1,119,402
Loss [Gain] on Disposal of Medical Equipment
Provision for Income Taxes 914,309
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (3,012,583)
Other Assets (255,743)
Intangible Assets (3,035)
Increase [Decrease] in:
Accounts Payable (288,921)
Accrued Expenses 599,643
Deferred Income Taxes (367,754)
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Total Adjustments (1,294,682)
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NET CASH - OPERATING ACTIVITIES 728,927
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INVESTING ACTIVITIES:
Investments in Subsidiaries 737,706
Equipment Purchases (104,951)
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NET CASH - INVESTING ACTIVITIES 632,755
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FINANCING ACTIVITIES:
Repayments of Long-Term Debt and Capital Leases (1,357,253)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 4,429
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 234,057
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CASH AND CASH EQUIVALENTS - END OF YEAR $ 238,468
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 431,116
Taxes $ 176,285
See Notes to Combined Financial Statements.
5
<PAGE>
U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
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[1] DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION
DESCRIPTION OF THE COMPANY - U.S. Imaging, Inc. and Subsidiaries is engaged in
the ownership of medical service facilities. These facilities are located in
the Houston and San Antonio, Texas area and provide a variety of medical
diagnostic testing and evaluation services and procedures, including magnetic
resonance imaging and computerized tomography scanning.
L.E. Richey & Associates is comprised of radiologists who provide professional
medical services for U.S. Imaging, Inc. and Subsidiaries and other third party
medical facilities in the Houston, Texas area.
COMBINATION POLICY - The accompanying combined financial statements include
the accounts of U.S. Imaging, Inc. and Subsidiaries and L.E. Richey &
Associates [the "Company"]. Intercompany transactions and balances have been
eliminated in the combined financial statements. Listed below are each of the
subsidiaries included in the consolidated financial statements of U.S.
Imaging, Inc. and Subsidiaries:
East Side Imaging, Inc.
Fort Bend Imaging, Inc.
Fannin Street Imaging, Inc.
Hamilton-Wolfe Imaging, Inc.
Steeplechase Diagnostic, Inc.
Village Drive Imaging, Inc.
Gulf Coast Imaging Services, Inc.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
carrying amount of cash and cash equivalents approximates their fair value.
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets or the remaining lease term. The
equipment used by the Company is technologically sophisticated and subject to
accelerated obsolescence in the event of significant technological change.
NET PATIENT SERVICE REVENUE - Net revenues are reported at the estimated net
realizable amounts from patients, third-party payors and others for services
rendered including estimated prospectively determined adjustments under
reimbursement agreements with third-party payors. These adjustments are
accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined. It is
management's policy not to require collateral as a condition for service.
For the year ended December 31, 1995, contractual adjustments amounted to
approximately $5,842,000.
INTANGIBLE ASSETS - The cost of intangible assets are amortized on a
straight-line basis over the period the Company expects to receive benefits as
follows:
Years
-----
Goodwill 15
Organizational Costs 5
6
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U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #2
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[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
[3] FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, which requires disclosing fair value to the
extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
is not necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax consequences of
realization or settlement.
In assessing the fair value of these financial statements, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, and short-term debt, it was assumed that the
carrying amount approximated fair value for the majority of these instruments
because of their short maturities. The fair value of long-term debt is based
on current rates at which the Company could borrow funds with similar
remaining maturities. The fair value of long-term debt approximates its
carrying value.
[4] PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31, 1995:
Estimated
---------
Useful Life
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Equipment Under Capital Leases $ 3,675,821 5-7 Years
Medical Equipment 3,794,456 5-7 Years
Leasehold Improvements 396,347 5 Years
Office Equipment 166,265 5 Years
Furniture and Fixtures 69,628 5-7 Years
Automobiles 26,378 5 Years
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Total 8,128,895
Less: Accumulated Depreciation 2,630,818
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NET $ 5,498,077
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Depreciation expense amounted to $1,102,083 for the year ended December 31,
1995 of which $452,890 was attributed to equipment under capital leases.
[5] INTANGIBLE ASSETS
Intangible assets are included in other assets on the balance sheet and
consist of the following at December 31, 1995:
Accumulated
-----------
Cost Amortization Net
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Goodwill $ 104,895 $ 2,914 $ 101,981
Organizational Costs 63,814 23,974 39,840
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TOTALS $ 168,709 $ 26,888 $ 141,821
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Amortization expense amounted to $17,319 for the year ended December 31, 1995.
7
<PAGE>
U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #3
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<TABLE>
<CAPTION>
[6] LONG-TERM DEBT
<S> <C>
Long-term debt at December 31, 1995 consists of the following:
Unsecured Notes Payable to former limited partners, 8% interest,
due in 20 quarterly installments of $74,009. $ 839,876
Unsecured Notes Payable to former limited partners, 8% interest,
due in 20 quarterly installments of $8,696. 118,078
Note payable to financial institution, 1.5% above prime rate,
due in 36 monthly installments of $38,472. Secured by accounts
receivable, equipment, and supplies. 461,667
Unsecured Notes Payable, non-interest bearing, due in 7 monthly
installments of $10,000. 70,000
Note payable to financial institution, 1.5% interest above prime
rate, due in 36 monthly installments of $4,167. Secured by
accounts receivable, equipment and supplies. 45,833
Note payable to financial institution, 10% interest, due in 24
monthly installments of $353. 3,367
Note payable to financial institution, 10% interest, due in 24 monthly
installments of $2,717. 9,251
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Total 1,548,072
Less: Current Portion (861,877)
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TOTAL $ 686,195
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Principal payments on long-term debt are as follows:
1996 $ 861,877
1997 278,320
1998 305,798
1999 102,077
2000 --
Thereafter --
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TOTAL $ 1,548,072
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</TABLE>
[7] DEMAND NOTE PAYABLE - BANK
Due on Demand note payable, variable interest rate of 1.5% over prime,
collaterized by accounts receivable. The prime interest rate at December 31,
1995 was 8.0%. The principle balance outstanding as of December 31, 1995 was
$150,000.
U.S. Imaging has an operating line of credit with a financial institution in
the amount of $130,146, which is secured by equipment and bears interest at
9.5% per annum. The Company has a principal balance outstanding at December
31, 1995 of $114,505.
8
<PAGE>
U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #4
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[8] CAPITAL LEASES
The Company has entered into various leases for equipment originating in the
years ended December 31, 1994 and 1995 with various repayment terms. Based on
the provisions of Statement No. 13, issued by the Financial Accounting
Standards Board, the leases meet the criteria of capital leases and,
accordingly, have been recorded as such. Obligations under capital leases are
stated on the balance sheet at the present value of future minimum lease
payments discounted at various interest rates. These assets are stated on the
balance sheet at their capitalized cost of $3,675,821, depreciation of
$665,396 has been recognized to date.
Future minimum lease payments under the capital leases, together with the
present value of minimum lease payments subsequent to December 31, 1995, are
as follows:
1996 $ 1,036,992
1997 1,033,604
1998 1,033,548
1999 473,761
2000 13,605
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Total 3,591,510
Less: Amount Representing Interest 594,074
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PRESENT VALUE OF FUTURE MINIMUM LEASE PAYMENTS $ 2,997,436
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[9] COMMITMENTS
The Company has non-cancelable operating leases for use of their facilities.
These leases may require payment of various expenses in addition to rent.
Certain leases contain renewal options and escalation clauses. The Company
recorded an expense of $320,039 related to these leases for the year ended
December 31, 1995.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1995 for each of the
next five years and in the aggregate are:
December 31, Amount
- ------------ ------
1996 $ 326,549
1997 330,310
1998 291,350
1999 240,990
2000 182,690
Thereafter 174,623
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TOTAL $ 1,546,511
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The Company has comprehensive maintenance contracts with its equipment vendors
for the magnetic resonance imaging, computerized tomography and other
diagnostic medical equipment. The terms of these contracts are between one and
five years, but may be canceled by the Company under certain circumstances.
9
<PAGE>
U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #5
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[10] CONCENTRATION OF CREDIT RISK
The Company's laboratories and imaging centers grant credit without collateral
to its patients, most of whom are residents of the laboratories' respective
area and are insured under third-party payor agreements. The composition of
receivable from third-party payors and patients are as follows:
December 31,
------------
1 9 9 5
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HMO/PPO 19%
Medicare 21
Blue Cross/Blue Shield 38
Other Third-Party Payors 17
Workers Compensation 5
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TOTAL 100%
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The Company maintains cash balances at several institutions in the Houston
area. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. At December 31, 1995, the Company's
uninsured cash balance totaled $78,110.
[11] PENSION PLAN
The Company offers a Pension Plan [the "Plan"] to full-time employees who have
completed one year of service and have reached the age of 21. The Plan
provides for discretionary Company and employee contributions. The Company's
contributions to the Plan during the year ended December 31, 1995 was $5,646.
[12] INCOME TAXES
U.S. Imaging, Inc. has adopted Statement of Financial Accounting Standards No.
109 ["SFAS 109"], "Accounting for Income Taxes." Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Since the Company prepares and files its federal and state tax returns using
the cash method of accounting, its taxable income is substantially different
from its income under generally accepted accounting principles. The deferred
tax liability is principally caused by increased accounts receivable balances
which will generate future taxable income.
10
<PAGE>
U.S. IMAGING, INC. AND SUBSIDIARIES AND L.E. RICHEY & ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS, SHEET #6
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[12] INCOME TAXES [CONTINUED]
The provision [benefit] for income taxes shown in the combined statements of
operations consist of the following:
Current:
Federal $ 485,355
State 42,397
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Total Current 527,753
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Deferred:
Federal 484,290
State 62,266
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Total Deferred 546,556
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TOTAL $ 1,074,309
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L.E. Richey & Associates has elected to be taxed as a sole proprietorship
under the provisions of the Internal Revenue Code. Under those provisions, the
owner is liable for individual federal and state income taxes on the
proprietorship's taxable income. Therefore, no provision for federal and state
income taxes is reflected.
[13] LITIGATION
The Company is subject to lawsuits arising in the ordinary course of business.
Management after review and consultation with counsel, believes it has
meritorious defenses and considers that any potential outcome from these
matters would not materially affect the financial position, statement of
operations and statement of cash flows of the Company.
[14] NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued Statement of
Financial Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to
the intrinsic valued based method of accounting prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has not decided if it will adopt SFAS No. 123 or
continue to apply APB Opinion No. 25 for financial reporting purposes. SFAS
No. 123 will have to be adopted for financial statement note disclosure
purposes. The accounting requirements of SFAS No. 123, if adopted by the
Partnerships, will be effective for transactions entered into in fiscal years
that begin after December 15, 1995; the disclosure requirements of SFAS No.
123 are effective for financial statements for fiscal years beginning after
December 15, 1995.
[15] SUBSEQUENT EVENT
On June 4, 1996, the Company entered into an agreement and plan of merger with
U.S. Diagnostic Labs Inc. ["USDL"], a public company. Provisions of the
agreement state that effective January 1, 1996, all shares of the company
stock shall be converted into and represent the right to receive 1,671,000
shares of USDL common stock and $7,000,000 of cash. A portion of the shares
issued [671,000] have been placed in escrow and their release is contingent
upon the achievement of certain earnings' levels.
. . . . . . . . .
11
