U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT #1
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24696
NATIONAL DIAGNOSTICS, INC.
(Name of small business issuer in its charter)
Florida 59-3248917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
737B West Brandon Blvd.
Brandon, Florida 33511
(Address of principal executive offices) (Zip Code)
(813) 661-9501
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Act:
Units Consisting of One Share of Common Stock, Without Par Value,
and One Common Stock Purchase Warrant
(Title of Class)
Common Stock, Without Par Value
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [_] No [X]
Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended December 31, 1995 were
$6,232,515.
As of February 29, 1996, there were outstanding 2,539,629 shares of
Common Stock, no par value. The aggregate market value of the voting
stock held by non-affiliates of the registrant based on the closing bid
price reported on the Nasdaq SmallCap Market as of February 29, 1996 was
$1,916,297.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents Form 10-K Reference
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
<PAGE>
NATIONAL DIAGNOSTICS, INC.
Form 10-KSB Annual Report
TABLE OF CONTENTS
Page No.
PART I
Item 1 Description of Business 3
Item 2 Description of Property 15
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 16
Item 6 Management's Discussion and Analysis or Plan of Operation 17
Item 7 Financial Statements 22
Item 8 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 45
PART III
Item 9 Directors, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act 46
Item 10 Executive Compensation 47
Item 11 Security Ownership of Certain Beneficial Owners and
Management 48
Item 12 Certain Relationships and Related Transactions 49
Item 13 Exhibits and Reports on Form 8-K 50
<PAGE>
PART I
Item 1 -- Description of Business
General
National Diagnostics, Inc., its wholly-owned subsidiaries, SunPoint
Diagnostic Center, Inc. ("SunPoint"), National Diagnostics/Orange Park,
Inc. ("Orange Park"), National Diagnostics/Cardiology, Inc.
("Cardiology"), Alpha Associates, Inc. ("Alpha Associates") and Alpha
Acquisitions Corp. ("Alpha Acquisitions"), and Brandon Diagnostic Center,
Ltd., a limited partnership of which Alpha Associates and Alpha
Acquisitions are the general and limited partner, respectively, provide
diagnostic imaging services through several outpatient centers located in
the State of Florida. Sundance Partners (a wholly owned general
partnership) owns the land and building associated with the outpatient
center leased to Orange Park. (As used herein, the term "Company" refers
to National Diagnostics, Inc., including its subsidiaries.) The Company's
principal facility is located in Brandon, just east of Tampa. This
facility accounted for 63% of the Company's net revenues in 1995. The
Company also opened a new facility in Ruskin, Florida in November, 1994
and acquired, through its Orange Park subsidiary, substantially all of the
assets of an existing mobil diagnostic imaging business in greater
metropolitan Jacksonville in February, 1995. In August, 1995 the company
opened in the Jacksonville area a third fixed site facility. In
September, 1995 the Company expanded its mobil facilities by adding both a
mobil MRI unit and mobil cardiology unit in the Jacksonville area.
The Company provides full service diagnostic imaging services to
patients and physicians in a comfortable, service-oriented environment
located outside of an institutional setting. Diagnostic imaging services
provided include magnetic resonance imaging ("MRI"), computer tomography
("CT"), ultrasound, nuclear medicine, general radiology and fluoroscopy,
neurodiagnostic testing, and mammography. The Company's diagnostic
imaging procedures are performed by trained radiologic technologists and
board certified radiologists. Medical services are provided at each
facility by interpreting physicians, who are board certified radiologists
and members of physician groups with whom the Company has entered into
long-term contracts. The Company provides management, administrative,
marketing and technical services, as well as equipment and facilities, to
its interpreting physicians. The Company accepts Medicare, Medicaid,
Worker's Compensation and most commercial insurance. The Company has
contracted with many health maintenance organizations and preferred
provider organizations. In 1994 and 1995, the Company's total net
revenues were $3,708,603 and $6,232,515, respectively, reflecting
approximately 18,000 and 29,000 respective diagnostic imaging procedures.
The Company's Brandon facility is operated through Brandon Diagnostic
Center, Ltd., a Florida limited partnership 60% of which is held by Alpha
Associates as the sole general partner, and, prior to November, 1993, 40%
of which was held by a corporate limited partner owned by shareholders who
were physicians that referred patients to the Brandon facility. To comply
with the referral prohibition laws, Alpha Acquisitions was formed in
September of 1993 for the purpose of acquiring the limited partnership
interest held by the limited partner. Effective November 1, 1993, Alpha
Acquisitions acquired all of the limited partner interest for a total
purchase price of approximately $450,000, which included the assumption of
debt obligations in the aggregate amount of approximately $408,000 with
interest accruing on the outstanding principal balance at various rates
ranging from the prime rate plus one percent to eleven percent per annum,
payable in installments through September 1, 1995. Prior to the formation
of the Company as a holding company, all of the issued and outstanding
shares of Alpha Associates and Alpha Acquisitions were owned by Jugal K.
Taneja and Curtis L. Alliston. In connection with the formation of the
Company as a holding company, Messrs. Taneja and Alliston transferred all
of the issued and outstanding shares of Alpha Associates and Alpha
Acquisitions to the Company in exchange for 1,200,000 Common Shares and
1,200,000 Common Share Purchase Warrants. Neither Mr. Taneja nor Mr.
Alliston are physicians.
The Company was incorporated in Florida in June of 1994. The
Company's executive headquarters are located at 737B West Brandon Blvd.,
Brandon, Florida 33511, and its telephone number is (813) 661-9501.
Diagnostic Imaging Services Industry
Overview
During the past ten years, the diagnostic imaging industry has
experienced substantial growth as well as a major shift from inpatient to
outpatient delivery of services. Due to the contrast and detail of a high
quality MRI scan, the use of MRI equipment frequently facilitates the
identification of disease and disorders of a patient and often reduces the
amount and cost of care needed to treat the patient and the need for
certain invasive procedures, like exploratory surgery. The number of MRI
units in operation has increased from fewer than 100 in 1984 to more than
4,800 in 1994. This rapid growth resulted from increasing acceptance by
physicians and patients of MRI as well as an increasing need for MRI usage
in imaging different body organ systems and disease conditions. New
software programs and hardware capabilities, coupled with new contrast
agents (chemicals administered to the patient that enhance the signal
generated by body tissues), are anticipated to expand further the usage of
the technology by physicians.
In addition, inpatient health care cost containment pressures have
led to the growth of outpatient delivery of services. Prior to 1983, most
imaging services were delivered to patients in a hospital radiology
department. In 1983, the federal government instituted the Prospective
Payments System, which limited the amount paid by Medicare to hospitals
for inpatient care for most categories of diseases. This restrictive
reimbursement environment was a prime factor in the shift from inpatient
to freestanding, outpatient imaging centers, since hospitals became less
likely to purchase or lease expensive diagnostic imaging equipment.
Ownership of outpatient diagnostic imaging centers remains highly
fragmented, with no dominant national provider. Most of the equity in
outpatient centers is owned by hospitals, independent radiologists,
management companies or other groups. This fragmentation provides the
Company with potential acquisition opportunities.
Equipment and Modalities
Diagnostic imaging systems are based on the ability of energy waves
to penetrate human tissue and generate images of the body which can be
displayed either on film or on a video monitor. Imaging systems have
evolved from conventional x-rays to the advanced technologies of MRI,
computerized tomography, ultrasound, nuclear medicine, neurology and
mammography. The principal diagnostic imaging modalities used by the
Company include the following:
Magnetic Resonance Imaging. MRI is a sophisticated diagnostic
imaging system that utilizes a strong magnetic field in conjunction
with low energy electromagnetic waves which are processed by a
dedicated computer to produce high resolution multiple images of body
tissue. A principal virtue of MRI imaging is that atoms in various
kinds of body tissue behave differently in response to a magnetic
field, enabling the differentiation of internal organs and normal and
diseased tissue. During an MRI procedure, a patient is placed in a
large, cylindrical magnet. Multiple images to various planes and
cross-sections can be created without moving the patient. The images
can be displayed on a computer screen, stored within the computer, or
transferred to film for interpretation by a physician and retention
in a patient's file. Unlike computerized tomography and general
radiology and fluoroscopy, MRI does not utilize ionizing radiation
which can cause tissue damage in high doses. As with many other
diagnostic imaging technologies, MRI is generally non-invasive.
Computerized Tomography. CT is used to detect tumors and other
conditions affecting the skeleton and internal organs. CT provides
higher resolution images than conventional x-rays, but generally not
as well defined as those produced by MRI. During a CT procedure, a
patient is placed inside a ring on which a rotating x-ray tube is
mounted. A dedicated computer directs the movement of the x-ray tube
to produce multiple cross sectional images of a particular organ or
area of the body.
Ultrasound. Ultrasound has widespread application, particularly
for procedures in obstetrics, gynecology and cardiology. Ultrasound
imaging relies on the computer-assisted processing of sound waves to
develop images of internal organs and the vascular system. The sound
waves are generated and recorded by probes that are either passed
over or inserted into the body. A dedicated computer processes sound
waves as they are reflected by body tissue, providing an image that
may be viewed immediately on a computer screen or recorded
continuously or in single images for further interpretation.
Nuclear Medicine. Nuclear medicine is used primarily to study
anatomy and metabolic functions. During a nuclear medicine
procedure, short-lived radioactive isotopes are administered to the
patient by ingestion or injection. The isotopes break down rapidly,
releasing small amounts of radioactivity that can be recorded by a
gamma or scintigraphic camera and processed by a computer to produce
a flat image of various anatomical structures.
General Radiology and Fluoroscopy. The most frequently used
type of imaging equipment, radiology uses "x-rays" or ionizing
radiation to penetrate the body and record its images on film.
Fluoroscopy uses a video viewing system for real-time monitoring of
the organs being visualized.
Neurology. Neurological diagnostic testing, consisting of nerve
conduction studies, electromyography, evoked-potentials and
electroencephalography (EEG), is used for the evaluation of patients
with suspected radiculophy of the cervical and lumbar nerves and
diseases of the nervous system, such as multiple sclerosis (MS).
Neurological diagnostic testing equipment is designed to assess the
integrity, conduction ability and functioning of the nervous system
through electro-physiological stimulation.
Mammography. Mammography is a specialized form of radiology
equipment using low dosage x-rays to visualize breast tissue. It is
the primary screening tool for breast cancer.
The Company's Growth Strategy
The Company's strategy for growth involves increasing the revenues
and profitability of its existing facilities, establishing and developing
additional diagnostic imaging centers and acquiring existing imaging
facilities in certain target markets, as well as expanding its existing
operations to include mobile diagnostic imaging capabilities.
Expansion of Existing Facilities.
The Brandon facility is currently a full service imaging facility.
In 1994, the Brandon facility was expanded to provide additional capacity
for its general radiographic and fluoroscopy services to meet the
increasing demand for such services in the Brandon area. The Brandon
facility was further expanded in March, 1995 to include a Center for Women
that focuses on providing additional mammography and ultrasound services.
In June, 1995, the Company relocated Orange Park's principal
facility from Middleburg to Orange Park and expanded the range of
diagnostic imaging services offered thereby. With the addition of a mobil
MRI unit in September, 1995 to its modalities Orange Park became a full-
service imaging facility. See "-The Orange Park Facility."
In September, 1995, Cardiology placed into service a mobile
cardiology unit and has expanded its service area in the Northeast Florida
to the greater Jacksonville area, Fernandina Beach, Lake City and Palatka.
The SunPoint Diagnostic Center is a full-service imaging facility,
with the exception of MRI. The Company intends to add MRI capabilities to
the SunPoint facility at such time as the demand for such services
warrants the acquisition of MRI equipment. See "The SunPoint Facility."
Center Development and New Center Acquisitions.
The Company's external growth strategy includes the development
and/or acquisition of diagnostic imaging facilities in target areas
identified by management initially in the State of Florida, with the
potential for expansion to other regions in the Southeastern United
States. The Company intends to operate each newly developed or acquired
facility through a separate, wholly-owned subsidiary. In seeking suitable
locations for the development of new centers or the acquisition of
existing centers, the Company will focus primarily on demographic studies
and its analysis of local competition, physician referral patterns and
imaging services supply and demand. Also, the Company will focus on its
ability to either utilize the professional services of its existing
interpreting physicians to interpret test results or affiliate with other
qualified interpreting physicians.
Currently, the Company intends to slow its external expansion in
1996; focusing more directly on the continuing effort to build
efficiencies and profitability into existing new start ups. There are
plans to open one additional fixed site facility in the Riverside area of
Jacksonville, Florida in mid 1996. No assurances can be given, however,
that adequate financing will be available to fund the development of this
or any other new facilities.
Installation and maintenance costs on equipment can be substantial,
particularly with respect to MRI units. Consequently, new facilities
initially will include most or all of the modalities offered by the
existing Brandon facility, with the exception of MRI. MRI has
historically accounted for approximately 20-30% of the Company's revenues.
MRI procedures are expensive to perform and have historically generated
high margins for the Company. Due to the significant capital expenditure
required to install and maintain MRI equipment, however, a minimum average
number of procedures must be performed daily at each facility offering MRI
to cover fixed costs associated with MRI equipment. As a result, the
Company currently intends to perform all MRI procedures required by its
facilities not offering MRI directly either at the Company's nearest full
service facility or via a mobile MRI unit acquired by Orange Park and
placed into operation in September, 1995. The Company expects to provide
MRI services in this manner until such time as management determines that
the demand for MRI procedures at a particular facility is at a level that
will generate revenue sufficient to cover fixed costs associated with MRI
equipment.
The Company also believes that it can successfully acquire existing
imaging centers. Acquisition opportunities have diminished that were tied
to the enactment of federal and state laws and regulations restricting
physician referrals to health care facilities in which such physicians
have a financial interest and limiting permissible affiliations between
tax exempt hospitals and "for profit" outpatient medical centers. See
"Business--Government Regulation." The required divestitures of
physician-owned centers have already occurred. Nevertheless, management
believes that acquisition opportunities continue to exist due to the
fragmented nature of the imaging center business.
The Company believes that it can successfully integrate the
operations of its new facilities and any facilities that it chooses to
acquire by achieving economics of scale using its existing corporate
infrastructure.
Increased Mobile Diagnostic Imaging Capabilities.
The Company's growth strategy also includes expanding its mobile
diagnostic imaging capabilities. In January, 1995, the Company entered
into an agreement with an established group of cardiologists in Orange
Park, Florida to provide mobile nuclear cardiology imaging services. In
September 1995 the Company placed into operation a fully operational
mobile unit to service such group as well as other cardiological centers
and specialists. See "-NDCI Mobile Services." The Company's Orange Park
facility currently provides mobile ultrasound and neurological diagnostic
imaging services. The Company expanded the operations of its Orange Park
subsidiary in September, 1995 with the inclusion of mobile MRI services.
See "-The Orange Park Facility."
There can be no assurances that the Company can or will successfully
implement its center growth or external growth strategies.
The Brandon, Florida Facility
The Brandon, Florida facility was established in 1991 as a full-
service diagnostic facility specializing in outpatient radiology. The
Brandon facility generally provides medical diagnostic services to the
general population living within approximately ten miles of Brandon,
Florida. The Brandon, Florida area population, currently in excess of
250,000, consists primarily of an expanding base of middle income families
and retirees. In 1994 and 1995, the Brandon facility generated net
revenues of approximately $3,600,000 and $3,900,000, respectively,
reflecting approximately 17,000 and 21,000 respective diagnostic imaging
procedures.
Imaging Equipment.
The Company obtains its imaging equipment from large,
well-established companies, including Siemens Medical Systems Inc.,
Toshiba, Inc., Lo-Red Co. and Raytheon, Inc. The Company is not dependent
on any one supplier and believes that it has satisfactory relationships
with its suppliers.
The Brandon facility currently has one unit for each of MRI, CT,
ultrasound and nuclear medicine and two units for each of mammography,
radiology and fluoroscopy.
Equipment acquisition costs can vary dramatically, depending upon the
model and peripheral equipment acquired. The Company reviews the
technological capabilities of new product offerings in order to improve
and upgrade equipment when necessary. Currently, equipment costs range as
follows:
Equipment Price Range
MRI $900,000 to $1,700,000
CT 300,000 to 900,000
Ultrasound 100,000 to 250,000
Nuclear Medicine 250,000 to 400,000
Radiology 40,000 to 75,000
Fluoroscopy 200,000 to 350,000
Mammography 50,000 to 80,000
Neurology 25,000 to 60,000
Installation and maintenance costs on the equipment can be
substantial, particularly with respect to MRI units. Installation costs
can range from $35,000 to $125,000 for an MRI unit, depending on the
particular installation circumstances. Annual expenses for equipment
maintenance and repairs at the Brandon facility were approximately
$105,000 and $137,000 for the fiscal years ended December 31, 1994 and
December 31, 1995, respectively. The Company typically enters into
agreements with equipment manufacturers or other third parties for
equipment maintenance.
The Company generally obtains financing for its equipment from
lenders and lessors, with the equipment and other assets serving as
security for the loans. Leases for smaller medical equipment average
three years and leases for larger medical equipment are for seven years.
Certain of such leases are personally guaranteed by Messrs. Taneja and
Alliston and their spouses.
Operations
The Company provides diagnostic imaging services to patients referred
by physicians who are either in private practice or affiliated with
managed care providers or other groups. Patients are scheduled for an
appointment, informed of any medications needed for the test, and
pre-qualified with respect to their medical requirements and insurance
coverage by Company personnel. Procedures are designed to avoid the
admission and administrative complexities of in-hospital diagnostic
imaging services. All of the Company's imaging services are performed on
an outpatient basis by trained medical technologists under the direction
of the interpreting physician. Following the diagnostic procedures, the
images are reviewed by the interpreting physicians, who prepare a report
of these tests and their findings. These reports are transcribed by
Company personnel and then delivered to the referring physicians. The
interpreting physicians are board certified specialists in radiology,
nuclear medicine, nuclear cardiology or neuroradiology, as appropriate.
Such interpreting physicians are members of an independent health care
provider group with which the Company has entered into a long-term
contract, and are not employees of the Company. The Company is not
engaged in the practice of medicine.
Typically, patients are charged an all-inclusive fee for the imaging
studies. The administrative staff is responsible for billing and
collecting the fee. Patients at the Brandon facility are invoiced in the
name of Brandon Diagnostic Center. The interpreting physician's
professional association ("P.A.") with which the Company has currently
contracted for interpreting physician services at the Brandon facility
receives a fixed percentage (fourteen percent) of monthly collections.
The interpreting physician's P.A. is responsible for subcontracting with
additional physicians to assure adequate coverage during peak times,
absences, etc. The Company believes that the structure of its
compensation arrangement with its interpreting physicians encourages high
quality service and fairly compensates these physicians for the
interpretation services they provide. The Company's agreement with its
interpreting physicians is typically for a three-year term and requires
each physician to obtain medical malpractice insurance.
Brandon facility's interpreting physician is certified by the
American Board of Radiology. The following is a brief biographical
summary of the Brandon facility's principal interpreting physician:
Dr. Robert D. Marshall, M.D. received his Doctor of Medicine degree
from the University of Miami School of Medicine, Miami, Florida in June,
1974. Dr. Marshall performed his internship and residency from 1974 to
1978 at the University of South Florida, School of Medicine, Tampa,
Florida. In February, 1987 Dr. Marshall received a fellowship in MRI at
Huntington Memorial Hospital, Pasadena, California. In addition to
training in MRI, Dr. Marshall received training and experience in computer
tomography, mammography, ultrasound and nuclear medicine in 1977 and 1978.
The Brandon facility is open from 7:30 a.m. to 6:00 p.m. Monday
through Friday, 8:00 a.m. to 2:00 p.m. on Saturdays and on an as-needed
basis on Sundays.
The SunPoint Facility
The Company, through its SunPoint subsidiary, opened its SunPoint
Diagnostic Center in Ruskin, Florida, approximately twenty miles south of
Brandon, in November, 1994. This facility is located near the Sun City
Center retirement community. The Ruskin area has a total population of
approximately 45,000, including roughly 38,000 retirees. The SunPoint
facility is a full-service imaging facility, with the exception of MRI.
It currently has one unit for each of CT, ultrasound, nuclear medicine,
mammography, radiology and fluoroscopy. The equipment located at the
SunPoint facility is obtained from the same manufacturers as the Brandon
facility equipment.
Consistent with the Company's expansion strategy, the Company intends
to add MRI capabilities to the SunPoint Diagnostic Center only as the
demand for such services develops and warrants the acquisition of MRI
equipment. Until such time, all MRI procedures required by SunPoint
facility patients will be performed at the nearby Brandon facility. All
SunPoint patients requiring MRI procedures are offered a free shuttle
service to and from the Brandon facility.
The operational procedures at the SunPoint facility are virtually
identical to those described above under "-The Brandon Facility-
Operations," with the exception that patients are invoiced in the name of
SunPoint Diagnostic Center. The SunPoint facility is staffed by eight
employees and one interpreting physician, who rotates with the other
interpreting physician serving the Brandon facility. The interpreting
physician's P.A. with which the Company has currently contracted for
interpreting physician services at the SunPoint Diagnostic Center receives
a fixed percentage (fourteen percent) of monthly collections.
The SunPoint facility is currently open from 7:30 a.m. to 5:30 p.m.
Monday through Friday, and on an as needed basis on Saturdays.
The Orange Park Facility
In February, 1995, the Company, through its Orange Park subsidiary,
acquired substantially all of the assets of Medical Imaging Consultants,
Inc. and certain of its affiliates, providers of both mobile and fixed
site ultrasound and related diagnostic testing services in the cardiac,
cerebral vascular and neurophysiology areas. (See Note 12 to the
Consolidated Financial Statements.)
Orange Park currently provides mobile and fixed site neurological and
ultrasound imaging diagnostic services in Clay, Duval, Nassau and St.
Johns counties in northeastern Florida. Its principal facility is located
in Orange Park, Florida, where it has three units for neurology and one
unit for ultrasound. All equipment at the Orange Park facility is either
owned directly or leased through an independent leasing company. The
Orange Park became a full service imaging facility, including MRI, by
September, 1995. The Company has one unit for each of CT, nuclear
medicine, mammography, radiology, fluoroscopy and a mobile MRI facility
at its Orange Park subsidiary. This mobile unit is used to provide MRI
services at Orange Park and any future facilities developed by the Company
in northeastern Florida. See "-The Company's Growth Strategy-Center
Development and New Center Acquisitions."
Orange Park follows the same operational procedures as the Company's
other facilities, except that patients are invoiced directly in the name
of Orange Park. The Orange Park facility is currently staffed by seven
employees, including three trained medical technologists who perform all
of the imaging services at the Orange Park facility. All interpreting
services are provided by eight interpreting physicians who are members of
an independent health care provider group with which the Company has
entered into a long-term contract. These physicians are not employees of
the Company and the Company is not engaged in the practice of medicine.
The interpreting physician group with which the Company has contracted for
interpreting physician services at the Orange Park facility receives a
monthly fee equal to 17% of the monthly collections.
The Orange Park facility is currently open from 7:30 a.m. to 5:30
p.m. Monday through Friday, and on an as-needed basis on Saturdays.
NDCI Mobile Services
In January, 1995, the Company, through its NDCI subsidiary, entered
into an exclusive agreement with Diagnostic Cardiology Associates, an
established group of 18 cardiologists based in Jacksonville and other
physician groups in northeast Florida, to provide mobile nuclear
cardiology imaging services. The Company acquired a mobile unit and
placed it into operation in September, 1995. Since then the Company has
expanded its operations to Fernandina Beach, Lake City and Palatka,
Florida. The Company will seek to enter into similar arrangements with
other groups of cardiologists, but no assurances can be made that such
opportunities exist or can be realized.
Marketing
The Company provides diagnostic imaging services to patients referred
by physicians who are either in private practice or affiliated with
managed care providers or groups. Consequently, the Company's marketing
program focuses on establishing and maintaining referring physician
relationships by efficiently providing needed medical services to patients
of those physicians, and maximizing reimbursement yields. The Company's
marketing program targets selected market segments consisting of local
physicians who may have a need for diagnostic imaging services. The
Company utilizes a variety of marketing techniques in its market areas to
educate physicians in the availability and capabilities of the various
imaging technologies, including personal visits by the Company's clinical
coordinators to local physicians and their staffs, direct mailings of
marketing brochures and participation in seminars on recent developments
in diagnostic imaging and related technology.
The Company's clinical coordinators seek to maintain the satisfaction
of referring physicians by frequent contact with them, both to ascertain
the physicians' needs and, when appropriate, to seek suggestions on how to
improve the Company's delivery of services. The Company continually seeks
to improve the quality of its services by encouraging interaction between
referring physicians and interpreting physicians. The Company has also
developed a database containing referring physician and patient
information in order to more effectively coordinate its marketing
activities with respect to its referring physicians. The Company has
joined the Florida Imaging Network, Inc., an association recently
established to develop and operate a statewide diagnostic imaging services
network to interface with managed care providers in the State of Florida.
The Company believes that this will provide an additional method of
expanding its referral base.
Reimbursement, Billing and Collection
The Company charges patients a fee for each imaging study performed,
which is billed in the name of the applicable diagnostic center. The
Company generally accepts assignment by the patient of payment from
insurers and is reimbursed for services performed by payment, directly and
indirectly, from third-party commercial insurers, managed care
organizations, government payors, workmen's compensation and other
sources. In many instances, the patient is responsible for payment of a
co-payment or deductible and, in some instances, the patient remains
responsible for payment of the entire fee. The extent to which services
provided by the Company are reimbursable depends upon a number of factors,
including the type of insurance coverage carried by the patient, the type
of imaging services provided to the patient, prevailing practices in the
relevant geographic area and the identity of the third-party payor.
The following table sets forth the approximate percentages of
collections received during 1995 in each of the following categories:
Percent of
Source Collections
Managed Care/HMO 31%
Private Insurance 31
Medicare/Medicaid 23
Private Pay 11
Workmen's Compensation 4
The Company maintains a competitive billing strategy based upon
evaluation of available pricing data. The Company maintains sufficient
price flexibility to enable it to compete with other MRI imaging services
provided in the local community.
Obtaining the maximum amount of allowable reimbursement and
collecting receivables on a timely basis are critical to the Company's
success and are a priority of management. The Company has developed and
is continuing to develop systems to process claims. The Company endeavors
to provide complete and accurate claims data to the relevant payor sources
to obtain the maximum amount of allowable reimbursement and to accelerate
the collection of accounts receivable. Approximately seven of the
Company's employees are involved in reimbursement, billing and collection
activities. There can be no assurance that the Company will be successful
with respect to the foregoing.
Third-party payors, including Medicare, Medicaid and certain
commercial payors, have taken extensive steps to contain or reduce the
costs of health care. A significant change in coverage or a reduction in
payment rates by third-party payors could have a material adverse effect
upon the Company's business. In 1995 and 1994, approximately .3% and
0.6%, respectively, of the Company's total revenues were derived from
providing imaging services to patients involved in personal injury claims.
The Company sometimes experiences significant collection delays in
connection with these services due to the fact that the Company may not be
paid for its services until the underlying legal action is resolved.
Competition
The outpatient diagnostic imaging industry is highly competitive.
The Company believes that its principal competitors are hospitals,
independent or management company-owned imaging centers, some of which are
owned, in whole or in part, by physician investors, and mobile diagnostic
units. Some of these competitors have greater financial and other
resources than the Company. The Company's sole competitor in the
immediate Brandon area is a 120 bed hospital providing full inpatient
service and its sole competitor in the Ruskin area is a 50 bed hospital
also providing full inpatient service. The Company has many competitors
in the Jacksonville area, including hospitals, independent or management
company-owned imaging centers and mobile diagnostic units, but, to the
best of management's knowledge, none of these competitors is a full
modality center offering mobile and fixed site diagnostic imaging
services.
The Company believes that as a result of its operating efficiencies,
it can provide outpatient diagnostic services more competitively than
other local providers. Principal competitive factors include quality and
timeliness of test results, type and quality of equipment, facility
location, convenience of scheduling and availability of patient
appointment times. The Company may benefit, or experience increased
competition, to the extent proposed or future regulations will reduce self
referrals from physician investors and make their referrals part of the
market for which any center may compete. The Company currently has no
physician investors and, therefore, derives 100% of its revenues from
non-investor referrals.
Government Regulation
The health care industry is highly regulated at the federal, state
and local levels. Although the following is not an exhaustive discussion,
it summarizes the key regulatory factors that affect the Company's
operations and development activities:
Certificates of Need and Licensing. Under Certificate of Need laws,
a health care provider is typically required to substantiate the need for,
and financial feasibility of, certain expenditures related to the
construction of new facilities, commencement of new services or purchases
of medical equipment in excess of statutory thresholds. The provision of
outpatient health services, including outpatient MRI, is exempt from
Certificate of Need review in the State of Florida. The operations of
outpatient imaging centers are subject to federal and state regulations
relating to licensure, standards of testing, accreditation of certain
personnel and compliance with governmental reimbursement programs. The
Company is required to obtain and maintain general business licenses from
certain counties in which it operates centers, as well as licenses from
the State of Florida for the handling and disposal of radioactive
materials used in nuclear medicine procedures. Radioactive materials are
currently delivered daily to the Company's Brandon, SunPoint and
Cardiology facilities. Medical waste contaminated with radioactive
material is placed in locked hazardous waste containers and picked up
daily for disposal by a licensed hazardous waste vendor. The Company is
subject to surprise inspection by nuclear inspectors. Although the
Company believes that it has obtained all necessary licenses, the failure
to obtain a required license could have a material adverse effect on the
Company's business. The Company believes that diagnostic testing will
continue to be subject to intense regulation at the federal and state
levels and it cannot predict the scope and effect thereof.
Medicare/Medicaid Anti-Kickback Provisions. The Medicare/Medicaid
Anti-Kickback Statute (the "Anti-Kickback Statute") prohibits the
offering, payment, solicitation or receipt of any form of remuneration in
return for the referral of Medicare or Medicaid patients for any item or
service that is covered by Medicare or Medicaid. Violation of the
Anti-Kickback Statute is punishable by substantial fines, imprisonment for
up to five years or both. In addition, the Medicare and Medicaid Patient
and Program Protection Act of 1987 (the "Protection Act") provides that
persons guilty of violating the Anti-Kickback Statute may be excluded from
participating as providers or suppliers in the Medicare or Medicaid
programs. Investigations leading to prosecutions and/or program exclusion
may be conducted by the Office of the Inspector General ("OIG") of the
United States Department of Health and Human Services ("HHS"), the United
States Department of Justice and State of Florida agencies.
Under the Anti-Kickback Statute, law enforcement authorities, HHS
and the courts are increasingly scrutinizing arrangements between health
care providers and referral sources (such as physicians) in order to
ensure that the arrangements are not designed as a mechanism to exchange
remuneration for patient referrals. This scrutiny is not limited to
financial arrangements that involve a direct payment for patient
referrals, but extends to payment mechanisms that carry the potential for
inducing Medicare or Medicaid referrals, including situations where
physicians hold investment interests in, or compensation arrangements
with, a health care entity to which such physicians refer patients.
Safe Harbor Regulations. The Protection Act directed the OIG to
publish regulations delineating health care payment practices that would
not be subject to criminal prosecution and would not provide a basis for
program exclusion under the Anti-Kickback Statute. In 1991, the OIG
published final safe harbor regulations that specify the conditions under
which certain kinds of financial arrangements, including (I) investment
interests in public companies, (ii) investment interests in small
entities, (iii) management and personal services contracts, and (iv)
leases of space and equipment, will be protected from criminal prosecution
or civil sanctions under the Anti-Kickback Statute. The OIG has stated
that failure to satisfy the conditions of an applicable "safe harbor" does
not necessarily indicate that the arrangement in question violates the
Anti-Kickback Statute, but means that the arrangement is not among those
that the "safe harbor" regulations protect from criminal or civil
sanctions under that law.
One provision of the Safe Harbor Regulations includes a public
company exception applicable to investment in the Company by referring
physicians. The Company currently does not qualify for this exception. A
return on investment, such as a dividend or interest, is not a prohibited
payment if, within the previous fiscal year or 12 month period, the public
company possesses more than $50 million in undepreciated net tangible
assets which are related to the furnishing of health care items and
services and the Company meets all five of the following standards:
i) Equity securities must be registered with the Commission under
15 U.S.C. 78l(b) or (g);
ii) The investment interest of an investor in a position to make or
influence referrals to, furnish items or services to, or
otherwise generate business for, the Company must be obtained on
terms equally available to the public through trading on a
registered national securities exchange or on Nasdaq;
iii) The Company or any investor must not market or furnish the
Company's items or services to passive investors (non-management
shareholders) differently than to non-investors;
iv) The Company must not loan funds to or guarantee a loan for an
investor who is in a position to make or influence referrals to
furnish items or services to, or otherwise generate business for
the entity if the investor uses any part of the loan to make the
investment; and
v) The amount of payment to the investor in return for the
investment interest must be directly proportional to the amount
of the investor's capital investment.
The Company does not meet the $50 million net tangible assets
criterion and, therefore, in order to avoid any issue as to fraud and
abuse compliance, a physician who owns any of the Company's securities
might be prohibited from making any patient referrals to the Company's
diagnostic imaging facilities, whether or not the remaining standards have
been complied with.
With respect to the arrangements between the Company and its
interpreting physicians, there is a safe harbor for personal service
agreements which requires that such arrangements be in writing and last
for at least one year, and that the compensation paid to the physicians be
based on the fair market value of the professional services they provide
and not on any referrals or business generated between the parties. To
the extent that the compensation arrangements with the interpreting
physicians do not fit within all of the requirements of the safe harbor,
they are not per se illegal, but in order to avoid all risk of fraud and
abuse issues, the interpreting physicians would not be permitted to make
any referrals to the Company for imaging services.
Florida Prohibition of Referrals. On March 13, 1992, the Florida
Legislature passed the "Patient Self-Referral Act of 1992" (the "1992
Act"), which took effect April 9, 1992. The Act, as amended in 1993,
prohibits physicians' referrals of patients for designated health
services, including diagnostic imaging services, to facilities in which
they own an investment interest. Therefore, physicians who own Common
Shares or Common Share Purchase Warrants are prohibited from making any
patient referrals to the Company's diagnostic imaging facilities.
Medicare Reimbursement. Diagnostic imaging services provided to
Medicare beneficiaries are reimbursed based on Medicare's Resource-Based
Relative Value Scale, which sets limits on reimbursement for both the
technical and physician components of these services. There is no
guarantee that the amount paid by Medicare, either now or in the future,
will be adequate to meet the Company's costs of providing the imaging
services. There is also no guarantee that the U.S. Government will not
enact law or adopt regulations restricting the ability of free-standing
diagnostic imaging centers from providing services to Medicare or Medicaid
patients, although the Company is currently unaware of any proposal to do
so.
Omnibus Budget Reconciliation Act of 1993. As part of the Omnibus
Budget Reconciliation Act of 1993, Congress passed the "Stark II" law,
which prohibits a physician from referring Medicare and other federal
program patients for designated health services, including imaging
services, to certain entities with which the physician or a member of his
or her immediate family has a financial relationship. A "financial
relationship" would include either an ownership interest in, or
compensation arrangement with, the entity. The Stark II law has been
incorporated into Section 1877 of Title XVIII of the Social Security Act.
The Company, as a provider of radiology and other diagnostic services,
would be such an entity, and therefore, a physician with such a financial
relationship with the Company could not make referrals of Medicare or
Medicaid business to the Company, unless the relationship falls within one
of the limited exceptions offered by Stark II. These limitations became
effective January 1, 1995.
Stark II provides an exception for referrals by a physician who, or a
member of whose immediate family, owned investment securities in a public
entity which may be purchased on terms generally available to the public,
but only if the entity met the following criteria: (I) its securities are
listed on a recognized stock exchange or traded on Nasdaq; and (ii) the
entity has at the end of its most recent fiscal year or on average during
the previous three fiscal years, stockholder equity exceeding $75 million.
The Company does not meet these criteria and, therefore, a physician who
owns Common Shares or Common Share Purchase Warrants of the Company is
prohibited from making Medicare and other federal program patient
referrals to any of the Company's diagnostic imaging facilities. The
Company also is prohibited from presenting a claim for services rendered
in connection with such a prohibited referral. It would not be necessary
for the Company to have knowledge that the referral was unlawful in order
for there to be a violation for which the penalty could be denial of
payment for the claim or a refund to the payer. Penalties of up to
$15,000 for each violation and exclusion from Medicare and other programs
could be assessed if a bill is presented and the entity knows or should
have known that it is the result of a prohibited referral.
Physicians with compensation arrangements with the Company, such as
its interpreting physicians, also are subject to the foregoing referral
prohibition, unless the arrangement fits within a Stark II exception.
Stark II permits personal arrangements between such physicians and the
Company if various criteria are met, including that the arrangement is set
out in writing, has a duration of at least one year and the compensation
paid to the physicians represents the fair market value of the
professional services provided and does not take into account the volume
or value of any referrals or other business generated between the parties.
Stark II also specifically states that a prohibited referral does not
include a request by a radiologist for diagnostic radiology services if
such services are furnished by or under the supervision of that
radiologist.
To its knowledge the Company currently does not have any physicians
who are significant shareholders and, therefore, the Company's revenue
growth has been derived entirely from non-investor physician referrals.
In the event the Company has physician shareholders in the future,
however, federal and state law will prohibit referrals by such investors
to any of the Company's imaging centers.
As a provider of diagnostic services, the Company is required to
report the names and unique identification number of physicians who, or
whose immediate family members, have an investment interest in or
compensation arrangement with the Company. The Company's current
shareholders are not physicians and, therefore, do not provide referrals
in potential violation of the foregoing provisions. In the future,
however, many of the Company's Common Shares or Warrants may be held by
physicians or their immediate family members or in "street name", and
therefore, not readily subject to discovery. Management believes that
monitoring of such ownership would be extremely difficult. However,
management is investigating methods of minimizing its exposure to
inadvertently accepting a prohibited referral. Management will also
assess and monitor its compensation arrangements with physicians.
Although the Company believes that it is in material compliance with
all applicable federal and state laws and regulations, there can be no
assurance that such laws or regulations will not be enacted, interpreted
or applied in the future in such a way as to have a material adverse
impact on the Company, or that federal or state governments will not
impose additional restrictions upon all or a portion of the Company's
activities, which might adversely affect the Company's business.
Employees
As of March 17, 1996, the Company had 79 employees (all full time),
including 4 executive officers, 41 administrative personnel, 1 sales and
marketing person and 33 technical personnel. The Company is not a party
to any collective bargaining agreement and considers its relationship with
its employees to be good.
Insurance
The Company carries workmen's compensation insurance, comprehensive
and general liability coverage, fire and allied perils coverage in amounts
deemed adequate by management. The Company is not engaged in the practice
of medicine and, therefore, does not carry medical malpractice insurance.
See "Risk Factors." There is no assurance that potential claims will not
exceed the coverage amounts, that the cost of coverage will not
substantially increase or require the Company to insure itself or that
certain coverages will not be reduced or become unavailable. The Company
also requires that physicians practicing at the imaging centers carry
medical malpractice insurance to cover their individual practices. The
interpreting physicians are responsible for the costs of this insurance.
Item 2 -- Description of Property
The Company's executive office and its primary diagnostic facility
are located in Brandon, Florida and occupy approximately 8,925 square feet
of space. The Company entered into a lease with respect to such
facilities on September 1, 1994, expiring August 31, 1997, which is
followed by a renewal option of five years. The new lease consolidated
prior leases pertaining to the Brandon facility's then existing space and
provided additional space to accommodate the Company's Center for Women.
Under both prior leases and its existing lease, the Company paid an
aggregate of approximately $100,000 (including common area maintenance and
real estate taxes) in fiscal 1994 for space at such facility. The
aggregate base rent (excluding common area maintenance and real estate
taxes) to be paid by the Company under the current lease is approximately
$295,000, with approximately $98,000 payable in the first year of the
lease. Pursuant to the lease terms, the annual rental for the Brandon
facility is subject to an annual escalation of up to four percent based
upon the Consumer Price Index. Additionally, the annual rental is subject
to a one-time 10% escalation upon the Company's exercise of its renewal
option.
The Company entered into a three year lease for 1,140 square feet of
office space in Jacksonville to serve as the Company's northeast Florida
regional office. Annual rent approximates $8,000 with a $.25 per square
foot increase each year.
The Company also has entered into a lease relating to its 6,390
square foot SunPoint facility in Ruskin, Florida. The initial term of the
Ruskin lease is five years, beginning September 1, 1994, with one five
year renewal option. Base rental payments (excluding common area
maintenance and real estate taxes) under the lease will be approximately
$23,000 in 1995 and $48,000 annually thereafter. Pursuant to the lease
terms, the annual rental for the Ruskin facility is subject to a four
percent annual escalation after 1996.
Orange Park had based its mobil operations from a leased facility in
Middleburg, Florida from Ronald Baugh, the President and Chief Operating
Officer of Orange Park, on a month-to-month basis. In July, Orange Park
moved to a 5,100 square foot fixed site facility located in Orange Park,
Florida and owned by Sundance Partners, a Florida general partnership in
which all general partners were directors and/or shareholders of the
company. A triple net lease was entered into with an initial term of ten
years, beginning April 1, 1995. Base rental payments under the lease will
be approximately $ 46,000 annually. Rent expense for 1995 approximated
$35,000. The facility was owned by a general partnership (Sundance). The
Company's majority stockholders owned a majority interest in the Sundance.
Effective December, 1995, The Company purchased a 100% interest in the
general partnership by issuing stock valued at $51,057 and assumed a
mortgage note for $295,279. The underlying assets in the partnership
appraised at over $600,000.
Cardiology consists of a mobil cardiology unit which is housed in a
garage facility leased on a short term basis. Rent payments are $772 per
month. Rent expense for 1995 approximated $6,200.
The Company believes its present and anticipated leased facilities to
be in excellent condition and suitable for their intended operations.
Item 3 -- Legal Proceedings
In December, 1995 the physician group which contracted with Brandon
and SunPoint for radiology readings terminated the contract. On February
9, 1996 the physician group filed a suit entitled East Pasco Radiology
Associates, P.A. vs. Brandon Diagnostic Center, Ltd., and SunPoint
Diagnostic Center, Inc. in the Hillsborough County Florida Circuit Court
against the Company alleging the center materially breached the contract
by failing to pay physician fees timely and incorrectly billing certain
procedures. The physician group seeks damages in excess of $15,000. The
Company denies any material breach of the contract and has filed a motion
to dismiss. Management feels it has reserved an adequate loss provision
in the event of an adverse outcome.
On March 10, 1995 legal action was instituted against A.T. Brod &
Co., Inc. (a national stock brokerage firm) by a terminated employee of A.
T. Brod & Co., Inc ("A.T. Brod"). A. T. Brod was a major market maker for
National Diagnostic, Inc. stock. The Company was named in the suit
entitled James I. Blackey vs. A.T. Brod & Co., Inc., Arthur M. Stupay,
Jugal Taneja, R.K. Khosla, Bancapital Investment Corporation, and National
Diagnostics, Inc. pending the Supreme Court of the State of New York,
County of Erie, Index Number I-1995-2249. Mr. J. Taneja is Chairman and
Chief Executive Officer of the Company and a director of both A. T. Brod
(which has ceased operations) and the Company. The action alleges
wrongful discharge, breach of contract, defamation of character,
conspiracy and tortious interference with a contract arising out of the
alleged wrongful termination of the plaintiff by A.T. Brod and seeks
compensatory and punitive damages of $2,830,000. On June 14, 1995, a
motion was made under the rules of the National Association of Dealers to
compel arbitration of the matter and to stay the action in entirety
against the Company pending the outcome of the arbitration. Upon
receiving the motion, the plaintiff's attorney indicated he agreed with
the defendants' position, consenting to arbitration and to stay the action
pending the outcome of that arbitration. Through March 27, 1996, the
plaintiff's attorney has taken no steps to advance his claim in
arbitration. Based upon information available to defendants' counsel
through this date, the claim appears to be not meritorious.
Item 4 -- Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
PART II
Item 5 -- Market for Common Equity and Related Stockholder Matters
Since October 12, 1994, the Company's Common Shares have been traded
separately in the Nasdaq SmallCap Market under the symbol NATD. The
following table sets forth the high and low bid prices for Common Shares
as reported by Nasdaq for the periods indicated. These prices are not
necessarily indicative of prices at which actual buy and sell transactions
could occur.
1994 High Low
Fourth Quarter (from October 12) $4-3/4 $3
1995
First Quarter $6-1/4 $1-7/8
Second Quarter $4 $1-1/2
Third Quarter $1-7/8 $1
Fourth Quarter $3-1/2 $1-11/16
1996
First Quarter (through
February 29th) $3-3/8 $2-1/2
On February 29, 1996, the closing bid quote for the Common Shares was
$2.625 per share, and there were 42 holders of record of Common Shares.
The majority of over 300 individual shareholders held their stock in a
"street name".
The Company has not paid cash dividends on its Common Shares and does
not anticipate doing so in the foreseeable future. The Company intends to
retain earnings, if any, for future growth and expansion opportunities.
Furthermore, under the terms of an existing $800,000 credit facility
(consisting of a $300,000 term loan and a $500,000 line of credit) with
SouthTrust Bank of West Florida, Brandon Diagnostic Center, Ltd.'s ability
to pay dividends and make distributions is restricted. In accordance with
the agreement the Company may not pay or declare dividends without prior
written consent of the bank. Payment of cash dividends in the future, as
to which there can be no assurance, will be dependent upon the Company's
earnings, financial condition, capital requirements and other factors
determined to be relevant by the Board of Directors.
Item 6 -- Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's audited consolidated financial statements and pro forma
consolidated financial information included elsewhere herein.
Results of Operations
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
Net revenues for fiscal 1995 were $6,232,515 as compared to
$3,708,603 for fiscal 1994, representing a 68% increase. This increase
was primarily attributable to new start up facilities and an increase in
the volume of procedures performed at pre-existing facilities. SunPoint
completed its first full year of operation (two months operation in 1994);
Orange Park mobil operations started up in February 1995, opening a fixed
site facility in August; and in September a mobil MRI facility and a mobil
cardiology unit were placed in service. The 1995 start ups accounted for
approximately 52% of the increased in revenues. The Brandon facility
increased its revenues 8% to $3,922,000 in 1995.
The Company's net accounts receivable increased $886,145 to
$1,500,841 from $614,696 at December 31, 1995 and 1994, respectively.
Approximately 87% of this increase is the direct result of the Company's
start up operations inclusive of the SunPoint Diagnostic Center, Inc.
opened in November, 1994. The cash position of the Company decreased to
$128,094 from $1,497,510 at December 31, 1995 and 1994, respectively.
Approximately 23% or $309,000 of this decrease was a result of the
Company's operational losses (for further discussion regarding cash and
liquidity see "Liquidity and Capital Resources").
The following table sets forth selected operating results as a
percentage of net revenues for 1995 as compared to 1994.
Fiscal 1995 Fiscal 1994
Net Revenue 100.0% 100.0%
Direct Operating Expenses 56.0 44.4
General and Administrative Expense 42.3 27.8
Depreciation and Amortization 14.2 15.2
Operating Income (loss) (12.6) 12.6
Interest 5.3 7.3
Other Income 1.7 0.3
Income Taxes (benefit) (2.9) 0.2
Net Income (Loss) (13.3) 5.4
Direct operating expenses increased 112.3% to $3,494,691 for 1995
from $1,646,175 for 1994, also increasing as a percentage of net revenue.
This increase is attributable to several factors: (1) an increase in
certain costs which do not vary proportionately with revenue changes
(example: rents increased approximately $147,000 to $189,915 and
compensation for start ups and expansion increased approximately $493,000
to $898,317) and (2) increased fee expense to the Company for its
interpreting physicians for Brandon in accordance with the terms of their
agreement (an increase of approximately $234,000 to $786,713). The
increase was also a result of the additional cost of medical supplies
resulting from the increase in the volume of procedures performed.
General and Administrative Expenses increased 155.8% to $2,639,696
for 1995 as compared to $1,031,807 for 1994, also increasing as a
percentage of net revenue. This increase was primarily attributable to
the addition of personnel and the related payroll and related benefit
costs associated with such personnel. Such personnel costs increased
approximately $826,000 to $1,178,440 inclusive of executive compensation.
The personnel were added in response to the expansion of facilities and
increased volume of procedures performed. Executive compensation
increased from approximately $163,000 in 1994 to $468,000 in 1995 as a
result of changes in employment contracts (see Note 11 to the financial
statements) and the employment of two additional executives in 1995.
General and administrative expenses also increased more rapidly than net
revenues because of start-up operations relating to the addition of Orange
Park and Cardiology (an increase of $477,000 exclusive of personnel
related costs). Additionally, the Company took a charge of $82,000
against earnings representing costs associated with a secondary stock
offering which the Board determined not to be in the best interest of the
Company due to market conditions.
Depreciation and Amortization increased 58.3% to $889,530 in 1995 as
compared to $561,767 during 1994, while decreasing as a percentage of net
revenue. The dollar increase was attributable to the acquisition of new
equipment for the start-ups and amortization of previously capitalized
start-up costs which are amortized over 12 months.
Interest expenses increased to $334,499 in 1995 from $273,466 in 1994
as a result of additional financing for equipment acquisitions and working
capital.
The increase in net revenues was offset by greater increases in
expenses resulting in a net loss of $(835,058) for 1995 compared to a net
profit of $119,535 in 1994. This is primarily attributable to the start
up operations which bear the costs of a fully operational diagnostic
facility while building its patient and referring physician base from day
one. Revenues have steadily increased through out the year while operating
losses have been declining since the second quarter high.
Year Ended December 31, 1994 Compared to Year Ended December 31,
1993.
Net revenues for fiscal 1994 were $3,708,603 as compared to
$2,766,532 for fiscal 1993, representing a 34% increase. This increase
was primarily attributable to an increase in the volume of procedures
performed. The increased number of procedures was attributable, in turn,
to an expansion of the Company's physician referral base resulting from
marketing initiatives implemented by the clinical coordinator added to the
Company's Brandon staff in late 1993 and referrals obtained from the
shareholders of the prior corporate limited partner of Brandon Diagnostic
Center, Ltd. The Company also generated additional net revenues of
approximately $87,000 in 1994 as a result of the opening of its SunPoint
Diagnostic Center on November 7, 1994.
The following table sets forth selected operating results as a
percentage of net revenues for 1994 as compared to 1993.
Fiscal 1994 Fiscal 1993
Net Revenue 100.0% 100.0%
Direct Operating Expenses 44.4 46.8
General and Administrative Expense 27.8 27.9
Depreciation and Amortization 15.2 18.2
Operating Income 12.6 7.1
Interest 7.3 11.1
Other Income 0.3 0.2
Income Taxes 0.2 -
Net Income (Loss) 5.4 (3.8)
Direct operating expenses increased 27.3% to $1,646,175 for 1994
from $1,293,568 for 1993, while decreasing as a percentage of net revenue.
This increase is attributable primarily to an increase in the cost of
medical supplies resulting from the increase in the volume of procedures
performed. Also, as net revenue increased throughout 1993 and 1994, the
compensation paid by the Company to its Brandon interpreting physician
group increased (by $180,000 in 1994 over 1993, or 47%) in accordance with
the terms of its agreement. Because of the fixed cost nature of the
Company's diagnostic equipment, the Company's direct operating expenses
resulting from the increase in the volume of procedures performed
increased at a rate less than the rate of increase in the Company's net
revenue.
General and Administrative Expenses increased 33.8% to $1,031,807
for 1994 as compared to $770,987 for 1993, while decreasing slightly as a
percentage of net revenue. This increase was attributable to the addition
of personnel in response to the increased volume of procedures performed
and the additional payroll and related benefit costs associated with such
personnel.
Depreciation and Amortization increased 11.4% to $561,767 in 1994 as
compared to $504,466 during 1993, while decreasing as a percentage of net
revenue. The dollar increase was attributable to the acquisition of
upgrades to the Company's MRI equipment and the amortization of goodwill.
Interest expenses decreased to $273,466 in 1994 from $309,629 in
1993 as a result of the refinancing of certain of the Company's long-term
capital lease obligations, which included a reduction in the interest
rates paid by the Company described below under "Liquidity and Capital
Resources."
The substantial increase in net revenues resulted in increases in
operating and net income. Throughout fiscal 1994, the Company's net
revenue increased as a result of an increase in diagnostic procedures
performed to a level sufficient to cover the Company's fixed costs
associated with the diagnostic equipment. As a result, incremental
increases in net revenues resulted in increased net income.
Liquidity and Capital Resources
Medical equipment, capital improvements, acquisitions and new center
development historically have been funded through third-party capital
lease and debt obligations and internally generated cash flow. The leases
are generally secured by the equipment, and sometimes other assets, of
particular facilities. Interest rates in connection with the leases and
borrowing range from fixed rates of up to 12.25% to a variable rate equal
to the bank prime rate, plus 1 to 2%. In June 1993 certain lease
obligations approximating $2,400,000 were refinanced extending the terms
of the leases approximately 16 months and lowering the interest rates an
average 1.1% to approximately 10.2%. This was the primary factor
affecting the $36,000 reduction of interest expense to $273,466 in 1994
from $309,629 in 1993. Certain of the Company's long-term debt
obligations are personally guaranteed by Messrs. Taneja and Alliston and
their spouses.
Capital expenditures, including capital lease obligations, for the
years ended December 31, 1995 and 1994 totaled approximately $2,610,000
and $1,376,000, respectively. The Company anticipates capital
expenditures of approximately $1,100,000 during 1996, including costs
associated with the anticipated establishment of a new facility, equipment
and leasehold improvement costs. The Company anticipates that capital
expenditures pertaining to equipment will be financed primarily through
capital leases and debt financing currently being negotiated. The Company
has already entered into a $624,000 capital lease commitment with an
interest rate of approximately 11% for an equipment upgrade the Company
expects to take receipt of in the first half of 1996. The Company's
determination whether to proceed with new facilities in Florida or
elsewhere in the southeastern United States will depend on management's
consideration of such factors as (i) the demographics of a particular
area, (ii) competition from other diagnostic service providers in such
area, (iii) physician referral patterns, (iv) the mix of managed care
providers, Medicare/Medicaid patients and patients insured by commercial
insurance carriers, (v) estimates of potential sales in relation to the
capital investment required to establish a facility, (vi) the availability
of commercial lease property for a start-up facility, and (vii) financial
analysis of potential acquisition targets.
On March 6, 1995, Brandon Diagnostic Center, Ltd. entered into a
credit facility with SouthTrust Bank of West Florida, consisting of a
$300,000 five-year term loan and a $500,000 revolving line of credit. The
proceeds of the term loan were used to refinance an existing $300,000 term
loan with another financial institution. Interest on both the revolving
line of credit and term loan are payable at the bank's prime rate (8.25%
as of March 20, 1996), plus one percent. The revolving line of credit
expires on May 30, 1996. As of March 20, 1996, the outstanding principal
balance thereunder was $400,500. Pursuant to the terms of the agreement
as of March 20, 1996, an additional $99,500 of available credit remained
to be borrowed.
The revolving line of credit discussed in the preceding paragraph is
secured by the Brandon facility's account receivables which approximated
$672,000, or 42% of the Company's total receivables, as of December 31,
1995. The Company recognizes the need to increase its line of credit with
the additional receivables available from the start up entities. The
Company is currently exploring this option. The Company's receivables at
year-end 1995 have increased 144% to $1,500,841 from the prior year. The
Company attributes this increase mainly to start-up operations. While the
Company has experienced some delays in collections at its newest facility,
the Company feels it is merely a temporary condition.
Due to the rapid expansion of facilities and increase in additional
personnel and related costs, the Company began to experience in the fourth
quarter difficulty in meeting timely its current obligations to its trade
vendors and interpreting physicians. The physician group for Brandon and
SunPoint terminated the reading contract and subsequently entered into
litigation (see Item 3--Legal Proceedings). All fixed commitments to the
Company's banking and leasing creditors have been timely satisfied. In
December 1995, the Company identified over $650,000 in annual cost cutting
measures, all of which management has acted upon. These measures include
but are not limited to: reduction of radiologist fees by renegotiated
contracts (annual savings $227,000); personnel cutbacks and realignments
(annual savings $202,000); one time cost reductions ($77,000); group and
liability insurance premium reductions (annual savings $49,000) and
others. The Company feels that this action coupled with the continued
increase in revenues will return the Company to a profitable situation.
The Company has already felt the positive effect of these savings and
increased revenues (based on unaudited numbers) with a profitable January.
The Company expects this trend to continue with a favorable first quarter,
1996. However, there is no assurance that these goals will be met.
In 1995 the Company reduced its net cash by $1,369,000. Operating
activities utilized 23% or $376,000 of the total cash reduction of
$1,643,000; 77% or $1,267,000 of the total cash reduction resulted from
the Company's investing activities which consisted primarily of the
purchase of property and equipment for its start up facilities. Net cash
of $273,000 from financing activities reduced the total utilization of
cash to the net reduction of $1,369,000. As a result of its cost cutting
measures, increasing revenues and satisfaction of its property and
equipment needs for current operations the Company believes that its
presently anticipated short-term working capital needs for operations,
capital debt repayments and capital expenditures with respect to its
current operations can be satisfied through internally generated funds,
third party leasing and its existing credit facilities with SouthTrust
Bank of West Florida. However, there is no assurance that these short-
term needs can be met.
The Company's internal source of liquidity can come directly from
its base of trade receivables. The Company feels it can generate
approximately $144,000 cash by reducing its trade receivables in relation
to its billings. The Company anticipates operations to turn profitable in
the 1st quarter of 1996 which will serve also as an internal source of
financing (estimated cash per quarter in excess of $150,000). Also, the
Company anticipates converting approximately $67,000 of related party debt
to equity by issuing approximately 33,000 common shares of stock by the
2nd quarter 1996. An external source of financing could come from a call
of the presently outstanding warrants for the purchase of approximately
92,000 shares of Common Stock. To help assure the exercise of these
warrants the Company may reduce the strike price currently at $7.20 to at
or below the market trading price.
The Company's remaining growth strategies will require additional
funds. In the event that the Company proceeds with the establishment of
additional facilities, or encounters favorable acquisition opportunities
in the near future, the Company may incur, from time to time, additional
indebtedness and attempt to issue equity or debt securities in public or
private transactions. There is no assurance that the Company will be
successful in securing additional financing or capital through equity or
debt securities.
On September 19, 1995, the Company concluded its offer to the
Company's holders of outstanding common stock purchase warrants to
exchange every five warrants owned by them for two shares of the Company's
common stock. Ninety four percent of the outstanding warrants were
tendered in exchange for 642,918 shares of common stock. The Board
believes the exchange simplified the Company's capital structure.
The Company has over the last few years experienced increased
pressures on reimbursement from third parties. The Company expects such
pressures to cause reduced pricing in the aggregate for diagnostic
procedures in the future. Due primarily from the Company's revenue mix
the effects of reduced pricing have been minimized and have only recently
been measurable. Approximately 47% of the Company's revenue has been
derived from private insurance carriers, individuals, worker's
compensation and other sources that have not experienced reimbursement
pressures characteristic of managed care providers, Medicare and Medicaid.
Additionally, the Company has entered into certain capitation contracts
with minimum flooring reimbursements which the Company believes will
ultimately bring new found business to the Centers. The capitation
contracts are fixed fee arrangements made with HMO's wherein the Company
receives a fixed fee per HMO participant regardless of whether the
participant receives patient services or not. A minimum floor
reimbursement (example: 65% of the Medicare allowable rate) is agreed to
which serves to minimize the risk to the Company should an excess number
of participants require patient services. The advantage to the Company
results when the aggregated fixed fee per HMO participant exceeds the fees
earned from actual HMO participant patient services rendered.
Additionally, the Company may obtain regular fee for service revenues from
referred HMO participants for services not covered under the capitation
contract.
Seasonality
The Company usually experiences approximately an 8 to 12% decrease
in revenues during the third quarter of the fiscal year due to reduced
activity during the summer months. This trend was not evident in 1995 due
to the upward trend for services experienced in the new start ups.
Effects of Inflation
The impact of inflation and changing prices on the Company has been
primarily limited to salary, medical and film supplies and rent increases
and has not been material to the Company's operations to date. Management
is aware of increased inflationary expectations and believes that the
Company may not be able to raise the prices for its diagnostic imaging
procedures in an amount sufficient to offset inflation. The Company,
however, does believe that this can be offset by increased volume.
Item 7 -- Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS 23
CONSOLIDATED BALANCE SHEETS 25
As of December 31, 1995 and 1994
CONSOLIDATED STATEMENTS OF OPERATIONS 27
Years ended December 31, 1995 and 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS 28
Years ended December 31, 1995 and 1994
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 30
Years ended December 31, 1995 and 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31
<PAGE>
Grant Thornton
GRANT THORNTON LLP Accountants and
Management Consultants
The U.S. Member Firm of
Grant Thornton International
Suite 3850
101 East Kennedy Boulevard
Tampa, FL 33602-5154
813 229-7201
FAX 813 223-3015
Report of Independent Certified Public Accountants
Board of Directors
National Diagnostics, Inc.
We have audited the accompanying consolidated balance sheet of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. 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 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 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1995, and the
consolidated results of their operations and their consolidated cash flows
for the year then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Tampa, Florida
March 20, 1996
<PAGE>
KIRKLAND, BRAKEMAN,
RUSS, MURPHY & TAPP
CERTIFIED PUBLIC ACCOUNTANTS
13577 Feather Sound Drive, Suite 400
Clearwater, FL 34622-5539
(813) 572-1400 Fax (813) 571-1933
Independent Auditors' Report
Board of Directors and Stockholders
National Diagnostics, Inc. and
Subsidiaries:
We have audited the accompanying consolidated balance sheet of National
Diagnostics, Inc. and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. These financial
statements are the responsibility of National Diagnostics, Inc. and
subsidiaries' management. Our responsibility is to express an opinion on
these 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 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of National Diagnostics, Inc. and subsidiaries as of December 31,
1994, and the consolidated results of their operations and their cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
Kirkland, Brakeman, Russ, Murphy & Tapp
February 19, 1995
Clearwater, Florida
<PAGE>
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
December 31, December 31,
1995 1994
Current assets:
Cash $ 128,094 $ 1,497,510
Accounts receivable, net of allowance of
$342,900 and $98,600 in 1995 and 1994,
respectively 1,500,841 614,696
Prepaid expenses and other current assets 301,761 91,265
--------- ---------
Total current assets 1,930,696 2,203,471
--------- ---------
Property and equipment 6,732,150 4,755,227
Less: accumulated depreciation and
amortization (2,197,420) (1,598,884)
--------- ---------
Net property and equipment 4,534,730 3,156,343
--------- ---------
Other assets:
Excess of purchase price over net assets
acquired, net of accumulated amortization
of $36,547 and $12,400 in 1995 and 1994,
respectively 452,914 407,567
Deposits 53,115 13,534
Other 57,805 91,388
--------- ---------
Total other assets 563,834 512,489
--------- ---------
$ 7,029,260 $ 5,872,303
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1995 1994
Current liabilities:
Lines of credit $ 409,500 $ -
Note Payable 8,000 -
Note due to related party 49,243 -
Current installments of long-term debt 100,487 73,000
Current installments of obligations under
capital leases 648,909 556,415
Current installments of other notes payable - 102,187
Accounts payable 604,479 284,587
Accrued radiologist fees 225,815 -
Accrued expenses, other 411,262 216,470
Due to related party 57,231 -
Income taxes payable - 11,000
--------- ----------
Total current liabilities 2,514,926 1,243,659
Long-term liabilities:
Long-term debt, excluding current
installments 541,124 237,665
Obligations under capital leases,
excluding current installments 2,489,444 2,249,346
Deferred lease payments 210,335 -
Deferred income taxes payable - 169,000
--------- ---------
Total liabilities 5,755,829 3,899,670
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued
and outstanding - -
Common stock, no par value, 9,000,000
shares authorized, 2,539,629 and 1,700,000
shares issued and outstanding in 1995
and 1994 668 500
Additional paid-in capital 2,079,267 1,943,579
Retained earnings (deficit) (806,504) 28,554
--------- ---------
Net stockholders' equity 1,273,431 1,972,633
--------- ---------
$ 7,029,260 $ 5,872,303
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended Year Ended
December 31, December 31,
1995 1994
Revenue, net $ 6,232,515 $ 3,708,603
--------- ---------
Operating expenses:
Direct operating expenses 3,494,691 1,646,175
General and administrative 2,634,973 1,031,807
Depreciation and amortization 889,530 561,767
--------- ---------
Total operating expenses 7,019,194 3,239,749
--------- ---------
Operating income (loss) (786,679) 468,854
Interest expense 334,499 273,466
Other income 106,120 12,147
--------- ---------
Income (loss) before income taxes (1,015,058) 207,535
Income tax (benefit) (180,000) 9,000
---------- ---------
Net income (loss) $ (835,058) $ 198,535
========== =========
Pro forma data:
Historical net income $ 198,535
Pro forma adjustment to provision
for income taxes (unaudited) 79,000
----------
Pro forma net income (unaudited) $ 119,535
==========
Historical net (loss) per common share $ (.44)
=======
Pro forma net income per common
share (unaudited) $ .09
========
Weighted average number of common
shares outstanding 1,887,672 1,331,507
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended Year Ended
December 31, December 31,
1995 1994
Cash flows from operating activities:
Net income (loss) $ (835,058) $ 198,535
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization 799,889 561,767
Provision for bad debts 244,300 21,000
Deferred income taxes (169,000) (2,000)
Gain on disposition of equipment (37,712) -
Increase in accounts receivable (1,130,445) (233,879)
Increase in prepaid expenses and
other current assets (187,898) (138,725)
Increase in accounts payable and
accrued expenses 740,499 152,152
Increase (decrease) in income taxes
payable (11,000) 11,000
Increase in deferred lease payments 210,335 -
---------- --------
Net cash provided (used) by operating
activities (376,090) 569,850
---------- --------
Cash flows provided by (used in) investing
activities:
Purchases of property and equipment (1,204,763) (447,140)
Payment for purchase of Orange Park (62,000) -
---------- ---------
Net cash used in investing activities (1,266,763) (447,140)
---------- ---------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of common
stock, net 84,800 2,396,360
Proceeds from borrowings on line
of credit 409,500 -
Proceeds from note payable 8,000 -
Proceeds from borrowings on long-term
debt 415,464 75,684
Repayment of cash overdraft - (7,355)
Repayment of long-term borrowings (84,518) (185,795)
Proceeds of borrowing from related
parties 106,474 84,667
Repayment of related parties borrowings - (494,982)
Repayment of other notes payable (102,187) (125,866)
Principal payments under capital
lease obligations (524,515) (366,173)
Increase in deposits (39,581) (1,740)
--------- ---------
Net cash provided by financing
activities 273,437 1,374,800
--------- ---------
Net increase (decrease) in cash (1,369,416) 1,497,510
Cash at beginning of period 1,497,510 -
---------- ---------
Cash at end of period $ 128,094 $ 1,497,510
========== =========
Supplemental disclosure of cash
flow information:
Interest paid $ 330,000 $ 267,000
========== =========
Income tax paid $ 15,723 $ -
========== =========
Capital lease obligations incurred $ 1,066,889 $ 929,000
========== =========
In February 1995, the Company acquired certain business assets
(principally mobil equipment) totaling $203,000 related to its Orange Park
facility for consideration of $62,000 cash, issuance of a note payable of
$45,000, the obligation to issue common stock in the amount of $51,000 and
the assumption of liabilities of $45,000 (see note 12).
In December of 1995, the Company acquired a partnership interest
representing real estate assets of $346,000 by assuming long-term debt of
$295,000 and the issuance of common stock of $51,000 (see note 12).
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1995 and 1994
<CAPTION>
Retained
Additional Earnings Net
Common Paid-In (accumulated Stockholders'
Stock Capital deficit) Equity (deficit)
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $ 400 $ 3,900 $ (455,562) $ (451,262)
Sale of 500,000 shares of National
Diagnostics, Inc. common stock
at $6.00 per share, net of
offering costs 100 2,396,260 - 2,396,360
Reinstate deferred income taxes
on termination of S Corporation
status - - (171,000) (171,000)
Reclassify undistributed earnings
in S Corporation to additional
paid-in capital - (456,581) 456,581 -
Net Income - - 198,535 198,535
------- --------- -------- ---------
Balances at December 31, 1994 $ 500 $ 1,943,579 $ 28,554 $ 1,972,633
------- --------- -------- ---------
Exchange of 642,918 shares of
National Diagnostics, Inc.
common stock at $1.5625 per
share for 1,607,295 warrants
at $.625 per warrant 129 (129) - -
Exercise of director stock options
(80,000 shares) 16 84,784 - 84,800
Issuance of common stock
(116,711 shares) 23 51,033 - 51,056
Net Loss - - (835,058) (835,058)
------- --------- -------- ---------
Balance at December 31, 1995 $ 668 $ 2,079,267 $ (806,504) $ 1,273,431
======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1) Organization and Basis of Presentation
The consolidated financial statements include the accounts of
National Diagnostics, Inc. (Company), Alpha Associates, Inc.
(Associates), and Alpha Acquisitions Corp. (Acquisitions).
Associates and Acquisitions hold 100% of the partnership interests in
Brandon Diagnostic Center, Ltd. (Brandon). National Diagnostics,
Inc., is a holding company which was formed in June 1994. The
Company, Associates, and Acquisitions had common stockholders. In
September 1994, the stockholders exchanged all of their shares of
common stock of Associates and Acquisitions for 1,200,000 shares of
common stock and 1,200,000 common share purchase warrants exercisable
at $7.20 per share of the Company. The stock exchange resulted in a
combination of entities under common control and was accounted for by
combing the historical amount of the companies (similar to a pooling
of interests). These consolidated financial statements reflect the
retroactive combination of the Company, Associates, and Acquisitions.
Effective September 20, 1994, the Company completed an Initial Public
Offering (IPO) of 500,000 units wherein each unit consists of one
share of common stock and one common share purchase warrant
exercisable at $7.20 per share. The net proceeds from this sale were
approximately $2,400,000.
On November 7, 1994, the Company formed a wholly-owned subsidiary and
opened SunPoint Diagnostic Center, Inc. (SunPoint).
On February 1, 1995, the Company formed a wholly-owned subsidiary,
National Diagnostics/Orange Park, Inc. (Orange Park) and purchased
the assets of a mobile company. Orange Park opened a fixed site
center in July, 1995, to add to its radiology services.
On September 1, 1995, the Company formed a wholly-owned subsidiary
National Diagnostics/Cardiology, Inc. (Cardiology) and placed into
service a mobil cardiology unit.
On December 31, 1995, the Company and Orange Park acquired a 100%
interest in a real estate partnership which owns the fixed site
facility for Orange Park.
The Company provides medical imaging services to patients in Brandon
(Brandon), Ruskin (SunPoint), and greater Jacksonville area (Orange
Park and Cardiology), Florida.
In preparing financial statements in conformity with generally
accepted accounting principles, management makes 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 statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2) Summary of Significant Accounting Policies
a) Property Equipment
Property and equipment is stated at cost. Depreciation expense
is charged to operations over the estimated useful service
period of the assets using the straight-line method. Property
and equipment held under capital leases are amortized straight-
line over the shorter of the lease term or estimated useful life
of the asset. The Company uses accelerated depreciation for tax
purposes.
b) Income Taxes
The stockholders of the Company, Associates and Acquisitions
previously elected to file federal income tax returns under
"Subchapter S" of the Internal Revenue Code. As an S
Corporation, the earnings of each company are reported by the
individual shareholders and therefore the Company is not
responsible for federal or certain state income taxes.
The S Corporation elections terminated in connection with the
IPO of common stock. The accompanying statements of operations
for the period ended December 31, 1994 reflect a provision for
income taxes on a proforma basis as if the Company were liable
for federal, state and local income taxes as taxable corporate
entities through September 20, 1994.
Income taxes are provided based upon provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under the asset and liability method of Statement 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 bases. 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
Statement 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.
c) Pre-Opening Costs
Pre-opening costs consisting of outside consulting, other
directly related professional fees, personnel costs for
training, equipment testing and calibration and office set up
which are incurred prior to Center opening are deferred and
amortized over 12 months commencing with a Center's opening.
Such costs which are included in other assets and other current
assets totaled approximately $196,518 and $87,000 at December
31, 1995 and 1994, respectively.
d) Excess of Purchase Price Over Net Assets Acquired
Excess of purchase price over net assets acquired are amortized
over 20 years. Management reviews the performance of the
related assets on a quarterly basis to determine if impairment
has taken place. No impairment costs have been realized in the
current years.
e) Cash and Cash Equivalents
For financial statements purposes cash equivalents include
short-term investments with an original maturity of ninety days
or less. At December 31, 1995 and 1994, respectively, the
Company had investments in money market accounts of $4,384 and
$1,344,514.
f) Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of
In March 1995, the Financial Accounting Standards Board issued
the Statement of Financial Accounting Standards 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of (SFAS 121). SFAS 121 requires that
long-lived assets and certain identifiable intangibles held and
used by an entity along with goodwill should be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
the sum of the expected future cash flows (undiscounted and
without interest) is less than the carrying amount of the asset,
an impairment loss is recognized. Measurement of that loss
would be based on the fair value of the asset. SFAS 121 also
generally requires long-lived assets and certain identifiable
intangibles to be disposed of to be reported at the lower of the
carrying amount or the fair value less cost to sell. SFAS 121
is effective for the Company's 1996 fiscal year end. The
Company has not finalized its assessment of the potential impact
of adopting SFAS 121 at this time; however, on a preliminary
basis management does not believe the impact will be material to
the financial statements.
g) Revenue Recognition
Revenues are recognized on the date services and related
products are provided to patients and are recorded at amounts
estimated to be received under reimbursement arrangements with
third party payors, including private insurers, prepaid health
plans, Medicare and Medicaid. For all years presented,
approximately 19% to 23% of the Company's revenues are
reimbursed under arrangements with Medicare/Medicaid. No other
third party payor group represents 10% or more of the Company's
revenues. Therefore, concentration of credit risk with respect
to the remaining accounts receivable is limited due to the large
number of payors representing the patient base.
The Brandon facility contributed 63% and 98% of total revenues
for 1995 and 1994, respectively.
h) Accounting for Stock Based Compensation
SFAS No. 123 "Accounting for Stock Based Compensation" was
issued by the Financial Accounting Standards Board in October
1995. As it relates to stock options granted to employees, SFAS
No. 123 permits companies to continue using the accounting
method promulgated by the Accounting Principals Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," to measure compensation or to adopt the fair value
based method prescribed by SFAS No. 123. If APB No. 25's method
is continued, pro forma disclosures are required as if SFAS No.
123 accounting provisions were followed. SFAS No. 123's
accounting recognition method can be adopted anytime subsequent
to the issuance of the Statement in October 1995, and would
pertain to stock option awards granted or modified or settled
for cash after the date of adoption. If the Company elects to
continue using the method under APB No. 25, SFAS No. 123's pro
forma disclosures are required after December 31, 1995.
Management has not completely analyzed the provisions of SFAS
No. 123; accordingly, management has not determined whether or
not SFAS No. 123's accounting recognition provisions will be
adopted or APB No. 25's method will be continued. In addition,
management has not yet determined the potential effect that SFAS
No. 123's accounting provisions, if adopted, will have
on the Company's financial statements.
i) Earnings Per Common Share
Earnings (loss) per share for the years ended December 31, 1995
and 1994, are computed using the weighted average number of
common shares. Generally, common stock equivalents such as
outstanding incentive stock options and warrants are included in
the calculation if they have a dilutive effect on earnings per
share. The Company's options and warrants were not included in
the calculation because they had an antidilutive effect.
j) Fair Value of Financial Instruments
At December 31, 1995, the carrying amount of cash, accounts
receivable, accounts payable and accrued expenses approximate
fair value because of the short-term maturities of these assets.
The carrying amounts, current and long-term portions of notes
payable, and long-term obligations approximate fair market value
since the interest rates on most of these instruments change
with market interest rates.
k) Operational matters and liquidity
During the current year the Company experienced losses of
$(835,000) and began to experience in the fourth quarter
difficulty in meeting timely its current obligations to its
trade vendors. This was attributed to the rapid expansion of
facilities and increase in additional personnel and related
costs. All fixed commitments to its banking and leasing
creditors have been timely satisfied. In response, in December
1995, the Company identified over $650,000 in annual cost
cutting measures; all of which management has acted upon. These
measures include but are not limited to: reduction of
radiologist fees by renegotiated contracts (annual savings
$227,000); personnel cutbacks and realignments (annual savings
$202,000); one time cost reductions ($77,000); group and
liability insurance premium reductions (annual savings $49,000)
and others. The Company feels that this action coupled with the
continued increase in revenues will return the Company to a
profitable situation. The Company has already felt the positive
effect of these savings and increased revenues (based on
unaudited numbers) with a profitable January. The Company
expects this trend to continue with a favorable first quarter,
1996. There is no assurance that these goals will be met.
3) Property and Equipment
Property and equipment consists of the following:
Estimated
December 31, December 31, service
1995 1994 life (years)
Land $ 85,000 $ - -
Buildings 253,041 - 39
Medical Equipment 5,200,475 4,123,789 7
Office furniture and
equipment 477,739 341,231 7
Leasehold improvements 483,353 279,351 3-5
Vehicles 232,542 - 5-7
Construction in progress - 10,856
--------- ---------
$ 6,732,150 $ 4,755,227
========= =========
4) Lines of Credit
The banks have a first security interest on certain accounts
receivable. The lines have varying interest rates ranging from bank
index plus 1 to 2 percent (at December 31, 1995, 10.75%).
1995
Line of credit limit $ 550,000
Qualifying borrowing base 483,719
Outstanding loan balance 409,500
Payment and declaration of dividends are restricted. In accordance
with the loan agreement the Company may not pay or declare dividends
without the prior written consent of the bank. No dividends have
been paid or declared at December 31, 1995.
5) Long-Term Debt
Long-term debt is summarized as follows:
December 31, December 31,
1995 1994
Note payable in monthly installments of
$8,508 including interest, at prime plus
1.50% (10% at December 31, 1995), through
April 1996 and a final installment of
$213,000 due in May 1996; secured by
equipment and personal guarantees of
officers/stockholders $ - $ 310,665
Installment loans payable which consist
of a number of separate installment
loan contracts secured by equipment and
vehicles. The loans require monthly
installments of principal and interest
over terms that vary from two to five
years. At December 31, 1995, the loans
bear interest at rates ranging from
9.5% to 12.25%. 346,334 -
Mortgage note payable in monthly
installments of $2,445.88 including
interest at 8.75%; maturing April,
2020; secured by mortgaged real estate
property. 295,277 -
------- --------
Total long-term debt 641,611 310,665
Less current installments of
long-term debt 100,487 73,000
------- --------
Long-term debt, excluding current
installments $ 541,124 $ 237,665
======== =======
The aggregate principal payments of long-term debt required annually
are:
Year ending December 31: 1996 $100,487
1997 96,493
1998 91,967
1999 74,142
2000 5,184
Thereafter 273,338
--------
$641,611
========
6) Leases
The Company has entered into capital leases for medical equipment which
expire in 2001. The gross amount of equipment and related accumulated
amortization recorded under capital leases are as follows:
December 31, December 31,
1995 1994
Medical equipment $ 5,012,412 $ 3,709,065
Less accumulated amortization 2,045,692 1,283,141
--------- ---------
$ 2,966,720 $ 2,425,924
========= =========
Amortization of assets held under capital lease is included with
depreciation expense.
The present value of future minimum capital lease payments is as
follows:
Year ending December 31: 1996 $ 648,909
1997 781,416
1998 866,730
1999 488,989
2000 224,834
Thereafter 127,475
---------
Present value of minimum
capital lease payments 3,138,353
Less current installments of
obligations under capital
leases 648,909
---------
Obligations under capital
leases, excluding current
installments $ 2,489,444
==========
The Company is obligated under noncancellable operating leases that
expire through 1999.
Future minimum lease payments under these leases are as follows:
Year ending December 31: 1996 $ 401,000
1997 279,000
1998 168,000
1999 92,000
2000 53,000
Thereafter 55,000
---------
$1,048,000
=========
Rental expense related to these non-cancelable leases was approximately
$396,000 and $105,000 for the years ended December 31, 1995 and 1994,
respectively.
7) Notes Payable to Related Parties
Note payable to related parties is as follows:
December 31, December 31,
1995 1994
Note payable with imputed
interest at 10%, due
January 31, 1996 $ 49,243 $ -
========= =========
Interest expense to related parties totaled $4,021 and $41,300 for the
years ended December 31, 1995 and 1994, respectively.
8) Other Notes Payable
Other notes payable are summarized as follows:
December 31, December 31,
1995 1994
Promissory note payable with
interest imputed at 11%, due
September 1, 1995:
Repaid in 1995 $ - $ 79,779
Promissory note payable with
interest imputed at 11%, due
April 1, 1995: Repaid in 1995 - 22,408
Note payable with interest at
9.5%, due April, 1996;
unsecured 8,000 -
--------- -------
Total other notes payable $ 8,000 $102,187
========= =======
9) Income Taxes
The provision for income tax expense (benefit) at December 31, consists
of the following:
1995 1994
Current $ (11,000) $ 11,000
Deferred (169,000) (2,000)
------- --------
$(180,000) $ 9,000
======== =========
The income tax provision for 1995 and 1994
reconciled to the tax computed at the statutory
rate of 34% is as follows:
1995 1994
Income taxes at statutory rate $(345,100) $ 73,000
State income taxes (50,800) 5,000
Alternative minimum taxes - 8,000
Effect of S Corporation earnings - (77,000)
Increase in valuation allowance, 188,600 -
exclusive of
amount due to acquisition
Nondeductible expenses 15,300 -
Other 12,000 -
-------- -------
$(180,000) $ 9,000
========= =======
The deferred tax asset and liability consist of the following
at December 31:
1995 1994
Assets
Net operating loss carry forward $158,000 $ -
Allowance for doubtful accounts 133,700 38,000
Deferred rents 75,800 -
Nondeductible accrued 18,600 -
compensation
Pre-opening costs 29,900 -
Acquisition basis difference 122,300 -
------- -------
538,300 38,000
Less: valuation allowance (310,900) -
------- -------
227,400 38,000
------- -------
Liabilities 227,000 207,000
Fixed assets
Goodwill 400 -
------- -------
227,400 207,000
Net deferred taxes $ - $169,000
========= ========
On December 31, 1995 the Company and Orange Park acquired a 100%
interest in a real estate partnership in a taxable transaction (see
notes 1 and 12). The Company will elect to step up the basis in the
assets of the partnership for income tax purposes while the assets are
recorded at historical cost for financial reporting purposes. This
results in the acquisition basis deferred tax asset shown above. A
valuation allowance of an equal amount has been recorded due to the
uncertainty of the asset's realization.
Management, using SFAS 109 criteria and based principally on 1995
taxable loss along with expectations for 1996, concluded that the above
valuation allowance at December 31, 1995, was reasonable. In the fourth
quarter deferred tax liabilities were offset by deferred tax assets.
At December 31, 1995 approximately $405,000 in net operating carry
forwards remain which will expire if not utilized by 2010.
Deferred income taxes payable of $171,000 were recorded at September 30,
1994 with a corresponding charge to retained earnings representing the
tax effect of the cumulative temporary differences as a result of the
termination of the S Corporation tax status.
10) Concentration of Accounts Receivable
The Company's accounts receivable are due from the following:
December 31, December 31,
1995 1994
Commercial insurance carriers $530,000 $146,800
Managed care providers 382,400 255,800
Private patients 528,400 189,300
Worker's compensation 100,700 35,900
Medicare 302,241 85,496
-------- --------
$1,843,741 $713,296
========= ========
11) Commitments and Contingencies
a) Guarantees
The lines of credit and an equipment loan of the Company are fully or
partially guaranteed by its majority stockholders.
b) Employment Contracts
Under an employment agreement entered into in 1993 the President was to
receive as compensation an annual salary of $100,000 plus certain
benefits. Additionally, the President was to earn a bonus of 7.5% of
the adjusted net income of the Centers in excess of its base year
adjusted net income. The 1994 bonus earned was approximately $54,000.
The Chief Executive Officer was to receive as compensation, an annual
salary of $60,000 plus certain benefits, effective November 1, 1994.
In April 1995 the Company entered into new contracts with the President
and Chief Executive Officer effective April 1, 1995. The President and
Chief Executive Officer received increased salaries under the new
contracts, $150,000 and $75,000 respectively plus certain benefits.
In November 1995 these contracts were replaced with new three year
contracts effective July 1, 1995. Under the new contracts the bonus
arrangement was restructured. Each executive is to receive a 5% bonus
of the annual net income of the Company in excess of the prior fiscal
year's income. Additionally, a bonus 2.5% of net revenue in excess of
the prior year's net revenue is to be paid to each executive.
Total compensation earned by the Chief Executive Officer and President
under the current and previously existing contracts for the years ended
December 31, 1995 and 1994 was approximately $414,764 and $102,000,
respectively.
The Company entered into an employment agreement with the President of
Orange Park for a three year period commencing February 1, 1995. The
executive is to receive as compensation an annual salary of $85,000 plus
certain benefits. In addition, the executive will earn a 10% bonus
based on the increase in adjusted profits of the Orange Park center.
In November, 1995 the Company entered into a three year employment
agreement with the Vice President of Development. The executive is to
receive a salary of $85,000 plus certain benefits.
c) Professional Services Agreement
The Company had entered into agreements with a physician group to
provide radiological services. For the period January 1, 1994 through
December 1995, the Company paid the physician group operating in Brandon
15% of the first $200,00 net receipts from reading fees and 25% of net
receipts from reading fees over $200,000.
For the period November 1, 1994 through December 1995, the Company paid
the physician group operating in SunPoint 15% of the first $100,000 on
net receipts and 20% of net receipts over $100,000.
These contracts were terminated in December and the Company entered into
new contracts wherein physicians' reading fees for both Brandon and
SunPoint are paid at the rate of 14% of net receipts.
The Company pays the physician group operating in Orange Park 17% of net
receipts from reading fees.
The Company is currently negotiating the reading contracts to made them
similar for each location.
Physician service expense under the current and previously existing
contracts for the years ended December 31, 1995 and 1994 was
approximately $1,013,424 and $562,000, respectively.
12) Business Combinations
On February 1, 1995, the Company purchased certain assets for $112,000
from a medical imaging diagnostic center in Middleburg, Florida. This
transaction was accounted for as a purchase. The purchase price was
paid as follows: $62,000 was paid at closing and $50,000 is to be paid
January 31, 1996. Additionally, the Company is to issue, an amount of
its unregistered stock which when multiplied by a price per share equal
to the average of the bid and ask price for the five trading days
immediately preceding the Closing date equals the amount collected on
the seller's accounts receivable for the period February 1, 1995 through
July 31, 1995. The $106,474 liability relative to this transaction is
contained in the note due to related party $49,243; and due to related
party $57,231. Pro forma information is not provided here-in because of
the transaction's insignificant effect on the Company's financial
statement.
On December 31, 1995 the Company and a subsidiary purchased for $346,334
(approximately the seller's cost basis) a 100% interest in a general
partnership formed earlier in 1995 which owns the fixed site facility
used by Orange Park. As the Company's consideration for the partnership
interest, a mortgaged note of $295,278 was assumed and 116,711 shares of
Common Stock were issued. Since the Company's controlling shareholders
also controlled the general partnership, the combination was recorded at
historical cost similar to a pooling of interest. Accordingly, a value
of $.44 per share was ascribed to the stock issued. This combination had
an immaterial impact on the Company's statement of operations of 1995.
13) Shareholders' Equity
Stock Options
On April 21, 1995 the Board of Directors approved an Employee Stock
Option Plan ("employee plan") and a Non-employee Director Stock
Option plan ("director plan") for the purpose of competing
successfully in attracting, motivating, and retaining employees and
non-employee directors with outstanding abilities. Options granted
under the employee plan are intended to be incentive stock options.
The total number of shares to which options may be granted under the
employee and director plans are 200,000 shares. Generally, the
exercise price shall be fixed at no less than 100% of the average
fair market value of the shares at date of option.
In 1995 pursuant to the director plan the Board of Directors were
issued options for 80,000 shares. These options were exercised at
$1.06 per share for which the Company received $84,800.
During 1995 there were no options granted under the Employee Plan
and at December 31, 1995 there are no outstanding options under
either plan.
Warrants
In July, 1995, in order to simplify its capital structure the
Company offered to holders of outstanding common stock purchase
warrants (1,700,000) the opportunity to exchange five warrants for
two shares of stock. In September, 1995 the offer was concluded.
Approximately 94% of the outstanding warrants were tendered in
exchange for 642,918 shares of common stock.
At December 31, 1995 there remains outstanding 92,705 stock purchase
warrants which are exercisable at $7.20 per share through their
expiration date on September 19, 1997.
14) Related Parties
In February 1995, the Company purchased certain assets of a mobil
facility (see Purchase Transactions) and hired as President of
Orange Park the owner of the mobil facility. At December 31, 1995
the Company is indebted to this executive approximately for $106,000
which is reflected in the December 31, 1995 balance sheet as a "Note
due to related party" for $49,243 and "Due to related party" for
$57,231.
In December 1995, the Company purchased for $346,000 a 100% interest
in a general partnership (see Purchase Transactions). At the time
certain Company executives owning approximately 69% interest in the
Company held controlling interest (approximately 60%) in the general
partnership. The partnership costs in the underlying property was
approximately $346,000 with an appraised value of $660,000 (see note
12).
15) Legal Action
On February 9, 1996 the physician group, which in December, 1995
terminated its contract for reading services with the Brandon and
SunPoint centers, filed suit against the centers alleging the
centers materially breached the contract by failing to pay physician
fees timely and incorrectly billed certain procedures. The Company
denies any material breach to the contract and has filed a motion to
dismiss. Management believes it has reserved an adequate loss
provision in the event of an adverse outcome.
On March 10, 1995 legal action was instituted against A.T. Brod &
Co., Inc. (a national stock brokerage firm) by a terminated employee
of A.T. Brod & Co., Inc. ("A.T. Brod"). A.T. Brod was a major
market maker for National Diagnostics, Inc. stock. The Company was
named in the suit entitled James I. Blackey vs. A.T. Brod & Co.,
Inc., Arthur Stupay, Jugal Taneja, R.K. Khosla, Bancapital
Investment Corporation, and National Diagnostics, Inc. pending the
Supreme Court of the State of New York, County of Erie, Index Number
I-995-2249. Mr. J. Taneja is Chairman, Chief Executive Officer and
Director of both A.T. Brod and the Company. The action alleges
wrongful discharge, breach of contract, deformation of character,
conspiracy and tortious interference with a contract arising out of
the alleged wrongful termination of the plaintiff by A.T. Brod and
seeks compensatory and punitive damages of $2,830,000. On June 14,
1995, a motion was made under the rules of the National Association
of Dealers to compel arbitration of the matter and to stay the
action in entirety against the Company pending the outcome of the
arbitration. Upon receiving the motion, the plaintiff's attorney
indicated he agreed with the defendants' position, consenting to
arbitration and to stay the action pending the outcome of that
arbitration. Through March 27, 1996, the plaintiff's attorney has
taken no steps to progress his claim in arbitration. Based upon
information available to defendants' counsel through this date,
counsel indicates the claim appears to be not meritorious. The
Company feels the suit is without merit and intends to vigorously
defend itself. The ultimate outcome of this legal matter cannot be
determined at this time, and accordingly, no adjustments have been
made to the consolidated financial statements.
16) Subsequent Event
The Company has entered into a lease commitment for medical
equipment it expects to take receipt of in June, 1996. It will be
an upgraded replacement for a previously leased piece of equipment.
Cost of the unit will approximate $624,000 which will be financed
with a 72 month lease to be accounted for as a capital lease.
Payment will be made in 66 monthly installments of $12,770. Future
minimum lease payments are as follows:
Future Lease Payments
1996 $ 26,000
1997 153,000
1998 153,000
1999 153,000
2000 139,000
Item 8 -- Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
On November 21, 1995, the Company replaced Kirkland, Brakeman, Russ,
Murphy & Tapp and engaged Grant Thornton LLP as its new independent
accountant. During the Company's two most recent fiscal years and any
subsequent interim period preceding the change in accountants, there were
no disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure.
PART III
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Jugal K. Taneja, Age 51, is (since the Company's inception in June, 1994)
a director, the Chief Executive Officer and Secretary of the Company. He
also serves as a Chief Executive Officer and President of Bancapital
Mortgage Corporation. The Bancapital group of entities are involved in
mortgage banking and venture capital activities. Mr. Taneja also serves
(since October, 1991) as the Chairman, Chief Executive Officer and
director of NuMED Home Health Care, Inc. and Chief Executive Officer and
director of NuMED Surgical, Inc., publicly-held entities involved in the
home health care and medical equipment industries. He also serves as the
President and director of Bancequity Petroleum, Inc. and Chief Operating
Officer, Senior Vice President and director of BT Energy Corporation,
entities involved in the oil and gas industry. Mr. Taneja serves as a
director of Bristol Financial Ventures, Inc., an entity involved in
venture capital activities and Direct Rx, Inc., a mail order pharmacy
supply operation. Before his association with Bancapital and NuMED, Mr.
Taneja served as Senior Vice President of Union Commerce Bank and
Huntington National Bank.
Curtis L. Alliston, Age 52, is (since the Company's inception in June,
1994) a director, the President and Chief Operating Officer of the
Company. He also serves as a director and the President and Chief
Executive Officer of Brandon Clinical Associates, Inc., a home health care
group, and President and Chief Executive Officer of Alliston Enterprises,
an investment and construction company. From 1988 to 1992, he served as
President and Chief Executive Officer of Tampa Medical Group Management, a
medical practice management firm, and President and Chief Executive
Officer of Bay Cardiac Imaging, a mobile cardiac ultrasound service
provider. Mr. Alliston was the founder of Positron Partners, Inc., a
joint venture specializing in positron emission tomography, and served as
its President and Chief Executive Officer from 1990 to 1992. Also, from
1990 to 1993, Mr. Alliston served as the President and Chief Executive
officer of Cleveland Avenue Real Estate Partners, a medical real estate
investment group.
Martin A. Traber, Age 48, is a director (since the Company's inception in
June, 1994) of the Company. He is also a partner in the law firm of Foley
& Lardner, a national general practice law firm. He has also served as an
Adjunct Professor of Law at Cleveland Marshall Law School where he
structured a course on and lectured in the area of real estate finance.
Prior to joining Foley & Lardner in August, 1994, he practiced with Arter
& Hadden since 1970 and was a partner in its Cleveland office. Mr. Traber
is a director of Bancapital Mortgage Company, Emory Mortgage Corporation
and Schmidt Mortgage Company, mortgage lending entities affiliated with
the Bancapital Corporation.
Donald G. Ward, Age 53, a director of the Company since March, 1995, has
served as Administrative Director of Clay Cardiology Associates, P.A., a
group of cardiology specialists associated with several major hospitals in
northeastern Florida and northeastern Georgia, since 1992. From 1990 to
1992, Mr. Ward was the Director of Special Projects/Mobile Imaging
Services for St. Vincent's Health Care Systems in Jacksonville, Florida.
Prior thereto, he has served in various positions in the health care
industry.
Susan J. Carmichael, Age 48, a director of the Company since the second
quarter of 1995, is currently President and Chief Operating Officer (since
September, 1993) of NuMED Home Health Care, Inc. and has served as a
director of NuMED since 1991. Ms. Carmichael was the past President of
Whole Person Home Health Care and Pennsylvania Medical Concepts prior to
its being purchased by NuMED in 1991 as NuMED's entrance into the home
health industry. NuMED employs an average of 500+ employees and cares for
700+ clients in Florida, Pennsylvania, and Ohio. From 1981 to 1985, Ms.
Carmichael, was co-owner, President, and Chairperson of the Board of
Health Consulting Associates (1981-1985).
Directors are elected annually.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, officers and holders of more than 10% of the Common
Stock to file with the Securities Exchange Commission initial reports of
beneficial ownership and reports of changes in beneficial ownership of
Common Stock and any other equity securities of the Company. To the
Company's knowledge, based solely upon a review of the forms filed with
the Company by such person, all such Section 16(a) filing requirements
were complied with by such persons in 1995.
Item 10 -- Executive Compensation
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid to or earned by the Company's Chief Executive Officer and President.
No other executive officer earned more than $100,000 for the fiscal years
ended December 31, 1994 and 1995. The directors of the Company receive no
compensation.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities
Fiscal All Other Underlying
Name and Principal Position Year Salary Bonus Compensation Options
<S> <C> <C> <C> <C> <C>
Jugal K. Taneja, 1995 $76,250 $75,614 $18,9581 25,000
Chief Executive Officer 1994 10,000 10,000 16,4001 -
1993 - - - -
Curtis L. Alliston, 1995 $150,000 $69,125 $19,7081 25,000
President and Chief 1994 83,600 54,000 8,7001 -
Operating Officer 1993 75,000 - 6,7501 -
<FN>
_____________________
(1) Represents club dues and automobile expense allowance.
</TABLE>
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during 1995 to the executive
officers named in the Summary Compensation Table. The amounts shown as
potential realizable values on the options are based on assumed annualized
rates of appreciation in the price of the Common Stock of 0%, 5% and 10%
over the term of the options, as set forth in rules of the Securities and
Exchange Commission. Actual gains, if any, on stock option exercises are
dependent on future performance of the Common Stock. There can be no
assurance that the potential realizable values reflected in this table
will be achieved.
<TABLE>
Stock Option Grants in 1995
<CAPTION>
Market Potential Realizable Value at
% of Total Price per Assumed Annual Rates of Stock Price
Number of Options Share of Appreciation for Option Term(2)
Securities Granted to Underlying
Underlying Employees Exercise Security
Options in Fiscal Price per on Date of Expiration
Name Granted 1995 Share Grant(1) Date 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jugal K. Taneja . . . 25,000 41.7% $1.06 $1.06 4/21/05 -0- $16,666 $42,234
Curtis L. Alliston . 25,000 41.7% 0.0002 1.06 4/21/05 -0- 16,666 42,234
<FN>
__________________
(1) The options shown on this table were immediately exercisable on the date of grant.
(2) The options shown on this table were exercised on December 6, 1995.
</TABLE>
The following table sets forth information concerning each exercise
of options during 1995 by the executive officers named in the Summary
Compensation Table. No options were outstanding as of December 31, 1995.
Option Exercises in 1995
Shares Acquired on
Name Exercise Value Realized ($)
Jugal K. Taneja . . . 25,000 $56,313
Curtis L. Alliston . 25,000 56,313
Item 11 -- Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of June 15, 1996, with respect
to: (i) each of the Company's directors; (ii) each of the Company's
executive officers named in the Summary Compensation Table above; (iii)
all directors and executive officers of the Company as a group; and (iv)
each person known by the Company to own beneficially more than 5% of the
Common Stock. Except as otherwise indicated, each of the shareholders
listed below has sole voting and investment power over the shares
beneficially owned.
Name Beneficially Owned
Shares Percent
Jugal K. Taneja(1)(2) . . . . . . . . . 1,155,013 43%
Curtis L. Alliston(1)(3) . . . . . . . 585,013 22
Donald G. Ward . . . . . . . . . . . . 5,936 *
Martin A. Traber . . . . . . . . . . . 11,671 *
Susan J. Carmichael . . . . . . . . . . - -
Directors and executive officers as a
group (5 persons)(4) 1,757,633 66
____________________
* Less than 1%
(1) The business address of Messrs. Taneja and Alliston is 737B West
Brandon Boulevard, Brandon, Florida 33511.
(2) Includes 100,000 shares of Common Stock held by First Delhi Trust,
which was established for the benefit of Mr. Taneja's children and
over which Mr. Taneja exercises voting rights, and 25,013 shares of
Common Stock held by Westminster Trust, which is a limited
partnership controlled by Mr. Taneja, and 100,000 shares of Common
Stock held by Manju Taneja, Mr. Taneja's wife.
(3) Includes 100,000 shares of Common Stock held by Alliston Family
Limited Partnership, which was established for the benefit of Mr.
Alliston's children, over which Mr. Alliston exercises voting
rights.
(4) Includes notes (1) through (3) above.
Item 12 -- Certain Relationships and Related Transactions
CERTAIN TRANSACTIONS
The Company provides diagnostic imaging services in Brandon, Florida
through Brandon Diagnostic Center, Ltd., a limited partnership
("Brandon"). Brandon is 60% owned by its general partner, Alpha
Associates, Inc., a Florida corporation ("Alpha Associates"), and 40%
owned by its sole limited partner Alpha Acquisition Corp., a Florida
corporation ("Alpha Acquisition"). Prior to the formation of the Company
in June 1994, all of the issued and outstanding capital stock of Alpha
Associates and Alpha Acquisition was owned by Messrs. Taneja and Alliston.
In connection with the formation of the Company, Messrs. Taneja and
Alliston transferred all of the capital stock of Alpha Associates and
Alpha Acquisition to the Company in exchange for an aggregate of 1,200,000
shares of Common Stock and warrants to purchase 1,200,000 shares of Common
Stock at $7.20 per share. Alpha Associates and Alpha Acquisition
thereupon became wholly-owned subsidiaries of the Company.
From April to December, 1995, the Company's wholly-owned subsidiary,
National Diagnostics/Orange Park, Inc. ("Orange Park"), was a party to a
lease agreement with Sundance Partners, a Florida general partnership
("Sundance"). The lease related to Orange Park's approximately 5,100
square foot diagnostic facility in Orange Park, Florida and was for a term
of ten years providing annual rental payments of approximately $44,000,
subject to annual adjustments based on the Consumer Price Index. The
Company was the guarantor of Orange Park's obligations under the lease.
Messrs. Taneja, Alliston, Traber and Ward (directors of the Company) and
Mr. Baugh (the President and Chief Operating Officer of Orange Park) were
all general partners of Sundance and collectively own a 95% interest
therein. Mr. Alliston was the managing partner of Sundance. In December
1995, the Company purchased a 100% interest in Sundance for $346,000, paid
through the assumption of mortgage indebtedness and the balance in shares
of Common Stock. See Note 13 to the Notes to Consolidated Financial
Statements. At the time Company executives (Messrs. Taneja and Alliston)
owning approximately a 65% interest in the Company held a controlling
interest (approximately 60%) in Sundance. Sundance's cost basis in the
underlying property was approximately $346,000 with an appraised value of
$660,000 (see note 12 to the financial statements).
Mr. Taneja previously advanced funds, evidenced by four demand promissory
notes, to Alpha Associates. The funds were advanced on March 26, April
18, November 4 and December 29, 1993 and April 1, 1994. The loans bore
interest at 10% per annum and were payable on demand. The Company repaid
the aggregate amount outstanding to Mr. Taneja pursuant to such loans with
the proceeds from the Company's initial public offering (the "Offering")
completed in September 1994.
Mr. Alliston previously advanced funds, evidenced by three demand
promissory notes, to Alpha Associates. The funds were advanced on October
12, 1993, December 29, 1993 and April 1, 1994. The loans bore interest at
10% per annum and were payable on demand. The Company repaid the
aggregate amount outstanding to Mr. Alliston pursuant to such loan with
the Proceeds from the Offering.
In connection with Brandon's start-up expenses, including costs associated
with the initial buildout and obtaining equipment, furniture and fixtures,
the shareholders of Alpha Associates, including Mr. Alliston, advanced
approximately $287,000 in 1992, evidenced by promissory notes issued by
Alpha Associates. In connection with Mr. Taneja's purchase of 67% of the
outstanding common stock of Alpha Associates in March 1993, the
outstanding debt was restructured to substitute Mr. Taneja as a lender.
Interest on the outstanding balance pursuant to the advance accrued at the
prime rate plus 1-1/2% annually. The Company repaid the aggregate amount
outstanding to Messrs. Taneja and Alliston pursuant to such loan with the
proceeds from the Offering.
On April 21, 1995 the Board of Directors approved an Employee Stock Option
Plan ("Employee Plan") and a Non-Employee Director Stock Option plan
("Director Plan") for the purpose of competing successfully in attracting,
motivating, and retaining employees and non-employee directors with
outstanding abilities. Options granted under the Employee Plan are
intended to be incentive stock options. The total number of shares to
which options may be granted under the Employee and Director Plans is
200,000 shares. Generally, the exercise price shall be fixed at no less
than 100% of the average fair market value of the shares at date of
option.
In 1995 pursuant to the Director Plan members of the Board of Directors
were issued options for 80,000 shares. These options were exercised at
$1.06 per share for which the Company received $84,800. During 1995 there
were no options granted under the Employee Plan and at December 31, 1995
there were no outstanding options under either plan.
In July, 1995 the Company offered to holders of 1,700,000 outstanding
common stock purchase warrants the opportunity to exchange five warrants
for two shares of Common Stock. In September, 1995 the offer was
concluded. Approximately 94% of the outstanding warrants were tendered in
exchange for 642,918 shares of Common Stock. Messrs. Taneja and Alliston
received 320,000 and 160,000 shares of Common Stock, respectively in
exchange for the warrants they were holding.
All future material affiliated transactions and loans will be made or
entered into on terms no less favorable to the Company than those that can
be obtained from unaffiliated third parties, and all future material
affiliated members of the Company's board of directors who do not have an
interest in the transaction.
Item 13 -- Exhibits and Reports on Form 8-K
(a) List of exhibits filed as part of this report:
Exhibit
Number Description
3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the
Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
3.2 By-laws of the Company (Exhibit 3.2 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
4.1 1995 Employee Stock Option Plan. (Exhibit 4.1 of Company's Form S-8
Registration No.33-80293 is incorporated by reference herein).
4.2 1995 Non-Employee Director Stock Option Plan. (Exhibit 4.2 of
Company's Form S-8 Registration No. 80293 is incorporated by
reference herein).
4.3 Warrants Agreement (Exhibit 4.4 to Amendment No. 3 to the Company's
Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.1 Employment Agreement by and between the Company and Curtis L.
Alliston dated April 4, 1995. (Exhibit 10.1 of Company's Form 10-
QSB for the period ended March 31, 1995 is incorporated by
reference herein).
10.2 Employment Agreement by and between the Company and Jugal K. Taneja
dated April 4, 1995. (Exhibit 10.2 of Company's Form 10-QSB for the
period ended March 31, 1995 is incorporated by reference herein).
10.3 Lease Agreement dated April 1, 1995 by and between National
Diagnostics/Orange Park, Inc. and Sundance Partners. (Exhibit 10.3
of Company's Form 10-QSB for the period ended March 31, 1995 is
incorporated by reference herein).
10.4 Brandon Diagnostic Center, Ltd.'s Revolving Note dated May 30,
1995. (Exhibit 10.1 of the Company's Form 10-QSB for the period
ended June 30, 1995 is incorporated by reference herein.)
10.5 Employment Agreement by and between the Company and Curtis L.
Alliston dated November 10, 1995. (Exhibit 10.1 of Company's Form
10-QSB for the period ended September 30, 1995 is incorporated by
reference herein).
10.6 Employment Agreement by and between the Company and Jugal K. Taneja
dated November 10, 1995. (Exhibit 10.2 of Company's Form 10-QSB
for the period ended September 30, 1995 is incorporated by
reference herein).
10.7 Lease Agreement dated July 12, 1995 between National
Diagnostics/Orange Park, Inc. and Siemens Medical Systems, Inc.
effective September 14, 1995. (Exhibit 10.3 of Company's Form 10-
QSB for the period ended September 30, 1995 is incorporated by
reference herein).
10.8 Professional services agreement dated December 21, 1995 between
Brandon Diagnostic Center, Ltd., SunPoint Diagnostic Center, Inc.
and Robert D. Marshall, M.D., P.A (Exhibit 10.8 of Company's Form
10-KSB for the period ended December 31, 1995 filed on April 1,
1996 is incorporated by reference herein).
10.9 Purchase agreement dated February 19, 1996 between National
Diagnostics, Inc., National Diagnostics/Orange Park, Sundance
Partners, and partners (Exhibit 10.9 of the Company's Form 10-KSB
for the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
10.10 Agreement of Partnership of Sundance Partners (a Florida
partnership) date March 1, 1995. (Exhibit 10.10 of the Company's
Form 10-KSB for the period ended December 31, 1995 filed on April
1, 1996 is incorporated by reference herein).
10.11 Lease Agreement dated September 3, 1991 and modification thereto
dated August 8, 1992 by and between Brandon Diagnostic Center, Ltd.
and Bay Land Investment, Inc. relating to a portion of the
Company's Brandon, Florida facility (Exhibit 10.2 to the Company's
Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.12 Lease Agreement dated February 1, 1992 and modification thereto
dated August 8, 1992 by and between Brandon Diagnostic Center, Ltd.
and Bay Land Investment, Inc. relating to a portion of the
Company's Brandon Florida facility (Exhibit 10.3 to the Company's
Form SB-1 Registration Statement Reg. No. 33-80612) is incorporated
by reference herein).
10.13 Lease Agreement dated January 15, 1993 by and between Brandon
Diagnostic Center, Ltd. and Bay Land Investment, Inc. relating to a
portion of the Company's Brandon, Florida facility (Exhibit 10.4 to
the Company's Form SB-1 Registration Statement (Reg. no. 33-80612)
is incorporated by reference herein).
10.14 Lease Agreement dated May 4, 1994 by and between Alpha Associates,
Inc. and Sun Point Associates, Inc. and Sun Point Associates
relating to the Company's Ruskin, Florida facility (Exhibit 10.5 to
the Company's for SB-1 Registration Statement (Reg. No. 33-80612)
is incorporated by reference herein).
10.15 Equipment Lease Agreement dated September 11, 1991 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
supplements thereto relating to the Company's magnetic resonance
imaging equipment (Exhibit 10.6 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.16 Equipment Lease Agreement dated September 11, 1991 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
supplement thereto relating to the Company's computer tomography
equipment (Exhibit 10.7 to the Company's Form SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
10.17 Equipment Lease Agreement dated November 18, 1991 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
supplements thereto relating to the Company's nuclear medicine
equipment (Exhibit 10.9 to the Company's Form SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
10.18 Professional Services Agreement dated June 7, 1993 by and between
Brandon Diagnostic Center, Ltd. and East Pasco Radiology
Associates, P.A. (Exhibit 10.13 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.19 Lease Agreement dated September 1, 1994 by and between Highland
Properties of Gulf Coast, Ltd. and Brandon Diagnostic Center, Ltd.
relating to the Company's Brandon, Florida facility (Exhibit 10.21
to Amendment No. 3 to the Company's form SB-1 Registration
Statement (Reg. No. 33-80612 is incorporated by reference herein).
10.20 Asset Purchase Agreement effective November 1, 1993 by and between
Alpha Acquisitions Corp. and Equipment Company of Brandon, Inc.
pertaining to the acquisition by Alpha Acquisitions Corp. of the
40% limited partnership interest in Brandon Diagnostic Center, Ltd.
(Exhibit 10.22 to Amendment No. 3 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.21 Unit Purchase Option dated September 27, 1994 relating to 50,000
Units (Exhibit 4.5 to Amendment No. 2 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.22 Equipment Lease Agreement dated July 19, 1994 by and between
Medical Consultants of Middleburg, Inc. and Copelco Capital
Corporation relating to Orange Park's ultrasound equipment (Exhibit
10.17 to the Company's Form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.23 Master Lease Agreement dated June 27, 1994 by and between Alpha
Associates, Inc. d/b/a Brandon Diagnostic Center and Copelco
Leasing Corporation and schedules thereto relating to SunPoint's
diagnostic imaging equipment (Exhibit 10.18 to the Company's Form
10-KSB for December 31, 1994 is incorporated by reference herein).
10.24 Equipment Lease Agreement dated August 1, 1994 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation
relating to SunPoint's diagnostic imaging equipment (Exhibit 10.19
to the Company's Form 10-KSB for December 31, 1994 is incorporated
by reference herein).
10.25 Asset Purchase Agreement, dated February 6, 1995 and effective as
of January 31, 1995, as amended, by and among Middleburg Medical
Imaging Consultants, Inc. (renamed National Diagnostics/Orange
Park, Inc.), Medical Consultants of Middleburg, Inc. and Medical
Imaging Consultants, Inc. (Exhibit 10.20 to the Company's Form
10-KSB for December 31, 1994 is incorporated by reference herein).
10.26 Employment Contract, dated February 6, 1995 and effective as of
January 31, 1995, by and between Ronald D. Baugh and Middleburg
Medical Imaging consultants, Inc. (Exhibit 10.21 to the Company's
Form 10-KSB for December 31, 1994 is incorporated by reference
herein).
10.27 Professional Services Agreement, effective as of November 7, 1994,
by and between SunPoint Diagnostic Center, Inc. and East Pasco
Radiology Associates, Inc. (Exhibit 10.22 to the Company's Form
10-KSB for December 31, 1994 is incorporated by reference herein).
10.28 Professional Services Agreement, dated November 30, 1994, by and
between the Company and Drs. Hurt, Isaacs, Johnston and Cranford,
P.A. (Exhibit 10.23 to the Company's Form 10-KSB for December 31,
1994 is incorporated by reference herein).
10.29 Services Agreement, dated November 17, 1994, by and between
Diagnostic Cardiology Associates, P.A. and the Company (Exhibit
10.24 to the Company's Form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.30 Term Loan Agreement and Revolving Loan Agreement, both dated March
6, 1994, by and between Brandon Diagnostic Center, Ltd. and
SouthTrust Bank of West Florida, and related Notes and Security
Agreements (Exhibit 10.25 to the Company's Form 10-KSB for December
31, 1994 is incorporated by reference herein).
20.1 National Diagnostics, Inc. Offer to Exchange dated July 6, 1995.
(Exhibit 20.1 to the Company's Form 10-QSB for the period ended
June 30, 1995 is incorporated by reference herein).
21 Subsidiaries of Registrant (Exhibit 21 of the Company's Form 10-KSB
for the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
23.1 Consent of Independent Certified Public Accountants - Grant
Thornton LLP (Exhibit 23.1 of the Company's Form 10-KSB for the
period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
23.2 Independent Auditors Consent - Kirkland, Brakeman, Russ, Murphy &
Tapp (Exhibit 23.2 of the Company's Form 10-KSB for the period
ended December 31, 1995 filed on April 1, 1996 is incorporated by
reference herein).
24 Powers of Attorney (included on signature page) (Exhibit 24 of the
Company's Form 10-KSB for the period ended December 31, 1995 filed
on April 1, 1996 is incorporated by reference herein).
(b) Reports on Form 8-K.
The Company filed on November 27, 1995 a Form 8-K indicating the
replacement of the Company's prior independent accountant Kirkland,
Brakeman, Russ, Murphy & Tapp and the engagement of Grant Thornton LLP as
its new independent accountants.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
Date: June 13, 1996 NATIONAL DIAGNOSTICS, INC.
By: /s/ Curtis L. Alliston
Curtis L. Alliston
President and Chief Operating
Officer
By: /s/ Dennis C. Hult
Dennis C. Hult
Comptroller
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the
Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
3.2 By-laws of the Company (Exhibit 3.2 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
4.1 1995 Employee Stock Option Plan. (Exhibit 4.1 of Company's Form S-8
Registration No.33-80293 is incorporated by reference herein).
4.2 1995 Non-Employee Director Stock Option Plan. (Exhibit 4.2 of
Company's Form S-8 Registration No. 80293 is incorporated by
reference herein).
4.3 Warrants Agreement (Exhibit 4.4 to Amendment No. 3 to the Company's
Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.1 Employment Agreement by and between the Company and Curtis L.
Alliston dated April 4, 1995. (Exhibit 10.1 of Company's Form 10-
QSB for the period ended March 31, 1995 is incorporated by
reference herein).
10.2 Employment Agreement by and between the Company and Jugal K. Taneja
dated April 4, 1995. (Exhibit 10.2 of Company's Form 10-QSB for the
period ended March 31, 1995 is incorporated by reference herein).
10.3 Lease Agreement dated April 1, 1995 by and between National
Diagnostics/Orange Park, Inc. and Sundance Partners. (Exhibit 10.3
of Company's Form 10-QSB for the period ended March 31, 1995 is
incorporated by reference herein).
10.4 Brandon Diagnostic Center, Ltd.'s Revolving Note dated May 30,
1995. (Exhibit 10.1 of the Company's Form 10-QSB for the period
ended June 30, 1995 is incorporated by reference herein.)
10.5 Employment Agreement by and between the Company and Curtis L.
Alliston dated November 10, 1995.(Exhibit 10.1 of Company's Form
10-QSB for the period ended September 30, 1995 is incorporated by
reference herein).
10.6 Employment Agreement by and between the Company and Jugal K. Taneja
dated November 10, 1995. (Exhibit 10.2 of Company's Form 10-QSB
for the period ended September 30, 1995 is incorporated by
reference herein).
10.7 Lease Agreement dated July 12, 1995 between National
Diagnostics/Orange Park, Inc. and Siemens Medical Systems, Inc.
effective September 14, 1995. (Exhibit 10.3 of Company's Form 10-
QSB for the period ended September 30, 1995 is incorporated by
reference herein).
10.8 Professional services agreement dated December 21, 1995 between
Brandon Diagnostic Center, Ltd., SunPoint Diagnostic Center, Inc.
and Robert D. Marshall, M.D., P.A (Exhibit 10.8 of Company's Form
10-KSB for the period ended December 31, 1995 filed on April 1,
1996 is incorporated by reference herein).
10.9 Purchase agreement dated February 19, 1996 between National
Diagnostics, Inc., National Diagnostics/Orange Park, Sundance
Partners, and partners (Exhibit 10.9 of the Company's Form 10-KSB
for the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
10.10 Agreement of Partnership of Sundance Partners (a Florida
partnership) date March 1, 1995. (Exhibit 10.10 of the Company's
Form 10-KSB for the period ended December 31, 1995 filed on April
1, 1996 is incorporated by reference herein).
10.11 Lease Agreement dated September 3, 1991 and modification thereto
dated August 8, 1992 by and between Brandon Diagnostic Center, Ltd.
and Bay Land Investment, Inc. relating to a portion of the
Company's Brandon, Florida facility (Exhibit 10.2 to the Company's
Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.12 Lease Agreement dated February 1, 1992 and modification thereto
dated August 8, 1992 by and between Brandon Diagnostic Center, Ltd.
and Bay Land Investment, Inc. relating to a portion of the
Company's Brandon Florida facility (Exhibit 10.3 to the Company's
Form SB-1 Registration Statement Reg. No. 33-80612) is incorporated
by reference herein).
10.13 Lease Agreement dated January 15, 1993 by and between Brandon
Diagnostic Center, Ltd. and Bay Land Investment, Inc. relating to a
portion of the Company's Brandon, Florida facility (Exhibit 10.4 to
the Company's Form SB-1 Registration Statement (Reg. no. 33-80612)
is incorporated by reference herein).
10.14 Lease Agreement dated May 4, 1994 by and between Alpha Associates,
Inc. and Sun Point Associates, Inc. and Sun Point Associates
relating to the Company's Ruskin, Florida facility (Exhibit 10.5 to
the Company's for SB-1 Registration Statement (Reg. No. 33-80612)
is incorporated by reference herein).
10.15 Equipment Lease Agreement dated September 11, 1991 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
supplements thereto relating to the Company's magnetic resonance
imaging equipment (Exhibit 10.6 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.16 Equipment Lease Agreement dated September 11, 1991 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
supplement thereto relating to the Company's computer tomography
equipment (Exhibit 10.7 to the Company's Form SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
10.17 Equipment Lease Agreement dated November 18, 1991 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation and
supplements thereto relating to the Company's nuclear medicine
equipment (Exhibit 10.9 to the Company's Form SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
10.18 Professional Services Agreement dated June 7, 1993 by and between
Brandon Diagnostic Center, Ltd. and East Pasco Radiology
Associates, P.A. (Exhibit 10.13 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.19 Lease Agreement dated September 1, 1994 by and between Highland
Properties of Gulf Coast, Ltd. and Brandon Diagnostic Center, Ltd.
relating to the Company's Brandon, Florida facility (Exhibit 10.21
to Amendment No. 3 to the Company's form SB-1 Registration
Statement (Reg. No. 33-80612 is incorporated by reference herein).
10.20 Asset Purchase Agreement effective November 1, 1993 by and between
Alpha Acquisitions Corp. and Equipment Company of Brandon, Inc.
pertaining to the acquisition by Alpha Acquisitions Corp. of the
40% limited partnership interest in Brandon Diagnostic Center, Ltd.
(Exhibit 10.22 to Amendment No. 3 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.21 Unit Purchase Option dated September 27, 1994 relating to 50,000
Units (Exhibit 4.5 to Amendment No. 2 to the Company's Form SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.22 Equipment Lease Agreement dated July 19, 1994 by and between
Medical Consultants of Middleburg, Inc. and Copelco Capital
Corporation relating to Orange Park's ultrasound equipment (Exhibit
10.17 to the Company's Form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.23 Master Lease Agreement dated June 27, 1994 by and between Alpha
Associates, Inc. d/b/a Brandon Diagnostic Center and Copelco
Leasing Corporation and schedules thereto relating to SunPoint's
diagnostic imaging equipment (Exhibit 10.18 to the Company's Form
10-KSB for December 31, 1994 is incorporated by reference herein).
10.24 Equipment Lease Agreement dated August 1, 1994 by and between
Brandon Diagnostic Center, Ltd. and Siemens Credit Corporation
relating to SunPoint's diagnostic imaging equipment (Exhibit 10.19
to the Company's Form 10-KSB for December 31, 1994 is incorporated
by reference herein).
10.25 Asset Purchase Agreement, dated February 6, 1995 and effective as
of January 31, 1995, as amended, by and among Middleburg Medical
Imaging Consultants, Inc. (renamed National Diagnostics/Orange
Park, Inc.), Medical Consultants of Middleburg, Inc. and Medical
Imaging Consultants, Inc. (Exhibit 10.20 to the Company's Form 10-
KSB for December 31, 1994 is incorporated by reference herein).
10.26 Employment Contract, dated February 6, 1995 and effective as of
January 31, 1995, by and between Ronald D. Baugh and Middleburg
Medical Imaging consultants, Inc. (Exhibit 10.21 to the Company's
Form 10-KSB for December 31, 1994 is incorporated by reference
herein).
10.27 Professional Services Agreement, effective as of November 7, 1994,
by and between SunPoint Diagnostic Center, Inc. and East Pasco
Radiology Associates, Inc. (Exhibit 10.22 to the Company's Form 10-
KSB for December 31, 1994 is incorporated by reference herein).
10.28 Professional Services Agreement, dated November 30, 1994, by and
between the Company and Drs. Hurt, Isaacs, Johnston and Cranford,
P.A. (Exhibit 10.23 to the Company's Form 10-KSB for December 31,
1994 is incorporated by reference herein).
10.29 Services Agreement, dated November 17, 1994, by and between
Diagnostic Cardiology Associates, P.A. and the Company (Exhibit
10.24 to the Company's Form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.30 Term Loan Agreement and Revolving Loan Agreement, both dated March
6, 1994, by and between Brandon Diagnostic Center, Ltd. and
SouthTrust Bank of West Florida, and related Notes and Security
Agreements (Exhibit 10.25 to the Company's Form 10-KSB for December
31, 1994 is incorporated by reference herein).
20.1 National Diagnostics, Inc. Offer to Exchange dated July 6, 1995.
(Exhibit 20.1 to the Company's Form 10-QSB for the period ended
June 30, 1995 is incorporated by reference herein).
21 Subsidiaries of Registrant (Exhibit 21 of the Company's Form 10-KSB
for the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
23.1 Consent of Independent Certified Public Accountants - Grant
Thornton LLP (Exhibit 23.1 of the Company's Form 10-KSB for the
period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
23.2 Independent Auditors Consent - Kirkland, Brakeman, Russ, Murphy &
Tapp (Exhibit 23.2 of the Company's Form 10-DSB for the period
ended December 31, 1995 filed on April 1, 1996 is incorporated by
reference herein).
24 Powers of Attorney (included on signature page) (Exhibit 24 of the
Company's Form 10-KSB for the period ended December 31, 1995 filed
on April 1, 1996 is incorporated by reference herein).
