<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24696
NATIONAL DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-3248917
-------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
737B West Brandon Blvd., Brandon, Florida 33511
----------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (813) 661-9501
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities 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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class: Common Stock, No Par Value Outstanding at May 13, 1997: 2,628,577
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
Page 1 of 13
<PAGE> 2
NATIONAL DIAGNOSTICS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1997 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1996
and 1997 5
Condensed Consolidated Statements of Cash Flows
for three months ended March 31, 1996 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
ITEM - 1
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
December 31, 1997
1996 (Unaudited)
------------ ------------
<S> <C> <C>
Current assets:
Cash $104,335 $151,969
Accounts receivable, net of allowance of $664,402
and $654,883 in 1996 and 1997, respectively 2,131,284 2,349,264
Prepaid expenses and other current assets 220,864 153,972
----------- -----------
Total current assets 2,456,483 2,655,205
----------- -----------
Property and equipment 9,481,198 9,813,530
Less: accumulated depreciation and
amortization (3,264,655) (3,591,870)
----------- -----------
Net property and equipment 6,216,543 6,221,660
----------- -----------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $61,274 and
$67,393 in 1996 and 1997 respectively 428,187 422,068
Deposits 47,444 48,063
Other 51,020 81,454
----------- -----------
Total other assets 526,651 551,585
----------- -----------
$9,199,677 $9,428,450
=========== ===========
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
March 31,
December 31, 1997
1996 (Unaudited)
------------ ------------
<S> <C> <C>
Current liabilities:
Line of credit $ 993,818 $ 1,046,554
Note payable, other 4,294 160,247
Notes due to related parties 99,882 220,716
Current installments of long-term debt 105,410 105,000
Current installments of obligations
under capital leases 1,103,952 1,104,000
Accounts payable 1,080,236 1,251,569
Accrued radiologist fees 489,785 443,758
Accrued expenses, other 738,687 805,335
----------- -----------
Total current liabilities 4,616,064 5,137,179
Long-term liabilities:
Long-term debt, excluding current installments 619,227 600,024
Obligations under capital leases,
excluding current installments 3,454,456 3,516,013
Deferred lease payments 236,912 221,468
----------- -----------
Total liabilities 8,926,659 9,474,684
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
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, 2,628,577 shares issued
and outstanding in 1996 and 1997 686 686
Additional paid-in capital 2,320,497 2,320,497
Retained earnings (accumulated deficit) (2,048,165) (2,367,417)
----------- -----------
Net stockholders' equity (deficit) 273,018 (46,234)
----------- -----------
$ 9,199,677 $ 9,428,450
=========== ===========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1996 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Revenue, net $ 2,189,706 $ 2,576,888
----------- -----------
Operating expenses:
Direct operating expenses 1,056,156 1,398,496
General and administrative 722,904 967,295
Depreciation and amortization 244,881 366,085
----------- -----------
Total operating expenses 2,023,941 2,731,876
----------- -----------
Operating income (loss) 165,765 (154,988)
Interest expense 97,837 169,746
Other income (loss) 32,442 5,482
----------- -----------
Income (loss) before income taxes 100,370 (319,252)
Income taxes -- --
----------- -----------
Net income (loss) $ 100,370 $ (319,252)
=========== ===========
Pro forma net income (loss) per
common share $ .04 $ (.12)
=========== ===========
Weighted average number of common
shares outstanding 2,539,629 2,628,577
=========== ===========
</TABLE>
See Accompanying Notes.
5
<PAGE> 6
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1996 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 100,370 $ (319,252)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Income taxes -- --
Depreciation and amortization 244,881 366,085
Provision for bad debts 22,400 (9,519)
Increase in accounts receivable (373,707) (208,461)
Loss on disposition of equipment 4,377 2,770
(Increase) decrease in prepaid expenses
and other current assets (53,900) 66,892
Increase in accounts payable 161,717 171,333
Increase (decrease) in accrued radiologist fees 55,383 (46,027)
Increase (decrease) in other accrued expenses (69,316) 66,648
Increase (decrease) in deferred lease payments 65,925 (15,444)
----------- -----------
Net cash provided by operating activities 158,130 75,025
----------- -----------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (18,927) (138,447)
Increase in organization & other assets -- (63,185)
----------- -----------
Net cash used by investing activities (18,927) (201,632)
----------- -----------
Cash flows provided (used) by financing activities:
Increase (net) in line of credit 41,000 52,736
Repayment of long-term borrowing (23,197) (19,613)
Proceeds of borrowing from related parties 18,583 125,000
Repayment of borrowing from related parties -- (4,166)
Principal payments under capital lease obligations (136,808) (135,050)
Increase in deposits -- (619)
Proceeds from borrowing on other notes payable (3,356) 205,000
Repayments of borrowing on other notes payable -- (49,047)
----------- -----------
Net cash (used) by financing activities (103,778) 174,241
----------- -----------
Net increase (decrease) in cash 35,425 47,634
Cash at beginning of period 128,094 104,335
----------- -----------
Cash at end of period $ 163,519 $ 151,969
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 85,607 $ 150,957
=========== ===========
Asset added under capital lease $ 66,214 $ 196,655
=========== ===========
</TABLE>
See Accompanying Notes.
6
<PAGE> 7
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by National Diagnostics, Inc., and
Subsidiaries (the "Company") for quarterly financial reporting purposes
are the same as those disclosed in the Company's annual financial
statements. In the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments (which consist
only of normal recurring adjustments) necessary for a fair presentation
of the information presented.
The quarterly condensed consolidated financial statements herein have
been prepared by the Company without audit. Certain information and
footnote disclosures included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Although the Company management believes the
disclosures are adequate to make the information not misleading, it is
suggested that these quarterly condensed consolidated financial
statements be read in conjunction with the audited annual financial
statements and footnotes thereto.
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.
OPERATIONAL MATTERS AND LIQUIDITY
The Company has a net loss for the quarter ending March 31, 1997 of
$(319,252) and at March 31, 1997 has a working capital deficiency of
approximately $(2,282,000) and a deficiency of net assets of $(46,000)
which have collectively resulted in late lease payments which have
payment acceleration provisions. In view of these matters, recoverability
of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operation of the
Company, which in turn is dependent upon either the Company's ability to
succeed in its future operations or its ability to obtain additional
funding. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence. The following commentary
addresses the Company's operations for the first quarter of 1997 and its
plan to improve future results.
The Company attributes the loss in the First quarter primarily to the
effect the losses from its new start up facilities had on the Company:
Orange Park started its second full year of operation with a loss of
$122,000 and Riverside (opened July of 1996) had a loss of $195,000. Due
to the expansion and growth the Company's working capital has decreased
to the extent that the Company has fallen behind in meeting its lease and
vendor obligations. Most of the vendors have been cooperative by allowing
extended terms. The Company has received from its major lessor a waiver
of default based on the Company adhering to a workout schedule which will
bring the leases to current status by December, 1997. Other lessors have
also been cooperative with extended terms. The Company believes as the
increase in revenues for start ups continues and certain cost cutting
measures (estimated unaudited annual savings approximately $286,000
inclusive of Officer's bonuses) take effect that the Company will return
to a profitable position though no absolute assurances can be given. The
Company has curtailed its plan for further external expansion unless
additional capital funding is obtained.
7
<PAGE> 8
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2) NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No. 128.
Earnings Per Share, which is effective for financial statements issued
after December 15,1997. Early adoption of the new standard is not
permitted. The new standard eliminates primary and fully diluted earnings
per share requires presentation of basic and diluted earnings per share
and requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts were computed. The
adoption of this new standard is not expected to have a material impact
on the disclosure of earnings per share in the financial statements.
(3) LEGAL ACTION
In December of 1995, the physician group terminated its contract for
reading service with the Brandon and SunPoint centers and in February of
1996, 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 physician group sought payment
for services rendered (approximately $178,000) and lost profits
(approximately $850,000). In February of 1997, the court denied the claim
for lost profits and entered an award in favor of the physician group
relating to services rendered. The company substantially reserved for the
claim for services and satisfied the judgement in February of 1997 by
obtaining financing for approximately $205,000 from its accounts
receivable lender (balance due by August, 1997). Subsequently, a motion
by the physicians for a rehearing was denied. The physicians filed a
notice of appeal for the lost profits claim in April, 1997. Also, a
motion for costs relating to the lawsuit (approximating $10,000) was
filed by the physician group. The Company believes the costs to be
substantially less than the amount claimed and intends to contest the
amount.
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
entitle 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- 1995-2249. 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
sought compensatory and punitive damages of $2,830,000. In April of 1997
the Company reached a settlement for $5,000 which has been paid by the
Company.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
Net revenues for the three months ended March 31, 1997 were $2,576,888 compared
to $2,189,706 for the same period in 1996, representing a 18% increase. The
increase is primarily attributable to an increase in the volume of procedures
performed. The Company generated net revenues of $211,394 in the first quarter
of 1997 as a result of the addition of the National Diagnostics/Riverside, Inc
("Riverside") in July of 1996.
Direct operating expenses for the three months ended March 31, 1997 were
$1,398,496 compared to $1,056,156 for the same period in 1996, representing a
32% increase. Direct operating expenses as a percentage of net revenue increased
to 54% from 48% for the three months ended March 31, 1997 and 1996,
respectively. The increase in direct operating expenses was primarily due to the
addition of Riverside. The increase of direct costs as a percent of net revenue
was a result of several factors. Approximately 65% of the increase as a percent
of net revenue is attributable to the cost of maintenance contracts the Company
entered into for its older equipment and higher costs for medical supplies.
Approximately 33% of the increase is attributed to the start-up facility which
bears certain direct costs that do not necessarily vary proportionately with net
revenues such as personnel costs.
General and administrative expenses for the three months ended March 31, 1997
were $967,295 compared to $722,904 for the same period in 1996, representing a
34% increase. Approximately 47% of this increase was due to the addition of the
Riverside facility and another 31% of the increase was due to additional
personnel and related costs added due to the continued increase in volume. In
the middle of the quarter personnel cuts were made in the Riverside facility
which result in an annual savings of approximately $150,000. These cuts were
made in response to the slower than anticipated ramp up of the Riverside
revenues.
Depreciation and amortization costs increased to $366,085 from $244,881 for the
quarters ending March 31, 1997 and 1996, respectively. This is primarily
attributable to the additional equipment added for the new Riverside facility
acquired through capital leases. Interest expense has increased to $169,746 from
$97,837 for the quarters ending March 31, 1997 and 1996, respectively. This is
the result of the financing for the Riverside equipment utilizing capital leases
and the expansion of the Company's line of credit to approximately $1,047,000
from approximately $450,000 at March 31, 1997 and 1996, respectively. Also, a
one time charge for interest of approximately $14,000 was made in connection
with the litigation settlement more fully discussed below and in
Part 2. Legal Proceedings.
The increase in revenues and greater increase in operating costs for the quarter
resulted in a net loss of $(319,252) compared to a profit of $100,370 for the
same period in 1996. The new Riverside facility contributed a loss of
approximately $(194,000), or 61% of the total loss. The Orange Park facility
(its fixed site opened July of 1995) incurred a loss of approximately $(122,000)
compared to the loss of $(107,000) for the same period in 1996. Brandon (the
Company's most mature center) experienced a profit of approximately $158,000
compared to a profit of $318,000 for the same period in 1996. The Company
attributes this decline in profits to several factors including increased costs
of maintenance contracts on equipment; an increase in medical supply costs,
increased depreciation of equipment acquired subsequent to last years first
quarter and increased personnel costs.
LIQUIDITY AND CAPITAL RESOURCES
Due to the rapid expansion of facilities and increase in additional personnel
and related costs the Company has continued to experience difficulty in meeting
timely its current obligation to its vendors and lessors. The Company at March
31, 1997 had a working capital deficiency of approximately $(2,282,000) and a
deficiency of net assets of approximately $(46,000). Due to late payments the
Company at March 31, 1997 was in default of its capital leases. In April the
Company received a conditional waiver of default from its major lessor.
Generally, while in default the lessor may accelerate the lease obligation (at
March 31, 1997 total long-term portion of affected leases approximated
$1,300,000).
9
<PAGE> 10
The conditional waiver of default from its major lessor contains a work out
schedule where in all leases will be brought to a current status by December 31,
1997. The agreement was predicated upon the Company making a $200,000 payment
toward arrearage by April 25, 1997. The Company paid the $200,000, a portion of
which came out of proceeds from a second mortgage note given on its Sundance
property and is currently in compliance with the work out agreement. The other
lessors (approximately 17% of the total loans outstanding at March 31, 1997)
have been cooperating with the Company, generally allowing not more than 60 days
past due on lease payments. There is no assurance the Company will be successful
in achieving these goals.
Capital expenditures, including capital lease obligations for the quarter ending
March 31, 1997 approximated $335,000. The Company entered into a $197,000
capital lease for an equipment upgrade and with bank financing obtained in
December of 1996 the Company took delivery of a new non-surgical mammography
biopsy unit which will expand the Company's Women's Center in the Brandon
Facility.
In February of 1997 the Company settled its litigation with its prior
radiologists (see Item 3-Legal Proceedings). The settlement plus legal fees
approximated $205,000. This amount was borrowed from DVI in 1997 at an interest
rate of "base" plus 3% (at March 31, 1997 11.5%). The loan calls for 28 weekly
payments of $7,500; the balance to be paid in full by August 29, 1997. The loan
is secured by accounts receivable and is being paid out of current collections.
The Company is current with its payments. In March of 1997, the Company borrowed
$125,000 from a related party corporation (majority owned by Messrs., Taneja and
Alliston). The proceeds were used to pay property taxes. The loan was due April
29, 1997 and was extended until May 31, 1997. It is expected to be paid out of
receipts from overdue providers payments.
The Company has a $2,000,000 line of credit with DVI Business Credit Corporation
("DVI", a lender specializing in medical receivables). The lender has a first
security interest on all accounts receivable. Interest is a prime plus 1.6%. At
March 31, 1997 the line availability and loan balance approximated $15,000 and
$1,059.000, respectively. At May 12, 1997 the line availability and loan balance
approximated $300 and $1,193,000, respectively.
In the quarter ending March 31, 1997 the company increased its cash by
approximately $48,000. Operations contributed $75,000 of the total increases.
Purchases of equipment and a minor increase in other assets contributed to
totally to the cash reduction of $201,000. Financing contributed $174,000.
Equipment acquired through capital leasing approximated $197,000.
The Company intends to curtail further external expansion (new start-ups or
acquisitions) until the Company's current new start-ups achieve acceptable
levels of operation, and/or the Company achieves additional capital infusion. In
1996 the Company retained the services of an investment banking firm to explore
strategic alternatives designed to maximize stockholder value. The Company is
currently considering different alternatives which includes but are not limited
to capital infusion and/or merger or sale of the Company.
The Company is currently negotiating a contract that would accelerate the ramp
up of its newest start-up facility. If the Company is successful in obtaining
the contract it could result in an estimated increase in net revenues of
approximately $500,000 to $800,000. As a result of its cost cutting measures,
increasing revenues coupled with an accelerated ramp up of its newest start-up,
satisfaction of its property and equipment needs for current operations, and if
the Company's vendors and lessors continue to allow a grace period of sixty to
ninety days, the Company believes that its presently anticipated short-term
needs for operation, capital repayments and capital expenditures for its current
operations can be satisfied through internally generated funds and existing
credit facilities with DVI. The Company feels that its ability in the short-term
to improve its working capital is reasonably attainable. However, the Company is
currently discussing capital infusion alternatives which may consist of selling
additional stock. Should the above possibilities not materialize and to assure
continued operations the Company is prepared to sell off certain assets that
have not yet matured sufficiently to allow a positive return. There is no
assurance that these short-term needs can be met.
The Company's long term 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
10
<PAGE> 11
or private transactions. There is no assurance that the Company will be
successful in securing additional financing or capital through equity or debt
securities.
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company's independent certified public
accountant's report on the Company's 1996 Financial Statements contained in the
Company's Annual Form 10-KSB included a going concern qualification. The
information contained in Note 2 to the Financial Statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996 remains relevant related to the status of certain of the Company's
operational and funding matters and, accordingly, should be referred to in
conjunction with this Form 10-QSB.
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.
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. Approximately 49% 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: approximately 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.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December of 1995, the physician group terminated its contract for
reading service with the Brandon and SunPoint centers and in February
of 1996, 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 physician group sought
payment for services rendered (approximately $178,000) and lost profits
(approximately $850,000). In February of 1997, the court denied the
claim for lost profits and entered an award in favor of the physician
group relating to services rendered. The company substantially reserved
for the claim for services and satisfied the judgement in February of
1997 by obtaining financing for approximately $205,000 from its
accounts receivable lender (balance due by August, 1997). Subsequently,
a motion by the physicians for a rehearing was denied. The physicians
filed a notice of appeal for the lost profits claim in April, 1997.
Also, a motion for costs relating to the lawsuit (approximating
$10,000) was filed by the physician group. The Company believes the
costs to be substantially less than the amount claimed and intends to
contest the amount.
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
entitle 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- 1995-2249. 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 sought compensatory and punitive damages of
$2,830,000. In April of 1997 the Company reached a settlement for
$5,000 which has been paid by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended March 31, 1997.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1997
NATIONAL DIAGNOSTICS, INC.
/s/ Curtis Alliston
--------------------------------------
Curtis L. Alliston
President and Chief Operating Officer
/s/ Dennis Hult
--------------------------------------
Dennis C. Hult
Comptroller
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NATIONAL DIAGNOSTICS, INC., AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB FOR THE FIRST QUARTER ENDING MARCH
31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 151,969
<SECURITIES> 0
<RECEIVABLES> 3,004,147
<ALLOWANCES> 654,883
<INVENTORY> 0
<CURRENT-ASSETS> 2,655,205
<PP&E> 9,813,530
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0
0
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</TABLE>
