<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 September 30, 1998
[ ] 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
incorporation or organization) Identification No.)
755 West Brandon Blvd., Brandon, Florida 33511
- ---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (813) 882-8704
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 November 12, 1997: 8,880,000
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> <C>
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1997 and September 30, 1998 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30,
1997 and 1998 5
Condensed Consolidated Statements of Cash Flows for the
three and nine months ended September 30,
1997 and 1998 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
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>
September 30,
December 31, 1998,
1997 (Unaudited)
----------- -------------
<S> <C> <C>
Current Assets:
Accounts receivable, net of allowance of $719,300
and $1,011,942 in 1998 and 1997 respectively $ 2,058,647 $ 2,144,693
Prepaid expenses and other current assets 148,903 77,835
----------- -----------
Total current assets 2,207,550 2,222,528
----------- -----------
Property and equipment 9,974,924 9,984,361
Less: accumulated depreciation and
Amortization (4,574,173) (5,550,144)
----------- -----------
Net property and equipment 5,400,751 4,434,217
----------- -----------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $104,110 and
$85,751 in 1998 and 1997 respectively 403,711 385,351
Deposits 54,941 55,188
Long-term note receivable from related party - 2,000,000
Other 41,894 58,864
----------- -----------
Total other assets 500,546 2,499,403
----------- -----------
$ 8,108,847 $ 9,156,148
=========== ===========
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30,
December 31, 1998,
1997 (Unaudited)
----------- -------------
<S> <C> <C>
Current liabilities:
Lines of credit $ 1,309,612 $ 1,048,129
Notes due to related parties 62,500 240,500
Current installments of long-term debt 413,243 305,600
Current installments of obligations
under capital leases 3,820,933 1,897,400
Accounts payable 1,655,858 2,713,496
Accrued radiologist fees 439,066 222,940
Accrued expenses other 696,814 1,124,948
----------- -----------
Total current liabilities 8,398,026 7,553,013
Long-term liabilities:
Long-term debt, excluding current installments 594,064 429,890
Obligations under capital leases,
excluding current installments -- 1,759,763
Deferred lease payments 175,136 132,759
----------- -----------
Total liabilities 9,167,226 9,875,425
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, no par value, 1,000,000
shares authorized, 500,000 shares issued
and 368,815 shares outstanding in 1988 -- 1,475,260
Common stock, no par value, 9,000,000
shares authorized, 3,093,430 and 8,880,000
shares issued and outstanding in 1997 and 1998 779 1,936
Additional paid-in capital 2,899,138 3,422,725
Retained earnings:
Unappropriated (accumulated deficit) (3,958,296) (5,619,198)
----------- -----------
Net stockholders' (deficit) (1,058,379) (719,277)
----------- -----------
$ 8,108,847 $ 9,156,148
=========== ===========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue, net $2,535,390 $ 1,717,524 $ 7,724,625 $ 6,835,818
---------- ----------- ----------- ------------
Operating expenses:
Direct operating expenses 1,256,417 1,337,359 4,152,251 3,962,567
General and administrative 1,186,388 1,097,235 3,166,349 3,173,690
Depreciation and amortization 350,260 326,252 1,089,187 1,012,361
---------- ----------- ----------- ------------
Total operating expenses 2,793,065 2,760,846 8,407,787 8,148,618
---------- ----------- ----------- ------------
Operating loss (257,675) (1,043,322) (683,162) (1,312,800)
Interest expense 153,962 146,869 512,236 475,054
Other income 7,094 45,474 12,875 126,948
---------- ----------- ----------- ------------
(Loss) before income taxes (404,543) (1,144,717) (1,182,523) (1,660,906)
Income taxes - - - -
---------- ----------- ----------- ------------
Net (loss) (404,543) (1,144,717) (1,182,523) (1,660,906)
---------- ----------- ----------- ------------
Dividends to preferred shareholders
(intrinsic value of beneficial
conversion features - see Note 2) - - - (25,473,612)
---------- ----------- ----------- ------------
Net (loss) available to common shareholders $ (404,543) $(1,144,717) $(1,182,523) $(27,134,518)
========== =========== =========== ============
Net (loss) per common share $ (.10) $ (.13) $ (.37) $ (4.40)
========== =========== =========== ============
Weighted average number of common
shares outstanding *4,182,828 8,880,000 3,180,942 6,162,550
========== =========== =========== ============
</TABLE>
* Note: 1,800,000 shares were re-acquired seventy-one days into the quarter.
See Accompanying Notes.
5
<PAGE> 6
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(404,543) $(1,144,717) $(1,182,523) $(1,660,906)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Income taxes -- -- -- --
Depreciation and amortization 350,260 326,252 1,089,187 1,012,361
Provision for Bad Debts 3,351 40,604 74,704 (292,640)
-- (35,000) -- (35,000)
(Increase) decrease in accounts receivable (24,603) 333,430 (303,682) 206,602
Loss on disposition of equipment 5,260 -- 7,863 --
(Increase) decrease in prepaid
expenses and other current assets (16,743) 63,999 66,242 71,068
Increase (decrease) in accounts payable 245,427 568,988 585,832 1,057,638
Increase (decrease) in accrued radiologist fees (47,126) (61,100) 25,729 (216,126)
Increase (decrease) in other accrued expenses 132,929 174,512 106,405 428,134
Increase (decrease) in deferred lease payments (16,637) (11,490) (46,332) (42,377)
--------- ----------- ----------- -----------
Net cash provided (used) by operating activities 227,575 255,478 423,425 528,754
--------- ----------- ----------- -----------
Cash flows provided (used) by investing activities
Purchases of property and equipment (7,887) (7,588) (225,175) (9,437)
Increase in deposits (7,146) (85) (7,965) (247)
Increase in organization & start-up costs -- -- (66,588) --
--------- ----------- ----------- -----------
Net cash used by investing activities (15,033) (7,673) (299,728) (9,684)
--------- ----------- ----------- -----------
Cash flows provided (used) by financing activities:
Increase (decrease) in line of credit 17,892 (61,174) 248,728 (261,483)
Proceeds from long-term borrowings -- -- 150,000 --
Repayment of long-term borrowings (26,305) (168,805) (64,555) (271,817)
Proceeds of borrowing from related parties -- -- 125,000 181,000
Repayment of borrowings from related parties (61,000) (3,000) (67,167) (3,000)
Proceeds from other notes payable -- -- 205,000 --
Repayment from other notes payable (67,082) -- (209,294) --
Principal payments under capital lease obligations (187,586) (14,826) (654,409) (163,770)
Proceeds from issuance of common stock net 77,990 -- 77,990 --
--------- ----------- ----------- -----------
Net cash provided (used) by financing activities (246,091) (247,805) (188,707) (519,070)
--------- ----------- ----------- -----------
Net increase (decrease) in cash (33,549) -- (65,010) --
Cash at beginning of period (72,874) -- 104,335 --
--------- ----------- ----------- -----------
Cash at end of period $ 39,325 $ $ 39,325 $
========= =========== =========== ===========
</TABLE>
See Accompanying Notes
6
<PAGE> 7
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash
flow information - Interest paid $ 131,200 $95,648 $ 533,500 $ 271,584
=========== ======= =========== ==========
Stock issued as satisfaction for trade creditor debt $ 29,620 $ $ 205,140 $
=========== ======= =========== ==========
Stock issued for equipment acquisition $ $ $ 20,000 $
=========== ======= =========== ==========
Stock issued as satisfaction of related party debt $ $ $ 275,604 $2,000,000
=========== ======= =========== ==========
Stock issued in exchange for marketable securities $ $ $ 1,800,000 $
=========== ======= =========== ==========
Stock exchange for marketable securities rescinded $(1,800,000) $ $(1,800,000) $
=========== ======= =========== ==========
Asset added under capital lease $ $ $ 265,580 $
=========== ======= =========== ==========
</TABLE>
See Accompanying Notes.
7
<PAGE> 8
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 September 30, 1998 of
$1,179,717 and at September 30, 1998 has a working capital deficiency of
approximately $5,330,485 and a deficiency of net assets approximating $709,000.
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 third quarter of 1998 and its plan to improve
future results.
The Company attributes the loss in the third quarter primarily to a reduction
in net revenues. The company's relatively newest facilities Orange Park and
Riverside experienced third quarter losses of $355,000 and $367,000,
respectively. The Company's most mature facility (Brandon) experienced a loss
of $184,000. The Company attributes these losses to a decline in gross revenues
experienced by the relatively new facilities and contractual adjustments the
Company identified with some of its current receivables. The Company is
currently evaluating its Orange Park and Riverside operations to facilitate
cost savings the Company expects to achieve by consolidating certain of its
operations in the Jacksonville area. Additionally, the Company expects to
complete in the fourth quarter more favorable refinancing for its accounts
receivables. The current asset lender has imposed unfavorable loan restrictions
on the Company as a result of the change in control of the Company.
Subsequently, the Company has also concluded its refinancing with its major
lessor, which has enabled the Company to bring its major lease obligations
current and will result in decrease of approximately $60,000 per month toward
this obligation.
The Company is continuing with its merger plans with American Enterprise
Solutions, Inc. ("AESI"). The Companies have agreed to alter the method by
which the acquisition will take place. The Companies expect to maintain the
same valuation per share for the Company's common. Details have yet to be
released.
8
<PAGE> 9
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2) PREFERRED STOCK TRANSACTION
In March, 1997, the Securities and Exchange Commission (SEC) announced its
position on accounting for the issuance of convertible preferred stock with a
nondetachable conversion feature that is deemed "in the money" at the date of
issue (a "beneficial conversion feature"). The beneficial conversion feature is
initially recognized and measured by allocating a portion of the preferred
stock proceeds equal to the intrinsic value of that feature to additional
paid-in capital. This initial value is calculated at the date of issue as the
difference of the conversion price and the quoted market price of the company's
common stock into which the security is convertible, multiplied by the number
of shares into which the security is convertible. The discount resulting from
the allocation of proceeds in the beneficial convertible feature is treated as
dividend and is recognized as a return to the preferred shareholder over the
minimum period in which the preferred shareholders can realize that return
(i.e. from the date the securities are issued to the date they are first
convertible). The accounting for the beneficial conversion feature requires the
use of an unadjusted quoted market price (i.e., no valuation discounts allowed)
as the full value used in order to determine the intrinsic value dividend. The
intrinsic value of the dividends to the preferred shareholder is deducted from
the net income before calculating the net loss per common share. The intrinsic
value of beneficial conversion features to preferred shareholders is
$25,568,750. Upon merger with AESI, the effect of the beneficial conversion
features is reversed.
(3) LEGAL ACTION
On May 20,1998, Carnegie Capital, Ltd. ("Carnegie Capital") filed suit for
foreclosure against the Company and its wholly owned partnership, Sundance
Partners for alleged default of a second mortgage note held by Carnegie
Capital. The debt outstanding at October 6, 1998, approximates $150,000 plus
interest approximating $24,000 which the Company has provided for. The property
involved is the fixed site facility occupied by the Company's Orange Park
diagnostic subsidiary. The Company filed a counter suit alleging certain
improprieties on the part of Carnegie Capital. On October 6, 1998, The Company
entered into a stipulation agreement where in the Company agreed to pay
$9,077.78 per month through January 15, 1999 with the remaining balance to be
paid in full by January 31, 1998.
(4) LONG-TERM NOTE RECEIVABLE
In the third quarter the Company agreed to exchange its marketable securities
(8,000,000 shares of Halis, Inc. common) for a $2,000,000 collateralized note
receivable from AESI (to be adjusted for cash received by the Company from
AESI). The note will accrue interest at 7%, both principal and interest will be
due on July 1, 2000. The collateral is restricted common stock of Physicians
Recourse Network, Inc. ("PRN"), a wholly owned subsidiary of AESI which AESI
acquired in exchange for 9,984,000 common shares of Halis, Inc. At July 1,
1998, the effective date of the agreement, the collateral shares were valued at
approximately $2,296,320 ($.23 per share). Through November 3, 1998 AESI has
put into the Company approximately $653,000 cash.
9
<PAGE> 10
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 third quarter ended September 30, 1998 were $1,717,524
compared to $2,535,390 for the same period in 1997 representing a 32% decrease.
Forty six percent of the $818,000 loss in revenues is attributable to a
decrease in gross revenues earned in the Orange Park and Riverside facilities.
Management, as part of its plan to consolidate its facilities, will focus on
reacquiring its market share of revenues. Forty three percent of the loss in
revenues is attributable to adjustments for certain accounts receivables the
Company believes it will be unsuccessful in collecting. Approximately 68% or
$240,000 of these adjustments the Company believes was unusual in nature and
non-recurring. Direct operating expenses for the quarter ended September 30,
1998 were $1,337,355 compared to $1,256,416 for the same period in 1997,
representing a 6% increase. Direct costs as a percent of net revenues increased
28% as a result of certain direct costs which do not vary proportionately with
net revenues, such as personnel costs and rent, and in certain cases radiology
costs.
General and administrative expenses for the third quarter ended September 30,
1998 were $1,097,235 compared to $1,188,388 for the same period in 1997,
representing an 8% decrease. The decrease is primarily attributable to numerous
cost cutting measures the Company has undertaken.
The decrease in operating costs was not sufficient to offset the decrease in
revenues resulting in a quarter loss of $1,179,717 compared to $404,543 for the
corresponding period in 1997. The relatively new Riverside facility contributed
a $367,000 loss compared to $126,000 loss for the same period in 1997. The
Orange Park facility (its fixed site opened July of 1995) incurred a loss of
$355,000 compared to a $147,000 loss for the same period in 1997. The Company
is currently evaluating its alternatives and expects to reconstruct its
Jacksonville operations in the fourth quarter due to the losses and declining
revenue base experienced. The Brandon facility experienced a fourth quarter
loss of $184,000 compared to a $116,000 profit for the same period in 1997.
This is attributable mainly to a decline in net revenues; 83% of which is
believed to be the result of non-recurring contractual adjustments.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company has a working capital deficiency of
approximately $5,330,000 and a deficiency of net assets approximating
$709,000. Subsequently, the Company successfully concluded its refinancing of
its major capital leases with major lessor which resulted in returning the
leases to a current status. At September 30, 1998, the Company reclassified its
long term portion of the leases to long term under the pre-existing agreements.
The lessor accepted a note for past arrearages on certain of its capital lease
and maintenance payments. The $1,633,514 note accruing interest at 10% per
annum will mature June 1, 1999 with interest. Additionally, the Company paid
$475,000 toward arrearages from June through October, 1998. American Enterprise
Solutions, Inc. (having a 65% common stock interest in the Company) has
guaranteed the lease obligations and contributed the $475,000 to the Company to
facilitate meeting its obligation under the agreement. Additionally, the
Company entered into a stipulation agreement with a second mortgage loan which
allows the Company to continue making $9,078 monthly payments toward its
$150,000 obligation through January, 1999; at which time the remaining balance
including interest will become due.
In the third quarter the Company agreed to exchange its marketable securities
(8,000,000 shares of Halis, Inc. common) for a $2,000,000 collateralized note
receivable from AESI (to be adjusted for cash received by the Company from
AESI).
10
<PAGE> 11
The note will accrue interest at 7%, both principal and interest will be due on
July 1, 2000. The collateral is restricted common stock of Physicians Recourse
Network, Inc. ("PRN"), a wholly owned subsidiary of AESI which AESI acquired in
exchange for 9,984,000 common shares of Halis, Inc. At July 1, 1998, the
effective date of the agreement, the collateral shares were valued at
approximately $2,296,320 ($.23 per share). Through November 3, 1998 AESI has
put into the Company approximately $653,000 cash.
The Company is continuing in the merger process with AESI. Subsequently, the
Company and AESI jointly announced they are changing the method in which the
two companies will come together. Details are not yet available; however, it is
expected that the merger will not take place until early 1999.
The Company has a $2,000,000 line of credit with Health Care Financial
Partners, Inc. ("HCFP"). The lender has a first security interest on all
accounts receivable. HCFP considers the Company to be in technical default of a
loan covenant, wherein HCFP has not approved the change of control that
resulted when AESI acquired a majority interest in the Company. Subsequently,
HCFP has required acceleration of a term loan with payment of $4,000 per day
toward the balance of $152,000 remaining at June 30, 1998, and has increased
the interest rate to 15% from prime plus 2%. At September 30, 1998 The Company
paid off this term loan in its entirety. At November 16, 1998, the Company's
loan balance on its line of credit was $1,072,000, with zero availability. The
Company has actively pursued alternative financing and expects to complete its
refinancing in the fourth quarter.
In the quarter ending September 30, 1998, the company's cash remained
unchanged. Operations contributed $255,000. investing utilized $8,000 and the
remaining cash was used for debt retirement.
The Company had intended to curtail its external expansion (new start-ups or
acquisitions) until the Company's current relatively new start-ups achieve
acceptable levels of operation, and/or the Company achieved additional capital
infusion. It is likely that external expansion will not take place until
subsequent to the merger; at which time the Company will evaluate the synergies
developing through merger and the recourses available to the Company then
develop a plan for further external expansion.
As a result of continued cost cutting measures, if the Company can increase
revenues, return to profitability, if costs can be contained, and if the
Company's vendors continue work with the Company, and in the interim AESI
continues to financially assist the Company, the Company believes that its
presently anticipated short-term needs for operation, capital repayments and
capital expenditures for its current operations can be satisfied. The Company
feels that its ability in the short-term to improve its working capital is
reasonably attainable. There is no assurance that these short-term needs can be
met.
The Company's long term growth strategies will require additional funds. The
Company feels that the financial resources will be more easily attainable
subsequent to the merger. 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.
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 1997 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,
1997 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.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
On May 20, 1998, Carnegie Capital, Ltd. ("Carnegie Capital") filed suit for
foreclosure against the Company and its wholly owned partnership, Sundance
Partners for alleged default of a second mortgage note held by Carnegie
Capital. The debt outstanding at October 6, 1998, approximates $150,000 plus
interest approximating $24,000 which the Company has provided for. The property
involved is the fixed site facility occupied by the Company's Orange Park
diagnostic subsidiary. The Company filed a counter suit alleging certain
improprieties on the part of Carnegie Capital. On October 6, 1998, The Company
entered into a stipulation agreement where in the Company agreed to pay
$9,077.78 per month through January 15, 1999 with the remaining balance to be
paid in full by January 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
none
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: November 19, 1998
NATIONAL DIAGNOSTICS, INC.
/s/ Curtis L. Alliston
-------------------------------------
Curtis L. Alliston
President and Chief
Operating Officer
/s/ Dennis C. 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. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,863,993
<ALLOWANCES> 719,300
<INVENTORY> 0
<CURRENT-ASSETS> 2,222,528
<PP&E> 9,984,361
<DEPRECIATION> 5,550,144
<TOTAL-ASSETS> 9,156,148
<CURRENT-LIABILITIES> 7,553,013
<BONDS> 2,622,412
0
1,475,260
<COMMON> 1,936
<OTHER-SE> (2,196,473)
<TOTAL-LIABILITY-AND-EQUITY> 9,156,148
<SALES> 0
<TOTAL-REVENUES> 6,835,818
<CGS> 0
<TOTAL-COSTS> 3,962,567
<OTHER-EXPENSES> 4,059,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 475,054
<INCOME-PRETAX> (1,660,906)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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</TABLE>
