<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, 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 Identification No.)
incorporation or organization)
755 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 18, 1998: 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>
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1997 and March 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997
and 1998 5
Condensed Consolidated Statements of Cash Flows
for three months ended March 31, 1997 and 1998 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 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
December 31, 1998
1997 (Unaudited)
------------ ------------
<S> <C> <C>
Current assets:
Cash $ - $ 28,107
Accounts receivable, net of allowance of $1,011,942
and $601,350 in 1997 and 1998, respectively 2,058,647 2,610,598
Prepaid expenses and other current assets 148,903 198,732
------------ ------------
Total current assets 2,207,550 2,837,437
------------ ------------
Property and equipment
Less: accumulated depreciation and 9,974,924 9,974,924
amortization (4,574,173) (4,905,968)
------------ ------------
Net property and equipment 5,400,751 5,068,956
------------ ------------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $85,751 and
$91,870 in 1997 and 1998 respectively 403,711 397,591
Deposits 54,941 55,000
Marketable securities - 2,000,000
Other 41,894 35,830
------------ ------------
Total other assets 500,546 2,488,421
------------ ------------
$ 8,108,847 $ 10,394,814
============ ============
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
March 31,
December 31, 1998
1997 (Unaudited)
------------ ------------
<S> <C> <C>
Current liabilities:
Line of credit $ 1,309,612 $ 1,318,726
Note payable, other 62,500 -
Notes due to related parties - 178,500
Current installments of long-term debt 413,243 398,663
Current installments of obligations
under capital leases 3,820,933 3,718,776
Accounts payable 1,655,858 1,795,430
Accrued radiologist fees 439,066 318,828
Accrued expenses, other 696,814 875,375
------------ ------------
Total current liabilities 8,398,026 8,604,298
Long-term liabilities:
Long-term debt, excluding current installments 594,064 594,064
Obligations under capital leases,
excluding current installments - -
Deferred lease payments 175,136 159,692
------------ ------------
Total liabilities 9,167,226 9,358,054
------------ ------------
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 1998 - 1,475,260
Common stock, no par value, 9,000,000
shares authorized, 2,628,577 and 8,880,000
shares issued and outstanding in 1997 and 1998,
respectively 779 1,936
Additional paid-in capital 2,899,138 3,422,720
Retained earnings (accumulated deficit) (3,958,296) (3,863,156)
------------ ------------
Net stockholders' equity (deficit) (1,058,379) 1,036,760
------------ ------------
$ 8,108,847 $ 10,394,814
============ ============
</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,
1997 1998
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Revenue, net $ 2,576,888 $ 2,797,303
----------- -----------
Operating expenses:
Direct operating expenses 1,398,496 1,231,119
General and administrative 967,295 1,052,991
Depreciation and amortization 366,085 343,979
----------- -----------
Total operating expenses 2,731,876 2,628,089
----------- -----------
Operating income (loss) (154,988) 169,214
Interest expense 169,746 155,540
Other income (loss) 5,482 81,464
----------- -----------
Income (loss) before income taxes (319,252) 95,138
Income taxes - -
----------- -----------
Net income (loss) $ (319,252) $ 95,138
=========== ===========
Net income (loss) per
common share $ (.12) $ .03
=========== ===========
Weighted average number of common
shares outstanding 2,628,577 3,414,906
=========== ===========
</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,
1997 1998
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (319,252) $ 95,138
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Income taxes - -
Depreciation and amortization 366,085 343,979
Provision for bad debts (9,519) (410,591)
Increase in accounts receivable (208,461) (141,359)
Loss on disposition of equipment 2,770 -
(Increase) decrease in prepaid expenses
and other current assets 66,892 (49,829)
Increase in accounts payable 171,333 139,572
Decrease in accrued radiologist fees (46,027) (120,238)
Decrease in other accrued expenses 66,648 178,561
Decrease in deferred lease payments (15,444) (15,444)
----------- -----------
Net cash provided by operating activities 75,025 19,789
----------- -----------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (138,447) -
Increase in organization & other assets (63,185) -
Increase in deposits (619) (59)
----------- -----------
Net cash used by investing activities (202,251) (59)
----------- -----------
Cash flows provided (used) by financing activities:
Increase (net) in line of credit 52,736 9,114
Repayment of long-term borrowing (19,613) (14,580)
Proceeds of borrowing from related parties 125,000 116,000
Repayment of borrowing from related parties (4,166) -
Principal payments under capital lease obligations (135,050) (102,157)
Proceeds from borrowing on other notes payable 205,000 -
Repayments of borrowing on other notes payable (49,047)
----------- -----------
Net cash (used) by financing activities 174,860 8,377
----------- -----------
Net increase (decrease) in cash 47,634 28,107
Cash at beginning of period 104,335 -
----------- -----------
Cash at end of period $ 151,969 $ 28,107
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 150,957 $ 89,520
=========== ===========
Non-cash investing activity:
Stock issued in exchange for marketable securities $ - $ 2,000,000
=========== ===========
</TABLE>
See Accompanying Notes.
6
<PAGE> 7
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 had a net profit for the quarter ending March 31, 1998 of
$95,138 and at March 31, 1998 has a working capital deficiency of
approximately $(5,767,000) after reclassification of all long-term
lease payments to current (more fully discussed below). Prior to a
private placement for $2,000,000 in securities on March 27, 1998 the
Company had a deficiency of net assets of $(963,000) which have
collectively resulted in the Company being in default of its major
lease and loan agreements. 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 the Company's ability to maintain its
level of profitability and its ability to cure its lease and loan
defaults. 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 1998 and its plan for future operations.
The Company attributes the profit in the first quarter to increased
revenues and the effect of cost cutting the Company had undertaken.
Additionally, the Company's relatively new start up facility (Orange
Park) has begun to achieve a level of profitability with a first
quarter profit of $73,000 contrasted to a loss of $(195,000) for the
corresponding period in 1997. However, 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, vendor and certain loan
obligations. Most of the vendors have been cooperative by allowing
extended terms. The Company expects to conclude discussions with its
major lessor in May of 1998 with a satisfactory solution to cure the
default which will bring the leases to current status. Other lessors
have also been cooperative with extended terms. During this period the
Company has not received a waiver of default from its lessors and
therefore, has reclassified all long-term lease obligations to
short-term. The Company in February of 1998 entered into a
7
<PAGE> 8
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Definitive Merger Agreement with American Enterprise Solutions, Inc.
("AES"). In addition to funding the Company on an as need basis
(through March 31, 1998 AES has loaned the Company $116,000), on March
27, 1998, AES exchanged securities of Halis, Inc. (OTCBB:HLIS) valued
at $2,000,000 for 500,000 shares of the Company's Series A Preferred
Stock. The value approximated market value of the Halis, Inc.
securities at time of exchange less a volume block discount of
approximately 10%. The Company intends to use the greater portion (at
least seventy-five percent) or all of the Halis securities as
collateral for extended terms on its lease obligations. The Company
believes with a continued increase in revenues, cost containment
measures and a successful conclusion to discussions with its major
lessor that the Company's financial condition will continue to
strengthen, though no absolute assurances can be given.
At March 31, 1998, the market value of the Halis, Inc. securities
increased only slightly. At May 19, 1998, the market value decreased by
$500,000. Management does not feel there has been a permanent
impairment.
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 Company is not certain that this accounting treatment is applicable
to its Preferred Stock transaction, given the unusual facts and
circumstances surrounding the Company's transaction. Among other
factors, the Company is in a merger process with American Enterprise
Solutions, Inc. ("AES") and the Preferred Stock transaction was by and
between the Company and AES after the merger process began. The company
has made no adjustment to the financial statements for the beneficial
conversion feature. If the prescribed accounting as outlined above for
the beneficial conversion feature is applicable, there would be no
change to total stockholders' equity or to the Company's Net Income.
There would be a potential impact on Net Income Available to Common
Stockholders and earnings per share. The Company and its business
advisors are reviewing the issue.
3) LEGAL ACTION
The Company was a defendant in a suit filed on January 5, 1998 by Lake
City Medical Group, P.A. for past due rents approximating $16,500. The
Company reached an out of court settlement for which the Company agreed
to pay $12,000. Payment, as agreed, was paid by the Company on April 6,
1998.
The Company became aware on May 20, 1998, that 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 May 1, 1998, approximates $150,000 plus interest approximating
$12,000 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 is currently evaluating its
alternatives.
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, 1998 were $2,797,000 compared
to $2,577,000 for the same period in 1997, representing a 8% increase. The
increase is primarily attributable to an increase in the volume of procedures
performed.
Direct operating expenses for the three months ended March 31, 1998 were
$1,231,000 compared to $1,398,000 for the same period in 1997, representing a
12% decrease. Direct operating expenses as a percentage of net revenue decreased
to 44% from 54% for the three months ended March 31, 1998 and 1997,
respectively. The decrease in direct operating expenses was primarily due to the
Company achieving lower medical supply costs and radiology fees.
General and administrative expenses for the three months ended March 31, 1998
were $1,053,000 compared to $967,000 for the same period in 1997, representing a
9% increase. A portion of this increase is due to an increase in property taxes
on the relatively new equipment acquired for the Riverside start-up.
Depreciation and amortization costs decreased to $344,000 from $366,000 for the
quarters ending March 31, 1998 and 1997, respectively. This is primarily
attributable to the Riverside start-up costs being fully amortized. Interest
expense has decreased to $156,000 from $170,000 for the quarters ending March
31, 1998 and 1997, respectively. This is the result of the amortization of the
Company's debt.
The increase in revenues and greater reduction in operating costs for the
quarter resulted in a net profit of $95,000 compared to a loss of $(319,000) for
the same period in 1997. The relatively new Riverside facility contributed a
loss of approximately $(30,000), compared to a loss of $(195,000) for the
corresponding 1997 period. The Orange Park facility (its fixed site opened July
of 1995) produced a profit of approximately $73,000 compared to the loss of
$(122,000) for the same period in 1997. Brandon (the Company's most mature
center) experienced a profit of approximately $223,000 compared to a profit of
$158,000 for the same period in 1997. The Company attributes the profit to
several factors which include: increased revenues; reduction of personnel costs;
and containment of radiology fees and medical supply costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company has a working capital deficiency of approximately
$(5,767,000) after reclassification of all long-term lease payments to current
(more fully discussed below). Prior to a private placement for $2,000,000 in
securities on March 27, 1998, the Company had a deficiency of net assets of
$(963,000), which have collectively resulted in the Company being in default of
its major lease and loan agreements. The Company has been in discussion with its
major lessor to obtain a satisfactory arrangement which will cure the defaults.
The Company expects to favorably conclude these discussions by the end of May.
During this period the Company has not received a waiver of default and
therefore, has reclassified its long-term lease obligation to short term.
Additionally, the Company is also in default of a second mortgage loan on one of
its fixed site facilities. In March of 1998, the Company entered into a private
placement with American Enterprise Solutions, Inc. ("AES") wherein it exchanged
500,00 shares of Company Series A Preferred Stock for 8,000,000 shares of Halis,
Inc. (OTCBB:HLIS) valued at $2,000,000. The value approximated the market value
of the Halis, Inc. securities at the time of exchange less a volume block
discount of approximately 10%. The Company intends to use at least seventy-five
percent of these securities to collateralize extended terms of its financial
obligations and/or liquidate a portion to otherwise help cure the Company's
financial arrearages.
9
<PAGE> 10
In February of 1998, the Company entered into a Definitive Agreement to Merge
with AES. Through March 31, 1998, AES has loaned to the Company $116,000 on an
as need basis. There is no formal commitment to continue this funding. In March,
1998, AES exercised its conversion right with a portion of its Series A
Preferred Stock at the rate of 44.11 shares of Common Stock to one share of
Preferred Stock, giving AES 65% of the total 8,880,000 shares of Common Stock
outstanding. Subsequently, the CEO/Director of AES was appointed to fill a
vacancy on the Board and office of CEO for the Company . The Company,
subsequently, has set out to arrange with all vendors a plan which will help the
Company become current with its obligations, although, there is no assurance
this can be achieved.
The Company has a $2,000,000 line of credit with Health Care Financial Partners,
Inc. ('HCFP"), a lender specializing in medical receivables. The lender has a
first security interest on all accounts receivable. Interest is a prime plus 2%.
The Company had borrowed in excess of the borrowing base availability and at
March 31, 1998 the excess and loan balance approximated $19,000 and $1,319.000,
respectively. A term loan with HCFP was in arrears approximately $39,000 with a
balance at March 31, 1998, of $220,000. HCFP has allowed the Company to make
payment of $4,000 per day toward the arrearages. At May 18, 1998, the over
advance on the line had been paid back with a loan balance of approximately
$1,187,000. At May 18, 1998, the Company had reduced its arrearage on the term
loan to $29,000 with a balance approximating $191,000.
In the quarter ending March 31, 1998, the company increased its cash by
approximately $28,000. Operations contributed $20,000 of the total increases.
Financing contributed $8,000.
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 its cost cutting measures, increasing revenues, its relatively
new start-up beginning to achieve profitability, if costs can be contained, if
the Company's vendors continue work with the Company, and if the Company is
successful in curing its lease and loan defaults, 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.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was a defendant in a suit filed on January 5, 1998 by Lake City
Medical Group, P.A. for past due rents approximating $16,500. The Company
reached an out of court settlement for which the Company agreed to pay $12,000.
Payment, as agreed, was paid by the Company on April 6, 1998.
The Company and its wholly owned partnership, Sundance Partners, were named in
a suit of foreclosure filed May 12, 1998, in the Circuit Court in the Fourth
Circuit in and for Clay County, State of Florida, Civil Division, by Carnegie
Capital, Ltd. ("Carnegie Capital"), a second mortgage note holder. The debt
outstanding at May 1, 1998, approximates $150,000 plus interest approximating
$12,000 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 is currently evaluating its alternatives.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.3 Articles of Amendment to Articles of Incorporation (Exhibit 10.50,
pages 11-15 of Exhibit B to the Company's Form 8-K dated April 10, 1998
is incorporated by reference herein).
10.49 Merger Agreement dated February 23, 1998 by and between National
Diagnostics, Inc., a Florida Corporation, and American Enterprise
Solutions, Inc., a Florida Corporation. (Exhibit 10.49 to the Company's
Form 8-K dated March 10, 1998 is incorporated by reference herein).
10.50 Stock Purchase Agreement dated March 17, 1998 by and between National
Diagnostics, Inc., a Florida Corporation and American Enterprise
Solutions, Inc., a Florida Corporation. (Exhibit 10.50 to the Company's
Form 8-K dated April 10, 1998 is incorporated by reference herein).
10.52 Second Amendment to Merger Agreement by and between National
Diagnostics, Inc. and American Enterprise Solutions, Inc. effective
April 29, 1998. (Exhibit 10.52 to the Company's Form 10-KSB for
December 31, 1997 is incorporated by reference herein).
10.53 First Amendment to Merger Agreement by and between National
Diagnostics, Inc. and American Enterprise Solutions, Inc. effective
March 17, 1998.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed on March 10, 1998, a Form 8-K indicating a Merger
Agreement dated February 23, 1998 by and between National Diagnostics,
Inc., a Florida Corporation, and American Enterprise Solutions, Inc., a
Florida Corporation.
The Company filed on April 10, 1998, a Form 8-K indicating a private
placement valued at $2,000,000 wherein National Diagnostics, Inc.
issued 500,000 shares of Series A Preferred Stock of NATD to American
Enterprise Solutions, Inc. ("AES") in exchange for 8,000,000 shares of
Common Stock of Halis, Inc. (OTCBB:HLIS). On March 27, 1998, AES
exercised its right to convert 131,185 shares of Series A Preferred
Stock for 5,786,570 shares of Common Stock of the Company. After
conversion, AES holds 65% of the total 8,880,000 shares of Common Stock
outstanding.
11
<PAGE> 12
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 20, 1998
NATIONAL DIAGNOSTICS, INC.
/s/ Curtis Alliston
-------------------------------------
Curtis L. Alliston
President and Chief Operating Officer
/s/ Dennis Hult
-------------------------------------
Dennis C. Hult
Comptroller
12
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NATIONAL DIAGNOSTICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
3.3 Articles of Amendment to Articles of Incorporation (Exhibit 10.50,
pages 11-15 of Exhibit B to the Company's Form 8-K dated April 10,
1998 is incorporated by reference herein).
10.49 Merger Agreement dated February 23, 1998 by and between National
Diagnostics, Inc., a Florida Corporation, and American Enterprise
Solutions, Inc., a Florida Corporation. (Exhibit 10.49 to the
Company's Form 8-K dated March 10, 1998 is incorporated by
reference herein).
10.50 Stock Purchase Agreement dated March 17, 1998 by and between National
Diagnostics, Inc., a Florida Corporation and American Enterprise
Solutions, Inc., a Florida Corporation. (Exhibit 10.50 to the
Company's Form 8-K dated April 10, 1998 is incorporated by reference
herein).
10.52 Second Amendment to Merger Agreement by and between National
Diagnostics, Inc. and American Enterprise Solutions, Inc. effective
April 29, 1998. (Exhibit 10.52 to the Company's Form 10-KSB for
December 31, 1997 is incorporated by reference herein).
10.53 First Amendment to Merger Agreement by and between National
Diagnostics, Inc. and American Enterprise Solutions,
Inc. effective March 17, 1998.
27.1 Financial Data Schedule
</TABLE>
13
<PAGE> 1
EXHIBIT 10.53
FIRST AMENDMENT
TO
MERGER AGREEMENT
BY AND BETWEEN
NATIONAL DIAGNOSTICS, INC.,
A FLORIDA CORPORATION
AND
AMERICAN ENTERPRISE SOLUTIONS, INC.,
A FLORIDA CORPORATION
EFFECTIVE MAY 17, 1998
<PAGE> 2
FIRST AMENDMENT
This First Amendment (the "Amendment") is made and entered into as of
this 17th day of March, 1998 by and between NATIONAL DIAGNOSTICS, INC., a
Florida corporation ("NDI") and American Enterprise Solutions, Inc., a Florida
corporation ("AES").
RECITALS
WHEREAS, NDI and AES have entered into that certain Merger Agreement
(the "Agreement") dated February 23, 1998 pursuant to which it is contemplated
that AES will be merged (the "Merger") with and into NDI under the terms and
conditions specified in the Agreement; and
WHEREAS, Section 8.10 of the Agreement specifies that, as a condition
precedent to the obligations of AES and the stockholders of AES to consummate
the transactions provided for in the Agreement, among other things, the
shareholders of NDI shall have approved the Merger, the terms of the Agreement
and other actions to be taken thereunder for which such shareholder approval is
required; and
WHEREAS, AES and NDI have mutually agreed to proceed with the Merger
and the other transactions provided for under the Agreement in such a manner
that would not require the initial approval and consent of NDI's shareholders
to the Merger, the terms of the Agreement or other actions to be taken
thereunder for which such shareholder approval is required; and
WHEREAS, AES and NDI mutually intend that the Agreement be amended to
dispense with the need for the initial approval and consent of the shareholders
of NDI to the Merger, and the terms of the Agreement and other actions to be
taken thereunder for which such shareholder approval is required; and
WHEREAS, Section 2.2 of the Agreement specifies that, as a condition
to the closing of the Merger transaction, NDI shall have, among other things
(i) effected a reverse stock split of the currently issued and outstanding
shares of NDI common stock; and (ii) authorized the insurance of an additional
10,670,513 shares of NDI common stock for distribution to the AES stockholders;
and
WHEREAS, NDI and AES have mutually agreed that it is in the best
interest of the parties that (i) the above-referenced reverse stock split
should not be effected until after consummation of the Merger; and (ii) NDI
should provide for the issuance of a total of 22,056,407 shares of NDI common
stock for distribution to AES stockholders as opposed to the 10,670,513 shares
referred to above; and
WHEREAS, because of the fact that NDI only has a total of 5,906,570
authorized but unissued shares of NDI common stock for immediate insurance to
AES stockholders, it is necessary to provide for a partial closing of the
Merger transaction (until additional shares of NDI common stock are authorized
and made available for distribution to AES stockholders).
NOW, THEREFORE, in consideration of the premises set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree
as follows:
<PAGE> 3
1. The Agreement is hereby amended to delete the requirement
contained in Section 8.10 thereof and elsewhere that the approval and consent
of NDI's shareholders to the Merger, the terms of the Agreement and other
actions to be taken thereunder shall be a condition precedent to the
obligations of AES and the AES stockholders under this Agreement.
2. Section 2.2 and any and all other pertinent sections of the
Agreement are amended and modified to provide for and reflect the fact that (i)
NDI shall issue 5,906,570 shares of NDI common stock to AES stockholders upon
partial closing of the Merger, then (pursuant to an appropriate amendment to
its Articles of Incorporation to allow it do so) issue an additional 16,
149,837 shares of NDI common stock to AES stockholders shortly thereafter; and
(ii) the above-referenced reverse stock split shall be effected only after
insurance of the total of 22,057,407 shares of NDI common stock to AES
stockholders (such that the AES stockholders will own an aggregate of 87.7% of
the issued and outstanding shares of common stock of NDI after the reverse
stock split).
3. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first written above.
NATIONAL DIAGNOSTICS, INC.
By: /s/ Curtis L. Alliston
-----------------------------
Name: Curtis L. Alliston
Title: President & C.O.O.
AMERICAN ENTERPRISE SOLUTIONS, INC.
By: /s/ Charles Broes
------------------------------
Name: Charles Broes
Title: Chief Executive Officer
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,107
<SECURITIES> 2,000,000
<RECEIVABLES> 3,211,948
<ALLOWANCES> 601,350
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<CURRENT-ASSETS> 2,837,437
<PP&E> 9,974,924
<DEPRECIATION> 4,905,968
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<BONDS> 753,756
0
1,475,260
<COMMON> 1,936
<OTHER-SE> (440,436)
<TOTAL-LIABILITY-AND-EQUITY> 10,394,814
<SALES> 0
<TOTAL-REVENUES> 2,797,303
<CGS> 0
<TOTAL-COSTS> 1,231,119
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