UNITED STATES
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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24696
AMERICAN ENTERPRISE.COM, CORP
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3248917
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6800 NORTH DALE MABRY, SUITE 100, TAMPA, FLORIDA 33614
- ------------------------------------------------ ---------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (813) 882-6567
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 [ ]
State the number of shares outstanding of each of the issuer's classes of equity
as of the latest practicable date:
Class: Common Stock, No Par Value Outstanding at May 8, 2000: 2,250,000
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
<PAGE>
AMERICAN ENTERPRISE.COM, CORP
AND SUBSIDIARIES
INDEX TO FORM 10-QSB
For the quarter ended March 31, 2000
PAGE
NUMBER
------
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1999 and March 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 2000 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 2000 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ENTERPRISE.COM, CORP
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
(UNAUDITED)
----------- -----------
<S> <C> <C>
Current assets:
Related party receivable from accounts receivable financing $ 1,880,745 $ 2,143,724
Due from related party 185,636 --
Prepaid expenses and other current assets 19,350 11,485
----------- -----------
Total current assets 2,085,731 2,155,209
----------- -----------
Property and equipment 9,457,187 9,456,357
Less: accumulated depreciation and amortization (6,386,445) (6,623,243)
----------- -----------
Net property and equipment 3,070,742 2,833,114
----------- -----------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $117,360 and
$122,610 in 1999 and 2000 respectively 302,567 297,317
Other 50,622 50,309
----------- -----------
Total other assets 353,189 347,626
----------- -----------
$ 5,509,662 $ 5,335,949
=========== ===========
</TABLE>
See Accompanying Notes.
3
<PAGE>
AMERICAN ENTERPRISE.COM, CORP
AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
1999 2000
(UNAUDITED)
------------ ------------
<S> <C> <C>
Current liabilities:
Line of credit, related party $ 1,493,389 $ 1,550,869
Note payable 1,633,511 1,633,511
Notes due to related parties 128,450 65,950
Long-term debt 192,512 192,512
Obligations under capital
leases 2,873,535 2,826,602
Accounts payable 2,179,713 2,764,424
Accrued interest 512,251 597,411
Accrued expenses, other 1,682,413 1,761,248
Due to related party -- 88,964
------------ ------------
Total current liabilities 10,695,774 11,481,491
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 1,475,260 1,475,260
Common stock, no par value, 2,250,000
shares authorized 2,245,000 and 2,250,000
shares issued and outstanding in 1999 and 2000 449 450
Additional paid-in capital 3,625,775 3,665,771
Note receivable from stockholder (910,835) (910,835)
Retained earnings (accumulated deficit) (9,376,761) (10,376,188)
------------ ------------
Net stockholders' equity (deficit) (5,186,112) (6,145,542)
------------ ------------
$ 5,509,662 $ 5,335,949
============ ============
</TABLE>
See Accompanying Notes.
4
<PAGE>
AMERICAN ENTERPRISE.COM, CORP
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
-----------------------------
March 31, March 31,
1999 2000
(UNAUDITED) (UNAUDITED)
----------- -----------
Revenue, net $ 2,208,738 $ 1,191,855
----------- -----------
Operating expenses:
Direct operating expenses 1,267,679 1,006,289
General and administrative 1,076,559 804,040
Depreciation and amortization 268,071 242,357
----------- -----------
Total operating expenses 2,612,309 2,052,686
----------- -----------
Operating loss (403,571) (860,831)
Interest expense 201,150 154,538
Interest income 65,983 15,942
Other income 17,174 --
----------- -----------
Loss before income taxes (521,564) (999,427)
Income taxes -- --
----------- -----------
Net loss $ (521,564) $ (999,427)
=========== ===========
Net loss per
common share $ (.24) $ (.44)
=========== ===========
Weighted average number of common
shares outstanding 2,220,000 2,249,725
=========== ===========
See Accompanying Notes.
5
<PAGE>
AMERICAN ENTERTRISE.COM, CORP
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
March 31, March 31,
1999 2000
(UNAUDITED) (UNAUDITED)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(521,564) $(999,427)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 268,071 242,357
Common stock issue - employee stock plan -- 40,000
Provision for bad debts 89,562 --
Increase in related party receivable from accounts
Receivable financing -- (262,979)
Increase in accounts receivable (577,182) --
Increase in accrued interest receivable (85,383) --
(Increase) decrease in prepaid expenses
and other current assets (1,237) 7,865
Increase in amounts due related parties -- 274,600
Increase in accounts payable 175,135 584,711
Increase in other accrued expenses 76,513 163,995
Decrease in deferred lease payments (15,444) (11,865)
--------- ---------
Net cash provided (used) by operating activities (591,529) 39,257
--------- ---------
Cash flows provided (used) by investing activities:
(Purchases) disposals of property and equipment (34,985) 830
Decrease in deposits 18,809 --
--------- ---------
Net cash provided (used) by investing activities (16,176) 830
--------- ---------
Cash flows provided (used) by financing activities:
Increase (net) in line of credit 659,457 57,480
Repayment of long-term borrowing (24,860) --
Proceeds of borrowing from related parties 31,553 --
Repayment of borrowing from related parties (9,300) (62,500)
Principal payments under capital lease obligations (49,145) (35,067)
--------- ---------
Net cash provided (used) by financing activities 607,705 (40,087)
--------- ---------
Net increase in cash -- --
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ -- $ --
========= =========
</TABLE>
See Accompanying Notes.
6
<PAGE>
AMERICAN ENTERPRISE.COM, CORP
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
Supplemental disclosure of cash flow information:
<TABLE>
<S> <C> <C>
Non-cash investing activity:
Interest paid $ 119,872 $ 69,376
========= =========
</TABLE>
In February of 1999 the Company refinanced its line of credit approximating
$1,210,000 with a new line from AESI Funding, Inc. (a company wholly owned by
American Enterprise Solutions, Inc.) collateralized by accounts receivable
In January of 1999 the Company acquired from a newly acquired subsidiary of
American Enterprise solutions, Inc. approximately $266,000 of medical equipment
principally by assuming capital lease obligations.
See Accompanying Notes.
7
<PAGE>
AMERICAN ENTERPRISES.COM CORP
AND SUBSIDIARIES
MARCH 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by American Enterprise.com, Corp (formerly
known as 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 results of operations for the
three months ended March 31, 2000, are not necessarily indicative of the results
to be expected for any subsequent quarter or for the entire year ending December
31, 2000.
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, these quarterly condensed consolidated financial
statements should 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.
a) REVERSE STOCK SPLIT
On February 20, 2000, the company combined on the basis of four shares of common
stock in exchange for one share of common stock thereby resulting in 2,250,000
shares of authorized common stock, no par value and 2,250,000 shares issued and
outstanding as of February 20, 2000, the record date for such action. This
re-capitalization has been retroactively effected as a 1 for 4 reverse stock
split in these financial statements; accordingly, all share and per share
information has been restated, herein.
i) LOSS PER COMMON SHARE
The Company reports its earnings per share in accordance with Standard of
Financial Accounting Standards No. 128. Basic loss per share is the same as the
diluted loss per share since the Company had a net loss for the quarter ended
March 31, 1999 and 2000. Outstanding stock options and warrants have not been
considered in these computations since the effect of their inclusion would be
anti-dilutive.
8
<PAGE>
The following table reconciles the numerator and denominator of the basic and
dilutive EPS computation:
<TABLE>
<CAPTION>
Numerator: 1999 2000
----------- -----------
<S> <C> <C>
Net loss $ (521,564) $ (999,427)
=========== ===========
Denominator:
Weighted average number of common shares used in basic EPS 2,220,000 2,249,725
Effect of dilutive stock options and warrants -- --
----------- -----------
Weighted number of common shares and dilutive potential
common stock used in diluted EPS 2,220,000 2,249,725
=========== ===========
</TABLE>
(2) MERGER AGREEMENT WITH AMERICAN ENTERPRISE SOLUTIONS, INC.
In February 1998, the Company signed a definitive merger agreement with American
Enterprise Solutions, Inc. ("AESI"), a private company recently formed in August
1997 to acquire and develop community health care enterprises. In conjunction
with the merger agreement, the parties in March 1998 executed a stock purchase
agreement whereby AESI acquired 500,000 shares of the Company's preferred stock
for consideration valued at $2,000,000. Holders of the preferred stock voting as
a separate class have a right to 8 votes per share. In March 1998, AESI
converted 131,185 shares of the preferred stock into approximately 65% of the
company's outstanding shares of common stock. As part of the merger, the
remaining 368,815 shares of preferred stock, representing 100% of the
outstanding preferred stock will be converted so that 5,514,352 in total common
stock would be issued. AESI will then own approximately 85% of the Company. In
March 1998 AESI's current C.E.O. and board member and another AESI approved
board member, were appointed to the Company's Board of Directors filling two of
the three positions of the Board. In April 1998, the Board of Directors of the
Company approved the merger with AESI whereby AESI is the acquirer for
accounting purposes. In order to affect the merger, the Company's authorized
shares of common stock will be increased. AESI, owning approximately 65% of the
outstanding shares of the Company's common stock and 100% of the outstanding
preferred stock has provided written consent and approval of the merger which
under Florida Business Corporation Act precludes the need for further stock
holder approval. The closing date of the merger was extended in December 1999 to
occur no later than December 2000 upon the satisfaction of the closing
conditions. In March 2000, the Company completed a reverse 4 to 1 stock split in
contemplation of completing its merger with AESI.
(3) CASH MANAGEMENT
Effective January 1, 1999, the Company entered into agreements with AES Service
Group, Inc. (a wholly owned subsidiary of AESI) to provide billing, collection
and other cash management services. Effective January 1, 2000, the Company
maintains its own separate operating cash accounts for cash receipts and
disbursements. Generally, cash receipts (except for minor over the counter
receipts) are deposited into a lockbox and forwarded to pay down the Company's
accounts receivable financing (see footnote 4). Receipts drawn on the line are
received directly by AESI and transferred to the Company's own cash accounts on
an as needed basis.
(4) ACCOUNTS RECEIVABLE FINANCING
In February 1999, the Company's accounts receivable financing (line of credit)
with its lender totaling $1,221,000 was fully repaid. The arrangement was
terminated and replaced through AESI's accounts receivable financing with
another lender. AESI established a subsidiary, AES Funding, Inc. (Funding), to
service the new financing. Under the financing agreement, certain AESI
subsidiaries, including the Company, transfer all of their customer accounts
9
<PAGE>
to Funding to collateralize the debt. The transfer is recorded at book value,
gross account balance less estimated allowance for contractual adjustments and
bad debt provisions. The accounts receivable are divided into two categories,
eligible and ineligible as defined by the financing agreement with the lender,
indicating which accounts receivable are used to determine Funding's borrowing
base. In accordance with the financing agreement the eligible accounts, which
represent a substantial portion of all accounts are sold (as defined by SFAS No.
125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities") to Funding, and the ineligible accounts are
contributed as capital to Funding. If the cash collected on the ineligible
accounts is not required to pay down Funding's outstanding debt then the cash is
remitted to the respective company. This occurs when the eligible accounts
provide the lender sufficient coverage. Since inception of the financial
program, ineligible accounts collateralized have not been needed to reduce
outstanding debt. The ineligible accounts receivable contributed to Funding in
essence are reflected in the Company's records as an investment in Funding,
which is subsequently reduced by collection of these accounts (i.e., recognized
as a return of capital). As actual cash is not remitted to the Company, the
corresponding effect is to increase the amount due from related party.
At March 31, 2000, approximately $93,000 of net ineligible accounts receivables,
were contributed to Funding and have not yet been collected. The Company and
Funding fully expect that these accounts will be substantially collected and
such collections will be applied to the due from related party account.
Under the financing program, Funding's outstanding debt is allocated to AESI's
participating subsidiaries, such as the Company, based on their relative
borrowing base. At March 31, 2000, the Company's balance sheet reflects a
related party financing obligation of $1,550,869.
The initial term of Funding's and AESI's agreement with its lender is through
January 2002, with automatic annual extensions unless terminated by either
party. The interest rate is prime (Citibank N.A.'s prime rate) plus 1.5%. At
March 31, 2000, Funding and AESI are not in compliance with certain loan
covenants of the financial agreement. In this event, the lender has the right to
call the loan. AESI is not aware of the intent of the lender to exercise the
right and is currently striving to achieve compliance. The Company's $1,550,869
allocation of the debt is classified on the balance sheet as a current liability
due to the non-compliance issue.
(5) OBLIGATIONS UNDER CAPITAL LEASES
In November 1998, the Company refinanced with its major lessor its major medical
lease obligations. The Company fell behind in its lease obligations and in March
1999, the Company entered into another agreement with its major lessor, which
would allow the Company to make installments through September 1999, for its
arrearages. The Company has fallen behind in its payments in accordance with the
latest agreement. At March 31, 2000, the Company is in arrears approximately
$560,000 on its lease obligations and has not paid the term loan of $1.6
million. Generally, while in default, the lessor may accelerate the lease
obligation. The major lessor filed suit to accelerate the lease obligations (see
Note 7 Legal Actions). The other lessors have been cooperating with the Company;
generally not allowing more than 60 days past due on lease payments. Since the
Company has not obtained waivers of default, the Company has reclassified its
long-term lease obligations, approximating $1,121,000, to current. The Company
expects to negotiate additional refinancing of its major lease obligations in
the second quarter of year 2000. There is no assurance that the Company will be
successful in securing additional financing or capital through equity or debt
securities.
(6) LONG-TERM DEBT
At March 31, 2000, the Company was in default of certain loan covenants due to
late payments of approximately $77,000. Generally, when in default, the lender
may accelerate the loan. The lender filed suit to accelerate the debt
obligation, and therefore, has reclassified the long-term portion of debt
approximating $153,000 to short-term (see Note 7 Legal Action).
10
<PAGE>
(7) LEGAL ACTION
On March 14, 1999, Carnegie Capital, Ltd. ("Carnegie Capital") was awarded a
final judgment of foreclosure on the Company's Orange Park facility due to
arrearages. Carnegie Capital agreed to stay its foreclosure action until June
11, 1999, pending a sale of the property by the Company. Due to a technical
defect in the title, the sale did not occur and in July the property was
foreclosed. In December 1999, Carnegie Capital filed for a deficiency judgment.
The amount of the deficiency was not specified. A trial is scheduled for August
21, 2000, and the Company believes it will prevail with a successful outcome.
In November 1999, X-Ray Equipment Company, Inc. filed suit to take back certain
medical equipment valued at approximately $1,125,000 allegedly sold to Trinity
Diagnostic Imaging, Inc. (a wholly owned subsidiary of AESI) and to be used by
the Company's subsidiaries. In January 2000, the Company entered into a
stipulated agreement to pay X-Ray Equipment Company $250,000 toward the purchase
of the equipment, the balance to be paid by March 14, 2000. The Company failed
to make the payments and in March the Company returned the equipment under a
writ of replevin to X-Ray Equipment Company, Inc. The Company established at
December 31, 1999, what it believes to be an adequate reserve in the event of an
adverse outcome from the suit.
In February 2000, Siemens Credit Corporation, filed suit for breach of certain
Work Out agreements, and lease contracts. Principal parties to the suit include
the Company and its parent AESI, and certain past officers of the Company. The
suit alleges damages of approximately $4.5 million and replevin of certain
leased medical equipment. A similar suit was filed against the Company's
subsidiary, National Diagnostics/Riverside, Inc. alleging damages of $1.3
million and replevin of certain leased medical equipment. In November 1998, the
company refinanced with Siemens its major lease obligations. The Company fell
behind in its lease obligations and in March 1999, the Company entered into
another agreement (the "Work Out" agreement) with its major lessor, which would
allow the Company to make installments through September 1999, for its
arrearages. The Company had fallen behind in its payments in accordance with the
latest agreements. An evidentiary hearing is set for June 6, 2000, to show cause
why the equipment should not be immediately turned over to Siemens. In the event
of an adverse outcome to the above litigation, the results could materially
impact the Company's financial position, results of operations, or liquidity.
In February 2000, Provident Bank of Florida, filed suit for monies due as a
result of the failure to make payments under certain note and loan agreements.
The suit alleges damages of approximately $193,000 and replevin of certain
collateralized equipment. The principal parties to the suit are the Company,
certain subsidiaries, and the Company's parent AESI. The Company is currently in
the process of obtaining a reconciliation of the alleged amounts due.
In February 2000, Copelco Capital, Inc. requested a default judgment in Division
C, Circuit Court of Hillsborough County, Florida against the Company for
defaulting under a settlement agreement by which the Company agreed to cure its
default of a certain equipment lease agreement. The Company, upon the successful
completion of AESI's efforts to raise capital and financing, expects to
negotiate a final settlement before Copelco reclaims its leased equipment.
Highland Properties of Gulfcoast, Ltd filed suit in the Circuit Court of
Hillsborough County, Florida seeking damages approximating $75,000 and
possession of certain leased spaces for unpaid rent. The Company negotiated a
settlement where in the rent and costs will be paid by April 30, 2000, failing
which Highland Properties of Gulfcoast, Ltd. will be entitled to a judgment for
possession and damages. The Company has remaining installments totaling $18,750,
which have been extended through May 30, 2000. In the event the Company fails to
satisfy the settlement, the results could have a material impact of the
Company's financial position, results of operations, or liquidity.
11
<PAGE>
The Company is involved as plaintiff in various legal actions, including those
specifically addressed herein, arising in the ordinary course of business. While
management cannot predict the outcome of these matters, management believes,
after consultation with legal counsel, that the ultimate resolution of these
actions should not have an adverse effect on the Company's financial position,
results of operation, or liquidity, unless otherwise indicated above.
(8) OPERATIONAL MATTERS AND LIQUIDITY
The Company had a net loss for the quarter ending March 31, 2000, of $999,427
and at March 31, 2000, has a working capital deficiency of approximately
$(9,326,000) after reclassification of all long-term lease payments to current
(more fully discussed below), a deficiency of net assets of $(6,145,542) and is
involved in litigation with its major medical equipment lessor due to late
payments. 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 return to its level of profitability. In addition, the
success of the Company could also, among other things, require obtaining
additional financing or capital infusions and obtaining a satisfactory solution
to its litigation with its major medical lessor. 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.
In response to the Company's continued losses from its Riverside facility, the
Company closed the Riverside facility in April 2000, currently offering mobile
MRI services in the Jacksonville, Florida region. In March 2000, AESI acquired a
partnership owning the real estate leased to the Riverside facility. It was
acquired as investment property from a director of the Company and previously
noted as a Company purchase. In March 2000, the Company closed a newly opened
branch office in Tampa due its inability to achieve a satisfactory level of
performance. In response to a decline in revenues experienced by the Brandon and
Sunpoint facilities, the Company acquired its own radiologists. In the past the
Company contracted with third party radiologist groups for its diagnostic
readings. The Company estimates lost revenues during this period of transition
of approximately $700,000. The Company hopes to win back its market share of
readings, but realizes this may take six to nine months. The Company is in
default of its debt and lease obligations and has not obtained a waiver of
default. These the long-term obligations have been reclassified to current due
to acceleration clauses contained in the contract. The Company believes with the
successful completion of American Enterprise Solutions Inc. private placements,
that it will be able to move forward with financing alternatives currently under
discussion, which could resolve the Company's deficiencies and allow the Company
to satisfactorily conclude its litigation. There is no assurance that the
Company will be successful in securing additional financing or capital through
equity or debt securities.
12
<PAGE>
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, 2000 were $1,192,000 compared
to $2,209,000 for the same period in 1999, representing a 46% decrease.
Approximately 39% or $398,000 of the decline is attributable to the Orange Park
facility, closed in the second quarter 1999. The remaining facilities
experienced a decrease in net revenues of approximately $619,000. The Company
attributes this loss in revenue to difficulties the Company had experienced with
its contracted radiologists. In response, the Company cancelled the contracts
and obtained its own radiologists. The Company hopes to win back its market
share over a period of six to nine months.
Direct operating expenses for the three months ended March 31, 2000 were
$1,006,000 compared to $1,268,000 for the same period in 1999, representing a
20% decrease. Direct operating expenses as a percentage of net revenue increased
to 84% from 57% for the three months ended March 31, 2000 and 1999,
respectively. The increase as a percent of net revenue is due to certain direct
costs such as equipment rental and personnel costs, which do not vary
proportionately with net revenues.
General and administrative expenses for the three months ended March 31, 2000
were $804,000 compared to $1,077,000 for the same period in 1999, representing a
25% decrease. Approximately $180,000 of this decrease is due to the closing of
the Orange Park facility in the second quarter of 1999.
Depreciation and amortization costs decreased to $242,000 from $268,000 for the
quarters ending March 31, 2000 and 1999, respectively. This is attributable to
certain costs being fully depreciated or amortized. Interest expense has
decreased to $155,000 from $201,000 for the quarters ending March 31, 2000 and
1999, respectively. This is the result of certain long-term debt being satisfied
through foreclosure of mortgaged property in the 3rd quarter of 1999.
The decrease in revenues was greater than the reduction in operating costs for
the quarter resulting in a net loss of $999,000 compared to a net loss of
$522,000 for the same period in 1999. The Riverside facility contributed a loss
of approximately $(325,000), compared to a loss of $(143,000) for the
corresponding 1999 period. The closed Orange Park facility had no effect on
operations is 2000, compared to the loss of $131,000 for the same period in
1999. Brandon (the Company's most mature center) experienced a loss of
approximately $441,000 compared to a profit of $54,000 for the same period in
1999. The Company attributes the loss to the decline in revenues discussed above
with no significant offsetting decrease in costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company has a working capital deficiency of approximately
$(9,326,000) after reclassification of all long-term lease payments to current
(more fully discussed below), a deficiency of net assets of $(6,146,000), and is
involved in litigation with its major lessor due to late payments. The Company
is in default of lease obligations approximating $2.8 million due to late
payments of approximately $560,000. During this period the Company has not
received a waiver of default and therefore, has reclassified its long-term lease
obligations approximating $1.2 million to short term. The Company is also in
default of a $1.6 million term note due June 1999 to its major lessor. At March
31, 2000, the Company was in default of certain bank debt approximating $193,000
due to late payments approximating $77,000. No waiver of default has been
received and therefore the Company has reclassified approximately $153,000 of
long-term debt to current.
13
<PAGE>
In an agreement entered into with AES funding Corporation ("AES Funding", a
wholly owned subsidiary of American Enterprise solutions, Inc.) the Company
sells its accounts receivables to AES Funding in exchange for an amount equal to
the eligible receivables net of an allowance for doubtful accounts. AES Funding
funds its purchase of the receivables by a 5 million dollar loan agreement it
has with Healthcare Capital Resources (agent) and HCR Pool III Funding Corp.
(lender). Interest is at the rate of Prime plus 1.5%. The company is not in
compliance with certain loan covenants. In this event, the lender has the right
to call the loan. The Company is not aware of the intent of the lender to
exercise this right and is currently striving to achieve compliance. At March
31, 2000, the Company has borrowed $1,550,869 on the line with no additional
availability.
In the quarter ending March 31, 2000, the Company's cash position remained
unchanged with all available cash $39,000 and $1,000 provided by operating
activities and investing activities, respectively being used by financing
activities for debt retirement.
As a result of the continued losses experienced by the Riverside facility, the
Company closed the center in April 2000. The company expects to better utilize
certain Riverside medical equipment in the Brandon and Sunpoint operations. The
Company currently is maintaining a mobile MRI in the Jacksonville, Florida
region.
In August 1999, the Company opened a new 1,500 square foot fixed site location
("Long Lake") in Tampa, Florida, as a branch of the Brandon Diagnostic Center,
Ltd. offering limited diagnostic studies. Due to a disappointing ramp up of
revenues and losses sustained by the operation the branch was closed in March
2000. The equipment will be utilized in existing facilities.
Cost containment, closure of its Riverside and Long Lake facilities, Company
vendors continuing to work with the Company, success in curing its lease and
loan defaults and a satisfactory conclusion to its litigation will all play a
role in returning the Company to satisfactory levels. There is no assurance that
these short-term needs can be met.
On March 27, 2000 the Company affected a 4 for 1 reverse stock split in
contemplation of its pending merger with American Enterprise Solutions, Inc.
("AESI").
The Company's long-term growth strategies will require additional funds. Upon
the completion of the merger with AESI, the Company will take on the two
paradigms of AESI. Wherein, the Company will seek to expand and duplicate its
Care1.com and fully develop VitalTrust, an Internet/Intranet and virtual network
gateway utility. Care1.com is a Community Healthcare Delivery System providing
comprehensive delivery of all healthcare services while electronically
interactively linking with VitalTrust. When the merger is complete and the
Company proceeds with the establishment of additional facilities, or encounters
favorable acquisition opportunities, 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 1999 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,
1999 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.
14
<PAGE>
YEAR 2000 ISSUES
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the year 2000. The Company properly
completed its Year 2000 modifications and did not experience any significant
Year 2000 problems.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 2000, Siemens Credit Corporation, filed suit in the Circuit Court of
the 13th Judicial Circuit in Hillsborough County, Florida, for breach of certain
Work Out agreements, and lease contracts. Principal parties to the suit include
the Company and its parent AESI, and certain past officers of the Company. The
suit alleges damages of approximately $4.5 million and replevin of certain
leased medical equipment. A similar suit was filed against the Company's
subsidiary, National Diagnostics/Riverside, Inc. alleging damages of $1.3
million and replevin of certain leased medical equipment. Refer to the Company's
Form 10-KSB for the year ending December 31, 1999 for further discussion. An
evidentiary hearing is set for June 6, 2000 to show cause why the equipment
should not be immediately turned over to Siemens. In the event of an adverse
outcome to the above litigation, the results could materially impact the
Company's financial position, results of operations, or liquidity.
Other than as disclosed above, there have been no material developments in the
Company's legal proceedings from that which was reported in the Company's Form
10-KSB for the year ending December 31, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in default of its major lease commitments due to arrearages.
Total in default approximates $2,827,000 at March 31, 2000, with arrearages
approximating $560,000.
The Company is in default of a Term loan of approximately $1,634,000 due June 1,
1999, to its major lessor.
The Company is in technical default of certain reporting covenants with its
credit line and is working toward satisfying these defaults. The credit line
approximates $1,674,000 as of April 27, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In February 2000, the majority security holders voted to change the name of the
Company to American Enterprise.com, Corp and affect a reverse 4 to 1 stock
split.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS FILED AS PART OF THIS REPORT:
10.47 Fifth Amendment to Merger Agreement by and between the Company and
American Enterprise Solutions, Inc. effective February 23, 2000
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
In March 2000, the Company filed Form 8-K describing the Company's name
change to American Enterprise.com, Corp; indicating a four to one reverse split
of all common stock issued and outstanding; and indicating the change of the
Company's trading symbol on the OTC Bulletin Board to "AMER" from "AECC" and
formerly "NATD".
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2000
AMERICAN ENTERPRISE.COM, CORP
/s/ CHUCK BROES /s/ CARDWELL NUCKOLS
------------------------------- --------------------------------
Chuck Broes Cardwell Nuckols, PhD
Chief Executive Officer President
/s/ DENNIS HULT
-------------------------------
Dennis C. Hult
Compliance Officer
17
<PAGE>
NATIONAL DIAGNOSTICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
10.47 Fifth Amendment to Merger Agreement by and between the Company and
American Enterprise Solutions, Inc. effective February 23, 2000
27.1 Financial Data Schedule
EXHIBIT 10.47
FIFTH AMENDMENT
This Fifth Amendment (the "5th Amendment") is made and entered into as
of this 23th day of February 2000 by and between NATIONAL DIAGNOSTICS, INC., an
Florida corporation ("NDI") and American Enterprise.com, Corp., formerly known
as American Enterprise Solutions, Inc., a Florida corporation ("AESI").
RECITALS
WHEREAS, NDI and AESI have entered into that certain Merger Agreement
dated February 23, 1998 as amended by that certain First Amendment dated March
17, 1998 and that certain Second Amendment dated April 29, 1998 and that Third
Amendment dated July 24, 1998 and that certain Fourth Amendment dated December
27, 1999 (the "Agreement") pursuant to which it is contemplated with AESI will
be merged (the "Merger") with and into NDI under the terms and conditions
specified in the Agreement; and
WHEREAS, both parties to the Agreement have authorized and agreed to a
four to one reverse split of the NDI common stock; and
WHEREAS, AESI and NDI have mutually agreed that it would be in the best
interest of the corporations that AESI oversee the operations and management of
the Brandon Diagnostic Centers, Ltd. and Sunpoint Diagnostics, Inc. effective
immediately;
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 that the Agreement is hereby amended to incorporate and reflect the
following facts, terms and conditions:
1) the NDI common stock shall be subject to a four to one reverse
split;
2) AESI shall oversee the operations and management of the Brandon
Diagnostics, Ltd. and Sunpoint Diagnostics, Inc. effective as of the
date of this Amendment.
This Amendment may be executed in two or more counterparts, each of
which shall be
<PAGE>
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
AMERICAN ENTERPRISE.COM, CORP.
By: /s/ CHARLES BROES
------------------------------
Name: Charles Broes
Title: C.E.O.
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