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 June 30, 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 Registrant as Specified in its Charter)
FLORIDA 59-3248917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
755 WEST BRANDON BLVD., BRANDON, FLORIDA 33511
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(Address of Principal Executive Offices) (Zip Code)
Registrant'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 [ ]
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 June 30, 2000, 2,250,000
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
INDEX TO FORM 10-QSB
PAGE
NUMBER
------
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1999 and June 30, 2000 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30,
1999 and 2000 5
Condensed Consolidated Statements of Cash Flows
for the three and six months ended
June 30, 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 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
ITEM - 1.
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
1999 (UNAUDITED)
----------- -----------
<S> <C> <C>
Current Assets:
Related party receivable from net accounts receivable financing $ 1,880,745 $ 1,741,047
Due from related party 185,636 --
Prepaid expenses and other current assets 19,350 3,621
----------- -----------
Total current assets 2,085,731 1,744,668
----------- -----------
Property and equipment: 9,457,187 9,459,993
Less: accumulated depreciation and amortization (6,386,445) (6,859,279)
----------- -----------
Net property and equipment 3,070,742 2,600,714
----------- -----------
Other assets:
Excess of purchase price over net assets acquired, net of accumulated
amortization of $117,360 and $96,360 in 1999 and 1998, respectively 302,567 292,067
Other 50,622 50,104
----------- -----------
Total other assets 353,189 342,171
----------- -----------
$ 5,509,662 $ 4,687,553
=========== ===========
</TABLE>
See Accompanying Notes.
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 2000
1999 (UNAUDITED)
------------ ------------
<S> <C> <C>
Current liabilities:
Line of credit, related party $ 1,493,389 $ 1,153,734
Note payable 1,633,511 1,633,511
Note due to related parties 128,450 65,950
Current installments of long-term debt 192,512 192,512
Current installments of obligations under capital leases 2,873,535 2,767,890
Accounts payable 2,179,713 2,464,933
Accrued rent 561,462 614,806
Accrued interest 512,251 692,773
Accrued expenses, other 1,120,951 1,197,561
Due to related parties -- 962,223
------------ ------------
Total current liabilities 10,695,774 11,745,893
Long-term liabilities:
Total liabilities 10,695,774 11,745,893
------------ ------------
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 issued and outstanding in 1999 and 2000 449 450
Additional paid-in capital 3,625,775 3,665,774
Note receivable from stockholder (910,835) (910,835)
Retained earnings (accumulated deficit) (9,376,761) (11,288,989)
------------ ------------
Net stockholders' equity (deficit) (5,186,112) (7,058,340)
------------ ------------
$ 5,509,662 $ 4,687,553
============ ============
</TABLE>
See Accompanying Notes.
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30 JUNE 30
(UNAUDITED) (UNAUDITED)
----------------------------- -----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue, net $ 1,517,648 $ 1,011,184 $ 3,726,386 $ 2,203,039
----------- ----------- ----------- -----------
Operating expenses:
Direct operating expenses 845,950 842,264 2,113,629 1,848,553
General and administrative 875,121 682,955 1,951,680 1,486,995
Depreciation and amortization 267,959 241,495 536,030 483,852
----------- ----------- ----------- -----------
Total operating expenses 1,989,030 1,766,714 4,601,339 3,819,400
----------- ----------- ----------- -----------
Operating loss (471,382) (755,530) (874,953) (1,616,361)
Interest expense 186,984 174,014 388,134 328,552
Interest income 36,705 15,937 102,688 31,879
Other income 198,386 806 215,560 806
----------- ----------- ----------- -----------
Loss before income taxes (423,275) (912,801) (944,839) (1,912,228)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (423,275) $ (912,801) $ (944,839) $(1,912,228)
=========== =========== =========== ===========
Net (loss) per common share $ (.19) $ (.41) $ (.43) $ (.85)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 2,220,000 2,250,000 2,220,000 2,249,863
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes.
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30 JUNE 30
(UNAUDITED) (UNAUDITED)
----------------------------- -----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (423,275) $ (912,801) $ (944,839) $(1,912,228)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation and amortization 268,009 241,495 536,080 483,852
Common stock issued - employee stock plan -- -- -- 40,000
Provision for Bad Debts 31,138 -- 120,700 --
(Increase) decrease in accounts receivable 171,826 -- (405,356) --
Decrease in related party receivable
from receivable financing 152,335 402,677 152,335 139,698
Increase (decrease) in due to related parties (177,856) 476,124 481,601 808,204
Decrease in prepaid expenses and other
current assets 98,464 7,864 30,653 15,729
Increase (decrease) in accounts payable (122,667) (299,491) 52,468 285,220
Increase in other accrued expenses 74,855 146,481 151,368 310,476
Decrease in deferred lease payments (15,444) (11,867) (30,888) (23,732)
----------- ----------- ----------- -----------
Net cash provided by operating activities 57,385 50,482 144,122 147,219
----------- ----------- ----------- -----------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (3,764) (3,636) (38,749) (3,636)
Disposal of property and equipment 111,223 -- 111,223 830
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities 107,459 (3,636) 72,474 (2,806)
----------- ----------- ----------- -----------
Cash flows provided (used) by financing activities:
Repayment of long-term borrowings (40,718) -- (65,578) --
Proceeds of borrowing from related parties 18,697 -- 50,250 --
Repayment of borrowing from related parties -- -- (9,300) (62,500)
Proceeds from note receivable from stockholder 155,865 -- 155,865 --
Principal payments under capital lease
obligations (195,110) (46,846) (244,255) (81,913)
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities (61,266) (46,846) (113,018) (144,413)
----------- ----------- ----------- -----------
Net increase in cash 103,578 -- 103,578 --
Cash at beginning of period -- -- -- --
----------- ----------- ----------- -----------
Cash at end of period $ 103,578 $ -- $ 103,578 $ --
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes. (continued)
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------------ ------------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information - interest paid $ 85,825 $ -- $ 205,697 $ 148,775
========= ========= ========= =========
Assets added under capital leases $ -- $ -- $ 265,885 $ --
========= ========= ========= =========
</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.). The Company transfers its accounts
receivables in exchange for the line of credit.
See Accompanying Notes.
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
JUNE 30, 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 and six months ended June 30, 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) LOSS PER COMMON SHARE
Basic loss per share is the same as the diluted loss per share since the Company
had a net loss for the quarter ended June 30, 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.
<PAGE>
The following table reconciles the numerator and denominator of the basic and
dilutive EPS computation:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (423,275) $ (912,801) $ (944,839) $(1,912,228)
=========== =========== =========== ===========
Denominator:
Weighted average number of
Common shares used in basic EPS 2,220,000 2,250,000 2,220,000 2,249,863
Effect of dilutive stock options and
warrants -- -- -- --
----------- ----------- ----------- -----------
Weighted number of common shares
and dilutive potential common
stock used in diluted EPS 2,220,000 2,250,000 2,220,000 2,249,863
=========== =========== =========== ===========
</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 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 (adjusted retroactively
within the financial statements) 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.
<PAGE>
(4) ACCOUNTS RECEIVABLE FINANCING
In February 1999, the Company's parent (AESI) established a subsidiary, AES
Funding, Inc. (Funding), to service the accounts receivable financing (line of
credit). Under the financing agreement, certain AESI subsidiaries, including the
Company, transfer all of their customer accounts 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 June 30, 2000, approximately $50,000 of net ineligible accounts receivables
was contributed to Funding and has 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.
At June 30, 2000, the Company's balance sheet reflects a related party financing
obligation of $1,153,734, which principally represents the amounts previously
owed by the Company to a third party lender at January, 1999 and paid off by
Funding's new line of credit. Through operation of the affiliated financing
program between the Company and Funding, the line of credit balance on the
Company's book is periodically changed to equal the Company's assumed portion of
Funding's consolidated line of credit based on the Company's borrowing base
which is predicated on the value of the Company's accounts receivable. When the
Company's line of credit amount is adjusted a corresponding and offsetting
adjustment is made to the due to or from related parties (i.e. there is no cash
flow effect).
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
June 30, 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 $1,153,734
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 fell behind in its payments in accordance with the
latest agreement. At June 30, 2000, the Company is in arrears approximately
$687,000 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 $1,375,000, to current. The Company
expects to negotiate additional refinancing (subject to lessor approval) of its
major lease obligations in the third 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.
<PAGE>
(6) LONG-TERM DEBT
A lender filed suit in February 2000 to accelerate debt obligations due to late
payments (see Note 7 Legal Action). Subsequently, the Company entered into a
Forbearance and Settlement Agreement where in loans were consolidated and
refinanced over five (5) years at 9.5% interest. The first installment due July
16, 2000, of $4,056 has not been made and therefore, the long-term portion of
debt approximating $152,000 has been reclassified to short-term.
(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.
Mediation in this matter was held on July 24, 2000, and the case was settled
with the Company agreeing to pay $24,000 over 190 days.
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. On June 20, 2000, the court granted a Prejudgment Writ of
Replevin (subsequently issued post 30 days) entitling Siemens to take possession
of approximately $2.5 million of medical equipment currently utilized in two of
the Company's diagnostic centers. On August 2, 2000, the Company entered into a
Forbearance Agreement with Siemens, which effectively postpones the execution of
the Prejudgment Writs of Replevin until November 17, 2000. Among other
conditions of the Forbearance Agreement, the Company agreed to pay Siemens
$360,000. The Company's parent AESI paid these funds on behalf of the Company.
The Company also agreed to an order for a Prejudgment Writ of Replevin for the
equipment located in the Company's closed facility. 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. Subsequently, the Company
entered into a Forbearance and Settlement Agreement where in loans were
consolidated and refinanced over five (5) years at 9.5% interest.
<PAGE>
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 and entered into a new two (2) year lease effective June 1, 2000.
A former employee filed suit on June 21, 2000, against the Company and its
parent alleging breach of an employment agreement. The employee is seeking
damages exceeding $450,000. A hearing has been set for October 4, 2000, on the
Company's motion to dismiss the complaint and to transfer venue. The Company
intends to defend the claim vigorously and believes the probability for
liability to be marginal.
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 June 30, 2000, of $913,000 and
at June 30, 2000, has a working capital deficiency of approximately
$(10,001,000) after reclassification of all long-term lease payments to current
(more fully discussed above), a deficiency of net assets of $(7,058,000) 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. In response to a decline in
revenues experienced by the Brandon and Sunpoint facilities, the Company
acquired its own radiologists (previously reported in the first quarter) and
made changes to its operating management in the second quarter. 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 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
obtaining its goals.
<PAGE>
AMERICAN ENTERPRISE.COM, CORP.
AND SUBSIDIARIES
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 second quarter ended June 30, 2000, were $1,011,000
compared to $1,518,000 for the same period in 1999, representing an 33%
decrease. Approximately 43% of the $507,000 decline is attributable to the
closed facilities. The remaining diagnostic centers realized a net decline in
revenues of approximately $290,000, or 21% compared to the same period in the
preceding year. Year to date revenues were down 41% to $2,203,000. Closed
centers contributed 38% of the decline. The Company hopes to reverse the
downward trend as a result of second quarter changes made with operating middle
management.
Direct operating expenses for the second quarter ended June 30, 2000 were
$842,000 compared to $846,000 for the same period in 1999. Excluding the effect
of the closed facilities, direct costs increased $150,000 or 28% from the same
period in the preceding year. This increase is due to costs related to certain
equipment transferred to the operating facilities from closed centers.
General and administrative expenses for the second quarter ended June 30, 2000
were $683,000 compared to $875,000 for the same period in 1999, representing a
22% decrease. Excluding the effect of the closed facilities, general and
administrative costs decreased approximately 14% or $92,000, caused generally by
an overall decrease in personnel and related costs. Depreciation and
amortization costs decreased to $241,000 from $268,000 for the quarters ending
June 30, 2000 and 1999, respectively. This is attributable to costs being fully
amortized. Interest expense has decreased to $174,000 from $187,000 for the
quarters ending June 30, 2000 and 1999, respectively. This is due primarily from
the decrease in the line of credit.
The decrease in expenses was not sufficient to offset the decrease in revenues
resulting in a quarter loss of $912,000 compared to $423,000 for the same period
in 1999. The Riverside facility (closed in the second quarter) contributed a
$425,000 loss compared to a loss of $182,000 for the same period in 1999. The
Brandon facility experienced a loss of $215,000 compared to a $312,000 profit in
1999. The Sun Point facility posted a loss of $91,000 for the quarter compared
to a profit of $102,000 for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company has a working capital deficiency of approximately
$(10,001,000) after reclassification of all long-term lease payments to current
(more fully discussed below), a deficiency of net assets of $(7,058,000), and is
involved in litigation with its major lessor due to late payments. The Company
is in default of lease obligations approximating $2.5 million due to late
payments of approximately $687,000. During this period the Company has not
received a waiver of default and therefore, has reclassified its long-term lease
obligations approximating $1.6 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 June
30, 2000, the Company was in default of certain bank debt approximating $193,000
due to late payments approximating $4,000. No waiver of default has been
received and therefore the Company has reclassified approximately $153,000 of
long-term debt to current.
<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 June 30,
2000, the Company has borrowed $1,153,734 on the line with no additional
availability.
In the quarter ending June 30, 2000, the Company's cash position remained
unchanged with all available cash $50,482 provided by operating activities being
used primarily to pay down capital lease obligations.
As a result of the continued losses experienced by the Riverside facility, the
Company closed the center in April 2000.
In June 2000, the Company entered into a Forbearance Agreement with its major
medical equipment lessor. The Forbearance Agreement effectively postpones any
replevin action toward the leased equipment until November 17, 2000, (see legal
proceedings). In the meantime, the Company, with the help of AESI, is seeking
financing (subject to the approval of the lessor) which will allow the Company
to retain the equipment.
Cost containment, closure of its Riverside facility, 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.
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.
<PAGE>
OTHER INFORMATION
PART II.
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, and Forms 8-K dated June 20
and August 4, 2000, for further discussion. On June 20, 2000, the Circuit Court
in Hillsborough County, Florida, granted a Prejudgment Writ of Replevin
(subsequently issued post 30 days) entitling Siemens to take possession of
approximately $2.5 million of medical equipment currently utilized in two of the
Company's diagnostic centers. On August 2 2000, the Company entered into a
Forbearance Agreement with Siemens, which effectively postpones the execution of
the Prejudgment Writs of Replevin until November 17, 2000. Among other
conditions of the Forbearance Agreement, the Company agreed to pay Siemens
$360,000. The Company's parent AESI paid these funds on behalf of the Company.
The Company also agreed to an order for a Prejudgment Writ of Replevin for the
equipment located in the Company's closed facility.
In February 2000, Provident Bank of Florida, filed suit in Division H, Circuit
Court in Hillsborough County, Florida, for monies due as a result of the failure
to make payments under certain note and loan agreements. The suit alleged
damages of approximately $193,000 and replevin of certain collateralized
equipment. In June, the Company reached a settlement wherein Provident Bank
consolidated and refinanced the debt over a five-year period.
Highland Properties of Gulfcoast, Ltd. filed suit in the Circuit Court of
Hillsborough County, Florida, seeking damages of approximately $75,000 and
possession of certain leased spaces for unpaid rent. The Company reached a
settlement and the Company entered into a new two-year lease effective June 1,
2000.
On March 14, 1999, Carnegie Capital, Ltd. ("Carnegie Capital") was awarded by
the Circuit Court, Fourth Judicial Circuit, Clay County, Florida, 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. Mediation in
this matter was held on July 24, 2000, and the case was settled with the Company
agreeing to pay $24,000 over 190 days.
A former employee filed suit on June 21, 2000, in Division CA, Duval County,
Florida, against the Company and its parent alleging breach of an employment
agreement. The employee is seeking damages exceeding $450,000. A hearing has
been set for October 4, 2000, on the Company's motion to dismiss the complaint
and to transfer venue. The Company intends to defend the claim vigorously and
believes the probably for liability to be marginal.
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 $2,768,000 at June 30, 2000, with arrearages
approximating $687,000.
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
<PAGE>
these defaults. The credit line approximates $1,276,000 as of August 8, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS FILED AS PART OF THIS REPORT:
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
In April and August 2000, the Company filed Form 8-K updating the latest
developments in the Siemens litigation discussed in Part II, Item 1, Legal
proceedings.
<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: August 14, 2000
AMERICAN ENTERPRISE.COM, CORP
/s/ CHUCK BROES /s/ CARDWELL NUCKOLS
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Chuck Broes Cardwell Nuckols, PhD
Chief Executive Officer President
/s/ DENNIS HULT
----------------------------
Dennis C. Hult
Compliance Officer
