8-K 1 vilb8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 5, 2002 VITALLABS, INC. (Exact name of registrant as specified in its charter) Nevada 000-20598 75-2293489 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1375 South Fort Harrison Ave., Clearwater Florida 33756 (Address of principal executive offices Zip Code) Registrant's telephone number, including area code: 727 461-3200 NOT APPLICABLE (Former name or former address, if changed since last report) Item 1. Changes in Control of Registrant. NOT APPLICABLE Item 2. Acquisition or Disposition of Assets. On Friday, April 5, 2002, Monogram Pictures consummated the "Agreement Providing For The Exchange Of Capital Stock" with Med-Tech Labs, Inc., d/b/a Med Services of America (MSA). Monogram Pictures, Inc. has acquired 100% of MSA's issued and outstanding common stock pursuant to the "Agreement Providing for the Exchange of Common Stock" entered into January 25, 2002. More information regarding MSA may be found in the registrant's January 25 2002 Form 8-K filing. The foregoing summary of the Agreement is qualified in its entirety by reference to the Agreement. Item 3. Bankruptcy or Receivership. NOT APPLICABLE Item 4. Changes in Registrant's Certifying Accountants. NOT APPLICABLE Item 5. Other Events and Regulation FD Disclosure. NOT APPLICABLE Item 6. Resignation of Registrant's Directors. NOT APPLICABLE Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. 1. Audited financial statements of MedTech Labs, Inc. as of December 31, 2001 and for the years ended December 31, 2001 and 2000, which includes the following: a. Balance Sheet; b. Statements of Operations; c. Statements of Shareholders' Equity; d. Statements of Cash Flows; and e. Notes to Financial Statements. f. Pro Forma Unaudited Condensed Financial Information Financial Statements MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 Contents Independent Auditors' Report on Financial Statements 1 Financial Statements: Balance Sheet 2 Statements of Operations 3 Statements of Changes in Stockholders' Deficit 4 Statements of Cash Flows 5-6 Notes to Financial Statements 7-16 Independent Auditors' Report Board of Directors MedTech Labs, Inc. (A Owned Subsidiary of Vitallabs, Inc.) Clearwater, Florida We have audited the accompanying balance sheet of MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) as of December 31, 2001 and the related statements of operations, changes in stockholders' deficit, and cash flows for the years ended December 31, 2001 and 2000. These financial statements are the responsibility of the management of MedTech Labs, Inc. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) as of December 31, 2001 and the results of its operations and its cash flows for the years ended December 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses from operations for the last two years, has negative working capital of approximately $2,438,000 as of December 31, 2001, and its liabilities exceed its assets by approximately $2,350,000 at December 31, 2001. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. Pender Newkirk & Company Certified Public Accountants Tampa, Florida October 25, 2002 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Balance Sheet December 31, 2001 Assets Current assets: Cash $ 18,768 Accounts receivable, net of allowance for doubtful accounts and contractual allowance of $1,608,070 1,843,038 Inventory 218,890 Prepaid expenses 21,270 Total current assets 2,101,966 -------------- Equipment, net of accumulated depreciation 1,005,852 -------------- Other assets: Receivables from related parties 105,071 Intangible assets, net of accumulated amortization 96,250 Other 52,465 -------------- Total other assets 253,786 -------------- $ 3,361,604 ============== Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $ 1,477,394 Accrued expenses, current 129,396 Current portion of accrued payroll liabilities 834,097 Current portion of notes payable 809,165 Current portion of notes payable, stockholders and related parties 1,229,935 Current portion of capital lease obligations 60,268 Total current liabilities 4,540,255 -------------- Long-term liabilities: Accounts payable, long-term 224,034 Accrued payroll liabilities, net of current portion 474,222 Notes payable, net of current portion 226,000 Notes payable, stockholders and related parties, net of current portion 75,000 Capital lease obligations, net of current portion 172,416 -------------- Total long-term liabilities 1,171,672 -------------- Stockholders' deficit: Common stock; $1 par value; 7,500 shares authorized; 6,750 shares issued and outstanding 6,750 Additional paid-in capital 252,519 Accumulated deficit (2,599,592) -------------- (2,340,323) Treasury stock, at cost (10,000) -------------- Total stockholders' deficit (2,350,323) -------------- $ 3,361,604 ==============

MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Statements of Operations

MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Statements of Changes in Stockholders' Deficit Years Ended December 31, 2001 and 2000

MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Statements of Cash Flows

MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Statements of Cash Flows

MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 1. Background Information MedTech Labs, Inc. (the "Company") was incorporated in the state of Florida on January 6, 2000 and provides diagnostic medical testing services to physician practices in central and southwest Florida under the name of Med Services of America. The Company's operations employ approximately 150 people who either work out of the laboratory facility located in Clearwater, Florida, or work out of 1 of the 22 draw stations servicing the west coast of Florida. The Company was originally incorporated for the purpose of acquiring the assets of a full-service, independent clinical laboratory. On February 23, 2000, the Company entered into an agreement to purchase the assets and liabilities of Medical Technology Laboratories, Inc. (the "Lab") in a business combination accounted for as a purchase. The Company acquired all assets and liabilities of the Lab by paying $1,000,000 and assuming approximately $608,000 in debt. This agreement was effective as of January 1, 2000. The Company also acquired the assets and liabilities of Med Services of America, Inc. ("Med Services") in January 2000 from a stockholder. Med Services is primarily engaged in providing diagnostic medical testing services to nursing homes throughout central Florida. In the acquisition, the Company assumed debt of $96,733 and acquired assets with a carrying value of $27,457. In accordance with accounting principles generally accepted in the United States of America, this excess was applied against the capital contributed by the stockholder. Subsequent to December 31, 2001, the stockholders of the Company exchanged all of their shares of stock for a controlling interest in the stock of Monogram Pictures, Inc, a publicly held company. As such, these stockholders gained control of Monogram Pictures, Inc. in a business combination, which is accounted for as a reorganization of the Company, and the Company became a wholly owned subsidiary of Monogram Pictures, Inc. This agreement was effective April 5, 2002. In connection with this reorganization, Monogram Pictures, Inc. changed its name to Vitallabs, Inc. The following table reflects the results of operations on a pro forma basis as if the business combination had been completed at the beginning of 2000: 2001 2000 ------------------------------ Revenues $ 11,245,885 $ 9,614,018 ============================== Net loss $ (4,995,596) $ (6,524,516) ============================== Loss per share $(1.23) $(1.69) ============================== Weighted shares outstanding 4,052,789 3,856,984 ============================== 7 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 2. Going Concern The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred significant losses from operations for the last two years, had negative working capital of approximately $2,438,000 at December 31, 2001, and its liabilities exceed its assets by approximately $2,350,000 at December 31, 2001. These factors and others raise substantial doubt about the Company's ability to continue as a going concern. Management is currently looking into raising additional funds for the Company by means of a private placement of some of the Company's equity securities and additional long-term borrowings, although no assurance can be given regarding how successful these efforts may be. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. 3. Significant Accounting Policies The significant accounting policies followed are: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company extends credit to its various customers based on the customer's ability to pay. Based on management's review of accounts receivable, a contractual allowance and an allowance for doubtful accounts of approximately $1,608,000 is considered necessary at December 31, 2001. Inventory is stated at the lower of cost (first-in, first-out) or market. Equipment is recorded at cost. Depreciation is calculated by the straight- line method over the estimated useful lives of the assets, ranging generally from five to seven years. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Depreciation expense for the years ended December 31, 2001 and 2000 amounted to $208,589 and $168,162, respectively. Intangible assets, consisting of a non-compete agreement, are recorded at cost. Amortization is calculated by the straight-line method over the life of the non-compete agreement of two years. 8 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 3. Significant Accounting Policies (continued) Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that included the enactment date. The Company generally recognizes revenue for services rendered upon the completion of the testing process. Billings for services under third-party payer programs, including Medicare and Medicaid, are recorded as revenues, net of allowances for differences between amounts billed and the estimated receipts under such programs. Adjustments to the estimated receipts, based on the final settlement with the third-party payers, are recorded upon settlement. The Company follows Statement of Financial Accounting Standards Board No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If an asset is determined to be impaired, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset. The fair value of the asset is measured using quoted market prices or an estimation of future cash flows. During the periods presented, the Company determined that its long-lived assets were not impaired. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, notes payable, and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values, or they are receivable or payable on demand. The Company issues stock in lieu of cash for certain transactions. Generally, the fair value of the stock, based on comparable cash purchases, is used to value the transactions. 9 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 4. Inventory Inventory consists of lab supplies that totaled $218,890 at December 31, 2001. Substantially all of the Company's inventory is pledged as collateral on the stockholder notes and bank loans as of December 31, 2001. 5. Equipment Equipment consists of: Office furniture and fixtures $ 63,692 Computer and telephone equipment 299,120 Transportation equipment 134,089 Software 120,762 Laboratory equipment 397,547 Leasehold improvements 3,450 Computer and telephone equipment and software held under capital leases 364,159 ----------- 1,382,819 Less accumulated depreciation 376,967 ----------- $ 1,005,852 ============ Included in accumulated depreciation above is depreciation on computer and telephone equipment and software held under capital leases of $29,202. Substantially all of the Company's equipment is pledged as collateral on the stockholder note and bank loans at December 31, 2001. 6. Intangible Assets Intangible assets consist of: Gross carrying amount of non-compete agreement $ 210,000 Less accumulated amortization 113,750 ---------- Net value $ 96,250 ========== Amortization expense amounted to $105,000 and $8,750 for the years ended December 31, 2001 and 2000, respectively. 10 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 6. Intangible Assets (continued) On November 27, 2002, the Company, its majority stockholder, and other related parties entered into a "Settlement Agreement and Mutual General Release" and a Separation and Non-Compete Agreement with a former officer of the Company. The agreements call for the Company or majority stockholder to pay the former officer $310,000. Of the $310,000, $100,000 is for release of any claim to ownership in the Company by the former officer and is reflected in the accompanying statements of operations as "lawsuit settlement." The additional $210,000 is for a two- year agreement not to compete between the former officer and the Company. 7. Notes Payable and Long-Term Debt Notes payable and long-term debt consist of: Convertible debt; interest ranging from 10.0% to 14.0%; principal and accrued interest to be paid utilizing the parent's common stock at the rate of one-half of the trading price of the common stock on the date of conversion; payment date of principal and interest shall be the 10th day during which the Company's common stock is traded with any NASDAQ listing system or upon a registered exchange $ 301,000 Notes payable to stockholders; interest at 10.0% payable monthly; principal due on demand; unsecured; $75,000 subordinated to the bank line of credit 75,000 Notes payable to stockholders; interest at 16.0% payable monthly; principal was due June 30, 2002; currently past due; unsecured; subordinated to the bank line of credit 300,000 Notes payable to stockholder; interest at 16.0% payable monthly; principal due December 2002; unsecured; $741,194 subordinated to bank line of credit 819,257 Note payable, bank; interest at prime plus .25% payable monthly; principal due on demand; secured by all business assets 87,892 Note payable; interest at 12.0%; principal and interest are past due; unsecured 29,276 11 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 7. Notes Payable and Long-Term Debt (continued) Line of credit facility ($350,000 maximum); interest at prime payable monthly; principal due on demand; secured by all business assets including equipment and non-Medicaid receivables; personally guaranteed by three of the Company's stockholders 312,000 Note payable to affiliated company; interest at 16.0% payable monthly; principal due December 2002; unsecured; subordinated to the bank line of credit 137,357 Note payable, bank; principal past due; forbearance agreement calls for monthly payments of $4,000; secured by all business assets 129,013 Note payable, former stockholder; interest at 16.0%; settlement agreement calls for payments of $75,000 per month beginning October 13, 2001; remaining principal and interest due on January 5, 2002; secured by Company stock 49,305 Note payable, bank; interest at 8.0%; principal due January 7, 2002; paid subsequent to year-end; secured by insurance receivables; personally guaranteed by two stockholders 100,000 ------------- 2,340,100 Less amounts currently due 2,039,100 ------------- $ 301,000 ============= The above amounts and terms on related party notes are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties. 8. Lease Commitments The following is a schedule by year of future minimum rental payments required under operating leases that have an initial or remaining noncancelable lease term in excess of one year as of December 31, 2001: Year Ending December 31, ------------ 2002 $ 286,897 2003 149,157 2004 12,505 2005 6,407 2006 4,271 ------------ $ 459,237 ============ 12 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 8. Lease Commitments (continued) The Company also rents equipment under operating leases with lease terms of less than one year. Rent expense amounted to $504,997 and $378,831 for the years ended December 31, 2001 and 2000, respectively. 9. Obligations Under Capital Leases The Company has capitalized certain rental obligations under leases of equipment. The obligations, which mature in 2005, represent the total present value of future rental payments discounted at the interest rates implicit in the leases. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are amortized over the lower of their related lease terms or their estimated productive lives. Amortization of assets under capital leases is included in depreciation expense for the periods presented. Future minimum lease payments under capital leases are: Year Ending December 31, ------------- 2002 $ 91,931 2003 91,931 2004 90,298 2005 24,593 ---------- Total minimum lease payments 298,753 Less amount representing interest 66,069 ---------- Present value of net minimum lease payments 232,684 Less current portion 60,268 ---------- $ 172,416 ============ 10. Retirement Plan The Company has a 401(k) retirement plan that covers substantially all of its full-time employees. A participant can contribute an amount up to 12 percent of their annual compensation. The Company can make matching contributions equal to 25 percent of the participant's contributions up to a maximum contribution of four percent of the annual compensation of the participant. Contributions to the 401(k) plan are made at the discretion of the Board of Directors of the Company. During the years ended December 31, 2001 and 2000, the Company made matching contributions of approximately $11,000 and $8,000, respectively. 13 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 11. Payroll Taxes At December 31, 2001, the Company was delinquent on approximately $718,000 of payroll taxes. Subsequent to year-end, the Internal Revenue Service assessed approximately $307,000 of penalties and $48,000 of back interest on the payroll taxes. Approximately $190,000 of the penalties and interest relate to the year ended December 31, 2001. The Company entered into an installment agreement with the Internal Revenue Service to pay back the taxes over the next three years. The agreement calls for payments of $14,000 per month beginning May 28, 2002, which are to be applied against the taxes and interest. In addition, the Company must make interim payments of $115,000 and $250,000 on May 28, 2002 and November 25, 2002, respectively. Full payment of the taxes and all accruals is to be completed by April 5, 2005, and the Company must keep current on all filings and payment requirements. The Internal Revenue Service has attached a federal tax lien against all assets of the Company for a portion of the unpaid taxes. 12. Income Taxes The Company has incurred significant operating losses since its inception and, therefore, no tax liabilities have been incurred for the periods presented. The amount of unused tax losses available to carry forward and apply against future years taxable income totaled approximately $1,252,000 at December 31, 2001. These operating loss carryforwards expire in 2021. In addition, the Company has approximately $1,155,000 of allowance for doubtful accounts that are not currently deductible for income tax purposes. These items give rise to a deferred tax asset of approximately $940,000 at December 31, 2001. Management has established a valuation allowance equal to the amount of the deferred tax assets due to the uncertainty of the Company's realization of this benefit. Annual utilization of the Company's net operating loss carryforwards will be limited due to a change in ownership control of the Company's common stock that took place in 2002, as more fully explained in Note 1 to the financial statements. 13. Related Party Transactions Included in receivables from related parties at December 31, 2001 are advances to certain stockholders/officers in the amount of $38,000 and advances to a company owned by a stockholder of approximately $67,000. These advances are non-interest bearing, contain no specific repayment terms, and are unsecured. Subsequent to year-end, a company owned by four stockholders acquired the building and property that house the corporate offices and main laboratory. The Company entered into a lease with this related company for a one-year term at a rate of $10,000 per month. On September 23, 2002, the related company 14 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 13. Related Party Transactions (continued) sold the building to an unrelated party and terminated this lease. The Company signed a new lease with the new, unrelated owners for approximately $13,000 per month. The related company advanced the Company approximately $300,000 of the sale proceeds. This advance is unsecured and has no specific repayment terms. The above amounts and terms are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties. 14. Other Subsequent Events As discussed in note 1, subsequent to December 31, 2001, the stockholders of the Company exchanged all of their shares of stock for a controlling interest in the stock of Monogram Pictures, Inc., a publicly held company. As such, these stockholders gained control of Monogram Pictures, Inc. in a business combination, which is accounted for as a reorganization of the Company, and the Company became a wholly owned subsidiary of Monogram Pictures, Inc. This agreement was effective April 5, 2002. In connection with this reorganization, Monogram Pictures, Inc. changed its name to Vitallabs, Inc. Subsequent to December 31, 2001, the Company issued 340,940 shares of its common stock for services valued at $220,018. Subsequent to December 31, 2001, the Company issued 17,647 shares of its common stock in satisfaction of a stock payable of $58,700. Subsequent to December 31, 2001, the Company entered into agreements with consultants to provide investment services to the Company. The Company issued 617,648 shares of common stock as deferred compensation to these consultants in the amount of $548,252. Subsequent to December 31, 2001, the Company engaged the services of a factoring company. Certain accounts receivable are factored with full recourse for unpaid invoices in excess of 120 days. During the quarter ended September 30, 2002, Vitallabs, Inc., the Company's parent, established a new wholly owned subsidiary, Gateway Laboratories Acquisition, Inc. On August 28, 2002, this subsidiary entered into an agreement to acquire the book of business of a laboratory. Vitallabs, Inc. issued 446,428 shares of common stock valued at $250,000 and agreed to pay $200,000 to the stockholders of Bayshore Laboratories, Inc. In connection with this transaction, the Company borrowed $500,000 from one of its stockholders, which is restricted to be used for future acquisitions. 15 MedTech Labs, Inc. (A Wholly Owned Subsidiary of Vitallabs, Inc.) Notes to Financial Statements As of December 31, 2001 and the Years Ended December 31, 2001 and 2000 15. Commitments and Contingencies The Company is involved in various litigation proceedings incidental to the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from such litigation would not be material in relation to the Company's financial position or results of operations. During the period ended September 30, 2002, a stockholder of Vitallabs, Inc. notified the Company of a potential stockholder derivative action to rescind the acquisition of MedTech Labs, Inc. The basis of this potential lawsuit is the Company's non-performance of certain requirements alleged to be contained in the acquisition agreement. The Company believes the potential lawsuit is without merit and based on erroneous information and a misinterpretation of the acquisition agreement. Management plans to vigorously defend any action filed for the purpose of rescinding the acquisition. The Company is involved in a lawsuit with a former employee. The claim in that suit is for damages for failure to pay a severance package in the amount of $175,000. At this time, management cannot predict the outcome of this matter. In addition, the Company is in a case with a consultant who claims to have the right to $125,000 worth of common stock of Vitallabs, Inc. The case is in the early stages and the Company intends to defend the case based upon later agreements between the parties. A stockholder of the Company has commenced an arbitration proceeding seeking damages of approximately $150,000 from the Company for alleged fraud, which he claims induced him to devote time to seeking arrangements for funding of the Company. The Company issued 500,000 shares of common stock to this individual as an engagement fee and would have been obligated to pay him an additional $40,000 in the event of his success in arranging funding of $1,500,000. The Company believes it provided him with the best information it had available at the time, and believes these claims are entirely without merit, and intends to vigorously defend itself in the arbitration. Prior the business combination with Vitallabs, Inc., the Company established a stockholder agreement that governed the rights and obligations of stockholders regarding the disposition of shares of stock. During 2001, a stockholder who was also an officer, resigned from the Company. As part of the agreement, the Company was to obtain an independent business valuation to determine the fair value of this individual's stock. To date, no such appraisal has been obtained. The stockholder and the Company have made various offers to transfer the stock to the Company, but none have been accepted. The Company has entered into employment agreements with four officers of the Company. The agreements pay the officers salaries that range from $72,000 to $180,000 per year. The terms of the agreement is for five years and if the officers are terminated without cause, they are entitled to receive one year of their compensation plus release the officers from any guarantees made on behalf of the Company. (b) Proforma Financial Information MedTech Labs, Inc. Pro Forma Unaudited Condensed Financial Information The accompanying pro forma unaudited condensed statements of financial position and results of operations are based upon the historical financial statements of MedTech Labs, Inc. (the "Company") and Vitallabs, Inc. ("Vitallabs") adjusted to give effect to the acquisition of the Company by Vitallabs, accounted for as a reorganization, as if the acquisition had occurred at January 1, 2000. The stockholders of the Company exchanged all of their shares of stock for a controlling interest in Vitallabs, a publicly held company. As such, these stockholders gained control of Vitallabs in a business combination accounted for as a reorganization of the Company, and the Company became a wholly owned subsidiary of Vitallabs. The pro forma statements of financial position and results of operations are not necessarily indicative of the results that would have been obtained if the acquisition had occurred on the date indicated or for any future period or date. The pro forma adjustments give effect to available information and assumptions that the Company believes are reasonable. The pro forma condensed financial information should be read in conjunction with the Company's historical financial statements and notes thereto and the historical financial statements of Vitallabs, Inc. and the notes thereto. Condensed Consolidated Balance Sheet As of December 31, 2001

Condensed Consolidated Statements of Operations For the Year Ended December 31, 2001

16 8. Change in Fiscal Year. NOT APPLICABLE 9. Item FD Disclosure. 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 hereunto duly authorized. VitalLabs, INC. By /s/ Thomas W. Kearney, CFO Thomas W. Kearney, CFO (Principal financial and accounting officer) February 5, 2003 5

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