<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 2000
Commission file number 000-29579
U. S. MEDICAL GROUP, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 88-0320389
(State of Incorporation) (IRS Employer Identification No.)
1405 South Orange Avenue Suite 600 Orlando, FL 32806
(Address of Principal Executive Offices)
(407) 849-2288
Issuer's Telephone Number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 common
equity, as of the latest practicable date: 13,575,380 shares of Common Stock
($.001 par value) as of November 13, 2000.
Transitional small business disclosure format: Yes [ ] No [x]
<PAGE>
U.S. MEDICAL GROUP, INC.
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending September 30, 2000
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets:
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations:
Three Months Ended September 30,2000 and 1999
Nine Months Ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements:
September 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
US MEDICAL GROUP
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
September 30,
2000 December 31,
Unaudited 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 127,313 $ 22,763
Accounts receivable
560,794 548,669
Prepaid expenses
32,187 13,330
----------- -----------
Total current assets
720,294 584,762
Property and equipment - at cost:
Mobile unit and medical equipment 3,797,116 3,642,467
Furniture and fixtures 105,278 61,075
----------- -----------
3,902,394 3,703,542
Less accumulated depreciation 647,626 410,389
----------- -----------
3,254,768 3,293,153
Other assets:
Patents & Trademarks, net of amortization 22,917
Financing fees, less amortization of $9,328
and $5,521 on September 30, 2000 and
December 31, 1999, respectively 8,429 12,236
----------- -----------
$4,006,408 $3,890,151
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 116,493 127,297
Shareholder loans 310,043 72,435
Current maturities of long-term debt 325,646 729,167
Income tax payable 204,228
Deferred tax liability - 81,406
----------- -----------
956,410 1,010,305
Long-term debt less current maturities 1,337,930 1,447,045
Deferred tax liability 420,640 301,253
Stockholders' equity:
Preferred stock, par value, $.001 per share,
20,000,000 authorized at September 30, 2000 and
December 31, 1999; none issued - -
----------- -----------
Common stock, par value, $.001 per share;
100,000,000 authorized, 13,575,380 issued at
September 30, 2000 and December 31, 1999 13,575 13,575
Additional paid-in-capital 80,925 80,925
Retained earnings 1,196,928 1,037,048
----------- -----------
1,291,428 1,131,548
----------- -----------
$4,006,408 $3,890,151
=========== ===========
</TABLE>
See accompanying footnotes to the unaudited consolidated financial statements
<PAGE>
<TABLE>
U.S. MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<CAPTION>
Three months ended Sept 30, Nine Months ended Sept 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Patient fees $ 905,835 $ 455,798 $ 2,618,212 $ 1,306,137
Operating expenses:
Selling, general and administrative 457,251 315,695 1,248,720 786,177
Interest expense 42,905 16,241 130,344 39,444
Depreciation expense 82,868 48,224 239,321 130,710
------------ ------------ ------------ ------------
Operating expense 583,024 380,160 1,618,385 956,331
------------ ------------ ------------ ------------
Net income before taxes 322,811 75,638 999,827 349,806
Provision for income taxes 117,309 9,540 398,209 300,950
------------ ------------ ------------ ------------
Net income $ 205,502 $ 66,098 $ 601,618 $ 48,856
============ ============ ============ ============
Earnings per common share 0.01 0.00 0.04 0.00
(basic and assuming dilution)
Weighted average shares outstanding
Basic 13,575,000 13,575,000 13,575,000 13,383,333
Diluted 13,575,000 13,575,000 13,575,000 13,575,000
See accompanying footnotes to the unaudited consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
U.S. MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
Nine Months ended Sept 30
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income from operating activities $ 601,618 $ 48,855
Adjustments to reconcile net income to net cash:
Depreciation and amortization 237,237 186,610
Deferred income taxes 37,981 215,550
Change in: Receivables (12,125) 31,384
Prepaid expenses and other assets (37,967) (11,601)
Income tax payable 204,228 85,400
Accounts payable and accrued expenses (10,804) 48,252
Stock issued for merger consulting fees - 57,500
------------ ------------
Net cash from operating activities 1,020,168 661,950
Cash flows used in investing activities:
Capital expenditures (198,852) (1,456,414)
Deposit on equipment - (15,000)
------------ ------------
Net cash used in investing activities (198,852) (1,471,414)
Cash flows (used in)/provided by financing activities:
Proceeds from bank loans - 1,250,248
Proceeds from loans from stockholders 237,608 205,136
Repayments of bank loans (512,636) (506,849)
Repayment of loans from stockholders - (180,184)
Dividend Payments (441,738) -
------------ ------------
Net cash used in financing activities (716,766) 768,351
Net increase in cash and cash equivalents 104,551 (41,113)
Cash and cash equivalents at January 1 22,763 49,185
------------ ------------
Cash and cash equivalents at Sept 30 $ 127,314 $ 8,072
============ ============
Supplemental Information:
Interest Paid $ 109,558 $ 23,203
Income Tax Paid 78,000 -
See accompanying footnotes to the unaudited consolidated financial statements
</TABLE>
<PAGE>
U. S. MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB, and therefore, do not
include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's SEC Form 10-SB, as amended.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary, U. S. Medical Group (Florida), Inc., formerly
American Mobile Surgical Services, Inc. Significant intercompany transactions
have been eliminated in consolidation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this Report.
DESCRIPTION OF COMPANY
----------------------
The Company, through its wholly-owned subsidiary, U.S. Medical Group (Florida),
Inc. provides surgical operating rooms and required support staff (such as
nurses and technicians) by means of a mobile unit on site at correctional
facilities The Company currently owns, manages and operates free-standing,
totally self-contained, mobile surgical facilities that serve the prison systems
in Florida and in North Carolina. The Company uses mobile ambulatory surgical
centers, built into tractor-trailer vehicles with expandable side panels, to
deliver cost-effective surgical services to correctional facilities. While the
military has used similar services to perform surgical procedures during periods
of war and other conflicts, the Company believes that it is the first to provide
a mobile surgery unit on site at a correctional facility for ambulatory surgical
procedures. The service is designed to reduce the costs of the correctional
authority (by reducing or eliminating the need for hospitals) and to enhance
security as well as cost by reducing or eliminating the need to transport
inmates to off-site hospitals and guard them during hospital stays.
FORWARD LOOKING STATEMENTS
--------------------------
This Form 10-QSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements included
herein that address activities, events or developments that the Corporation
expects, believes, estimates, plans, intends, projects or anticipates will or
may occur in the future, are forward-looking statements. Actual events may
differ materially from those anticipated in the forward-looking statements.
Important risks that may cause such a difference include: general domestic and
international economic business conditions, increased competition in the
Corporation's markets and products. Other factors may include, availability and
terms of capital, and/or increases in operating and supply costs. Market
acceptance of existing and new products, failure by the states of Florida and
North Carolina to renew their contracts with the Company, rapid technological
changes, availability of qualified personnel also could be factors. Changes in
the Corporation's business strategies and development plans and changes in
government regulation could adversely affect the Company. Although the
Corporation believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate. There can be no assurance that the forward-looking statements
included in this filing will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Corporation that the objectives and expectations of the Corporation would be
achieved.
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
----------------------------------------------
REVENUES
The Company's total revenues were $905,835 for the three month period
ended September 30, 2000 compared to $ 455,798 for the same period ended
September 30, 1999, an increase of $450,037, or 98.7%. The increase is
attributable to patient fees derived from the addition of the North Carolina
State Department of Corrections contract, an increased caseload and subsequent
increase in patient fees from the Florida contract and unit, and proceeds from a
lease agreement for hyperbaric oxygen therapy equipment with American
Hyperbarics. The lease agreement became effective March 15th, 2000. The Company
reported net income from continuing operations for the three month period ended
September 30, 2000 of $205,502 compared to $66,098 for the three month period
ended September 30, 1999, an increase in earnings of $139,404, or 210.9%. Net
income for the three month period ended September 30, 2000 is attributed to the
addition of the North Carolina State Department of Corrections contract as well
as an increased caseload and subsequent increase in patient fees associated with
the Florida mobile surgery unit.
The Company has contracts with the Florida and North Carolina State Department
of Corrections. Both state contracts are a series of four one-year options. Both
Florida and North Carolina State Department of Corrections have exercised the
second year option in the series of one-year options. Both one-year option
contract renewals expire September 30, 2001.
COSTS AND EXPENSES
The Company's 98.7% increase in revenues for the third quarter of 2000 compared
to the same period ended September 30, 1999 resulted in higher total costs, as
expenses from operations increased $202,864 from $380,160 to $583,024, or 53.4%.
Selling, general and administrative expenses for the three month period ended
September 30, 2000 increased $141,556 from $315,695 to $457,251, or 44.8%.
Operations expenditures increased due to the costs associated with the
operations activities of the North Carolina mobile surgical unit, which
commenced operations in October of 1999. The North Carolina unit incurs similar
operating costs as the Florida surgical unit, such as medical equipment,
supplies, and staff wages. Operations expenditures associated with the mobile
hyperbaric oxygen therapy unit also contributed to the expense increase.
Selling, general and administrative expenses increased from the additional
allocation of financial resources necessary to support the North Carolina mobile
surgery unit contract and the mobile hyperbaric oxygen therapy unit lease
agreement. The selling, general and administrative expenses increase is also
attributed to the support of the Company's active pursuit of new business. Wage
expense increased $71,354, or 133%, from $53,665 for the period ended September
30, 1999 to $125,019 for the period ended September 30, 2000. Wage expense
increase is attributable to increased activity with existing operations as well
as the support of new business development.
As the Company continues to expand, the Company will incur additional costs for
personnel. In order for the Company to attract and retain quality personnel, the
Company anticipates it will continue to offer competitive salaries and grant
Company stock options to current and future employees.
Medical Supplies expenditures increased 104% from $45,396 for the three month
period ended September 30, 1999 to $92,628 for the three month period ended
September 30, 2000. The increase in medical supplies purchases is solely
attributable to the increased caseload performed during the period. Both the
Florida and North Carolina mobile surgical facilities experienced caseload
increases during the period.
<PAGE>
Legal and Accounting fees charged to the Company increased 948% from $1,335 for
the three month period ended September 30, 1999 to $13,999 for the three month
period ended September 30, 2000. The increase in fees for the period is
attributed to the Company's requirement to obtain legal and accounting services
and resources associated with compliance with Securities and Exchange Commission
rules and regulations.
Advertising expenses increased 66% to $10,483 for the three month period ended
September 30, 2000. The Company advertises mainly in corrections industry trade
publications, and feels that advertising is a necessary component of its goal to
maximize revenue and shareholder value. The Company expects to continue to
advertise in corrections industry trade publications in the future.
Depreciation and amortization expense for the three month period ended September
30, 2000 was $82,868, an increase of $34,644, or 71.8%, from the same period in
1999. The increase is attributable to the addition of a new mobile surgical unit
in North Carolina. Both of the Company's mobile surgical units were depreciated
over the entire period of three months ended September 30, 2000.
Interest expense for the three month period ended September 30, 2000 was
$42,905, an increase of $26,664, or 164%, from $16,241 for the same period ended
September 30, 1999. The increase in interest expense is due to the repayment of
bank loans needed to finance the construction and purchase of the North Carolina
mobile surgical unit.
For the three month period ended September 30, 2000, an income tax provision of
$117,309 was charged to recognize federal, Florida state and North Carolina
state income tax liabilities. For the three month period ended September 30,
1999, an income tax provision of $9,540 was charged.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
---------------------------------------------
REVENUES
The Company's total revenues were $2,618,212 for the nine month period
ended September 30, 2000 compared to $ 1,306,137 for the same period ended
September 30, 1999, an increase of $1,312,075, or 100.5%. The increase is
attributable to patient fees derived from the addition of the North Carolina
State Department of Corrections contract, an increased caseload and subsequent
increase in patient fees from the Florida contract and unit, and proceeds from a
lease agreement for hyperbaric oxygen therapy equipment with American
Hyperbarics. The lease agreement became effective March 15th, 2000. The Company
reported net income from continuing operations for the nine month period ended
September 30, 2000 of $601,618 compared to $48,856 for the nine month period
ended September 30, 1999, an increase in earnings of $552,762. Net income for
the nine month period ended September 30, 1999 was adversely affected by costs
associated with the merger of American Mobile Surgical Services Incorporated
with U.S. Medical Group of Florida, as well as incremental and deferred income
taxes payable totaling $291,410. The deferred taxes fell due upon the completion
of the Company achieving C Corporation status that occurred during the nine
month period ended September 30, 1999. As an S Corporation, the Company's
earnings were taxed, with certain exceptions, for federal income tax purposes
directly to the Company's shareholders. The Company terminated its S Corporation
tax status in April of 1999. Until April 1999, the business was conducted by and
under the name of American Mobile Surgical Services, Inc., a Florida Company
("AMSSI"). In April 1999, pursuant to the terms of an Agreement and Plan of
Merger entered into as of March 31, 1999 by and among AMSSI, USMGF and the
Company (the "Merger Agreement), AMSSI became a subsidiary of U.S. Medical
Group, Inc. when USMGF merged (the "Merger") with AMSSI with AMSSI being the
surviving Company. Following the merger AMSSI changed its name to USMGF. Net
income for the nine month period ended September 30, 2000 is attributed to the
addition of the North Carolina State Department of Corrections contract as well
as an increased caseload and subsequent increase in patient fees associated with
the Florida mobile surgery unit.
<PAGE>
COSTS AND EXPENSES
The Company's 100.5% increase in revenues for the first nine months of 2000
compared to the same period ended September 30, 1999 resulted in higher total
costs, as expenses from operations increased $662,054 from $956,331 to
$1,618,385, or 69.2%. Selling, general and administrative expenses for the nine
month period ended September 30, 2000 increased $462,543 from $786,177 to
$1,248,720 or 58.8%. Operations expenditures increased due to the costs
associated with the operations activities of the North Carolina mobile surgical
unit, which commenced operations in October of 1999. The North Carolina unit
incurs similar operating costs as the Florida surgical unit, such as medical
equipment, supplies, and staff wages. Operations expenditures associated with
the mobile hyperbaric oxygen therapy unit also contributed to the expense
increase. Selling, general and administrative expenses increased from the
additional allocation of financial resources necessary to support the North
Carolina mobile surgery unit contract and the mobile hyperbaric oxygen therapy
unit lease agreement. The selling, general and administrative expenses increase
is also attributed to the support of the Company's active pursuit of new
business development.
As the Company continues to expand, the Company will incur additional costs for
personnel. In order for the Company to attract and retain quality personnel, the
Company anticipates it will continue to offer competitive salaries and grant
Company stock options to current and future employees.
Depreciation and amortization expense for the nine month period ended September
30, 2000 was $239,321, an increase of $108,611, or 83%, from the same period in
1999. The increase is attributable to the addition of a new mobile surgical unit
in North Carolina. Both of the Company's mobile surgical units were depreciated
over the entire nine month period ended September 30, 2000.
Interest expense for the nine month period ended September 30, 2000 was
$130,344, an increase of $90,900, or 230.5%, from $39,444 for the same period
ended September 30, 1999. The increase in interest expense is due to the
repayment of bank loans needed to finance the construction and purchase of the
North Carolina mobile surgical unit.
For the nine month period ended September 30, 2000, an income tax provision of
$398,209 was charged to recognize federal, Florida state and North Carolina
state income tax liabilities. For the nine month period ended September 30,
1999, an income tax provision of $300,950 was charged. As an S Corporation, the
Company's earnings were taxed, with certain exceptions, for federal income tax
purposes directly to the Company's shareholders. The Company terminated its S
Corporation tax status in April of 1999. Upon the termination of the Company's S
Corporation tax status, the Company recognized a deferred tax liability. Such an
obligation of deferred income taxes contributed significantly to the Company's
overall liability for the nine month period ended September 30, 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had a working capital deficit of $236,116
compared to a deficit of $425,543 at December 31, 1999, an increase in working
capital of $189,427, or 45%. The increase in working capital is attributed
primarily to a $403,521 decrease in the current portion of long term debt due at
September 30, 2000 as compared to December 31, 1999.Shareholder loans
outstanding increased to $310,044 from $72,435 as of December 31, 1999. Proceeds
from shareholder loans were used for working capital purposes. The Company plans
to continue to repay shareholder loans in the three month period ended December
31, 2000, subject to the Company's liquidity.
The Company generated cash flows from operations of $1,020,168 for the nine
month period ended September 30, 2000 and $661,950 for the nine month period
ended September 30, 1999, an increase of 54%. Increased cash flow from operating
activities for the nine month period ended September 30, 2000 is primarily
attributable to the Company's net income from operations of $601,618 adjusted
for depreciation of $237,237 and income taxes of $204,228.
Cash flows used in investing activities for the nine month period ended
September 30, 2000 consisted primarily of the acquisition of $ 198,852 of
surgical and medical equipment. The equipment was placed in the Company's North
Carolina and Florida facilities.
Cash flows used in financing activities was $716,766 during the nine month
period ended September 30, 2000. The Company repaid $512,636 in bank loans
during this period. The Company received loan proceeds of $ 237,608 from
significant Company shareholders. The loan proceeds were used to make dividend
payments in the amount of $441,739 to AMSSI shareholders and fund the
acquisition of medical and surgical equipment.
The Company has contracts with the Florida and North Carolina State Department
of Corrections. Both state contracts are a series of four one-year options. Both
Florida and North Carolina State Department of Corrections have exercised the
second year option in the series of one-year options. Both one-year option
contract renewals expire September 30, 2001.
As the Company continues to expand, the Company will incur additional costs for
personnel. In order for the Company to attract and retain quality personnel, the
Company anticipates it will continue to offer competitive salaries and grant
Company stock options to current and future employees.
While the Company has raised capital to meet its current working capital and
facility and equipment financing needs, additional financing will be required in
order to acquire additional surgical facilities. The Company is seeking
financing in the form of equity and debt in order to provide for these
expansions and for working capital. There are no assurances the Company will be
successful in raising the funds required.
The Company has borrowed funds from significant shareholders of the Company in
the past to satisfy certain obligations. In addition, Company officers and
significant shareholders guarantee all of the Company's bank debt.
The Company plans to develop new sites for its mobile surgical units and to
introduce mobile dental and hyperbaric units in the near future, placing one or
more units in service by year-end. The Company plans to obtain financing for
these units through bank loans, private placements of its securities, and equity
financing through offerings in the secondary markets. There can be no assurance
that management will be successful in its efforts to obtain the financing
necessary to fund the Company's growth or that contracts for future sites will
be obtained.
The effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are in the southeastern United States and
there are no seasonal aspects that would have a material adverse effect on the
Company's financial condition or results of operations.
SUBSEQUENT EVENTS
On November 8, 2000, the Company secured a $3 Million line of credit at 1.5%
above LIBOR rates with First Union National Bank.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2 - Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U. S. MEDICAL GROUP, INC.
Registrant
November 13, 2000 By: /s/ Thomas Winters
----------------- ---------------------------
Date Thomas Winters
Chairman of the Board and
Chief Executive Officer
