<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2000
Commission file number 0-29579
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 May 12, 2000.
Transitional small business disclosure format: Yes No x
--- ---
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U.S. MEDICAL GROUP, INC.
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending March 31, 2000
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets:
March 31, 2000 and December 31, 1999
Consolidated Statements of Operations:
Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements:
March 31, 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).
U.S. MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
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<S> <C> <C>
Revenues:
Patient fees $ 849,004 $ 392,872
Operating expenses:
Selling, general and administrative 355,954 167,319
Interest expense 40,256 13,348
Depreciation expense 77,016 40,604
----------- -----------
Operating expense 473,226 221,271
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Net income before taxes 375,778 171,601
Provision for income taxes 142,900 --
----------- -----------
Net income $ 232,878 $ 171,601
----------- -----------
----------- -----------
Earnings per common share
(basic and assuming dilution) $ 0.02 $ 0. 01
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----------- -----------
Weighted average shares outstanding
Basic 13,575,380 13,575,380
Diluted 13,595,380 13,595,380
</TABLE>
The accompanying notes are an integral part of these financial statements
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U.S. MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 232,800 $ 22,763
Accounts receivable 378,826 548,669
Prepaid expenses 21,787 13,330
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Total current assets 633,413 584,762
Property and equipment - at cost:
Mobile unit and medical equipment 3,702,681 3,642,467
Furniture and fixtures 62,565 61,075
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3,765,246 3,703,542
Less accumulated depreciation 487,405 410,389
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3,277,841 3,293,153
Other assets:
Financing fees, less amortization of $6,790
and $5,521 on March 31, 2000 and
December 31, 1999, respectively 10,967 12,236
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$3,922,221 $3,890,151
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 65,444 127,297
Current maturities of long-term debt 1,036,322 801,602
Income tax payable 104,800
Deferred tax liability 75,906 81,406
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1,282,472 1,010,305
Long-term debt less current maturities 1,372,208 1,447,045
Deferred tax liability 344,853 301,253
Stockholders' equity:
Preferred stock, par value, $.001 per share,
20,000,000 authorized at March 31, 2000
and December 31, 1999; none issued -- --
Common stock, par value, $.001 per share;
100,000,000 authorized, 13,575,380 issued
at March 31, 2000 and December 31, 1999 13,575 13,575
Additional paid-in-capital 80,925 80,925
Retained earnings 828,188 1,037,048
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922,688 1,131,548
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$3,922,221 $3,890,151
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
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U.S. MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the three months For the three months
ended March 31, 2000 ended March 31,1999
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<S> <C> <C>
Cash flows from operating activities:
Net income from operating activities $ 232,878 $ 171,601
Adjustments to reconcile net income to net cash:
Depreciation 77,016 40,604
Deferred income taxes 38,100 --
Change in: Receivables 169,843 (5,133)
Prepaid expenses and other assets (7,188) 637
Income tax payable 104,800 --
Accounts payable and accrued expenses (61,852) 125
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553,597 207,834
Cash flows used in investing activities:
Capital expenditures (61,704) (5,000)
Cash flows (used in)/provided by financing activities:
Proceeds from bank loans -- --
Proceeds from loans from stockholders 441,739 --
Repayments of bank loans (264,421) (162,350)
Repayment of loans from stockholders (17,435) (5,943)
Dividend payments (441,739) --
Net cash used in financing activities (281,856) (168,293)
Net increase in cash and cash equivalents 210,037 34,541
Cash and cash equivalents at January 1 22,763 49,185
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Cash and cash equivalents at March 31 $ 232,800 $ 83,726
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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U. S. MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three month period ended March 31, 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.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 2000 and 1999
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.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
contained in this document, including, without limitation, the statements
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Liquidity and Sources of Capital" regarding the
Company's strategies, plans, objectives, expectations, and future operating
results are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable
at this time, it can give no assurance that such expectations will prove to
have been correct. Actual results could differ materially based upon a number
of factors including, but not limited to, dependence on key personnel,
competition, limited public market and liquidity, the Company's common stock
("Common Stock") being subject to penny stock regulation, the state of the
economy, unanticipated business opportunities, availability of financing,
market acceptance, government regulation, shares eligible for future sale,
continuation and renewal of the Florida and North Carolina Contracts, and
other risks that may apply to the Company including, but not limited to other
risks that may be detailed in the Company's filings with the United States
Securities and Exchange Commission ("SEC" or "Commission").
REVENUE
The Company's total revenues were $849,004 for three months ended March 31,
2000 compared to $392,872 for the same period ended March 31, 1999, an
increase of 116.1%. The increase is attributable to patient fees derived from
the addition of the North Carolina State Department of Corrections contract,
and an increased caseload and patient fees with the Florida unit. The Company
reported net income from continuing operations for the three months ended
March 31, 2000 of $232,872 compared to net income of $171,601 for the three
months ended March 31, 1999, an increase of 35.7%. Additional net income is
also attributed to the addition of the North Carolina State Department of
Corrections contract as well as an increased caseload and patient fees
associated with the Florida unit.
COSTS AND EXPENSES
The Company's increase in revenues for the first quarter of 2000 resulted in
higher total costs for the same period, as expenses from operations increased
$251,955 from $221,271 to $473,226, or 113%. Selling, general and administrative
expenses increased 112% from $167,319 for three months ended March 31, 1999 to
$355,954 during the period ended March 31, 2000. The increase was due primarily
to the costs associated with establishing the North Carolina mobile surgical
unit, which commenced operations in October of 1999. Those costs include medical
equipment, supplies, and personnel costs. Salaries and wages increased $95,659
for the quarter ended March 31, 2000 as compared to the same period in
1999. The increase in salaries and wages was attributed to the addition of new
personnel necessary for the support of the North Carolina mobile surgery
activity and the development of new business opportunities. The Company incurred
additional legal and accounting fees OF $33,716 during the period ended March
31,2000 as compared to the same period in 1999 as a result of the Company filing
its registration statement with the Securities and Exchange Commission in
February, 2000.
<PAGE>
Depreciation and amortization expense for three months ended March 31,2000 was
$77,016, an increase of $36,412, or 90%, 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 March 31, 2000.
Interest expense for the period ended March 31, 2000 was $40,256, an increase of
$26,908, or 202%, from $13,348 for the same period ended March 31, 1999. The
increase in interest expense is due to the increase of bank loans needed to
finance the construction of the North Carolina mobile surgical unit.
The Company's statements of operations for the period ended March 31, 1999
reflect no provision for income taxes. 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. For the period ended March 31, 2000, the Company
recorded an income tax provision of $142,900.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED MARCH 2000
As of March 31, 2000, the Company had a working capital deficit of $649,259
compared to a deficit of $425,543 at December 31, 1999, a decrease in working
capital of $223,716, or 53%. The decrease in working capital was substantially
due to the increase in shareholder loans to the Company in the amount of
$441,739. The loan proceeds were used to pay dividends of $441,739 to certain
shareholders. The Company plans to repay $170,000 of the shareholder loans in
the fiscal period three months ending June 30, 2000.
The Company generated cash flow from operations of $553,597 for three months
ended March 31, 2000 and $207,834 for three months ended March 31, 1999, an
increase of 166%. Cash flow from operating activities for three months ended
March 31, 2000 is primarily attributable to the Company's net income from
operations of $232,878, adjusted for depreciation of $77,016, and deferred
taxes of $ 38,100. In addition, the Company's receivables decreased $169,843
for the period, which increased the Company's cash flow from operations. Cash
flow from operating activities for three months ended March 31, 1999 of
$207,834 is primarily attributable to the Company's net income from
operations of $171,601, adjusted for depreciation of $40,604.
Cash flows used in investing activities was $61,704 for three months ended March
31, 2000 and $ 5,000 for three months ended March 31, 1999. The Company
purchased surgical equipment in the amount of $61,704 for three months ended
March 31,2000.
Cash flow used in financing activities was $281,856 during the three months
ended March 31, 2000 as compared to $168,293 used during the three months
ended March 31, 1999. The principal use of cash in financing activities
during the period ended March 31, 2000 was the repayment of $264,421 of bank
loans. In addition, the Company received $441,739 of loans from shareholders
during the period ended March 31, 2000. The loan proceeds were used to pay
dividends of $441,739 to certain shareholders. The principal use of funds for
the three month period ended March 31, 1999 were the repayment of loans from
banks in the amount of $162,350,
<PAGE>
While the Company has raised capital to meet its 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.
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
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 effect on the Company's
financial condition or results of operations
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.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<S> <C>
2.1 Agreement and Plan of Merger dated March 31, 1999 by and between
the Company, U.S. Medical Group (Florida), Inc. ("USMGF"), and
American Mobile Surgical Services, Inc. ("AMSSI")(1)
3.1 Articles of Incorporation of the Company(1)
3.2 Certificate of Amendment of the Articles of Incorporation of the
Company(1)
3.3 Certificate of Amendment of the Articles(1)
3.4 By-laws of the Company(2)
10.1 Consulting Agreement dated April 26, 1999 by and between the
Company and TransGlobal Financial Corporation(1)
10.2 Form of Stockholder Lock up Agreement dated March, 25, 1999 by
and between the Company and AMSSI(1)
10.3 Agreement by and between USMGF and the Florida Department of
Corrections dated April 2, 1997(1)
10.4 Agreement by and between USMGF and the North Carolina Department
of corrections dated October 15, 1999(1)
27.1 Financial Data Schedule(2)
</TABLE>
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(1) Incorporated of reference from the Company's Form 10-SB and the
Amendments thereto as filed with the Securities Exchange Commission.
(2) Filed herewith.
<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
May 11, 2000 By: /s/ Thomas Winters
- -------------- --------------------
Date Dr. Thomas Winters
Chairman of the Board and
Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 232,800
<SECURITIES> 0
<RECEIVABLES> 378,828
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 633,413
<PP&E> 3,766,246
<DEPRECIATION> 487,405
<TOTAL-ASSETS> 3,922,221
<CURRENT-LIABILITIES> 1,282,472
<BONDS> 0
0
0
<COMMON> 13,575
<OTHER-SE> 909,113
<TOTAL-LIABILITY-AND-EQUITY> 3,922,221
<SALES> 849,004
<TOTAL-REVENUES> 849,004
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 432,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,256
<INCOME-PRETAX> 375,778
<INCOME-TAX> 142,900
<INCOME-CONTINUING> 232,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,878
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
