<TABLE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number 0-17973
MEDCROSS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-2291344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3227 Bennet Street North, St. Petersburg, Florida 33713
(Address of principal executive offices)
(813) 521-1793
(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 issuer 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.
Class Outstanding at April 30, 1995
Common Stock, par value $0.007 1,749,163
Traditional Small Business Disclosure Format (Check One): Yes No X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<CAPTION>
Assets
March 31
1995
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Current assets
Cash and cash equivalents $ 320,051
Accounts receivable less allowance of $852,347 925,804
Inventory 839,907
Prepaid expenses 105,024
Total current assets 2,190,786
Property and equipment 3,393,896
Less accumulated depreciation 1,491,504
Net property and equipment 1,902,392
Investment in unconsolidated subsidiary 7,500
Intangible assets, net of amortization of $182,030 612,380
Other assets 73,692
Total assets $ 4,786,750
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 517,283
Advance deposits received 153,541
Reserve for warranty liability 137,267
Note payable - related party 218,000
Note payable - other 450,000
Current portion of long-term debt 303,505
Current obligations under capital lease 252,473
Total current liabilities 2,032,069
Long-term debt 600,380
Obligations under capital leases 89,723
Minority interest equity in consolidated subsidiaries 412,296
Commitments and contingencies -
Stockholders' equity
Preferred stock 2,075,000
Common stock 12,244
Other stockholders' equity ( 434,962)
Total stockholders' equity 1,652,282
Total liabilities and stockholders' equity $ 4,786,750
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements.
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Net operating revenue $ 1,117,493 $ 932,370
Cost of goods sold - equipment sales and service 185,157 -
Salaries and benefits 328,931 293,003
Repairs and maintenance 76,946 80,037
Provision for doubtful accounts 327,588 36,090
Depreciation and amortization 117,952 120,677
Other operating expenses 316,788 326,778
Operating profit (loss) ( 235,869) 75,785
Interest expense ( 39,128) ( 42,454)
Other income 3,816 8,407
Equity in net income of unconsolidated subsidiary - 5,359
Income (loss) before minority interest in net income (loss)
of consolidated subsidiaries and income tax provision ( 271,181) 47,097
Minority interest in net income (loss) of consolidated subsidiaries 12,779 23,154
Income (loss) before income tax provision ( 283,960) 23,943
Income tax provision - 2,487
Net income (loss) $( 283,960) $ 21,456
Earnings (loss) per common share $( .04) $ -
Weighted average common and equivalent shares outstanding 6,884,481 6,954,860
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements.
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31
1995 1994
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Cash provided by operating activities $ 50,068 $ 64,359
Cash flows from investing activities
Purchase of property and equipment ( 15,000) ( 6,633)
Investment in unconsolidated subsidiary - ( 3,750)
Net cash used by investing activities ( 15,000) ( 10,383)
Cash flows from financing activities
Proceeds of note payable - related party 218,000 -
Proceeds (reduction) of note payable - other ( 101,000) 218,000
Reductions of long-term debt ( 97,286) ( 97,286)
Reduction of capital lease obligations ( 59,400) ( 53,932)
Minority interest contributions - 260,417
Minority interest distributions ( 36,500) ( 9,625)
Net cash provided (used) by financing activities ( 76,186) 317,574
Effect of foreign currency translation on cash flows 12 ( 87,522)
Increase (decrease) in cash and cash equivalents ( 41,106) 284,028
Cash and cash equivalents at beginning of period 361,157 1,176,757
Cash and cash equivalents at end of period $ 320,051 $ 1,460,785
<CAPTION>
Supplemental cash flow information
In February 1995 a holder of Class B Preferred Stock converted 9,350 shares into 227,714 shares of Common
Stock.
The accompanying notes are an integral part of these consolidated financial statements.
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Financial Statements
In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for
a fair statement of (a) the results of operations for the three-month periods ended March 31, 1995 and March
31, 1994, (b) the financial position at March 31, 1995, and (c) cash flows for the three-month periods ended
March 31, 1995 and March 31, 1994, have been made.
The unaudited consolidated financial statements and notes are presented as permitted by Form 10-QSB.
Accordingly, certain information and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted. The accompanying
consolidated financial statements and notes should be read in conjunction with the audited financial statements
and notes of the Company for the fiscal year ended December 31, 1994. The results of operations for the
three-month period ended March 31, 1995 are not necessarily indicative of those to be expected for the entire
year.
Note 2 -Earnings Per Common Share
Earnings per common share are based upon the weighted average number of common shares outstanding and
the dilutive effect of common stock equivalents consisting of stock options and convertible preferred stock.
Fully diluted earnings per share are not presented because it approximates earnings per common share.
Note 3 - Geographic Segment Information
The Company's operations consist of providing diagnostic and clinical outpatient health care services
domestically and the sale and service of used medical equipment in the People's Republic of China (PRC).
The corporate office provides management and operational services for domestic outpatient health care
services. The eliminations represent charges for these services to entities included in the consolidation.
Financial information for the different geographic segments is as follows:
Three Months Ended Corporate/
March 31, 1995 Domestic China Management Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $ 696,818 $ 337,889 $ 133,412 $( 50,626) $ 1,117,493
Operating Profit $ 146,185 $( 210,987) $( 120,441) $( 50,626) $( 235,869)
Identifiable Assets $ 3,500,413 $ 1,031,660 $ 288,414 $( 33,737) $ 4,786,750
<CAPTION>
Three Months Ended Corporate/
March 31, 1994 Domestic China Management Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $ 782,561 $ - $ 178,382 $( 28,573) $ 932,370
Operating Profit $ 263,364 $( 41,530) $( 117,476) $( 28,573) $ 75,785
Identifiable Assets $ 3,993,181 $ 597,864 $ 1,357,051 $( 16,960) $ 5,931,136
<PAGE>
<CAPTION>
Item 2 - Management's Discussion and Analysis
The following discussion should be read in conjunction with the information contained in the financial
statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the
Management's Discussion and Analysis set forth in the Company's Form 10-KSB for the fiscal year ended
December 31, 1994.
Results of Operations
The following Table represents the net operating revenue and operating profit (loss) of the Company for each
category of service offered. The net operating revenue and operating profit (loss) shown are net of
intercompany transactions that were eliminated in consolidation.
Three Months
Ended March 31
1995 1994
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NET OPERATING REVENUE
Diagnostic Imaging $ 696,818 $ 782,561
Sales and Services of Medical Equipment 337,889 -
Management and Other 82,786 149,809
$ 1,117,493 $ 932,370
OPERATING PROFIT (LOSS)
Diagnostic Imaging $ 146,185 $ 263,364
Sales and Services of Medical Equipment ( 210,987) ( 41,530)
Management and Other ( 171,067) ( 146,049)
$( 235,869) $ 75,785
<CAPTION>
Diagnostic Imaging
Net operating revenue from diagnostic imaging services decreased by 11% in 1995 as compared to 1994.
Tampa MRI accounted for $127,649 of the decrease. This decrease in revenue is the result of a 34% decrease
in the number of MRI procedures performed and a 4% decrease in average revenue per procedure. Tampa
MRI is actively pursuing managed care contracts. If successful in obtaining these contracts, management
expects a decline in average revenue per case, which should be offset by an increase in the number of
procedures performed. MRI revenue of Medcross Imaging, Ltd. decreased by $64,164 in 1995 as compared
to 1994. This decrease was a result of a 14% decrease in the number of cases performed and 1% decrease
in the average revenue per case. Urological Ultrasound Services of Tampa Bay (UUSTB) was acquired and
included in the consolidated financial statements of the Company effective October 1, 1994. UUSTB had
diagnostic imaging service revenue of $106,070 in the first quarter of 1995. The revenue of UUSTB increased
4% compared to revenue as an unconsolidated joint venture in the first quarter of 1994. This increase was
the result of a 29% increase in the number of cases performed, offset by a 20% decline in the average net
operating revenue per procedure.
Approximately 80% of the patients treated by the Company's ultrasound operations are Medicare beneficiaries.
Medicare issued final regulations, effective May 1, 1995, eliminating reimbursement to independent
physiological laboratories for certain procedures, including the ultrasound procedures performed by UUSTB.
Since UUSTB is classified as an independent physiological laboratory for Medicare purposes and Tampa MRI
is not, the Company has transferred its ultrasound operations to Tampa MRI, effective May 1, 1995. Based
upon discussions with representatives of the Medicare intermediary for the State of Florida, the Company
should receive reimbursement for the ultrasound procedures performed through Tampa MRI. As of this date,
the Company has not applied for or received reimbursement for ultrasound procedures performed through
Tampa MRI.
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The operating profit from diagnostic imaging services decreased by $117,179 in 1995 as compared to 1994.
This decrease was the result of a decline in operating profit from MRI services of $167,135, offset by the
$49,956 operating profit from ultrasound services. The decline in operating profit from MRI services was
related to a decline in revenue, which was partially offset by $24,678 reduction in operating expenses.
During the past several years, there has been increasing pressure from federal and state regulatory and
legislative bodies to prevent physicians from referring patients to diagnostic imaging facilities in which they
have an ownership interest. Legislation passed in the State of Florida, where all of the Company's diagnostic
imaging services operate, placed a fee cap on diagnostic imaging services. An injunction has been obtained
preventing the State of Florida from enforcing the fee cap. See "Item 3. Legal Proceedings" in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994.
Sales and Service of Medical Equipment
The Company sells and services used and refurbished computerized tomography (CT) scanners in the People's
Republic of China through its own office in Beijing and a joint venture company, Shenyang Medcross
Huamei Medical Equipment Company, Ltd. (SMHME), of which it owns 51%. During the last four months
of 1994, the Beijing office completed the installation of two CT scanners and SMHME completed the
installation of one CT scanner. In the first quarter 1995, the Company's Beijing office completed the
installation of two additional CT scanners. To date, the Beijing office has not received any payments on the
four CT scanners installed, other than the initial deposits. Various issues have been raised by the purchasers
in China regarding maintenance of the scanners, parts depot, etc. The Company's President, Henry Toh,
personally traveled to China to resolve these issues and obtain payment. Mr. Toh is confident that the
issues will be resolved and payment received by the end of the second quarter of 1995. However, since no
payments have been received other than the initial deposits, the Company has elected to fully reserve for all
amounts due to the Beijing office for the four scanners installed. This resulted in an expense of $281,438
in the first quarter of 1995 and $188,842 in the fourth quarter of 1994 and an allowance for doubtful accounts
of $470,280 as of March 31, 1995.
Management and Other
Net operating revenue from management and other activities decreased by $67,023 in the first quarter of 1995
as compared to 1994. The decrease was primarily related to the management contracts with Bay Area Renal
Stone Center (BARSC) and UUSTB. The BARSC contract accounted for $48,961 in management fees in the
first quarter of 1994 and $11,775 in management fees in the first quarter of 1995. The UUSTB contract
accounted for $26,496 in the first quarter of 1994. Since UUSTB is now wholly owned by the Company, the
management and billing fees were eliminated in consolidation in 1995. The net operating loss from
management and other activities increased $25,018 in the first quarter of 1995 to $171,067. This increased
loss was related to the reduced revenue described above offset by a decrease in corporate overhead expenses
of $42,005, primarily travel expenses.
Consolidated Operating Results
Net operating revenue of the Company increased by 20% in the first quarter of 1995 as compared to the same
quarter of 1994. This increase was the result of new sources of revenue from the sale and service of medical
equipment in China and the acquisition of UUSTB. The increase in revenue from these new sources was
offset by the decline in management fee revenue and revenue from MRI services. The cost of goods sold was
entirely related to the sale and service of CT equipment in China. While the cost of the two CT scanners sold
in 1994 was greater than revenue, there is a significant gross margin on the two scanners installed in the first
quarter of 1995. This increase in the gross margin was due to efficiencies gained through the Company's prior
experience in purchasing, refurbishing, shipping, and installing the equipment in China. The increase in
salaries and benefits was primarily related to the inclusion of UUSTB in the consolidation. The large increase
in the provision for doubtful accounts was a result of recording reserve for receivables from China clients, as
previously discussed. The reductions of other operating expenses in the corporate office and Tampa MRI were
offset by increases in other operating expenses in the China operations and UUSTB. The overall decline in
operating profit was the culmination of the decline in operating profit from diagnostic imaging services, foreign
<PAGE>
operations, and the corporate office. However, $281,438 of the operating loss was related to the reserve for
China receivables. Excluding this reserve, the Company would have had an operating profit of $45,569.
Liquidity and Capital Resources
Working capital provided by operations during the first quarter of 1995 was $222,402, compared to $198,505
in 1994. The working capital provided by operating activities increased $23,897 even though net income
declined $305,416 during the first quarter of 1995 as compared to the first quarter of 1994. This disparity was
primarily the result of the provision for doubtful accounts for receivables from China recorded in the first
quarter of 1995. The working capital position of the Company declined by $303,915 during the first quarter
of 1995. The working capital position of the Company was $158,717 at March 31, 1995 and $462,632 at
December 31, 1994. Cash flow provided by operating activities was $50,068 in the first quarter of 1995
compared to $64,359 for the same period in 1994.
Investing activities expenditures during the first quarter of 1995 related to the purchase of additional
equipment for the Tampa MRI unit.
During the first quarter of 1995, the Company reduced its long term debt and capital lease obligations by
$156,686 and the outstanding balance of its line of credit by $101,000. The Company was in violation of loan
covenants regarding cash balances, consolidated equity, debt to equity ratios, and past days sales in accounts
receivable under the line of credit at March 31, 1995. The bank has waived those covenant violations. During
the first quarter of 1995, the Company received advances totaling $218,000 from Mortgage Network
International, payable on demand. The Company's Chairman and Vice Chairman/President have an ownership
interest and management control over Mortgage Network International. The Board of Directors has been
requested to approve delivery of a demand promissory note bearing interest at one percent over the prime rate
of Southwest Bank of Texas, N.A. concerning such advances. The $260,417 minority interest contribution
during the first quarter of 1994 represents a contribution made by the Company's joint venture partner in
SMHME. The joint venture agreement requires that capital contributions and distributions of capital are
exchanged at a rate of 5.76 Renminbi per U.S. Dollar. The actual exchange rate at the time the contributions
were made was in excess of 8.5 Renminbi per U.S. Dollar. The effects of foreign currencies on cash flows
in 1994 is almost entirely related to the difference between the stipulated exchange rate in the joint venture
agreement and the actual exchange rate at the time the contributions were made.
Capital requirements of the Company for 1995 consist primarily of funding ongoing operations and the
reduction of the outstanding balance of the Company's line of credit with First Union National Bank of
Florida. The Company invested approximately $112,000 in additional funds in its China operations during the
first quarter of 1995. The Company has no material commitments for capital expenditures other than for
ordinary expenses incurred during the usual course of business. To the extent that the Company is unable to
collect the receivables from China operations, the Company will need to reduce future expenses or raise
additional capital to meet its operating cash flow requirements. Additional investment in the Company's China
or domestic operations will require that the Company raise additional capital through public or private debt
or equity financing. The availability of these capital sources will depend upon prevailing market conditions,
interest rates and the then existing financial position and results of operations of the Company. Therefore,
no assurances can be made by the Company that such additional capital will be available.
PART II - OTHER INFORMATION
Item 6(a) - Exhibits
11 Statement regarding computation of earnings per common share.
Item 6(b) - Reports on Form 8-K
None.
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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 thereunder duly authorized.
MEDCROSS, INC.
(Registrant)
Date: May 12, 1995 By: /s/ HENRY TOH
Henry Toh
President
Date: May 12, 1995 By: /s/ TIMOTHY R. BARNES
Timothy R. Barnes
Senior Vice President & Chief
Financial Officer
(Principal Financial Officer &
Principal Accounting Officer)
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<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
For the Period Ended
March 31
1995 1994
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Earnings per common and common equivalent share
Net income (loss) available to common and equivalent shares $( 283,960) $ 21,456
Weighted average common shares outstanding 1,632,776 1,503,305
Adjustments
Assumed issuance of shares purchased under stock
option and stock purchase plans 7,313 114,780
Assumed exercise of warrants 50,000 14,046
Assumed conversion of:
Class A Variable Rate Cumulative Convertible Preferred Stock 4,894,463 4,894,463
Class B Variable Rate Cumulative Convertible Preferred Stock 299,929 428,266
Total common and equivalent shares 6,884,481 6,954,860
Earnings (loss) per common and equivalent share $( .04) $ -
Fully diluted earnings per common and common equivalent share
Net income (loss) available to common and equivalent share $( 283,960) $ 21,456
Weighted average common shares outstanding 1,632,776 1,503,305
Adjustments
Assumed issuance of shares purchased under stock
option and stock purchase plans 7,313 114,780
Assumed exercise of warrants 50,000 14,046
Assumed conversion of:
Class A Variable Rate Cumulative Convertible Preferred Stock 4,894,463 4,894,463
Class B Variable Rate Cumulative Convertible Preferred Stock 299,929 428,266
Total common and equivalent shares 6,884,481 6,954,860
Earnings (loss) per common and equivalent share $( .04) $ -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MEDCROSS, INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 320051
<SECURITIES> 0
<RECEIVABLES> 1778151
<ALLOWANCES> 852347
<INVENTORY> 839907
<CURRENT-ASSETS> 2190786
<PP&E> 3393896
<DEPRECIATION> 1491504
<TOTAL-ASSETS> 4786750
<CURRENT-LIABILITIES> 2032069
<BONDS> 690103
<COMMON> 12244
0
2075000
<OTHER-SE> (434962)
<TOTAL-LIABILITY-AND-EQUITY> 4786750
<SALES> 337889
<TOTAL-REVENUES> 1117493
<CGS> 185157
<TOTAL-COSTS> 185157
<OTHER-EXPENSES> 840617
<LOSS-PROVISION> 327588
<INTEREST-EXPENSE> 39128
<INCOME-PRETAX> (271181)
<INCOME-TAX> 0
<INCOME-CONTINUING> (283960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283960)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
