UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A#1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from ___________________ to ______________
Commission File No. 0-17973.
MEDCROSS, INC.
(Name of small business issuer in its charter)
Florida 59-2291344
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3227 Bennet Street North, St. Petersburg, Florida 33713
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 521-1793
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.007 par value
(Title of Class)
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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was $3,122,953.
The aggregate market value of Common Stock held by non-affiliates based upon
the closing bid price of $3.875 on February 29, 1996, as reported by NASDAQ was
approximately $10,240,846.
As of February 29, 1996 there were 6,781,983 shares of Medcross, Inc. Common
Stock, $.007 par value, outstanding.
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
<PAGE>
Item 7. Financial Statements.
See Index to Consolidated Financial Statements on page 30.
17
<PAGE>
Item 10. Executive Compensation.
Summary Compensation Table. The Company did not have any executive officers
who served as such at the end of the last fiscal year that earned more than
$100,000 in salary and bonus. The following table sets forth the aggregate
cash compensation paid for services rendered to the Company during the last
three fiscal years by the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------- ---------------------- -----------
Other Securities
Annual Restricted Underlying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) Awards ($) SARs (#) Payouts ($) sation ($)
- ------------------ ---- ---------- --------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry Y.L. Toh<F1> 1995 58,051 0 225<F2> 0<F3> 11,167 0 N/A
President and CEO 1994 54,362 0 815<F2> 0 1,167 0 N/A
1993 54,000 0 810<F2> 0 81,900 0 N/A
19
<PAGE>
<FN>
<F1>1 Mr. Toh began his employment with the Company in April 1992 and was appointed President and CEO in May 1993.
<F2>2 Represents Company contributions to 401(k) plan on behalf of Mr. Toh.
<F3>3 Mr. Toh had no restricted stock holdings at the end of the last fiscal year.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year (1995). The following table sets forth
certain information with respect to the options granted during the last fiscal
year to the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Number of Securities Percent of Total Exercise
Underlying Options/SARs Granted to or Base
Name Options/SARS Granted (#) Employees in Fiscal Year Price ($/Sh) Expiration Date
- ---------------- ------------------------ ------------------------ ------------ ---------------
<S> <C> <C>
Henry Y.L. Toh 1,167<F1> 100% $0.875 06/29/2005
10,000<F1> 100% $1.25 10/16/2005
<FN>
<F1>1 Does not reflect options to purchase 160,000 shares of Common Stock granted subsequent to the
end of the 1995 fiscal year.
</FN>
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values. The following table sets forth certain information with
respect to options exercised during fiscal 1995 by the Company's Chief Executive
Officer and with respect to unexercised options held by such person at the end
of fiscal 1995.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in
Acquired on Value Underlying Unexercised the Money Options/SARs
Name Exercise (#) Realized $ Options/SARS at FY-End (#) at FY-End ($)<F1>
- -------------- ------------ ---------- -------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry Y.L. Toh -- -- 36,904<F2> 58,497 0 $ 146
<FN>
<F1>1 The calculations of the value of unexercised options are based on the difference between
the closing bid price on NASDAQ of the Common Stock on December 31, 1995, and the exercise
price of each option, multiplied by the number of shares covered by the option.
<F2>2 Subsequent to the 1995 fiscal year end, 24,570 and 57,330 of the Exercisable and Unexercisable
Options, respectively, were relinquished, and 150,000 options exercisable at $1.125 through
February 7, 2006 were issued to Mr. Toh.
</FN>
</TABLE>
No awards were made under any long-term incentive plans during 1995 or 1994.
Director Compensation
Directors are compensated $100 for each meeting of the Board of Directors
attended. In addition, directors have been automatically granted options under
the Company's 1992 Director Plan to purchase 1,167 shares of Common Stock on
the last Friday in June each year until adoption of the 1995 Director Stock
Option Plan. Pursuant to the 1995 Director Stock Option Plan which was
recently approved at the annual meeting of stockholders held in October 1995,
directors receive options in accordance with the following formula: (i) on
October 17, 1995; (ii) on the first business day of January 1996; and (iii) on
the first business day of each January thereafter, each member of the Board of
Directors then serving will receive options to purchase 10,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of the grant. The Company's compensation committee may also grant
options at its discretion to reward directors for extraordinary service to the
Company.
Consulting Agreements
The Company entered into a consulting agreement for the three month period
ended October 23, 1995 with Bijan Taghavi, formerly an officer and director of
the Company. Pursuant to such agreement, Mr. Taghavi was engaged to provide
such consulting services as requested by the Company in exchange for
compensation at the rate of $5,208 per month. Mr. Taghavi's consulting
agreement contains certain mutual release, non-competition and confidentiality
provisions.
The Company entered into a consulting agreement with Timothy R. Barnes,
formerly an officer of the Company (the "Barnes Agreement"), which agreement
expired February 6, 1996. The Barnes Agreement provided for the issuance to
Mr. Barnes of warrants to purchase 36,858 shares of Common Stock exercisable at
a purchase price equal to the fair market value of the Common Stock at the date
20
<PAGE>
of grant. The Barnes Agreement also contained standard non-competition and
confidentiality provisions.
The Company also entered into two consulting agreements with Jason H. Pollak,
the initial term of one of which expired on January 31, 1996 and the second of
such agreements commenced thereafter. The term of the second agreement was for
a period of three years, subject to earlier termination by the Company.
Pursuant to the terms of the first of such agreements (collectively, the
"Pollak Agreements"), Mr. Pollak received 50,000 shares of Common Stock. The
second of the Pollak Agreements provided Mr. Pollak with an option to purchase
up to 50,000 shares of Common Stock each year at prices of $1.50, $2.50 and
$3.50, respectively. The second of the Pollak Agreements was terminated by the
Company on March 5, 1996 (upon thirty days' advance notice which renders such
termination effective April 4, 1996). The shares of Common Stock subject to
the Barnes Agreement and the Pollak Agreements have been included in
registration statements on Form S-8 recently filed by the Company with the
Commission (Registration Nos. 33-63751, 33-63749 and 333-01525, respectively).
The Company entered into a consulting agreement with Windy City, Inc. for the
period beginning January 1, 1996 and ending December 31, 1998. Mr. Joel Kanter,
a director of the Company is the President and a director of Windy City, Inc.
Pursuant to such agreement, Windy City, Inc. was engaged to provide such
consulting services as requested by the Company in exchange for compensation at
the rate of $6,250 prer quarter.
Employment Agreements
In February 1996, the Company entered into two-year employment agreements with
Henry Toh, President and Chief Executive Officer, Dorothy Michon, Vice President
of Operations, and with Stephanie Giallourakis, Controller and Secretary. The
Employment Agreements are each for an initial period ending on December 31, 1997
and are automatically renewable for successive one-year periods unless written
notice to the contrary is given by the Company not less than 120 days prior to
expiration of the term. Pursuant to the terms of the employment agreements,
each such officer is required to devote such of his or her time to the business
and affairs of the Company as is required to fulfill the duties and
responsibilities of his or her office. Mr. Toh is entitled under his employment
agreement to receive compensation at the rate of $54,000 per year, Ms. Michon is
entitled to compensation at the rate of $63,000 and Ms. Giallourakis is entitled
to compensation at the rate of $53,000 per year. Each such officer is entitled
to an annual bonus in the discretion of the Board of Directors and may
participate in fringe benefit, deferred compensation, stock benefit and option
plans of the Company. In the event of termination by the Company other than for
"cause" (as defined in the agreement) or by Mr. Toh upon "good reason" (as
defined in the agreement) the Company is required to pay Mr. Toh, as liquidated
damages or severance pay, monthly termination payments equal to the base salary
in effect for a period of six months after such termination and, with respect to
Ms. Michon and Ms. Giallourakis, each such officer is entitled to monthly
termination payments equal to the base salary in effect for periods of three
months after any such termination. Each of the employment agreements contains
confidentiality and non-solicitation provisions.
I-Link entered into three-year employment agreements on February 21, 1996 with
each of Clay Wilkes, an officer and employee, and Alex Radulovic, an employee of
I-Link. Under his employment agreement, Mr. Wilkes is employed as Chairman of
the Board and Chief Executive Officer of I-Link at a salary of $95,000 per
annum, subject to adjustment upon satisfaction of performance criteria. Under
his employment agreement, Mr. Radulovic is employed as Executive Vice President
of I-Link at a salary of $90,000 per annum, subject to adjustment upon
satisfaction of performance criteria. In the event of termination by the
Company not involving "Just Cause" (as defined in the agreement) or upon a
material breach by the Company which is unremedied for 30 days after written
notice, each of Mr. Wilkes and Mr. Radulovic are entitled to receive, as
liquidated damages or severance pay, an amount equal to the Monthly Compensation
(as defined in the agreement) and, in addition, all options shall vest and all
Common Stock of Medcross held in escrow shall be released. Each of the
agreements contain non-competition and confidentiality provisions.
On April 8, 1996, subject to the approval of I-Link Board of Directors, I-Link
entered into a three-year employment agreement with John Edwards. Pursuant to
the terms of the employment agreement, Mr. Edwards will be employed as the Chief
Executive Officer and a Director of I-Link and will be required to devote
substantially all of his working time to the business and affairs of I-Link.
Mr. Edwards is entitled under his employment agreement to receive compensation
at the rate of $175,000 per year and is entitled to a profitability bonus in the
discretion of the I-Link Board of Directors and to participate in fringe
benefits of the Company as are generally provided to executive officers. In
21
<PAGE>
addition, Mr. Edwards is entitled to receive an option to purchase one million
of the shares of Common Stock of Medcross, Inc. at an exercise price of $7.00.
Of such options, 83,333 vest and become exercisable on the first calendar day of
each quarter for the twelve (12) quarters after April 8, 1996. In the event of
termination by I-Link or in the event of a violation of a material provision of
the agreement by I-Link which is unremedied for thirty (30) days and after
written notice or in the event of a "Change in Control" (as defined in the
agreement), Mr. Edwards is entitled to receive, as liquidated damages or
severance pay, an amount equal to the Monthly Compensation (as defined in the
agreement) for the remaining term of the agreement. The agreement contains non-
competition and confidentiality provisions.
Committees of the Board of Directors
Audit Committee. The Company's audit committee (the "Audit Committee") is
responsible for making recommendations to the Board of Directors concerning the
selection and engagement of the Company's independent certified public
accountants and for reviewing the scope of the annual audit, audit fees, and
results of the audit. The Audit Committee also reviews and discusses with
management and the Board of Directors such matters as accounting policies and
internal accounting controls, and procedures for preparation of financial
statements. Dr. Babcock is Chairman of the Audit Committee and Mr. Kanter is a
member of such committee.
Compensation Committee. The Company's compensation committee (the "Compensation
Committee") approves the compensation for executive employees of the Company.
Ms. Wong is Chairperson of the Compensation Committee and Mr. Kanter and Dr.
Babcock are members of such committee.
Executive Committee. The Company's executive committee (the "Executive
Committee") is vested with all the powers of the Board of Directors, subject to
the limitations set forth in the Florida Business Corporation Act. Ms. Wong is
Chairperson of the Executive Committee and Messrs. Toh and Kanter are members of
such committee.
Executive Stock Option Plan
The Company's 1989 Executive Stock Option Plan (the "ESOP"), which recently
expired pursuant to its terms, authorized the grant of stock options to key
employees of the Company including officers. Options granted under the ESOP
were non-qualified stock options exercisable at a price per share not less than
the highest bid price per share of the Common Stock as quoted on NASDAQ on the
date an option is granted. Options granted under the ESOP are exercisable not
less than one year nor more than five years after the grant date.
As of February 29, 1996, options for the purchase of 8,505 shares of Common
Stock at prices of $2.75 per share were outstanding. In connection with
adoption of the 1995 Employee Plan (as hereinafter defined), the Board of
Directors recently authorized suspension of future grants of options under the
ESOP; however, outstanding options granted under the ESOP will continue to be
governed by the terms thereof until exercise or expiration of such options.
Director Stock Option Plan
The Company's Director Stock Option Plan (the "DSOP") authorizes the grant of
stock options to directors of the Company. Options granted under the DSOP are
non-qualified stock options exercisable at a price equal to the fair market
value per share of Common Stock on the date of any such grant. Options granted
under the DSOP are exercisable not less than six months nor more than ten years
after the date of grant.
As of February 29, 1996, options for the purchase of 24,564 shares of Common
Stock at prices ranging from $.875 to $3.875 per share were outstanding. To
date, no options have been exercised. In connection with adoption of the 1995
Director Plan (as hereinafter defined), the Board of Directors recently
authorized the termination of future grants of options under the DSOP; however,
outstanding options granted under the DSOP will continue to be governed by the
terms thereof until exercise or expiration of such options.
22
<PAGE>
Stock Purchase Plan
In accordance with the Employee Qualified Stock Purchase Plan (the "Purchase
Plan"), employees may contribute up to ten percent of their base wages toward
the purchase of Common Stock. The exercise price of options granted under the
Purchase Plan is the lesser of 85% of the market value on the first business day
of the payment period (September 1) or the last business day of the payment
period (August 31). As of February 29, 1996, the Company had 36,059 shares of
Common Stock reserved for issuance on exercise of the purchase rights granted
under the Purchase Plan.
1995 Director Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan
provides for the issuance of incentive options, non-qualified options and stock
appreciation rights (the "1995 Director Plan").
The 1995 Director Plan provides for automatic and discretionary grants of stock
options which qualify as incentive stock options (the "Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options which do not so qualify (the "Non-Qualified Options") to be
issued to directors. In addition, stock appreciation rights (the "SARs") may be
granted in conjunction with the grant of Incentive Options and Non-Qualified
Options.
The 1995 Director Plan provides for the grant of Incentive Options, Non-
Qualified Options and SARs to purchase up to 250,000 shares of Common Stock
(subject to adjustment in the event of stock dividends, stock splits and other
similar events). To the extent that an Incentive Option or Non-Qualified Option
is not exercised within the period of exercisability specified therein, it will
expire as to the then unexercised portion. If any Incentive Option, Non-
Qualified Option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Director Plan, the shares of Common Stock as to which such
option or right was not exercised will become available under the 1995 Director
Plan for the grant of additional options or rights to any eligible employee.
The shares of Common Stock subject to the 1995 Director Plan may be made
available from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified Options on a
non-discretionary basis pursuant to the following formula: each member of the
Board of Directors then serving shall receive a Non-Qualified Option to purchase
10,000 shares of Common Stock at an exercise price equal to the fair market
value per share of the Common Stock on that date. Pursuant to such formula,
directors received options to purchase 10,000 shares of Common Stock as of
October 17, 1995, and will receive options to purchase 10,000 shares of Common
Stock on the first business day of each January beginning in 1996. Each option
is immediately exercisable for a period of ten years from the date of grant.
The Company has 250,000 shares of Common Stock reserved for issuance under the
1995 Director Plan. As of February 29, 1996, options exercisable to purchase
230,000 shares of Common Stock at prices ranging from $1.00 to $1.25 per share
have been granted under the 1995 Director Plan.
1995 Employee Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995
Employee Plan"), which plan provides for the issuance of Incentive Options, Non-
Qualified Options and SARs.
Directors of the Company are not eligible to participate in the 1995 Employee
Plan. The 1995 Employee Plan provides for the grant of stock options which
qualify as Incentive Stock Options under Section 422 of the Code, to be issued
to officers who are employees and other employees, as well as Non-Qualified
Options to be issued to officers, employees and consultants. In addition, SARs
may be granted in conjunction with the grant of Incentive Options and Non-
Qualified Options.
The 1995 Employee Plan provides for the grant of Incentive Options, Non-
Qualified Options and SARs of up to 400,000 shares of Common Stock (subject to
adjustment in the event of stock dividends, stock splits and other similar
events). To the extent that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then unexercised portion. If any Incentive Option, Non-Qualified
23
<PAGE>
Option or SAR terminates prior to exercise thereof and during the duration of
the 1995 Employee Plan, the shares of Common Stock as to which such option or
right was not exercised will become available under the 1995 Employee Plan for
the grant of additional options or rights to any eligible employee. The shares
of Common Stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. The Company
has 400,000 shares of Common Stock reserved for issuance under the 1995 Employee
Plan. As of February 29, 1996, options to purchase 75,000 shares of Common
Stock with exercise prices of $1.125 per share have been granted under the 1995
Employee Plan.
24
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this Report (see Exhibit Index
on page 50):
<TABLE>
<S> <C>
2(a)<F6> Management Agreement Assignment, effective June 1, 1993 between
Florida Medical Enterprises, Inc. and Waters Edge Scanning
Associates, Inc.
2(b)<F6> Lease Assignment and Asset Purchase Agreement dated as of June 1,
1993 between Waters Edge Scanning Associates, Ltd. and Medcross,
Inc.
2(c)<F10> Joint Venture Interest Purchase Agreement, effective October 1,
1994 between Medcross, Inc. and Urology Ultrasound, Inc.
2(d)<F15> Stock Purchase Agreement, dated February 13, 1996, by and among
Medcross, Inc., ILINK, Ltd., and Gnet Enterprises, Inc.
2(e)<F15> Escrow Agreement, dated February 21, 1996, by and among Medcross,
Inc., ILINK, Ltd., and De Martino, Finkelstein, Rosen & Virga.
3(a)<F16> Amendment to the Amended and Restated Articles of Incorporation
dated December 18, 1995.
3(b)<F16> Composite copy of the Amended and Restated Articles of
Incorporation incorporating all amendments through the date of
the filing of this Form 10-KSB.
3(c)<F8> Bylaws of the Company, as amended.
3(d)<F16> Articles of Incorporation of I-Link Worldwide, Inc.
3(e)<F16> Bylaws of I-Link Worldwide, Inc.
4(a)<F1> Specimen Common Stock Certificate.
4(b)<F7> Promissory Note payable to Waters Edge Scanning Associates, Ltd.
in the amount of $600,000, dated June 1, 1993.
26
<PAGE>
4(c)<F7> Promissory Note contingently payable to Waters Edge Scanning
Associates, Ltd. in the amount of $365,000, dated June 1, 1993.
4(d)<F7> Promissory Note contingently payable to Waters Edge Scanning
Associates, Ltd. in the amount of $365,000, dated June 1, 1993.
4(e)<F8> Form of Promissory Note payable to limited partners of Medcross
Imaging, Ltd. in the aggregate amount of $75,000, dated October
1, 1993.
4(f)<F11> Series CS Warrant to Purchase Common Shares of Medcross, Inc.
4(g)<F13> Common Stock Purchase Option to Purchase Common Shares of
Medcross, Inc.
4(h)<F15> Form of 10% Convertible Promissory Note dated February 21, 1996.
4(i)<F16> Non-Negotiable 10% Promissory Note payable to Scott Cook in the
amount of $100,000, dated October 19, 1995.
4(j)<F16> Guaranty by and between Medcross, Inc. and Scott Cook, dated
October 19, 1995.
4(k)<F16> Security Agreement by and between ILINK, Ltd., Scott Cook, and
Medcross, Inc. dated October 19, 1995.
4(l)<F16> Common Stock Purchase Option to Purchase Common Shares of
Medcross, Inc.
9(a)<F4> Shareholder's Agreement dated February 19, 1992 among Four M
International, Inc., Walnut Capital Corp., Windy City, Inc., and
Canadian Imperial Bank of Commerce Trust Company (Bahamas)
Limited.
9(b)<F10> First Amendment to Shareholder's Agreement.
*10(a)<F9> The Company's Director Stock Option Plan.
*10(b)<F2> The Company's Executive Stock Option Plan.
10(c)<F2> MR Service Agreement, dated August 14, 1990, between Medcross
Imaging, Ltd. and HealthTrust, Inc. with respect to Edward White
Hospital.
10(d)<F2> MR Service Agreement, dated August 14, 1990, between Medcross
Imaging, Ltd. and HealthTrust, Inc. with respect to South Bay
Hospital.
10(e)<F3> Stock Purchase Agreement, dated February 9, 1992, between
Medcross, Inc., Four M International Limited, Walnut Capital
Corp, Windy City, Inc., and Canadian Imperial Bank of Commerce
Trust Company.
10(f)<F5> First Amendment to Stock Purchase Agreement, dated May 21, 1992,
between Medcross, Inc., Four M International, Inc., Walnut
Capital Corp., Windy City, Inc., and Canadian Imperial Bank of
Commerce Trust Company (Bahamas) Limited, as trustee.
10(g)<F10> Financial Consulting Agreement and Common Stock Purchase Warrant
dated as of November 3, 1994 between Medcross, Inc. and JW
Charles Financial Services, Inc.
10(h)<F11> Consulting Agreement, dated as of August 6, 1995, between the
Company and Timothy R. Barnes.
10(i)<F12> Consulting Agreement, dated September 1, 1995, by and among
Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak.
10(j)<F13> Amendment to and Restatement of the Amended and Restated
Consulting Agreement, dated March 4, 1996, by and among
Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak.
10(k)<F13> Termination of Amended and Restated Consulting Agreement, dated
March 5, 1996, by and among Medcross, Inc., Kalo Acquisitions,
LLC, and Jason H. Pollak.
10(l)<F14> MR Service Agreement effective October 1, 1995, by and between
Medcross Imaging, Ltd. and South Bay Hospital.
10(m)<F14> MR Service Agreement effective October 1, 1995, by and between
Medcross Imaging, Ltd. and Edward White Hospital.
*10(n)<F16>Employment Agreement, dated February 4, 1996, between Medcross,
Inc. and Henry Y.L. Toh.
*10(o)<F16>Employment Agreement, dated January 1, 1996, between Medcross,
Inc. and Dorothy L. Michon.
*10(p)<F16>Employment Agreement, dated January 1, 1996, between Medcross,
Inc. and Stephanie E. Giallourakis.
*10(q)<F16>Employment Agreement, dated February 14, 1996, between Medcross,
Inc. and Clay Wilkes.
*10(r)<F16>Employment Agreement, dated February 14, 1996, between Medcross,
Inc. and Alex Radulovic.
*10(s)<F16>The Company's 1995 Director Stock Option and Appreciation Rights
Plan.
*10(t)<F16>The Company's 1995 Employee Stock Option and Appreciation Rights
Plan.
*10(u)<F16>Employment Agreement, dated April 8, 1996, between Medcross, Inc.
and John W. Edwards.
11 Statement regarding computation of earnings
per common share. Page 186
21<F16> Subsidiaries of the registrant.
23<F16> Consent of Coopers & Lybrand L.L.P.
23(a) Consent of Coopers & Lybrand L.L.P. Page 189
27 Financial Data Schedule Page 190
- --------------
<FN>
<F1>1 Incorporated by reference to the Company's registration statement on
Form S-18 file number 33-27978-A.
<F2>2 Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1990, file number 0-17973.
<F3>3 Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1991, file number 0-17973.
27
<PAGE>
<F4>4 Incorporated by reference to the Company's current report on Form 8-K
dated March 30, 1992, file number 0-17973.
<F5>5 Incorporated by reference to the Company's current report on Form 8-K
dated May 21, 1992, file number 0-17973.
<F6>6 Incorporated by reference to the Company's current report on Form 8-K
dated June 30, 1993, file number 0-17973.
<F7>7 Incorporated by reference to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1993, file number 0-17973.
<F8>8 Incorporated by reference to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1993, file number 0-17973.
<F9>9 Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1993, file number 0-17973.
<F10>10 Incorporated by reference to the Company's annual report on Form
10-KSB for the year ended December 31, 1994, file number 0-17973.
<F11>11 Incorporated by reference to the Company's registration statement filed
on Form S-8, file number 33-63751.
<F12>12 Incorporated by reference to the Company's registration statement on
Form S-8, file number 33-63749.
<F13>13 Incorporated by reference to the Company's registration statement on
Form S-8, file number 333-01525.
<F14>14 Incorporated by reference to the Company's current report on Form 8-K,
dated October 31, 1995, file number 0-17973.
<F15>15 Incorporated by reference to the Company's current report on Form 8-K,
dated February 23, 1996, file number 0-17973.
<F16>16 Previously filed on the Company's annual report on Form 10-KSB for the
years ended December 31, 1995, filed on April 15, 1996, file number
0-17973.
<F*> Indicates a management contract or compensatory plan or
arrangement required to be filed herewith.
</FN>
</TABLE>
(b) A report on Form 8-K dated October 31, 1994 was filed by the Company
regarding the acquisition of the 75% ownership interest in Urological
Ultrasound Services of Tampa Bay, a partnership in which the Company
already owned a 25% ownership interest. The Form 8-K was amended in
January 1995 to include financial statements of the partnership and
proforma financial statements of the Company.
A report on Form 8-K dated October 31, 1995 was filed by the Company
regarding various contracts entered into by the corporation. No
financial statements were included.
A report on Form 8-K dated February 23, 1996 was filed by the Company
regarding the acquisition of the securities of I-Link Worldwide, Inc.,
the completion of a private placement of $1,000,000 in aggregate
principal amount of convertible promissory notes, and the conversion of
Class A Preferred Stock into Common Stock. No financial statements were
included.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: June 20, 1996 MEDCROSS, INC.
(Registrant)
By: /s/ Henry Y.L. Toh
Henry Y.L. Toh
President/Director/CEO/Acting CFO
29
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants 31
Consolidated Balance Sheet 32
Consolidated Statements of Operations 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 36
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Medcross, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of Medcross,
Inc. and subsidiaries as of December 31, 1995 and the related statements of
operations and cash flows for the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medcross, Inc. and subsidiaries as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the two years then ended in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, LLP
Tampa, Florida
April 15, 1996
31
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
Assets
<S> <C>
Current assets
Cash and cash equivalents $ 79,316
Accounts receivable less allowances of $694,436 921,793
Inventory 829,988
Prepaid expenses 87,253
---------
Total current assets 1,918,350
---------
Property and equipment
Office furniture, equipment, leasehold
improvements, and vehicles 386,736
Medical equipment and vehicles 2,970,122
---------
3,356,858
Less accumulated depreciation 1,736,701
---------
Net property and equipment 1,620,157
---------
Investment in unconsolidated subsidiary 6,250
Intangible assets less accumulated amortization of $244,887 535,468
Other assets 66,638
---------
Total assets $ 4,146,863
=========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 615,373
Advance deposits received 233,728
Note payable - related party 88,000
Notes payable 400,000
Current portion of long-term debt - relate party 39,230
Current portion of long-term debt 702,447
Current obligations under capital lease 155,145
---------
Total current liabilities 2,233,923
---------
Long-term debt - related party 87,682
Minority interest in consolidated subsidiaries 370,092
Commitments and contingencies -
Stockholders' equity
Preferred stock 2,075,000
Common stock, $.007 par value, authorized 20,000,000
shares, issued and outstanding 1,803,092 shares 12,622
Additional paid-in capital 3,428,854
Accumulated deficit (4,061,310)
---------
Total stockholders' equity 1,455,166
---------
Total liabilities and stockholders' equity $ 4,146,863
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
1995 1994
----------- -----------
<S> <C> <C>
Net health care service revenue $ 2,785,064 $ 3,268,910
Equipment sales and service 337,889 504,015
--------- ---------
Net operating revenue 3,122,953 3,772,925
--------- ---------
Cost of goods sold - equipment sales and service 154,481 542,195
Salaries and benefits 1,123,340 1,253,799
Repairs and maintenance 309,255 321,988
Provision for doubtful accounts 365,093 365,690
Depreciation and amortization 465,020 488,963
Other operating expenses 1,199,519 1,331,898
--------- ---------
Operating loss ( 493,755) ( 531,581)
--------- ---------
Interest expense ( 160,423) ( 168,183)
Interest income 10,717 29,815
Gain (loss) on sale of property and equipment ( 765) 425
Equity in net income (loss) of unconsolidated
subsidiaries 20,500 ( 66,249)
Other income 59,377 4,630
--------- ---------
Loss before minority interest in net income
(loss) of consolidated subsidiaries and
income tax benefit ( 564,349) ( 731,143)
Minority interest in net income (loss) of
consolidated subsidiaries 12,440 ( 52,385)
--------- ---------
Loss before income tax benefit ( 551,909) ( 783,528)
Income tax benefit - ( 68,094)
--------- ---------
Net loss $( 551,909) $( 715,434)
========= =========
Loss per common and equivalent
share after preferred dividends $( .39) $( .55)
========= =========
Weighted average common and equivalent
shares outstanding 1,756,540 1,520,960
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $( 551,909) $( 715,434)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Depreciation 380,396 403,191
Amortization 84,624 85,745
Warranty liability ( 94,091) 93,280
Warrant expense 16,667 3,333
Professional fees 50,000 -
Provision for doubtful accounts 365,093 365,690
Gain (loss) on sale of property and equipment 765 ( 425)
Equity in net loss (income) of
unconsolidated subsidiaries ( 20,500) 66,249
Distributions from unconsolidated subsidiary - 120,853
Minority interest in net income (loss)
of consolidated subsidiaries ( 12,440) 52,385
Provision for deferred income tax benefit - ( 68,094)
Decrease (increase) in assets:
Accounts receivable ( 161,353) ( 431,078)
Inventory 91,926 ( 825,079)
Prepaid expenses 41,338 ( 12,358)
Organization and loan costs 14,055 ( 47,206)
Other assets 5,127 2,146
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 201,634 267,739
Other current liabilities ( 91,970) 266,850
--------- ---------
Net cash provided (used) by operating
activities 319,362 ( 372,213)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment ( 23,222) ( 47,611)
Purchase interest in Urological Ultrasound
Services of Tampa Bay - ( 168,162)
Purchase minority interest in Medcross
Imaging, Ltd. - ( 9,000)
Proceeds from sale of property and equipment 5,755 425
Investment in unconsolidated subsidiary ( 6,250) ( 3,750)
Sale of interest in unconsolidated subsidiary 28,000 -
--------- ---------
Net cash provided (used) by investing
activities 4,283 ( 228,098)
--------- ---------
- continued -
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Net proceeds from notes payable -
related parties $ 218,000 $ -
Net proceeds (reduction of) from notes
payable ( 151,000) 276,000
Reductions of long-term debt - related party ( 3,088) -
Reductions of long-term debt ( 367,783) ( 389,143)
Reduction of capital lease obligations ( 246,451) ( 223,765)
Issuance of common stock 15 8
Additional paid-in capital 1,805 2,974
Minority interest contributions - 260,417
Minority interest distributions ( 54,750) ( 55,517)
--------- ---------
Net cash used by financing activities ( 603,252) ( 129,026)
--------- ---------
Effect of foreign currency translation on
cash flows ( 2,234) ( 86,263)
--------- ---------
Decrease in cash and cash equivalents ( 281,941) ( 815,600)
Cash and cash equivalents at beginning of year 361,157 1,176,757
--------- ---------
Cash and cash equivalents at end of year $ 79,316 $ 361,157
========= =========
Supplemental cash flow information
Interest paid $ 129,859 $ 140,979
========= =========
Income taxes paid (received) $ - $ -
========= =========
</TABLE>
In May 1994, the Company revalued the accounts receivable of Tampa MRI that were
purchased in June 1993. Purchased receivables were revalued at $183,273 greater
than originally recorded, which resulted in a corresponding decrease in
goodwill.
In July 1994, a holder of Class B Preferred Stock converted 695 shares into
17,008 shares of common stock.
In October 1994, upon dissolution of Urological Ultrasound Services of Tampa
Bay, $108,612 in assets and liabilities, excluding cash, were distributed to
the Company.
In November 1994, a Warrant to purchase 250,000 shares of common stock was
issued pursuant to a Financial Consulting Agreement. The Warrant was valued at
$20,000, which is included in paid-in capital and is being expensed over the
one-year term of the agreement.
In February 1995, a holder of Class B Preferred Stock converted 9,305 shares
into 227,714 shares of common stock.
In September 1995, the Company entered into a consulting agreement whereby
50,000 shares of common stock was issued. The market price of the common stock
upon issuance was $62,500 and is being expensed over the five month term of the
consulting agreement.
In September 1995, one of the noteholders of the $600,000 promissory note
demanded payment, due in common stock. A reduction of $5,201 of the debt
resulted in an issuance of 1,849 shares of common stock.
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business
Nature of business
The Company is in two businesses. Domestically the Company is a provider of
diagnostic and clinical services to healthcare facilities and directly to
patients both with its own equipment and equipment of other entities under
management contracts. In China, the Company sells and services used medical
equipment.
Note 2 - Accounting policies
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
Principles of consolidation
The consolidated financial statements include the accounts of Medcross, Inc.
(the Company) and the following subsidiaries:
- Medcross Imaging, Ltd., a limited partnership, provides mobile magnetic
resonance imaging services to healthcare facilities. The Company is the
sole general partner of the partnership and had a 81.75% ownership interest
as of December 31, 1995 and 1994.
- Waters Edge Scanning Associates, Inc., a Florida corporation, provides
magnetic resonance imaging services. This wholly owned subsidiary acquired
the assets of Waters Edge Scanning Associates, Ltd. and its general partner,
Florida Medical Enterprises, Inc. on June 1, 1993.
- Urological Ultrasound Services of Tampa Bay, Inc., a Florida corporation,
provides mobile ultrasound services. This wholly owned subsidiary began
operations in October 1994 after completion of an acquisition of the 75%
ownership interest not previously owned by the Company. Prior to that time,
the Company recorded its share of income or loss from the 25% ownership
interest on the equity method. On May 1, 1995, this subsidiary distributed
all of its assets net of liabilities to the Company. All of the assets of
this subsidiary, except cash, were contributed to Waters Edge Scanning
Associates, Inc.
- Medcross Asia, Ltd., a Hong Kong corporation, was formed by the Company as
a wholly owned subsidiary in 1993. This corporation is seeking investment
and equipment trading opportunities in the Far East.
- Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), a People's
Republic of China (PRC) corporation formed in January 1994, sells and
services used computerized tomography (CT) equipment in the Shenyang
Province of the PRC. The Company has a 51% ownership interest in SMHME.
All significant intercompany transactions are eliminated in consolidation.
Use of estimates
The preparation of financial statements in conforming with generally accepted
accounting principals 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.
Estimates also affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
36
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Accounting policies - continued
Fair value of financial instruments
To meet the reporting requirements of FASB Statement No. 107 ("Disclosure about
Fair Value of Financial Instruments"), the Company calculates the fair value of
financial instruments and includes this additional information in the notes to
the consolidated financial statements when the fair value is different than the
book value of those financial instruments. When the fair value is equal to the
book value, no additional disclosure is made. The Company uses quoted market
prices whenever available to calculate these fair values. When quoted market
prices are not available, the Company uses standard pricing models for various
types of financial instruments which takes into account the present value of
future cash flows.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less.
Inventory
Inventories consist of used and refurbished computerized tomography scanners
held for sale in China. Inventories are valued at the lower of cost or market
using the specific identification method.
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated using
the declining balance method over the estimated useful lives of the assets, four
to nine years. Expenditures for maintenance and repairs are charged to expense
as incurred, and renewals and betterments are capitalized. Gains or losses on
disposals are credited or charged to operations.
Investment in unconsolidated subsidiaries
During 1995, the Company sold its interest in an unconsolidated subsidiary for
$28,000, which was a $78,750 investment in a Florida partnership formed in
February 1993. This investment was accounted for under the cost method of
accounting. The Company had a 7.5% equity and profits interest in this
partnership. The partnership's primary business was the sole shareholder of a
Cayman Islands corporation which discontinued operations during the second
quarter of 1994. As a result, the Company recorded a $71,250 writedown of the
value of the investment during 1994.
Until October 1, 1994, the Company had an interest in another unconsolidated
subsidiary, Urological Ultrasound Services of Tampa Bay (UUSTB). This
subsidiary was accounted for under the equity method of accounting, whereby the
cost of the investment was adjusted for the allocable share of the undistributed
income or losses of the subsidiary. The Company had a 25% equity and profits
interest in UUSTB before it purchased the remaining ownership interest. At that
time, the partnership was dissolved and a new company was formed (See Note 5).
During 1995, the Company invested $6,250 in a joint venture formed in October
1995. The Company has an 18.75% interest in this joint venture and it is
accounted for under the cost method of accounting. The joint venture was formed
to determine the feasibility of the commercialization of telemedicine.
37
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Accounting policies - continued
Intangible assets
Organization cost is amortized on the straight-line basis over a period of
sixty months. Loan costs are amortized on a straight-line basis over the period
of the loans (36 months to 60 months). Syndication and other issuance costs
incurred with respect to equity offerings of the Company and sale of limited
partnerships interests are deferred and offset against the proceeds of the
offerings at closing. Goodwill is amortized on the straight-line basis over a
period of twenty to twenty-five years.
Revenue recognition
The Company recognizes revenue from health care services at the time services
are performed net of contractual allowances based on agreements with third party
payers. The Company records revenue from equipment sales when installation is
completed. Advance deposits received prior to installation are recorded as a
current liability.
Warranty liability
Equipment sales are generally accompanied by a service warranty. Expected
future product warranty costs are recorded as an expense and liability when the
product is sold.
Foreign currency translation
The functional currency for the Company's foreign operations is the applicable
local currency. The translation from the applicable foreign currencies to U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for income statement items using a weighted
average exchange rate for the period. The gains or losses, net of applicable
deferred income taxes, resulting from such translations are included in
stockholders' equity.
Some transactions of the Company and its subsidiaries are made in currencies
different from their own. Gains and losses from these transactions are
generally included in income as they occur.
Net foreign currency transaction gains or losses are not material for any of
the periods presented. The effect of foreign currency translation on cash flows
in 1994 is primarily the difference between the capital contribution exchange
rate stipulated in the joint venture agreement and the exchange rate at the time
of the contribution.
Income taxes
The Company records deferred taxes in accordance with the Financial Accounting
Standards Board (FASB) Statement 109, "Accounting for Income Taxes." The
Statement requires recognition of deferred tax assets and liabilities for the
temporary differences between the tax bases of assets and liabilities and the
amounts at which they are carried in the financial statements based upon the
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
38
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Accounting policies - continued
Income (loss) per common and equivalent share
Income (loss) per common and equivalent share is based on 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 they approximate earnings
per common and equivalent share.
Note 3 - Major customers and concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash and cash equivalents with what it
believes to be high credit quality financial institutions and attempts to limit
its exposure in any one particular instrument.
The Company provided magnetic resonance imaging services to two major customers
in 1995 and 1994. The revenue and accounts receivable balances, net of
contractual allowances, at year end for each of these customers were as follows:
<TABLE>
<CAPTION>
Revenue Accounts Receivable
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Customer A $566,945 $825,751 $87,223 $92,263
Customer B 304,791 395,033 18,200 55,301
</TABLE>
Note 4 - Related party transactions
The Company had a management agreement with the unconsolidated subsidiary, of
which the Company is a general partner. The Company also had a management
agreement with the previously unconsolidated subsidiary of which it purchased
the 75% interest in October 1994. The Company recognized revenue from these
entities in the amount of $3,200 and $111,534 during 1995 and 1994,
respectively. There were no accounts receivables from these entities at
December 31, 1995.
During the first quarter of fiscal 1995, the Company received advances totaling
$218,000 from Mortgage Network International. Henry Y.L. Toh, the President and
Chief Executive Officer of the Company, has management control over Mortgage
Network International ("MNI"). Such advances were previously payable upon
demand. Subsequent to the extension of such advances, the Board of Directors
approved delivery of a promissory note representing the aggregate amount of such
advances, which promissory note matured by its terms on October 1, 1995 and
bears interest at one percent over the prime rate of interest established by
Southwest Bank of Texas, N.A. Subsequently, the Company and MNI modified the
Note such that: (i) a principal payment in the amount of eighty-eight thousand
dollars ($88,000) is due and payable on December 31, 1996; (ii) interest thereon
is payable monthly at the rate of 10.5%; and (iii) the remaining principal
amount of one-hundred thirty thousand dollars ($130,000) with interest thereon
at the rate of 10.5% will be paid in thirty-six (36) equal monthly payments of
four-thousand, two hundred, and twenty-five dollars and thirty-two cents
($4,225.32).
39
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Acquisition of assets
In October 1994, the Company closed on the acquisition of a 75% ownership
interest in Urological Ultrasound Services of Tampa Bay (UUSTB) from Urology
Ultrasound, Inc. Prior to the acquisition, the Company owned the other 25%
ownership interest in UUSTB. The total consideration given for the 75%
partnership interest was $168,162. The purchase price was paid in cash at
closing. UUSTB was organized on September 9, 1987 and is in the business of
providing urological ultrasound services to urologic patients in west central
Florida. When the Company acquired the 75% partnership interest in UUSTB from
Urology Ultrasound, Inc., the partnership ceased to exist. The Company
immediately transferred all assets and liabilities of the partnership, except
cash of $115,603 to Urological Ultrasound Services of Tampa Bay, Inc., a wholly
owned subsidiary of Medcross, formed for the purpose of this acquisition.
The acquisition was accounted for as a purchase. The results of operations of
the acquired enterprise is included in the consolidated financial statements
beginning October 1, 1994. Prior to the acquisition, the Company recorded its
share of income and loss on its 25% ownership interest in UUSTB using the
equity method.
The following table presents the pro forma financial information of the Company
and UUSTB for the year ended December 31, 1994 assuming such transactions had
occurred on January 1, 1994:
<TABLE>
<CAPTION>
Income (loss)
Net Operating Net Income Per Common
Year Ended December 31, 1994 Revenue (Loss) Share
------------- ---------- -------------
<S> <C> <C> <C>
Company $ 3,772,925 $(713,421) $(.55)
UUSTB 252,347 20,006 ===
--------- -------
Combined 4,025,272 (693,415)
Pro forma adjustments ( 76,034) ( 3,010)
--------- -------
Pro forma combined $ 3,949,238 $(696,425) $(.53)
========= ======= ===
</TABLE>
Note 6 - Purchase of minority interest
In October 1994, the Company acquired an additional 1% ownership interest in
Medcross Imaging, Ltd. Prior to the acquisition, the Company had a 80.75%
ownership interest. The acquisition increased the Company's ownership interest
in Medcross Imaging, Ltd. to 81.75%. The acquisition was made by purchasing a
limited partnership unit from a certain limited partner for $9,000. The
purchase price was paid in cash.
Note 7 - Notes payable
<TABLE>
<S> <C>
Unsecured promissory note, payable to Mortgage Network
International, interest payable at 10.5% payable monthly,
principal balance due December 31, 1996. $ 88,000
=========
Line of credit, $700,000, payable to First Union National
Bank, interest payable at 3/4% above prime rate, (prime
rate was 8.5% at December 31, 1995), principal balance due
June 30, 1996, collateralized by accounts receivable and
general assets of the Company. $ 400,000
=========
</TABLE>
The line of credit contains restrictive covenants relating to equity
requirements, minimum cash balances, acquisitions, debt to equity ratios,
borrowing base requirements, and net cash flow coverage requirements. On
December 31, 1995, the Company was in violation of the consolidated equity, net
cash flow coverage, past days sales and cash balance covenants. The Company
received a waiver from the bank of these loan covenant violations thru June 30,
1996. The company is continuing its attempts to secure new financing to repay
the line of credit.
40
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Notes payable - continued
The Company has reached an agreement with First Union National Bank pursuant to
which the Company has agreed to secure alternative financing to repay amounts
outstanding under the line of credit by June 30, 1996. In the event that the
Company is unable to secure such financing, the Company will be obligated to
repay amounts outstanding under the line of credit in increments of $10,000 per
month commencing on July 1, 1996, subject to negotiation of the terms of the
balloon payment thereafter which could be due on July 1, 1996. In the event the
line of credit is due on July 1, 1996, the Company will be required to secure
alternative financing to repay amounts outstanding.
Note 8 - Long-term debt
<TABLE>
<CAPTION>
Long-term debt at December 31, 1995 was as follows:
<S>
Equipment obligation, payable to First Union National Bank,
due in monthly installments of $28,929, plus accrued
interest at prime rate plus 3/4% per annum, (prime rate was
8.5% at December 31, 1995) until a final payment due
February 10, 1996, collateralized by certificate of deposit
and certain medical equipment. $ 32,648
Unsecured promissory note in amount of $600,000 inclusive of
simple interest through September 30, 1995 at rate of 5.33%,
payable on September 30, 1996 in 213,333 shares of Medcross
common stock. The holder may demand payment of principal
and interest any time after September 30, 1995. After this
date, the note bears interest at the rate of 8% per annum
payable in cash. 594,799
Unsecured promissory notes, payable to 11 individuals,
interest only paid quarterly, maturing September 30, 1996,
convertible on demand by holders into 18,750 shares of
Medcross common stock after September 30, 1995. 75,000
Unsecured promissory note, payable to Mortgage Network
International due in 36 equal monthly installments of
principal and interest totalling $4,225.32. The interest
rate is 10.5% 126,912
-------
829,359
Less current portion 741,677
-------
$ 87,682
=======
<CAPTION>
The fair value of the long-term debt was approximately $400,000 at December 31,
1995.
Principal repayments on long term obligations are expected to occur as follows:
<S> <C>
Years ending December 31, 1996 741,677
1997 43,554
1998 44,128
-------
$829,359
=======
</TABLE>
Certain financing agreements contain restrictive covenants relating to equity
requirements, guarantor agreements, sales of property, acquisitions and debt to
equity ratio. The most restrictive covenant is that Medcross Imaging, Ltd.
cannot, without first having obtained a written consent of the lender, make
distributions to any of the partners unless its debt coverage ratio is equal to
or greater than 1.3 to 1.0 for any twelve consecutive months calculated on a
quarterly basis. At December 31, 1995, the Company was in compliance with the
covenants.
41
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Leases
The Company has a capital lease for its MRI equipment at Tampa MRI which
requires monthly payments of $22,886. The lease allows the Company to purchase
the equipment for $1 upon termination at July 31, 1996. At December 31, 1995,
the Company's property and equipment included $704,202 of medical equipment
under capital lease with accumulated amortization of $249,214.
The Company leases its corporate office and its China offices in Shenyang and
Beijing on a month-to-month basis.
The Company leases the facilities where Tampa MRI operates under two separate
operating leases. The lease for the medical facility is for five years,
commencing June 1, 1993, with a current lease payment of $3,431 per month, plus
sales tax. The Company has the option to extend the lease for an additional
two-year period. The lease for the business office space is for one year,
commencing June 1, 1995, with a current lease payment of $1,363 per month, plus
sales tax. The Company has the option to extend the lease for an additional
one-year period.
<TABLE>
<CAPTION>
Future minimum lease payments under the leases are as follows:
Capital Operating
-------- ---------
<S> <C> <C>
1996 $160,202 $ 47,987
1997 - 41,172
1998 - 17,155
------- -------
Total minimum obligations 160,202 $106,314
Less interest 5,057 =======
-------
Present value of net minimum obligations 155,145
=======
</TABLE>
Lease expense for 1995 and 1994 was $107,360 and $141,717, respectively.
Note 10 - Commitments and contingencies
As part of the consideration for the purchase of the assets of Waters Edge
Scanning Associates, Ltd. two contingent notes with a net present value of
$639,212 were issued. The contingencies are based on the MRI center meeting
various levels of cash receipts through September 30, 1995. These contingent
notes were not recorded due to the fact that the contingencies were not met.
The Company has guaranteed $100,000 of a promissory note issued by I-Link
payable to Scott Cook.
A Complaint was filed on April 12, 1996, by JW Charles Financial Services, Inc.
("JWC") against the Company in Palm Beach County Florida Circuit Court, JW
Charles Financial Services, Inc. v. Medcross, Inc., Case No: CL96-3218. JWC was
issued a Common Stock Purchase Warrant ("Warrant") on or about November 3, 1994
by the Company. The Alleged terms of the Warrant granted JWC the right to
purchase from the Company 250,000 shares of the Company's Common Stock subject
to adjustment. On or about February 12, 1996, JWC made written demand to the
Company to invoke its rights to have the common shares underlying the Warrant
registered pursuant to the terms of the Warrant. The Complaint alleges that the
Company breached the terms of the Warrant by failing to prepare and file with
the Securities and Exchange Commission ("SEC"), a registration statement
covering the common stock underlying JWC's Warrant. JWC alleges a breach of
contract; and requests specific performance, i.e., registering the shares with
the SEC, against the Company. JWC also demands damages in the amount of
$2,728,478.00 plus interest, reasonable attorneys fees, and forum costs. The
Company believes that it has meritorious defenses to the Complaint.
Note 11 - Income taxes
<TABLE>
<CAPTION>
The components of the provision (benefit) for income taxes for the years ended
December 31, 1995 and 1994 were as follows:
1995 1994
----------- -----------
<S> <C> <C>
Current tax expense $ - $ -
Deferred tax expense (benefit)
Current - 118,671
Deferred - ( 186,765)
--------- ---------
$ - $( 68,094)
========= =========
</TABLE>
42
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Income taxes - continued
<TABLE>
<CAPTION>
The sources of significant timing differences which gave rise to deferred tax
assets and liabilities as of December 31, 1995 are as follows:
Total Current Non-current
---------- ---------- -----------
<S> <C> <C> <C>
Conversion of subsidiaries from accrual to cash for tax purposes $(272,773) $(272,773) $ -
Book basis of property and equipment in excess of tax (339,419) - (339,419)
------- ------- -------
Total deferred tax liabilities (612,192) (272,773) (339,419)
------- ------- -------
Tax operating loss carryforward 778,180 231,422 546,758
Allowance for marketable securities 29,034 29,034 -
Non-deductible vacation accrual 12,317 12,317 -
Tax basis of goodwill and intangible assets in excess of book 107,115 - 107,115
Foreign loss 36,134 - 36,134
Tax capital loss carryforward 34,508 - 34,508
Valuation allowance for capital loss carryforward and deferred
tax asset in excess of deferred tax liability (385,096) ( -) (385,096)
------- ------- -------
Total deferred tax assets 612,192 272,773 339,419
------- ------- -------
Net deferred tax asset (liability) $ - $ - $ -
======= ======= =======
<CAPTION>
The valuation allowance increased $108,484 in 1995. The difference between the
actual tax provision and the amounts obtained by applying the statutory U.S.
Federal Income Tax rate to the income before taxes is as follows:
1995 1994
---------- ----------
<S> <C> <C>
Tax benefit at statutory rate $(187,649) $(266,400)
Increase (decrease) in taxes resulting from the tax effects of:
State income taxes - net ( 30,355) ( 43,094)
Non-deductible meals and entertainment 33 7,434
Non-deductible stock warrant amortization 6,583 1,316
Non-taxable foreign currency translation adjustments 2,710 2013
Increase in total valuation allowance 108,484 240,509
Increase of prior year operating loss carryforward - ( 4,436)
Expiration of capital loss carryforward 1,224 1596
Allowance for douftul accounts 115,644 -
Adjust basis of property and equipment book to tax difference - ( 7,032)
Other ( 16,674) -
------- -------
$ - $( 68,094)
======= =======
</TABLE>
As of December 31, 1995, the Company had a $1,970,075 net operating loss carry
forward and a $87,361 capital loss carryforward. The net operating loss carry
forward will expire between the years 2006 and 2009. These amounts are subject
to annual limitations pursuant to provisions of the Internal Revenue Code
relating to cumulative changes in ownership. The capital loss carryforward will
expire between the years 1996 and 1997. A valuation allowance has been
recognized to offset that portion of the deferred tax assets whose realization
is conditioned upon the realization of future taxable income or capital gains.
43
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity
Common stock
In August 1994, the Company issued 17,008 shares of common stock upon the
conversion of 695 shares of preferred stock.
In February 1995, the Company issued 227,714 shares of common stock upon the
conversion of 9,305 shares of preferred stock.
In November 1995, the Company issued 50,000 shares of common stock to a
consultant for consulting services as provided in a consulting agreement.
In November 1995, the Company issued 1,849 shares of common stock upon demand
pursuant to a promissory note.
The Company issued 2,080 shares and 1,136 shares of common stock pursuant to
the Employee Stock Purchase Plan in 1995 and 1994, respectively.
Preferred stock
In 1992, the Board of Directors approved and filed with the state of Florida an
Amendment to the Articles of Incorporation designating 200,000 shares of
preferred stock as Class A Variable Rate Cumulative Convertible Preferred Stock
("Class A Preferred Stock") and 22,500 shares of preferred stock as Class B
Variable Rate Cumulative Convertible Preferred Stock ("Class B Preferred
Stock"). The Class A Preferred Stock and Class B Preferred Stock both have a
par value of $10 per share and are entitled to receive cumulative dividends at
a rate equal to 2% above the 30 day certificate of deposit rate in effect on the
first day of each month at the Texas Commerce Bank. The Company has the right
to redeem the Class A and Class B Preferred Stock for $10 per share plus the
amount of any accrued and unpaid dividends. Shares of Class A and Class B
Preferred Stock may be converted into such number of whole shares of common
stock as is determined by multiplying the number of shares of Class A Preferred
Stock by a fraction, the numerator of which is $10 and the denominator is the
conversion price ($.408625). Each share of Class A Preferred Stock will entitle
the holder thereof to that number of votes which is equal to the number of
shares of common stock into which the Class A Preferred Stock is convertible.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the Company, the holders of the Class A Preferred Stock shall be
entitled to distribution before any payments shall be made in the respect to the
Class B Preferred Stock or common stock in amount equal to the par value per
share plus all accrued and unpaid dividends and the holders of Class B Preferred
Stock shall be entitled to distribution before any payments shall be made in the
respect to common stock in an amount equal to the par value per share plus all
accrued and unpaid dividends.
On March 1, 1993, the Company and the holders of Class A Preferred Stock signed
an agreement to eliminate the redemption provision of the Class A Preferred
Stock. An amendment to the Company's Articles of Incorporation to eliminate the
redemption provision of the Class A Preferred Stock and increase the number of
authorized shares of preferred stock to 500,000 was approved by the shareholders
at the annual meeting held on January 24, 1994 and filed with the State of
Florida.
During 1994, 695 shares of Class B Preferred Stock were converted into common
stock.
In February 1995, 9,305 shares of Class B Preferred Stock were converted into
common stock.
In December 1995, the Board of Directors approved and filed with the State of
Florida an Amendment to the Articles of Incorporation designating 240,000 shares
of preferred stock as Class C 12% Cumulative Convertible Preferred Stock (the
"Class C Preferred Stock"). The Class C Preferred Stock has a par value of $10
per share and is entitled
44
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
to receive cumulative dividends equal to 12% per annum of the liquidation
preference per share of $20. The Company does not have the right to redeem the
Class C Preferred Stock. The issued and outstanding shares of Class C
Preferred Stock shall convert to Common Stock on the second anniversary
(December 18, 1997) of the filing of the designation with the Secretary of State
of Florida (the "Conversion Date"). The shares of Class C Preferred Stock held
by each holder thereof shall be converted into such number of whole shares of
Common Stock as is determined by multiplying the number of shares of Class C
Preferred Stock by a fraction, the numerator of which is 20 and the denominator
of which is 70% of the average of the bid and ask prices per share of Common
Stock as quoted by NASDAQ for the 20 consecutive trading days prior to the
Conversion Date. In the case no transaction price is available, the closing bid
price shall be used, or, in the case of no closing transaction price and no
closing bid price being available, the fair market value of the Common Stock as
determined in good faith by the Company's Board of Directors shall be used. In
the event of any voluntary or involuntary liquidation, dissolution, or winding
up of the affairs of the Company, each share of Class C Preferred Stock shall
have a liquidation preference of $20 per share. With respect to the payment of
dividends and rights to redemption and upon liquidation, the holders of Class C
Preferred Stock shall be subordinate to the issued and outstanding shares of
Class A Preferred Stock and Class B Preferred Stock of the Company and shall
rank senior to the shares of Common Stock of the Company.
At December 31, 1995, the Company had 200,000 shares of Class A Preferred Stock,
7,500 shares of Class B Preferred Stock, and no shares of Class C Preferred
Stock issued and outstanding.
At December 31, 1995, 30,000 of the 500,000 shares of preferred stock authorized
remain undesignated and unissued. Accrued and unpaid dividends at December 31,
1995 were $319,623 and $14,981 for Class A Preferred Stock and Class B Preferred
Stock, respectively.
Executive stock option plan
The Company's Executive Stock Option Plan which recently expired, authorized the
granting of stock options to key employees of the Company including officers.
Options granted under the Plan are non-qualified stock options exercisable at a
price not less than the highest bid price per share at which the stock is quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
System on the date the option is granted. Options are exercisable not less than
one year or more than five years after the grant date.
As of December 31, 1995, options for the purchase of 74,363 shares of common
stock at prices ranging from $1.3125 to $2.875 per share were outstanding.
Options for the purchase of 33,763 shares were exercisable within sixty (60)
days of year end. No options were exercised in 1994 or in 1995.
Director stock option plan
The Company's Director Stock Option Plan which recently expired, authorized the
granting of stock options to Directors of the Company. Options granted under
the Plan are non-qualified stock options exercised for a price equal to the fair
market value per share of common stock on the date of any such grant. Options
are exercisable not less than six months or more than ten years after the date
of grant.
As of December 31, 1995, options for the purchase of 74,964 shares of common
stock at prices ranging from $0.875 to $3.875 per share were outstanding.
Options for the purchase of 35,556 shares were exercisable within 60 days of
year end. To date, no options have been exercised.
45
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
Stock purchase plan
In accordance with the Employee Qualified Stock Purchase Plan adopted in June
1990, employees may contribute up to 10 percent of their base wages towards the
purchase of the Company's common stock. The option price is the lesser of 85%
of the market value on the first business day of the Payment Period (September
1) or the last business day of the Payment Period (August 31). As of December
31, 1995, the Company had 36,059 shares of common stock reserved for issuance
on exercise of the purchase rights. On August 31, 1995, 2,080 shares of common
stock were issued at a price of $0.875 per share. On August 31, 1994, 1,136
shares of common stock were issued at a price of $2.625 per share.
1995 Director Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan
provides for the issuance of incentive options, non-qualified options and stock
appreciation rights (the "1995 Director Plan").
The 1995 Director Plan provides for automatic and discretionary grants of stock
options which qualify as incentive stock options (the "Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as options which do not so qualify (the "Non-Qualified Options") to be
issued to directors. In addition, stock appreciation rights (the "SARs") may
be granted in conjunction with the grant of Incentive Options and Non-Qualified
Options.
The 1995 Director Plan provides for the grant of Incentive Options, Non-
Qualified Options, and SARs to purchase up to 250,000 shares of common stock (
subject to adjustment in the event of stock dividends, stock splits, and other
similar events). To the extent that an Incentive Option or Non-Qualified Option
is not exercised within the period of exercisability specified therein, it will
expire as to the then unexercised portion. If any Incentive Option, Non-
Qualified Option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Director Plan, the shares of common stock as to which such
option or right was not exercised will become available under the 1995 Director
Plan for the grant of additional options or rights to any eligible employee.
The shares of common stock subject to the 1995 Director Plan may be made
available from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified Options on
a discretionary basis pursuant to the following formula: each member of the
Board of Directors then serving shall receive a Non-Qualified Option to purchase
10,000 shares of common stock at an exercise price equal to the fair market
value per share of the common stock on that date. Pursuant to such formula,
directors received options to purchase 10,000 shares of common stock as of
October 17, 1995, and will receive options to purchase 10,000 shares of common
stock on the first business day of each January beginning in 1996. Each option
is immediately exercisable for a period of ten years from the date of grant.
The Company has 250,000 shares of common stock reserved for issuance under the
1995 Director Option Plan.
As of December 31, 1995, options exercisable to purchase 40,000 shares of common
stock at a price of $1.25 per share have been granted under the 1995 Director
Plan. As of December 31, 1995, no options have been exercised.
1995 Employee Stock Option Plan
In October 1995, the stockholders of the Company approved adoption of the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995
Employee Plan"), which plan provides for the issuance of Incentive Options,
Non-Qualified Options, and SARs.
46
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
Directors of the Company are not eligible to participate in the 1995 Employee
Plan. The 1995 Employee Plan provides for the grant of stock options which
qualify as Incentive Stock Options under Section 422 of the Code, to be issued
to officers who are employees and other employees, as well as Non-Qualified
Options to be issued to officers, employees, and consultants. In addition, SARs
may be granted in conjunction with the grant of Incentive Options and Non-
Qualified Options.
The 1995 Employee Plan provides for the grant of Incentive Options, Non-
Qualified Options, and SARs of up to 400,000 shares of common stock (subject to
adjustment in the event of stock dividends, stock splits, and other similar
events). To the extent that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then unexercisable portion. If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1995 Employee Plan, the shares of common stock as to which such option or
right was not exercised will become available under the 1995 Employee Plan for
the grant of additional options or rights to any eligible employee. The shares
of common stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. The Company
has 400,000 shares of common stock reserved for issuance under the 1995
Employee Plan. As of December 31, 1995, no options to purchase shares of common
stock have been granted under the 1995 Employee Plan.
Other warrants and options
Pursuant to the terms of a Consulting Agreement dated as of October 13, 1992
between the Company and The Equity Group, Inc., the Company issued two Common
Stock Purchase Warrants (the "Equity Warrants") each covering 21,429 shares of
common stock to The Equity Group as partial consideration for its rendering
financial public relations and consulting services to the Company. Both Equity
Warrants are exercisable at a price of $3.50 per share and expire on October
14, 1997.
Pursuant to the terms of a Financial Consulting Agreement dated as of November
3, 1994 between the Company and JW Charles Financial Services, Inc., the Company
issued a Common Stock Purchase Warrant (the "JW Charles Warrant") covering
250,000 shares of common stock to JW Charles Financial Services as partial
consideration for its rendering financial consulting services to the Company.
The warrant is exercisable at a price of $2.00 per share and expires on November
3, 1999.
The JW Charles and Equity Warrants (the "Warrants") contain anti-dilution
provisions providing for adjustments in the exercise price. The JW Charles
Warrant also contains anti-dilution provisions providing for adjustments in the
number of shares covered by the warrant. The holders of the Warrants have no
voting, dividend, or other stockholder rights or privileges unless and until the
Warrants have been exercised. The holders of the Warrants have been granted
"piggy back" registration rights under the Securities Act of 1933 with respect
to the Warrants and the underlying shares of common stock. The Company will pay
the expense of such registration and of such registration qualifications of
the Warrants and underlying shares of common stock under the Securities Act of
1933 of such dates as the holders of the Warrants may determine.
Pursuant to a Consulting Agreement dated as of August 6, 1995 between the
Company and Timothy R. Barnes, formerly an officer of the Company, the Company
issued a Common Stock Purchase Warrant covering 36,858 shares of common stock
as consideration for the rendering of consulting services to the Company. The
Warrant is exercisable at a price of $1.00 per share and expires on August 5,
1999.
47
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' equity - continued
Pursuant to the issuance of a promissory note by I-Link to Scott Cook, the
Company issued a Common Stock Purchase Option covering 100,000 shares of the
Company's common stock. The option is exercisable at a price of $1.00 and
expires on December 31, 1999.
Pursuant to a Consulting Agreement dated as of October 18, 1995 between the
Company and Jason H. Pollak and Kalo Acquisitions, LLC, the Company issued an
Option to purchase common stock covering 150,000 shares of common stock as
consideration for the rendering of consulting services to the Company. The
agreement provided Mr. Pollak with an option to purchase 50,000 shares of common
stock each year at purchase prices of $1.50,. $2.50, and $3.50. The option
expires on January 31, 1999.
Note 13 - Geographic segment information
<TABLE>
<CAPTION>
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). Financial information for
the different geographic segments is as follows:
Year Ended
December 31, 1995 Domestic China Corporate Eliminations Consolidated
- ------------------------ ---------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $2,486,708 $ 340,233 $ 423,956 $ (127,944) $ 3,122,953
========= ========== ========== ============ ==========
Operating Profit (Loss) $ 196,714 $( 171,083) $( 519,386) $ - $( 493,755)
========= ========== ========== ============ ==========
Identifiable Assets $3,048,001 $ 1,098,742 $ 682,277 $ (682,157) $ 4,146,683
========= ========= ========== ============ ==========
Amortization and Depreciation $ 438,498 $ 13,011 $ 13,511 $ - $ 465,020
========= ========== ========== ============ ==========
Capital Expenditures $ 20,801 $ 2,046 $ 375 $ - $ 23,222
========= ========== ========== ============ ==========
<CAPTION>
Year Ended
December 31, 1994 Domestic China Corporate Eliminations Consolidated
- ---------------------------- ---------- ----------- ----------- ------------ ------------
Revenue $2,761,458 $ 512,973 $ 630,853 $( 132,359) $ 3,772,925
========= ========== ========== ========== ==========
Operating Profit (Loss) $ 537,338 $( 581,856) $( 487,063) $ - $( 531,581)
========= ========== ========== ========== ==========
Identifiable Assets $3,710,698 $ 1,284,824 $ 217,780 $ - $ 5,213,302
========= ========== ========== ========== ==========
Amortization and Depreciation $ 459,663 $ 10,861 $ 18,412 $ - $ 488,936
========= ========== ========== ========== ==========
Capital Expenditures $ 10,257 $ 18,590 $ 2,032 $ - $ 30,879
========= ========== ========== ========== ==========
</TABLE>
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.
48
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Subsequent Events
On February 23, 1996, the Company closed its acquisition of all of the issued
and outstanding common stock of I-Link Worldwide Inc., a Utah corporation
("I-Link") from ILINK, Ltd., a Utah limited partnership in exchange for the
issuance of an aggregate of 4,000,000 shares of Common Stock of the Company.
The purchase price was determined through arms-length negotiation. The
acquisition was accounted for using the purchase method of accounting. Pursuant
to the terms of the stock purchase agreement, 2,600,000 shares of the Common
Stock issued pursuant to the acquisition of I-Link, Ltd. were placed in escrow
to be released as follows:
1. 1,600,000 shares of Common Stock are to be released upon the receipt of
proceeds greater than or equal to $4,000,000 from the sale of the
Company's securities pursuant to the conduct of one or more private or
public offerings prior to December 31, 1996; and
2. 1,000,000 shares of Common Stock are to be released upon the first to
occur of the following:
(i) the monthly revenue derived from subscribers serviced by ILINK,
Ltd. and revenue derived from the sale of related products and/or
services equals or exceeds $1,000,000; or
(ii) the number of subscribers serviced by ILINK, Ltd. exceeds 100,000
one year from the date of receipt by the Company of gross proceeds
equal to $4,000,000 from the sale of its securities pursuant to one
or more private or public offerings.
I-Link provides Internet access services to individuals and businesses in the
United States. I-Link is also the owner of a proprietary technology (patent
pending) which enables the transmission of information via facsimile over the
Internet.
There was no affiliation or relationship between the Company, its affiliates,
officers or directors, or associates of such persons and I-Link or ILINK, Ltd.
or any of their officers, directors, stockholders, or partners prior to the
acquisition.
Simultaneous with the closing of its acquisition of I-Link, the Company
completed a private placement of $1,000,000 in aggregate principal amount of
convertible promissory notes (the "10% Notes"). The 10% Notes are payable upon
the earlier of August 31, 1996 (subject to extension) or the Company's receipt
of proceeds of at least $4,000,000 from subsequent debt or equity offerings.
The 10% Notes bear interest payable semi-annually at the rate of 10% until
August 31, 1996 (13% after such date of the term of the 10% Note is extended).
Up to $1,250 of each $50,000 in principal amount of note is convertible at any
time at the option of the holder, into a maximum of 350,000 shares of Common
Stock at the rate of approximately $.0714 per share, subject to certain
antidilution adjustments. The 10% Notes may be extended until February 29,
1997 upon payment by the Company of 2.5% of the then outstanding principal
balance of the 10% Note. The proceeds of such offering were used to pay
outstanding accounts payable and other debts of I-Link.
The following presents the pro forma financial information of the Company and
I-Link as applicable for the year ended December 31, 1995 assuming such
transactions had occurred on January 1, 1995 and for the year ended December 31,
1994 assuming the transactions had occurred on January 1, 1994:
49
<PAGE>
MEDCROSS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Subsequent Events - continued
<TABLE>
<CAPTION>
Loss Per Common
Net Operating Share After
Year Ended December 31, 1995 Revenue Net Loss Preferred Dividends
------------- ------------ -------------------
<S> <C> <C> <C>
Company $ 3,122,953 $( 551,909) $(.39)
I-Link 229,721 (1,446,219) ===
--------- ---------
Combined 3,352,674 (1,998,128)
Pro forma adjustments - (3,304,633)
--------- ---------
Pro forma combined $ 3,352,674 $(5,302,761) $(1.28)
========= ========= ====
<CAPTION>
Loss Per Common
Net Operating Share After
Year Ended December 31, 1994 Revenue Net Loss Preferred Dividends
------------- ------------ -------------------
Company $ 3,772,925 $( 715,434) $(.55)
I-Link<F1> - ( 165,125) ===
--------- ---------
Combined 3,772,925 ( 880,559)
Pro forma adjustments - (2,881,170)
--------- ---------
Pro forma combined $ 3,772,925 $(3,761,729) $(1.33)
========= ========= ====
<FN>
<F1>1 For the period August 1, 1994 through December 31, 1994.
</TABLE>
On February 21, 1996, in connection with the grant of an option by the Kanter
Group, 40,000 shares of outstanding Class A Preferred Stock of the Company was
converted into 978,891 shares of Common Stock. Options to acquire the 3,915,570
shares of Common Stock issuable upon conversion of the remaining 160,000 shares
of Class A Preferred Stock outstanding have been granted by Four M. Dr. R.
Huston Babcock, holder of all 7,500 shares of Class B Preferred Stock has also
granted an option to purchase the 183,542 shares of Common Stock issuable upon
conversion thereof.
The Kanter Group sold to certain persons, including affiliates and associated
persons of Commonwealth Associates, 978,891 shares of Common Stock issued upon
conversion of 40,000 shares of Class A Preferred Stock at a purchase price of
$485,000 (equal to $.4955 per share). Four M has granted certain options
exercisable commencing August 1, 1996 (subject to the satisfaction of certain
conditions) to purchase the 3,915,570 shares of Common Stock issuable upon
conversion of 160,000 shares of Class A Preferred Stock. The exercise price is
equal to the lesser of 200% of the average of the closing bid and ask price per
share of Common Stock for the ten (10) business days preceding August 1, 1996 or
$1.79 per share. Commonwealth Associates received the right to purchase 545,285
shares of Common Stock prior to December 31, 1996 and 537,500 shares of Common
Stock prior to December 31, 1997. Benchmark Equity Group, Inc. received the
right to purchase 545,285 shares of Common Stock prior to December 31, 1996 and
537,500 shares prior to December 1997. Certain members of management of I-Link
have the right to purchase 825,000 shares of Common Stock prior to December 31,
1996 and 825,000 shares prior to December 31, 1997. Scott Cook has received
the right to purchase 100,000 shares of Common Stock prior to December 31, 1996.
Dr. R. Huston Babcock has granted an option, upon substantially the same terms
and conditions as Four M, to purchase 183,542 shares of Common Stock issuable
upon conversion of 7,500 shares of Class B Preferred Stock to Benchmark Equity
Group, Inc.
On March 5, 1996, the Consulting Agreement between the Company and Jason H.
Pollak and Kalo Acquisitions, LLC was terminated and options to purchase 100,000
shares of the Company's common stock were subsequently terminated.
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
1995 1994
------------ ------------
<S> <C> <C>
Earnings per common and common equivalent share
Net loss available to common and equivalent shares $( 680,578) $( 829,401)
========= =========
Weighted average common shares outstanding 1,727,443 1,510,568
Adjustments
Assumed conversion of Class B Variable Rate
Cumulative Convertible Preferred Stock 29,097 10,122
--------- ---------
Total common and equivalent shares 1,756,540 1,520,690
========= =========
Loss per common and equivalent share after
preferred dividends $( .39) $( .55)
========= =========
Fully diluted earnings per common and common equivalent share
Net loss available to common and equivalent shares $( 680,578) $( 829,401)
========= =========
Weighted average common shares outstanding 1,727,443 1,510,568
Adjustments
Assumed conversion of Class B Variable Rate
Cumulative Convertible Preferred Stock 29,097 421,380
--------- ---------
Total common and equivalent shares 1,756,540 1,520,690
========= =========
Loss per common and equivalent share after
preferred dividends $( .39) $( .55)
========= =========
</TABLE>
186
<PAGE>
COOPERS & LYBRAND
a professional services firm
Consent of Independent Accountants
We consent to application of our report dated March 26, 1996, included in the
annual report on the Form 10-KSB of Medcross, Inc. and subsidiaries for the year
ended December 31, 1995 to the amended consolidated statements of operations for
the years ended December 31, 1995 and 1994 amended Note 5 - acquisition of
assets, amended Note 8 - Long-term debt, amended Note 10 - Commitments and
Contingencies, amended Note 14 - Subsequent events, amended Exhibit 11 of the
Statement Regarding Computation of Earning per Common Share for the years ended
December 31, 1995 and 1994 and amended Exhibit 27 Financial Data Schedule for
the year ended December 31, 1995 which are included in this amendment on Form
10-KSB/A#1.
/s/Cooper & Lybrand
Tampa Florida
June 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INCLUDED
IN THIS COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 79,316
<SECURITIES> 0
<RECEIVABLES> 1,616,229
<ALLOWANCES> 694,436
<INVENTORY> 829,988
<CURRENT-ASSETS> 1,918,350
<PP&E> 3,356,685
<DEPRECIATION> 1,736,701
<TOTAL-ASSETS> 4,146,863
<CURRENT-LIABILITIES> 2,233,923
<BONDS> 0
0
2,075,000
<COMMON> 12,622
<OTHER-SE> (632,456)
<TOTAL-LIABILITY-AND-EQUITY> 4,146,863
<SALES> 3,122,953
<TOTAL-REVENUES> 3,122,953
<CGS> 154,481
<TOTAL-COSTS> 3,616,708
<OTHER-EXPENSES> 89,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,423
<INCOME-PRETAX> (551,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (551,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (551,909)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
