SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-#2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 5, 1997
MEDCROSS, INC.
(Exact name of registrant as specified in its charter)
Florida 0-17973 59-2291344
(State or other jurisdiction (Commission File (I.R.S. Identification No.)
of incorporation) Number)
3227 Bennet Street North, St. Petersburg, FL 33713
(Address of principal executive offices)
Registrant's telephone number, including area code: (813) 521-1793
<PAGE>
Item 7. Financial Statements and Exhibits
(a); (b) Financial Statements; Pro Forma Financial Information
The financial statements of MiBridge, Inc. and the pro forma financial
information relating to the acquisition required to be filed pursuant
to this item, follow.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Medcross, Inc.
(Registrant)
Dated: September 4, 1997 By: /s/ John W. Edwards
John W. Edwards, President
Chief Executive Officer
/s/ Karl S. Ryser, Jr.
Karl S. Ryser, Jr. Treasurer
and Chief Financial Officer
<PAGE>
MiBridge, Inc.
__________
Financial Statements as of December 31, 1996 and
June 30, 1997 (unaudited) and for the period
from inception (March 18, 1996) through
December 31, 1996 and the six months
ended June 30, 1997 (unaudited)
<PAGE>
Report of Independent Accountants
To the Stockholder of
MiBridge, Inc.:
We have audited the balance sheet of Mibridge, Inc. as of December 31,
1996, and the related statements of operations, changes in
stockholder's equity and cash flows for the period from the date of
inception (March 18, 1996) to December 31, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MiBridge,
Inc. as of December 31, 1996, and the results of its operations and its
cash flows for the period from the date of inception (March 18, 1996)
to December 31, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Salt Lake City, Utah
August 6, 1997
<PAGE>
<TABLE>
<CAPTION>
MIBRIDGE, INC.
BALANCE SHEETS
(unaudited)
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 165,005 $ 25,581
Accounts receivable 15,000 30,000
Costs and estimated earnings in excess
of billing on uncompleted contracts 340,000 248,500
Inventory - 20,644
Prepaid expenses - 94,520
Deferred income taxes - 7,443
---------- ----------
Total current assets 520,005 426,688
---------- ----------
Furniture and equipment:
Equipment 64,811 54,119
Office furniture 4,115 3,026
Less accumulated depreciation ( 18,751) ( 8,411)
---------- ----------
Total furniture and equipment 50,175 48,734
---------- ----------
Capitalized software development costs, net 17,693 7,433
Intangible assets 6,750 6,750
Other assets 3,100 2,125
---------- ----------
Total assets $ 597,723 $ 491,730
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ - $ 2,499
Accrued liabilities 39,883 20,852
Accrued director's fee payable - 49,000
Deferred revenue 27,500 5,000
Income taxes payable 64,168 133,628
---------- ----------
Total current liabilities 131,551 210,979
Deferred income taxes 11,952 9,696
---------- ----------
Total liabilities 143,503 220,675
---------- ----------
Commitments and contingencies (Note 6)
Stockholder's equity:
Common stock, no par value, authorized
10,000,000 shares, issued and
outstanding 6,000,000 shares 1,000 1,000
Additional paid-in-capital 325,000 300,000
Deferred compensation - ( 244,445)
Retained earnings 128,220 214,500
---------- ----------
Total stockholder's equity 454,220 271,055
---------- ----------
Total liabilities and stockholder's
equity $ 597,723 $ 491,730
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<TABLE>
<CAPTION>
MIBRIDGE, INC.
STATEMENTS OF OPERATIONS
For the period from inception (March 18, 1996) to December 31, 1996 and
for the six months ended June 30, 1997 (unaudited)
(unaudited)
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Software sales and consulting $ 255,799 $ 290,700
Software development 241,500 528,500
---------- ----------
Total revenues 497,299 819,200
---------- ----------
Cost of sales:
Software sales and consulting 189,020 148,812
Software development 184,987 102,042
---------- ----------
Cost of sales 374,007 250,854
---------- ----------
Gross Margin 123,292 568,346
---------- ----------
Operating expenses:
Selling, general and administrative 252,027 200,726
Depreciation and amortization 15,072 10,039
---------- ----------
Total operating expenses 267,099 210,765
---------- ----------
Net income (loss) before income taxes ( 143,807) 357,581
Income tax (provision) benefit 57,527 ( 143,081)
---------- ----------
Net income (loss) $( 86,280) $ 214,500
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
MIBRIDGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For the period from inception (March 18, 1996) to December 31, 1996 and
for the six months ended June 30, 1997 (unaudited)
Additional Total
Common Stock Paid-in Deferred Retained Stockholder's
Shares Amount Capital Compensation Earnings Equity
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 18, 1996
(inception)
Original shares issued 6,000,000 $ 1,000 $ - $ - $ - $ 1,000
Stock options granted
on issued shares - - 300,000 ( 300,000) - -
Amortization of deferred
compensation - - - 55,555 - 55,555
Net income - - - - 214,500 214,500
--------- ------- ------- -------- ------- -------
Balance at December 31, 1996 6,000,000 1,000 300,000 ( 244,445) 214,500 271,055
Stock options granted
on issued shares - - 25,000 ( 25,000) - -
Amortization of deferred
compensation - - - 269,445 - 269,445
Net loss ( 86,280) ( 86,280)
--------- ------- ------- -------- ------- -------
Balance at June 30, 1997
(unaudited) 6,000,000 $ 1,000 $ 325,000 $ - $ 128,220 $ 454,220
========= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
MIBRIDGE, INC.
STATEMENTS OF CASH FLOWS
For the period from March 18, 1996 (inception) to December 31, 1996 and
for the six month period ending June 30, 1997 (unaudited)
(unaudited)
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $( 86,280) $ 214,500
Adjustments to reconcile net income
to net cash
Provided in operating activities:
Depreciation and amortization 15,072 10,039
Amortization of deferred compensation 269,445 55,555
Deferred taxes 9,699 2,253
Increase (decrease) from changes in:
Accounts receivable 15,000 ( 30,000)
Costs and estimated earnings in exces
of billings on uncompleted contracts ( 91,500) (248,500)
Inventory 20,644 ( 20,644)
Prepaid expenses 94,520 ( 94,520)
Other assets ( 975) ( 2,125)
Accounts payable ( 2,499) 2,499
Accrued liabilities and other payables ( 76,929) 208,480
------- -------
Net cash provided by operating activities 166,197 97,537
------- -------
Cash flows from investing activities:
Additions to furniture and equipment ( 11,781) ( 57,145)
Capitalized software development costs ( 14,992) ( 9,061)
Additions to intangible assets - ( 6,750)
------- -------
Net cash used in investing activities ( 26,773) ( 72,956)
------- -------
Cash flows from financing activities:
Proceeds from shareholder advance - 62,000
Repayment of shareholder advance - ( 62,000)
Common stock issued - 1,000
------- -------
Net cash provided by financing activities - 1,000
------- -------
Increase in cash 139,424 25,581
Cash at beginning of period 25,581 -
------- -------
Cash at end of period $ 165,005 $ 25,581
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ - $ 7,200
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business Information
MiBridge, Inc. (the Company), a New Jersey corporation, began
operations on March 18, 1996. The Company develops communications
software that supports multimedia communications (voice, fax and audio)
over the public switched telephone network (PSTN), local area networks
(LANs) and the Internet. The Company creates speech encoding and
compression algorithms designed to produce superior audio quality and
lower delay over low-bandwidth networks.
The interim financial data as of June 30, 1997 and for the six-month
period then ended are unaudited; however, in the opinion of management
of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation
of the results of operations, financial position and cash flows of the
Company.
Inventories
Inventory consists of computer boards held for resale and is valued at
the lower of actual cost or market. Cost is determined by specific
identification of each unit.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is provided
for financial reporting purposes using the straight-line method over
the following estimated useful lives:
Office equipment 3 years
Furniture 5 years
Maintenance and repairs, which are not considered betterments and do
not extend the useful life of assets, are charged to expense as
incurred. The cost and related accumulated depreciation of assets sold
or retired are removed from the accounts, and any resulting gain or
loss is reflected in results of operations.
Intangible Assets
Intangible assets include certain legal expenditures for patent filing
fees relating to proprietary techniques developed by the Company. The
patents are pending; therefore, no amortization of patent filing fees
is reflected in the financial statements.
Continued
6
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:
Revenue Recognition
Revenues are generally recognized as products are shipped or services
are performed. Initial software royalties are recognized upon delivery
of the master copy, as the Company is not required to provide any
additional services. As minimum software usage levels are exceeded by
the customer, the Company will receive additional royalties based on a
per port usage.
Most software is sold with maintenance contracts that cover periods
from one to twelve months. Revenue related to these contracts is
deferred and recognized on a straight-line basis over the term of the
maintenance agreement.
Certain development projects are jointly funded by a customer.
Revenues on these long-term funded development contracts are recognized
under the percentage of completion method of accounting and are
measured based upon the level of effort expended on the project,
compared to total billings allowed by the contract. Estimated contract
earnings are reviewed and revised periodically as the work progresses.
Estimated losses are charged against earnings in the period in which
such losses are identified. In exchange for its participation in
funding the project, the customer will receive joint marketing rights
and a portion of future revenues from the sale of the developed
technology based on a revenue sharing agreement. The amount of future
revenues to be received by the customer party ranges between 20 and 55
percent and depends upon who markets the product and the terms of the
specific contract. As of December 31, 1996, there were no sales of
jointly developed products.
Software Development Costs
The Company capitalizes software development costs when the project
reaches technological feasibility. Research and development costs
related to software development that has not reached technological
feasibility are expensed as incurred. Capitalized software development
costs are amortized at the greater of the straight-line method over the
expected life of the product (maximum three year period) or the ratio
of current revenues for a product to the total of current and
anticipated future revenues. Capitalized software development costs
were $7,433 at December 31, 1996, net of accumulated amortization of
$1,628.
Continued
7
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:
Income Taxes
The Company records deferred taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 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 amounts expected to be realized.
Concentration of Credit Risk
All of the Company's cash is held by one financial institution in New
Jersey. The Company has approximately $54,000 that exceeds the FDIC
insurance limits at December 31, 1996.
During the period from inception to December 31, 1996 approximately
86% of the Company's revenues were related to one customer. Unbilled
receivables from this customer represented approximately 51% of total
assets as of December 31, 1996.
Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Continued
8
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. LONG-TERM CONTRACT ACCOUNTING
Costs and estimated earnings in excess of billings on uncompleted
contracts consist of amounts of revenue recognized on contracts for
which billings have not been recorded. Billings in excess of costs and
estimated earnings on uncompleted contracts consist of amounts of
billings recognized on contracts in excess of costs.
Contract revenues and costs related to uncompleted contracts are
included in the accompanying balance sheet as of December 31, 1996
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 248,500
Billings in excess of costs and estimated
earnings on uncompleted contracts -
-------
$ 248,500
=======
Costs incurred on long-term contracts $ 104,000
Estimated earnings 424,500
Billings to date (280,000)
-------
$ 248,500
=======
3. INCOME TAXES
The income tax provision for the period since inception to December
31, 1996 consists of the following:
Current federal income tax provision $ 109,094
Current state income tax provision 31,734
Deferred tax provision 2,253
-------
Income tax provision $ 143,081
=======
Continued
9
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
3. INCOME TAXES, continued
The reported provision for income taxes varies from the amount that
would be provided by applying the statutory U.S. Federal income tax
rate to income before taxes primarily because of state taxes and
certain non-deductible meals and entertainment.
The components of the net deferred tax asset and liability as of
December 31, 1996 are as follows:
Deferred tax assets:
Stock award compensation expense $ 22,189
Accrued director's fees 19,970
-------
Total deferred tax asset 42,159
=======
Deferred tax liability:
Excess tax depreciation ( 6,727)
Capitalized software development costs ( 2,969)
Prepaid salaries ( 34,716)
-------
Total deferred tax liability ( 44,412)
-------
Net deferred tax liability $( 2,253)
=======
The net deferred tax liability as of December 31, 1996 is reflected in
the balance sheet as follows:
Current deferred tax asset $ 7,443
Long-term deferred tax liability ( 9,696)
-------
$( 2,253)
=======
4. RELATED PARTY TRANSACTIONS
During 1996, the owner of the Company advanced a total of $62,000 to
the Company to fund operations. These advances were repaid during the
period.
During the period ended December 31, 1996, the Company had sales of
$25,000 with Medcross, Inc. (see note 7).
Continued
10
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
5. STOCKHOLDER'S EQUITY
Common Stock
At the inception of the Company, the owner contributed $1,000 in
exchange for 6,000,000 shares of the Company's common stock.
Additional Paid in Capital - Stock Awards
During the year, the sole shareholder of the Company granted certain
employees options to buy shares of stock owned by the shareholder. The
awards were granted to attract and retain qualified employees for the
Company, and accordingly, the Company has accounted for these awards
as if they had been made directly by the Company. The Company applies
APB Opinion No. 25 and related interpretations in accounting for stock
compensation awards. Had compensation cost for the Company's
stock-based awards been determined based on fair-value at the grant
date consistent with the minimum value method outlined by Statement of
Financial Accounting Standard No. 123, the difference would have been
insignificant.
The number of options outstanding and the weighted average exercise
price per option are as follows:
Weighted
Average
Exercise
Options Price
---------- ----------
Outstanding at beginning of year
Granted 900,000 $0.00
------- -------
Outstanding at end of year 900,000 $0.00
======= =======
Options exercisable at year end - $0.00
======= =======
The awards were granted in equal amounts in May, June and August of
1996 and vest annually over a three year period (weighted average
remaining life of 2.4 years). Additional paid-in capital and deferred
compensation recorded during the year represent the difference between
the exercise price of the options and the value of the stock, which is
based on management's best estimate of the fair value of the Company at
the stock option grant date. Compensation expense is recognized on a
straight-line basis over the vesting period of the options. Vesting of
the awards would be accelerated should the Company be purchased.
Continued
11
<PAGE>
MIBRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
6. EMPLOYMENT AGREEMENTS
The Company has employment agreements with seven employees of the
Company providing for a salary continuation (usually three years) in
the event of termination for reasons other than cause. As of December
31, 1996, if all of the employees under contract at that date were to
be terminated by the Company without cause, the Company's total future
payments to these employees would be approximately $600,000.
7. ACQUISITION OF THE COMPANY BY MEDCROSS, INC.
On June 5, 1997, the Company entered into a letter of intent with
Medcross, Inc. (Medcross) pursuant to which the Company entered into
negotiations to sell 100% of the Company's outstanding stock. A final
agreement was signed on August 12, 1997, with closing anticipated in
the third quarter of 1997. Under the finalized agreement, Medcross
will acquire 100% of the Company's outstanding shares of common stock
in exchange for 1,000 shares of Medcross Series D Preferred stock and a
promissory note of $2,000,000, payable with interest in quarterly
installments over the two years. The preferred shares are convertible
at the option of the prior MiBridge shareholders into Medcross common
stock shares equal in number to $6,250,000 divided by the lower of
$9.25 or the average closing bid price of Medcross common stock for the
five consecutive trading days immediately preceding the conversion
date.
Continued
12
<PAGE>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED AND MIBRIDGE, INC.
___________
Pro Forma Combined Financial Statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
PRO FORMA COMBINED BALANCE SHEET
as of June 30, 1997 (unaudited)
Pro Forma
Medcross FTI MiBridge Adjustment Pro Forma
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 992,267 $ 184,119 $ 15,000 $ - $ 1,191,386
Accounts receivable less allowance for
doubtful accounts of $1,069,389 2,417,210 2,114,740 435,000 ( 596,000) A 4,370,950
Inventory less allowance of $260,033 763,263 - - - 763,263
Certificate of deposit - restricted 198,640 - - - 198,640
Other current assets 191,461 7,613 3,000 - 202,074
---------- ---------- ---------- ---------- ----------
Total current assets 4,562,841 2,306,472 453,000 ( 596,000) 6,726,313
---------- ---------- ---------- ---------- ----------
Property and equipment:
Property and equipment 6,090,101 1,270,857 75,000 ( 19,000) F 7,416,958
Less accumulated depreciation ( 3,046,395) ( 151,605) ( 19,000) 19,000 F ( 3,198,000)
---------- ---------- ---------- ---------- ----------
Net property and equipment 3,043,706 1,119,252 56,000 - 4,218,958
---------- ---------- ---------- ---------- ----------
Other assets:
Intangible assets, net 9,319,136 2,281,278 7,000 3,648,000 C/F 15,255,414
Certificate of deposit - restricted 1,742,711 - - - 1,742,711
Investment in FTI 2,414,583 - - ( 2,414,583) D -
Other assets 83,837 40,228 21,000 - 145,065
---------- ---------- ---------- ---------- ----------
Total other assets 13,560,267 2,321,506 28,000 1,233,417 17,143,190
---------- ---------- ---------- ---------- ----------
Total assets $ 21,166,814 $ 5,747,230 $ 537,000 $ 637,417 $ 28,088,461
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,256,609 $ 3,501,925 $ 175,000 $( 596,000) A $ 7,337,534
Notes payable 1,045,000 - - - 1,045,000
Current portion of long-term debt 43,554 408,429 - 1,000,000 C 1,451,983
Obligations under capital lease 187,047 - - - 187,047
---------- ---------- ---------- ---------- ----------
Total current liabilities 5,532,210 3,910,354 175,000 404,000 10,021,564
---------- ---------- ---------- ---------- ----------
Long-term debt ( 1,592,080) 2,202,194 - 1,000,000 C 1,610,114
Obligations under capital lease 147,274 - - - 147,274
Deferred taxes - - 12,000 ( 12,000) H -
Minority interest in consolidated subsidiary 299,198 - - - 299,198
---------- ---------- ---------- ---------- ----------
Total liabilities 4,386,602 6,112,548 187,000 1,392,000 12,078,150
---------- ---------- ---------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock 2,475,000 - - 10,000 C 2,485,000
Common stock 74,393 - 1,000 ( 1,000) E 74,393
Common stock to be issued 11,289,583 - - - 11,289,583
Additional paid in capital 40,236,521 2,414,583 325,000 3,500,417 C/D/E 46,476,521
Deferred compensation ( 4,200,000) - - - ( 4,200,000)
Accumulated deficit (33,095,285) ( 2,779,901) 24,000 ( 4,264,000) C/E (40,115,186)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity 16,780,212 ( 365,318) 350,000 ( 754,583) 16,010,311
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 21,166,814 $ 5,747,230 $ 537,000 $ 637,417 $ 28,088,461
========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial statements
14
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
PRO FORMA STATEMENT OF OPERATIONS
for the six-month period ended June 30, 1997 (unaudited)
Pro Forma
Medcross FTI MiBridge Adjustment Pro Forma
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications service revenue $ - $ 4,414,825 $ - $ - $ 4,414,825
Health care service revenue 1,179,555 - - - 1,179,555
Marketing service revenue 720,490 - - - 720,490
Software sales and development - - 497,299 - 497,299
---------- ---------- ---------- ---------- ----------
Net operating revenue 1,900,045 4,414,825 497,299 - 6,812,169
---------- ---------- ---------- ---------- ----------
Operating costs and expenses:
Telecommunications network expense 1,496,349 5,569,441 - - 7,065,790
Marketing services costs 640,739 - - - 640,739
Selling, general and administrative 3,713,197 1,312,837 630,239 - 5,656,273
Provision for doubtful accounts 158,498 345,000 - - 503,498
Depreciation and amortization 684,333 335,605 10,340 502,167 G 1,532,445
Provision for asset valuation 213,944 - - - 213,944
Research and development 269,334 76,000 - - 345,334
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses 7,176,394 7,638,883 640,579 502,167 15,958,023
---------- ---------- ---------- ---------- ----------
Operating loss ( 5,276,349) ( 3,224,058) ( 143,280) ( 502,167) ( 9,145,854)
Other income (expense):
Interest expense ( 405,001) ( 15,474) - - ( 420,475)
Interest and other income 141,046 1,068 - - 142,114
---------- ---------- ---------- ---------- ----------
Total other income (expense) ( 263,955) ( 14,406) - - ( 278,361)
---------- ---------- ---------- ---------- ----------
Loss before minority interest in
loss of consolidated subsidiaries ( 5,540,304) ( 3,238,464) ( 143,280) ( 502,167) ( 9,424,215)
Minority interest in income of
consolidated subsidiaries 29,128 - - - 29,128
---------- ---------- ---------- ---------- ----------
Net loss before income taxes ( 5,511,176) ( 3,238,464) ( 143,280) ( 502,167) ( 9,395,087)
Income tax benefit - - 57,000 ( 57,000) H -
---------- ---------- ---------- ---------- ----------
Net loss $( 5,511,176) $( 3,238,464) $( 86,280) $( 559,167) $( 9,395,087)
========== ========== ========== ========== ==========
Net loss per common share after
preferred dividends $( 0.57) $( 0.91)
========== ==========
</TABLE>
See notes to unaudited pro forma combined financial statements
15
<PAGE>
<TABLE>
<CAPTION>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
PRO FORMA STATEMENT OF OPERATIONS
for the year ended December 31, 1997 (unaudited)
Pro Forma
Medcross FTI MiBridge Adjustment Pro Forma
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Health care service revenue, net $ 2,212,544 $ - $ - $ - $ 2,212,544
Network service revenue 170,532 - - - 170,532
Long distance service revenue - 3,880,457 - ( 5,026) B 3,875,431
Software sales and development - - 819,200 ( 25,000) B 794,200
---------- ---------- ---------- ---------- ----------
Net operating revenue 2,383,076 3,880,457 819,200 ( 30,026) 7,052,707
---------- ---------- ---------- ---------- ----------
Operating costs and expenses:
Telecommunications network expense 1,120,779 3,301,890 - - 4,422,669
Costs of sales - software - - 250,854 - 250,854
Selling, general and administrative 4,977,763 1,352,732 200,726 ( 5,026) B 6,526,195
Provision for doubtful accounts 197,565 784,537 - - 982,102
Depreciation and amortization 1,094,004 150,261 10,039 959,183 G 2,213,487
Provision for asset valuation 260,033 - - - 260,033
Research and development 347,504 79,609 - ( 25,000) B 402,113
Acquired in-process research
and development expenses 14,577,942 - - - 14,577,942
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses 22,575,590 5,669,029 461,619 929,157 29,635,395
---------- ---------- ---------- ---------- ----------
Operating (loss) income (20,192,514) ( 1,788,572) 357,581 ( 959,183) (22,582,688)
---------- ---------- ---------- ---------- ----------
Other income (expense):
Sales of equipment - 585,541 - ( 585,541) B -
Interest expense ( 2,191,629) ( 7,524) - - ( 2,199,153)
Interest income 147,322 2,109 - - 149,431
Equity in income (loss) of
unconsolidated subsidiaries ( 3,211) - - - ( 3,211)
Litigation settlement expense ( 821,000) - - - ( 821,000)
Other ( 8,108) ( 29,429) - - ( 37,537)
---------- ---------- ---------- ---------- ----------
Total other income (expense) ( 2,876,626) 550,697 - ( 585,541) ( 2,911,470)
---------- ---------- ---------- ---------- ----------
(Loss) income before minority interest in
loss of consolidated subsidiaries (23,069,140) ( 1,237,875) 357,581 ( 1,544,724) (25,494,158)
Minority interest in income of
consolidated subsidiaries 4,900 - - - 4,900
---------- ---------- ---------- ---------- ----------
Net (loss) income before income taxes (23,064,240) ( 1,237,875) 357,581 ( 1,544,724) (25,489,258)
Provision for income taxes - - ( 143,081) 143,081 H -
---------- ---------- ---------- ---------- ----------
Net (loss) income $(23,064,240) $( 1,237,875) $ 214,500 $( 1,401,643) $(25,489,258)
========== ========== ========== ========== ==========
Net loss per common share after
preferred dividends $( 6.53) $( 6.59)
========== ==========
</TABLE>
See notes to unaudited pro forma combined financial statements
16
<PAGE>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION:
The unaudited pro forma combined balance sheet as of June 30, 1997 and
the unaudited pro forma combined statements of operations for the
six-month period ended June 30, 1997 and the year ended December 31,
1996 give effect to the acquisitions of 100% of the outstanding common
stock of Family Telecommunications Incorporated (FTI) and MiBridge,
Inc. (MiBridge) by Medcross, Inc. (the "Company") as if the
acquisitions, accounted for under the purchase method of accounting,
had occurred on the balance sheet date with respect to the balance
sheet and on March 20, 1996 (date of inception of FTI) and March 18,
1996 (date of inception of MiBridge) with respect to the statements of
operations.
FTI was acquired by the Company effective January 1, 1997. The
acquisition of MiBridge is expected to close in the third quarter of
1997.
The pro forma financial statements have been prepared based upon the
financial statements of the Company, MiBridge and FTI as of and for the
six-month period ended June 30, 1997 and for the year ended December
31, 1996. These pro forma financial statements may not be indicative
of the results that actually would have occurred if the combinations
had been in effect on the dates indicated or which may be obtained in
the future. The pro forma adjustments are based upon certain estimates
that may change as additional information becomes available. The pro
forma financial statements should be read in conjunction with the
audited financial statements for the Company, MiBridge and FTI.
2. PRO FORMA ADJUSTMENTS:
The pro forma adjustments reflected in the pro forma financial
statements are summarized in items A to H below:
A. Pro forma adjustment to eliminate $596,000 in intercompany accounts
receivable and notes payable of the Company and FTI, respectively.
B. Pro forma adjustment to remove the following intercompany
transactions: (1) intercompany sales (between FTI and the Company) of
long-distance service ($5,026), (2) intercompany sales (between
MiBridge and the Company) of software ($25,000) and (3) profit on
intercompany sale (between the Company and FTI) of equipment resulting
in a gain to FTI of ($585,541).
17
<PAGE>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)
2. PRO FORMA ADJUSTMENTS, continued:
C. Pro forma adjustment reflecting the purchase by the Company of all
of the outstanding common stock of MiBridge in return for issuance of
1,000 shares of Class D preferred stock of the Company and a note
payable of $2,000,000:
The purchase price allocations of FTI and MiBridge (estimate) are as
follows:
<TABLE>
<CAPTION>
FTI MiBridge Combined
------------ ------------ ------------
<S> <C> <C> <C>
Note payable $ - $ 2,000,000 $ 2,000,000
Common stock (400,000 shares
issued at $0.07 par value with a
market value of $6.03 per share) 2,800 - 2,800
Preferred stock (1,000 shares issued
at $10.00 par value with a total
market value of $6,250,000) - 10,000 10,000
Additional paid in capital 2,411,783 6,240,000 8,651,783
---------- ---------- ----------
Purchase price 2,414,583 8,250,000 10,664,583
---------- ---------- ----------
Net liabilities assumed
(assets acquired) 135,420 ( 355,000) ( 219,580)
---------- ---------- ----------
Excess (allocated to intangible
assets, acquired in-process
research and development
and goodwill) $ 2,550,003 $ 7,895,000 $ 10,445,003
========== ========== ==========
</TABLE>
Allocation of the excess purchase price for MiBridge is anticipated to
be approximately as follows: goodwill ($1,605,000), workforce in place
($600,000), completed technology ($1,450,000) and in-process research
and development ($4,240,000). Goodwill is amortized over 5 years. All
other intangible assets are amortized over three years. Acquired
in-process research and development will be expensed at the acquisition
date (expected to be in the third quarter of 1997), but is not included
in the pro forma statements of operations as it represents a
non-recurring charge. The allocation of excess purchase price to these
intangible assets and in-process research and development is subject to
final revisions which, if material, the amounts allocated to the
intangible assets, specifically goodwill, may be revised.
18
<PAGE>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)
2. PRO FORMA ADJUSTMENTS, continued:
Allocation of excess purchase price for FTI to intangible assets is as
follows: goodwill ($1,490,003), customer list ($520,000), and carrier
identification code and tariff registration status ($540,000).
Goodwill and carrier identification code and tariff registration status
are being amortized over 10 years. The customer list is being
amortized over three years. These intangible assets and related
amortization are reflected in the FTI column (as of and for the
six-month period ended June 30, 1997) as the acquisition was effective
January 1, 1997. Accordingly, pro forma adjustments relative to the
acquisition of FTI are required only for the combined statement of
operations for the year ended December 31, 1996.
D. The historical balance sheet of FTI as presented includes the
transactions recorded at the acquisition date to give effect to the
purchase price allocation. The related investment in FTI ($2,414,583)
by the Company is being carried on the Company's books as "Investment
in FTI" and on FTI's books as additional paid-in capital. This pro
forma adjustment is provided to eliminate these intercompany accounts.
E. Pro forma adjustments to remove MiBridge estimated stockholder's
equity accounts as of the acquisition date as part of the purchase
price allocation process.
F. Pro forma adjustments to reflect the estimated effect of the
purchase price allocation adjustments to property and equipment of
MiBridge.
G. Pro forma adjustments to record estimated amortization of intangible
assets (see item C above) of MiBridge and FTI. No pro forma adjustment
is required for the amortization of intangible assets of FTI for the
six-month period ended June 30, 1997 as these amounts are already
included in the historical amounts presented in the FTI column.
H. Pro forma adjustment to reflect the impact of filing a consolidated
income tax return and to eliminate the deferred tax liabilities of
MiBridge as a result of the purchase price allocation.
19
<PAGE>
MEDCROSS, INC., FAMILY TELECOMMUNICATIONS
INCORPORATED (FTI) AND MIBRIDGE, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)
3. NET LOSS PER COMMON SHARE AFTER PREFERRED DIVIDENDS:
The pro forma net loss per common share for the six-month period ended
June 30, 1997 is computed based on the weighted average number of
common and common equivalent shares outstanding during the period
(10,617,597) and assumes that the 400,000 shares to be issued in
connection with the FTI acquisition were outstanding for the entire
period. The pro forma net loss per common share for the year-ended
December 31, 1996 is computed based on the weighted average number of
common and common equivalent shares outstanding during the year
(6,780,352) and assumes that the 400,000 shares to be issued in
connection with the FTI acquisition were outstanding from March 20,
1996 (date of inception of FTI). Options, warrants and convertible
preferred stock (as in the case of the MiBridge acquisition) are
excluded from the calculation as their effect would be anti-dilutive.
The net loss per common share after preferred dividends includes
$577,923 and $21,223,629 of cumulative preferred stock dividends not
paid for the six-month period ended June 30, 1997 and the year ended
December 31, 1996, respectively.
<PAGE>
