SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A#1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 13, 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
of incorporation) Number) No.)
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 FTI and the pro forma financial information
relating to the acquisition required to be filed ursuant 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: May 1, 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>
FAMILY TELECOMMUNICATIONS, INCORPORATED
Financial Statements for the period
from the Date of Inception (March 20, 1996) to December 31, 1996
<PAGE>
Report of Independent Accountants
To the Shareholders of
Family Telecommunications, Incorporated:
We have audited the balance sheet of Family Telecommunications,
Incorporated as of December 31, 1996, and the related
statements of operations and cash flows for the period from the
date of inception (March 20, 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 audits.
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 Family Telecommunications, Incorporated as of December 31,
1996, and the results of its operations and its cash flows for
the period from the date of inception (March 20, 1996) to
December 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Salt Lake City, Utah
March 11, 1997
<PAGE> 1
<TABLE>
<CAPTION>
FAMILY TELECOMMUNICATIONS, INCORPORATED
BALANCE SHEET
as of December 31, 1996
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 435,312
Accounts receivable (net of allowance for doubtful accounts of $781,787) 1,252,974
Accounts receivable - related party 30,726
Other current assets 20,696
---------
Total current assets 1,739,708
---------
Furniture and equipment:
Communications equipment 1,004,121
Office furniture and equipment 218,558
---------
1,222,679
Less accumulated depreciation (150,261)
---------
Total furniture and equipment, net 1,072,418
Deposits 28,491
---------
Total assets $ 2,840,617
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 139,579
Accrued liabilities 322,778
Accrued wages - officers 144,000
Advances from related party 120,000
Settlement payable to marketing group 200,000
Notes payable 124,000
Long-term debt - current portion 280,000
---------
Total current liabilities 1,330,357
---------
Long-term debt 1,711,216
---------
Total liabilities 3,041,573
---------
Commitments and contingencies (Note 7)
Stockholders' deficit:
Common stock, $.001 par value, 10,000 shares authorized,
4,000 issued and outstanding 4
Additional paid-in capital 1,036,915
Accumulated deficit (1,237,875)
---------
Total stockholders' deficit (200,956)
---------
Total liabilities and stockholders' deficit $ 2,840,617
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 2
<TABLE>
<CAPTION>
FAMILY TELECOMMUNICATIONS, INCORPORATED
STATEMENT OF OPERATIONS
For the period from March 20, 1996 (inception) to December 31, 1996
<S> <C>
Revenues:
Long distance service revenues $ 3,880,457
Operating expenses:
Line costs 2,841,860
Commissions 460,030
Selling, general and administrative 1,352,732
Depreciation and amortization 150,261
Research and development 79,609
Bad debt expense 784,537
---------
Total operating expenses 5,669,029
---------
Operating loss (1,788,572)
---------
Other income (expense):
Income from sales of communications hardware to a related
party, (net of $1,137,828 costs of goods sold) 585,541
Interest income 2,109
Interest expense (7,524)
Other expense (29,429)
---------
Total other income, net 550,697
---------
Net loss $(1,237,875)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
FAMILY TELECOMMUNICATIONS, INCORPORATED
STATEMENT OF CASH FLOWS
For the period from March 20, 1996 (inception) to December 31, 1996
<S> <C>
Cash flows from operating activities:
Net loss $(1,237,875)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 150,261
Provision for losses on accounts receivable 784,537
Increase (decrease) from changes in:
Receivables (2,068,237)
Other current assets (20,696)
Deposits (28,491)
Accounts payable and accrued liabilities 2,440,577
Accrued wages - officers 144,000
Settlement payable to marketing group 200,000
--------
Net cash used in operating activities 364,076
---------
Cash flows from investing activities:
Additions to furniture and equipment (112,764)
---------
Net cash used in investing activities (112,764)
---------
Cash flows from financing activities:
Proceeds from short term notes payable 104,000
Payments on short term notes payable (40,000)
Advances from related party 120,000
---------
Net cash provided by financing activities 184,000
---------
Increase in cash and cash equivalents 435,312
Cash and cash equivalents at beginning of year 0
---------
Cash and cash equivalents at end of year $ 435,312
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 3,200
=========
Non-cash transactions:
Contribution of equipment and furniture by shareholders
in exchange for stock of the company $ 1,036,919
Additions to furniture and equipment financed
with trade accounts payable $ 13,000
Additions to furniture and equipment financed
with short-term note payable $ 60,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
FAMILY TELECOMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Organization
Family Telecommunications, Incorporated (the Company), a Utah
corporation, began operations on March 20, 1996. The Company
provides long-distance telephone services including 1-plus long
distance service, toll free services (800/888), worldwide
calling card service, worldwide prepaid phone card service, long
distance cellular phone service, data line service and T-span
service. Through its Carrier Agreement with MCI
Telecommunications Corporation, the Company provides
long-distance service in the 48 continental states. The Company
is a switchless reseller (having no equipment) in all states but
Arizona where the Company provides service through its own
switches. This allows the Company to offer additional services
in its home state and surrounding states and other customized
services to its entire customer base.
The following is a summary of significant accounting policies
followed by the Company:
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist primarily of money market
accounts that are readily convertible to cash.
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:
Telecommunications equipment 5-7
Office equipment and furniture 3-7
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.
Continued
<PAGE> 5
FAMILY TELECOMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, Continued:
Research and Development
Company-sponsored research and development costs related to
both present and future products are expensed currently.
Income Taxes
The Company has elected to be taxed as a U.S. small business
corporation exempt from income taxes under Sub-Chapter S of the
Internal Revenue Code.
Accordingly, the Company's shareholders are responsible for
federal and state income taxes on their respective portions of
the Company's earnings.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk are primarily accounts receivable.
In 1996 the Company generated approximately 89% of its
long-distance revenues from one marketing group, although
collections are made from each member of the group. The Company
performs credit evaluations of its large customers but generally
does not require collateral to support customer receivables.
The majority of the Company's cash and cash equivalents are
held by three financial institutions in Phoenix, Arizona. The
Company has $175,000 which exceeds the FDIC insurance limits.
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
<PAGE> 6
FAMILY TELECOMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, Continued
2. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE:
The Company has estimated an allowance for doubtful accounts
receivable in the amount of $781,787 as of December 31, 1996.
Management's estimate takes into consideration current market
conditions and the limited collection experience of the Company
since inception. Actual write-offs of uncollectible accounts
may differ from amounts estimated.
3. SETTLEMENT PAYABLE TO MARKETING GROUP:
The Company entered into an agreement during 1996 with a
marketing group wherein the group was to share in fees and
profits related to telephone usage by the group's members, net
of commissions paid to the members. In connection with this
agreement, certain disagreements between the Company and the
marketing group existed at year end. Subsequent to December 31,
1996, the Company entered into a settlement agreement with the
marketing group, wherein the Company agreed to pay the marketing
group $200,000 to satisfy all liabilities to the group under the
original agreement.
4. NOTES PAYABLE:
As of December 31, 1996, the Company has $124,000 in short-term
notes payable to various banks and individuals which are due in
1997. Two notes totaling $100,000 are collateralized by some of
the Company's furniture and equipment and bear interest at rates
ranging from 8 to 11.5 percent.
5. RELATED PARTY TRANSACTIONS:
The Company's principal shareholder, is a brother of the
president of I-Link Worldwide, Inc. ("I-Link") a subsidiary of
Medcross, Inc. During the period from March 20, 1996
(inception) to December 31, 1996, the Company rendered long
distance services and sold switching equipment to I-Link.
Revenues and expenses relating to these transactions are as
follows:
Long distance revenues $ 5,026
Revenues from sale of switching equipment $ 1,723,369
Cost of switching equipment sold $ 1,137,828
Continued
<PAGE> 7
FAMILY TELECOMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, Continued
5. RELATED PARTY TRANSACTIONS, Continued:
As of December 31, 1996 the Company had a receivable from
I-Link for services in the amount of $30,726 and an advance in
the amount of $120,000 from I-Link for services to be rendered
by the Company for I-Link subsequent to year-end.
Subsequent to December 31, 1996, the Company entered into a
share exchange agreement for the acquisition of the Company by
Medcross, Inc. (See Note 8 - Subsequent Events)
6. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
At the inception of the Company, owners contributed assets
valued at $1,036,919 in exchange for 4,000 shares of the
Company's common stock. The contributed assets consisted
primarily of telephone switching equipment and office equipment.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office space under non-cancelable operating
leases. Rental expense for 1996 was $73,000. The leases grant
a security interest in substantially all of the Company's
furniture and equipment during the term of the lease. Future
minimum lease payments under these leases are as follows:
1997 $ 109,000
1998 113,000
1999 119,000
2000 93,000
2001 35,000
-------
$ 469,000
=======
Continued
<PAGE> 8
FAMILY TELECOMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, Continued
7. COMMITMENTS AND CONTINGENCIES, Continued:
Employment Agreements
The Company has employment agreements with six employees of the
Company providing for a salary continuation (usually five years)
in the event of termination for reasons other than cause. As of
December 31, 1996, if all of the employees under contract were
to be terminated by the Company without cause under these
contracts, the Company's total future payments to these
employees would be approximately $1,400,000.
8. SUBSEQUENT EVENTS:
Restructuring of Account Payable into Long-Term Debt
As of December 31, 1996 the Company had an account payable in
the amount of $1,991,216 to a long distance provider for the
Company's line costs. Subsequent to year-end the Company
entered into an agreement wherein the $1,991,216 payable and the
Company's line charge for January 1997 of approximately $700,000
were converted to a long-term note payable with interest payable
at 7%. No interest will be charged until May 5, 1997. The note
calls for payments of $50,000 per month beginning May 5, 1997
increasing to $75,000 on April 5, 1998 and $150,000 on October
5, 1998 with a balloon payment of $1,100,000 due on April 5,
1999. Principal payments under the note will be as follows:
December 31
1997 $ 280,000
1998 901,000
1999 1,519,000
---------
$ 2,700,000
=========
Continued
<PAGE> 9
FAMILY TELECOMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, Continued
8. SUBSEQUENT EVENTS, Continued:
Restructuring of Account Payable into Long-Term Debt, Continued
Under terms of this agreement, the Company is also obligated to
make payments on current usage in the amount of $600,000 for
February 1997 usage (with a true-up payment 30 days after
receipt of the February invoice) and weekly payments for
subsequent months current usage in the amount of $125,000 for
March and April 1997 and $150,000 for May 1997 and subsequent
usage periods. True-up payments for each month will be 30 days
after receipt of the respective month's invoice. If usage
increases or decreases more than 20% in any weekly or monthly
period, the weekly payment will be adjusted consistent with that
usage.
Acquisition of the Company by Medcross, Inc.
Subsequent to year-end and effective January 1, 1997, the
Company entered into a share exchange agreement (the
"agreement") with Medcross, Inc. (Medcross). Under the
agreement, Medcross will acquire 100% of the Company's
outstanding shares of common stock in exchange for 400,000
shares of common stock of I-Link subject to certain
contingencies, approval by Medcross shareholders at Medcross'
next Shareholders' meeting of an amendment to Medcross' Articles
of Incorporation increasing the number of authorized common
shares of Medcross and entering into employment contracts with
Robert Edwards and Jerry Nelson.
<PAGE> 10
<TABLE>
<CAPTION>
MEDCROSS, INC. AND
FAMILY TELECOMMUNICATIONS, INCORPORATED (FTI)
PRO FORMA COMBINED BALANCE SHEET
As of December 31, 1996
(Unaudited)
Pro Forma
Medcross, Inc. FTI Adjustment Pro Forma
-------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,500,227 $ 435,312 $ 4,935,539
Accounts receivable less allowances of $1,433,806 780,907 1,283,700 $ (120,000) (D) 1,944,607
Inventory less allowances of $260,033 557,036 - 557,036
Certificate of deposit - restricted 208,500 - 208,500
Prepaid expenses 47,472 - 47,472
Other current assets 11,411 20,696 32,107
---------- --------- ----------
Total current assets 6,105,553 1,739,708 7,725,261
---------- --------- ----------
Property and equipment
Office furniture, equipment and leasehold improvements 388,191 218,558 606,749
Network services furniture and equipment 2,110,996 1,004,121 (84,725) (B) 3,030,392
Medical equipment and vehicles 2,975,701 - 2,975,701
---------- --------- ----------
5,474,888 1,222,679 6,612,842
Less accumulated depreciation (2,618,252) (150,261) 150,261 (B) (2,618,252)
----------- --------- ----------
Net property and equipment 2,856,636 1,072,418 3,994,590
----------- --------- ----------
Other assets:
Intangible assets, net 486,028 - 2,550,003 (A) 3,036,031
Certificate of deposit - restricted 1,761,312 - 1,761,312
Other assets 224,301 28,491 252,792
---------- --------- ----------
Total other assets 2,471,641 28,491 5,050,135
---------- --------- ----------
Total assets $ 11,433,830 $ 2,840,617 $ 16,769,986
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,379,451 $ 926,357 $ (120,000) (D) $ 3,185,808
Accrued litigation settlement 821,000 - 821,000
Notes payable 1,095,000 124,000 1,219,000
Current portion of long-term debt 43,554 280,000 323,554
Current obligations under capital lease 187,047 - 187,047
---------- --------- ----------
Total current liabilities 4,526,052 1,330,357 5,736,409
Long-term debt 44,128 1,711,216 1,755,344
Capital lease obligation 236,705 - 236,705
Minority interest in consolidated subsidiaries 328,328 - 328,328
---------- --------- ----------
Total liabilities 5,135,213 3,041,573 8,056,786
---------- --------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock 2,475,000 - 2,475,000
Common stock 74,253 4 2,796 (A,C) 77,053
Additional paid-in capital 30,874,910 1,036,915 1,374,868 (A,C) 33,286,693
Accumulated deficit (27,125,546) (1,237,875) 1,237,875 (C) (27,125,546)
---------- --------- ----------
Total stockholders' equity 6,298,617 (200,956) 8,713,200
---------- --------- ----------
Total liabilities and stockholders' equity $ 11,433,830 $ 2,840,617 $ 16,769,986
========== ========= ==========
</TABLE>
See notes to unaudited pro forma combined financial statements.
<PAGE> 11
<TABLE>
<CAPTION>
MEDCROSS, INC. AND
FAMILY TELECOMMUNICATIONS, INCORPORATED (FTI)
PRO FORMA COMBINED STATEMENT OF OPERATIONS
as of December 31, 1996
(Unaudited)
Pro Forma
Medcross, Inc. FTI Adjustment Pro Forma
-------------- ----------- ------------ -----------
<S> <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 revenues - 3,880,457 (5,026) (D) 3,875,431
--------- -------- --------- ---------
Net operating revenue 2,383,076 3,880,457 6,258,507
---------- --------- ---------
Operating costs and expenses:
Line costs - 2,841,860 2,841,860
Commissions - 460,030 460,030
Salaries and benefits 1,825,138 854,609 (5,026) (D) 2,674,721
Selling, general and administrtive 2,863,963 498,123 3,362,086
Communications network expense 1,120,779 - 1,120,779
Depreciation and amortization 1,094,004 150,261 272,600 (E) 1,516,865
Provision for inventory valuaton 260,033 - 260,033
Repairs and maintenance 288,662 - 288,662
Provision for doubtful account 197,565 784,537 982,102
Research and development 347,504 79,609 427,113
Acquired in-process research and development expense 14,577,942 - 14,577,942
---------- --------- ----------
Total operating costs and expenses 22,575,590 5,669,029 28,512,193
---------- --------- ----------
Operating loss (20,192,514) (1,788,572) (22,253,686)
---------- --------- ----------
Other income (expense):
Sales of equipment - 585,541 (585,541) (D) -
Interest expense (2,191,629) (7,524) (2,199,153)
Interest income 147,322 2,109 149,431
Equity in net 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 expense (2,876,626) 550,697 (2,911,470)
---------- --------- ----------
Loss before minority interest in loss of
consolidated subsidiaries (23,069,140) (1,237,875) (25,165,156)
Minority interest in income of consolidated subsidiaries 4,900 - 4,900
---------- --------- ----------
Net loss $(23,064,240) $(1,237,875) $(25,160,256)
========== ========= ==========
Net loss per common share after preferred dividends $ (6.53) $ (6.55)
==== ====
</TABLE>
See notes to unaudited pro forma combined financial statements.
<PAGE> 12
MEDCROSS, INC. AND
FAMILY TELECOMMUNICATIONS, INCORPORATED (FTI)
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Preparation:
The unaudited pro forma combined balance sheet as of December 31, 1996
and the unaudited pro forma combined statements of operations for the year
ended December 31, 1996 give effect to the acquisition of 100% of the
outstanding common stock of Family Telecommunications Incorporated (FTI)
by Medcross, Inc. (the "Company") as if the acquisition, 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)
with respect to the statement of operations.
The pro forma financial statements have been prepared based upon the financial
statements of the Company and FTI as of 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 combination 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 which 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 and FTI.
NOTE 2 - Pro forma Adjustments:
The pro forma adjustments reflected in the pro forma financial
statements are summarized in items A to E below:
A. Pro forma adjustment reflects the purchase of
all of the outstanding common stock of FTI by the Company in
return for the issuance of 400,000 shares of common stock of the
Company to the stockholders of FTI:
Common stock (400,000 shares
issued at $.007 par value with a
market value of $6.03 per share) $ 2,800
Additional paid-in capital 2,411,783
---------
Purchase price 2,414,583
Net liabilities assumed 135,420
---------
Excess (allocated to intangible
assets and goodwill) $ 2,550,003
=========
B. Pro forma adjustments to reflect the effect of purchase
price allocation adjustments to property and equipment.
C. Pro forma adjustments to remove FTI stockholders' equity
accounts as of December 31, 1996 as part of the purchase price
allocation process.
D. Removal of the following intercompany transactions occurring
during 1996:
. intercompany accounts receivable and payables ($120,000)
. intercompany sales of long distance service ($5,026)
. profit on intercompany sale of equipment resulting in gain
to FTI ($585,541)
E. Pro forma adjustments to record amortization of intangible
assets (see item A above) and adjustment to depreciation of
property and equipment due to change in value as a result of
purchase price allocations (see item B above).
<PAGE> 13
