<PAGE> 1
MEDICORE, INC. AND SUBSIDIARIES
-------------------------------
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
--------------- ---------------
Commission file number 1-9167
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MEDICORE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-0941551
- ------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2337 West 76th Street, Hialeah, Florida 33016
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(305) 558-4000
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 or No
--- ---
Common Stock Outstanding
Common Stock, $.01 par value -- 5,454,940 shares as of April 30, 1995.
<PAGE> 2
MEDICORE, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Income (Unaudited) for the
three months ended March 31, 1995 and March 31, 1994 include the accounts of
the Registrant and all its subsidiaries.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Income for the three
months ended March 31, 1995 and March 31, 1994.
2) Consolidated Condensed Balance Sheets as of March 31, 1995 and
December 31, 1994.
3) Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1995 and March 31, 1994.
4) Notes to Consolidated Condensed Financial Statements as of
March 31, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
<S> <C> <C>
REVENUES
Sales $7,574,140 $5,259,786
Interest and other income 94,502 92,549
---------- ----------
7,668,642 5,352,335
COSTS AND EXPENSES
Cost of goods sold 5,973,283 4,215,815
Selling, general and
administrative expenses 1,036,917 982,553
Interest expense 62,016 41,662
---------- ----------
7,072,216 5,240,030
---------- ----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 596,426 112,305
Income taxes 140,022 61,020
---------- ----------
INCOME BEFORE MINORITY INTEREST 456,404 51,285
Minority interest in loss
of consolidated subsidiaries 4,520
---------- ----------
NET INCOME $ 460,924 $ 51,285
========== ==========
NET INCOME PER SHARE $ .08 $ .01
========== ==========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 4
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994(A)
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,207,476 $ 1,450,260
Marketable securities 912,899 1,685,352
Short-term investments 182,907 181,230
Accounts receivable, less allowance
of $162,000 at March 31, 1995 and
$133,000 at December 31, 1994. 3,962,367 3,530,124
Inventories, less obsolescence reserve
of $347,000 at March 31, 1995 and
$255,000 at December 31, 1994. 3,835,835 2,910,735
Prepaid expenses and other current
assets 483,959 414,575
----------- -----------
TOTAL CURRENT ASSETS 10,585,443 10,172,276
RECEIVABLE FROM VIRAGEN, INC. 162,347 167,715
PROPERTY AND EQUIPMENT
Land and improvements 1,013,655 1,006,455
Building and building improvements 2,590,239 2,558,195
Equipment and furniture 4,417,359 4,333,075
Leasehold improvements 202,806 195,388
----------- -----------
8,224,059 8,093,113
Less accumulated depreciation
and amortization 3,559,991 3,430,447
----------- -----------
4,664,068 4,662,666
DEFERRED EXPENSES AND OTHER RECEIVABLES 215,744 161,592
COSTS IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, less accumulated amortization
of $277,792 at March 31, 1995 and $266,626
at December 31, 1994. 779,909 791,075
----------- -----------
$16,407,511 $15,955,324
=========== ===========
</TABLE>
<PAGE> 5
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994 (A)
--------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,881,279 $ 2,311,373
Accrued expenses and other current
liabilities 1,185,881 1,121,799
Current portion of long-term debt 936,000 951,000
Income taxes payable 402,915 276,768
Deferred income taxes 346,902 640,434
----------- -----------
TOTAL CURRENT LIABILITIES 5,752,977 5,301,374
LONG-TERM DEBT 1,606,764 1,667,129
DEFERRED INCOME TAXES 789,886 787,076
MINORITY INTEREST IN SUBSIDIARIES 168,193 172,713
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized 12,000,000 shares;
5,454,940 shares issued and
outstanding 54,549 54,549
Capital in excess of par value 11,540,704 11,540,704
Deficit (3,598,070) (4,058,994)
Foreign currency translation adjustment (147,089) (227,745)
Notes receivables from options exercise (326,400) (326,400)
Unrealized gain on marketable securities
for sale 565,997 1,044,918
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,089,691 8,027,032
----------- -----------
$16,407,511 $15,955,324
=========== ===========
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 filed with the Securities and Exchange Commission in
March 1995.
See notes to Consolidated Condensed Financial Statements.
<PAGE> 6
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 460,924 $ 51,285
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 123,441 106,635
Amortization 16,177 27,462
Bad debt expense 42,625 21,342
Provision for inventory
obsolescence 98,000 18,000
Stock compensation expense 38,438
Minority interest (4,520)
Increase (decrease) relating to
operating activities from:
Accounts receivable (433,745) (443,845)
Inventories (974,319) (238,192)
Prepaid expenses and other
current assets (93,014) (199,852)
Accounts payable 540,368 605,452
Accrued expenses and other
current liabilities 43,773 126,713
Income taxes payable 112,785 56,931
--------- ---------
Net cash provided by (used in)
operating activities (67,505) 170,369
INVESTING ACTIVITIES:
Additions to property, plant
and equipment, net of minor
disposals (76,937) (86,932)
Increase in amounts due from
Viragen, Inc. (17,031)
Payments received on advances
to Viragen, Inc. 5,368 29,744
Proceeds from short-term investments 89,830 87,092
Short-term investments (91,507) (88,393)
Proceeds from sale of marketable securities 35,046 165,519
Organizational and other
deferred investing costs (58,005) (9,071)
--------- ---------
Net cash provided by (used in)
investing activities (96,205) 80,928
</TABLE>
<PAGE> 7
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS-Continued
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
<S> <C> <C>
FINANCING ACTIVITIES:
Payments on long-term debt $ (75,455) $ (128,259)
----------- ----------
Net cash used in financing
activities (75,455) (128,259)
Effect of exchange rate
fluctuations on cash (3,619) 7,559
----------- ----------
Increase (decrease) in cash and
cash equivalents (242,784) 130,597
Cash and cash equivalents at
beginning of period 1,450,260 1,102,787
---------- ----------
Cash and cash equivalents at
end of period $1,207,476 $1,233,384
========== ==========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 8
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The Consolidated Condensed Financial Statements include the
accounts of Medicore, Inc., Medicore's 99% owned subsidiary, Dialysis
Corporation of America ("DCA"), DCA's subsidiaries, and Medicore's 83.1% owned
subsidiary, Techdyne, Inc. (including its wholly-owned subsidiaries Lance Wire
and Cable, Inc. and Techdyne (Scotland) Ltd. ("Techdyne" (Scotland)"),
collectively the Company. All material intercompany accounts and transactions
have been eliminated in consolidation.
Marketable Securities: In 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under this Statement, the Company is required to classify
its marketable equity securities as either trading or available-for-sale. The
Company does not purchase securities for the purpose of short-term sales;
accordingly, its securities are classified as available-for-sale. Marketable
securities are recorded at fair value. Unrealized gains and losses on
available-for-sale securities are included as a separate component of
shareholders' equity, net of income tax effect, until realized. Realized gains
and losses are computed based on the cost of securities sold using the specific
identification method.
Inventories: Inventories, are valued at the lower of cost (first in, first-out
method) or market value. The cost of finished goods and work-in-process
consists of direct materials, direct labor and an appropriate portion of fixed
and variable manufacturing overhead. Inventories are comprised of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Electronic and mechanical components, net:
Finished goods $ 361,118 $ 203,681
Work-in-process 783,473 572,077
Raw materials and supplies 2,473,329 1,889,729
---------- ----------
3,617,920 2,665,487
Medical supplies 217,915 245,248
---------- ----------
$3,835,835 $2,910,735
========== ==========
</TABLE>
Property and Equipment: Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets for financial reporting purposes and by accelerated methods
for income tax purposes.
<PAGE> 9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Costs in Excess of Net Tangible Assets Acquired: The costs in excess of net
tangible assets acquired are being amortized over 25 years. If, in the opinion
of management, an impairment in value occurs, based on the undiscounted cash
flow method, any necessary writedowns will be charged to expense.
Deferred Expenses: Deferred expenses, except for deferred loan costs, are
amortized on the straight-line method, over their estimated benefit period
ranging to 60 months. Deferred loan costs are amortized over the lives of the
respective loans.
Income Taxes: Deferred income taxes at the end of each period are determined
by applying enacted tax rates applicable to future periods in which the taxes
are expected to be paid or recovered to differences between financial
accounting and tax basis of assets and liabilities.
The Company and its majority-owned subsidiaries file consolidated federal and
state tax returns.
Foreign Currency Translation: The financial statements of Techdyne (Scotland),
the foreign subsidiary, have been translated into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52. All balance sheet
accounts have been translated using the current exchange rates at the balance
sheet date. Income statement amounts have been translated using the average
exchange rate for the year. The translation adjustments resulting from the
change in exchange rates from year to year have been reported separately as a
component of stockholders' equity. Foreign currency transaction gains and
losses, which are not material, are included in results of operations. These
gains and losses result from exchange rate changes between the time
transactions are recorded and settled and, for unsettled transactions, exchange
rate changes between the time transactions are recorded and the balance sheet
date.
Income Per Share: Net income per share of common stock for 1995 is computed on
the basis of the weighted average shares outstanding plus common equivalent
shares from dilutive stock options, using the treasury stock method. Net income
per share of common stock for 1994 is computed on the basis of the weighted
average shares outstanding and includes shares approved in January 1994 and
subsequently issued to officers, directors and key employees of the Company and
certain subsidiaries. Fully diluted per share data has not been presented as it
is not dilutive.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. The
carrying amounts, reported in the balance sheet for cash and cash equivalents
approximate their fair values.
<PAGE> 10
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Prepaid Expenses and Other Current Assets: Prepaid expenses and other current
assets is comprised as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ----------
<S> <C> <C>
United Kingdom VAT tax receivable $ 300,457 $ 183,457
Other 183,502 231,118
--------- ---------
$ 483,959 $ 414,575
========= =========
</TABLE>
Accrued Expenses and Other Current Liabilities: Accrued expenses and other
current liabilities is comprised as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -----------
<S> <C> <C>
United Kingdom VAT tax payable $ 425,923 $ 397,404
Other 759,958 724,395
---------- ----------
$1,185,881 $1,121,799
========== ==========
</TABLE>
Customer Payment Terms: The majority of the Company's sales are made at payment
terms of net amount due in 30-45 days, depending on the customer.
Reclassification: Certain reclassifications have been made to the 1994
financial statements to conform to the 1995 presentation.
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 1995 and March 31,
1994 are unaudited and include, in the opinion of management of the Company,
all adjustments (consisting of normal recurring accruals) necessary to present
fairly the earnings for such periods. Operating results for the three months
ended March 31, 1995 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1995.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report on Form
10-K for the year ended December 31, 1994.
NOTE 3--TRANSACTIONS WITH VIRAGEN, INC.
The Company owns approximately 1,120,000 shares of Viragen, Inc. ("Viragen",
formerly a majority-owned subsidiary of the Company) common stock
(approximately 3.2% of the Viragen shares outstanding at March 31, 1995). The
carrying value of these securities was written off as of December 31, 1991.
<PAGE> 11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3--TRANSACTIONS WITH VIRAGEN, INC. -- CONTINUED
During 1994, the Company sold approximately 375,000 shares of Viragen stock and
recognized a gain of approximately $524,000. The Company did not sell any
Viragen stock during the first quarter of 1995.
As a result of the implementation of FAS 115 (See Note 1), the Company has
recorded these securities at fair value with the unrealized gain credited to a
separate component of stockholders' equity, net of income tax effect. Fair
value was determined using quoted market prices published by the National
Quotation Bureau, Inc. as of March 31, 1995 and December 31, 1994. However, the
daily volume of Viragen shares traded would not support a market that would
allow the Company to sell its holdings of Viragen stock at one time and realize
the fair value recorded. In addition, the trading price of the Viragen stock
has fluctuated significantly.
The Company has a second mortgage and related note due from Viragen. Under the
terms of this note, the receivable is to be paid in monthly installments of
$1,789, with a final payment of $361,412 due August 1, 1996. The note bears
interest at 1% over prime. The note balance includes amounts due from Viragen
that were previously written off by Medicore. At March 31, 1995 and December
31, 1994, the outstanding note balance was $390,038 and $395,406, respectively,
and is shown net of an allowance for the amounts previously written off.
Interest earned on the note amounted to approximately $9,000 and $7,000 for
three months ended March 31, 1995 and March 31, 1994, respectively.
The Company has a royalty agreement with Viragen, pursuant to which it is
receiving royalty payments on Viragen's net sales of interferon and related
products. The terms of the agreement include an aggregate of $2.4 million to
be paid based on the following percentages of Viragen sales: 5% of the first $7
million, 4% of the next $10 million, and 3% of the remaining $55 million. The
effective date of the agreement was November 15, 1993, with royalty payments
due quarterly, commencing March 31, 1994. Under the agreement, approximately
$108,000 of royalties earned pursuant to a previous agreement will comprise the
final payment under the new agreement.
NOTE 4--LONG-TERM DEBT
Techdyne, Inc.'s term loan at March 31, 1995 and December 31, 1994 amounted to
approximately $755,000 and $807,000, respectively. The terms of this loan were
renegotiated in March of 1991 and again in June of 1992. The balance is due in
monthly installments of $10,000 plus interest through June 1, 1993; thereafter,
monthly principal payments increased to $17,300 plus interest. The unpaid
balance is due on June 1, 1996. Interest under the agreement is at a rate
equal to 1% above the fluctuating base rate of the Bank. On December 31, 1992,
Medicore guaranteed this loan and gave the Bank a mortgage on its properties in
Florida presently under lease to Techdyne, Inc. At December 31, 1994,
Techdyne, Inc. was in violation of certain covenants under the loan. On March
30, 1995, the lender waived these defaults as of December 31, 1994, and waived
compliance with these covenants through December 31, 1995.
<PAGE> 12
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4--LONG-TERM DEBT -- CONTINUED
The Company and Techdyne, Inc. have agreed to the following:
Techdyne, Inc. has agreed to remit to the bank 50% of any intercompany
repayments Techdyne (Scotland) makes to Techdyne, Inc.
In the event Techdyne (Scotland) is sold, which is not currently
contemplated, 50% of the net proceeds would be applied to repay the
loan.
Techdyne, Inc. has agreed not to provide future funding to Techdyne
(Scotland) without prior permission from the bank.
The Company has agreed that $1,500,000 of Techdyne, Inc.'s
indebtedness to the Company will be subordinated to the bank debt and
has agreed to subordinate certain lease payments in the event of
default.
The loan is secured by Techdyne, Inc.'s receivables, inventory and
fixed assets with a carrying value of approximately $5,371,000 at
March 31, 1995, in addition to the mortgaged real properties.
Techdyne (Scotland) has established a line of credit with a Scottish bank with
a U.S. dollar equivalent of approximately $324,000 at March 31, 1995. This
line of credit, which operates as an overdraft facility, is secured by assets
of Techdyne (Scotland), with a carrying value of approximately $4,882,000 at
March 31, 1995, and is guaranteed by Techdyne, Inc. The interest rate is 2.75%
above the bank base rate with an applicable rate of 9.5% and 9.0% as of March
31, 1995 and December 31, 1994, respectively. No amounts were outstanding under
this line of credit as of March 31, 1995 or December 31, 1994.
Techdyne, Inc. has a promissory note payable to a local bank of $145,000 at
March 31, 1995 and December 31, 1994, with interest payable monthly at prime
with the note maturing April 1997.
The prime rate was 9% and 8.5% as of March 31, 1995 and December 31, 1994,
respectively.
In July 1994, the Company obtained a $230,000 mortgage to refinance a mortgage
note and second mortgage note secured by land and building which represents a
non-cash financing activity and is a supplemental disclosure required by the
SFAS 95. The new first mortgage had a remaining principal balance of
approximately $223,000 and $226,000 at March 31,1995 and December 31, 1994,
respectively. This mortgage is payable commencing September 1, 1994 at $1,065
plus interest at 2% over prime through July 1, 1999 with the remaining
principal and accrued interest due August 1, 1999.
In July 1994, Techdyne (Scotland) finalized the purchase of the facility which
houses its operations at a cost of approximately $730,000. In connection with
the purchase of this real property, Techdyne (Scotland) made a $110,000 payment
and obtained a 15-year mortgage of approximately $620,000 based on exchange
rates at that time, with a variable interest rate
<PAGE> 13
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4--LONG-TERM DEBT -- CONTINUED
of 2% above the bank base rate. The mortgage transaction represents a noncash
financing activity which is a supplemental disclosure required by the SFAS 95.
The principal balance outstanding under this mortgage had a U.S. dollar
equivalency of approximately $648,000 and $628,000 at March 31, 1995 and
December 31, 1994, respectively, based on applicable exchange rates at the end
of each period. The first payment under this mortgage was due in October 1994
with quarterly payments, including principal and interest, through October
2009, with adjustable payments to reflect variations in interest rates. The
interest rate on this mortgage was 8.75% and 8.25% at March 31, 1995 and
December 31, 1994, respectively.
The Company obtained a $130,000 mortgage in April 1993 in connection with the
purchase of a vacant lot for possible future expansion. This mortgage which
commenced May 1, 1993 is payable at $1,083 plus interest at 2% over prime
through March 1, 1998 with the remaining principal balance and accrued interest
due April 1, 1998. The principal balance outstanding under this mortgage
amounted to approximately $105,000 and $108,000 at March 31, 1995 and December
31, 1994, respectively.
In December 1988, the Company obtained a $480,000 fifteen-year mortgage through
November 2003 on its building in Lemoyne, Pennsylvania with interest at 1% over
the prime rate. The remaining principal balance under this mortgage amounted
to approximately $280,000 and $288,000 at March 31, 1995 and December 31, 1994,
respectively. In December 1988, the Company also obtained a $600,000
fifteen-year mortgage though November 2003 on its building in Easton, Maryland
with interest at 1% over the prime rate. The remaining principal balance under
this mortgage amounted to approximately $350,000 and $360,000 at March 31, 1995
and December 31, 1994, respectively. Commencing November 30, 1993 the bank has
the right to demand repayment on the outstanding balance of the borrowings
under these mortgages which have accordingly been classified as current
liabilities. At December 31, 1994, the Company was in violation of certain
covenants under these loans. On March 31, 1995, the lender waived these
defaults as of December 31, 1994 and waived compliance with these covenants
through December 31, 1995.
The Company has various capital lease obligations on equipment. There were no
such new obligations during the first quarter of 1995 or 1994. Such obligations
represent a noncash financing activity which is a supplemental disclosure as
required by Statement on Financial Accounting Standards No. 95, Statement of
Cash Flows.
The carrying amounts of the Company's borrowings under its debt agreements
approximate their fair value.
Interest payments on debt amounted to approximately $61,000 and $40,000 for the
three months ended March 31, 1995 and March 31, 1994, respectively.
NOTE 5--INCOME TAXES
At December 31, 1994, the Company had net operating loss carryforwards of
approximately $6,000,000 that expire in years 2005 through 2008. Of these net
operating loss carryforwards, approximately $2,100,000 expire in 2004 and are
only available to offset future Techdyne (US) taxable income.
<PAGE> 14
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5--INCOME TAXES -- CONTINUED
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
A deferred tax liability of $714,000 at March 31, 1995 and December 31, 1994
resulted from income tax expense recorded on a gain which was recognized for
financial reporting purposes, but not for income tax purposes resulting in a
difference between book and tax basis of the Company's investment in Techdyne.
This temporary difference will reverse upon the occurrence of certain events
relating to the divestiture of Techdyne. Management of the Company currently
has no plans to effect a transaction that will result in such a divestiture.
Consequently, the Company has not recognized any benefit from its loss
carryforwards by offsetting them against this deferred tax liability. This
deferred tax liability has been classified as noncurrent along with the
remaining portion of noncurrent deferred tax liabilities resulting from
differences in book and tax depreciation of Techdyne (Scotland). A current
deferred tax liability has been recorded for the unrealized gain on marketable
securities. See Note 2.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Other deferred tax
liabilities, which total approximately $1,300,000, result from temporary
differences including tax over book depreciation and the unrealized gain on
marketable securities and are more than offset by deferred tax assets.
Deferred tax assets of approximately $2,400,000 result primarily from the net
operating loss carryforwards noted above which result in related deferred tax
assets of approximately $2,200,000 and from temporary differences in book and
tax bases of receivables and inventory which result in related deferred tax
assets of approximately $200,000. Deferred tax assets have not been reflected
in the financial statements as a result of their being offset by a valuation
allowance.
The Company had a domestic income tax expense of approximately $25,000 and
$4,000 for the three months ended March 31, 1995 and March 31, 1994,
respectively, which includes the tax benefit of net operating loss
carryforwards of approximately $85,000 for the three months ended March 31,
1995, with no such benefits during the three months ended March 31, 1994.
Techdyne (Scotland) had income tax expense of $115,000 and $57,000 for the
three months ended March 31, 1995 and March 31, 1994, respectively.
Income tax payments were approximately $4,000 and $27,000 for the three months
ended March 31, 1995 and March 31, 1994, respectively.
<PAGE> 15
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6--STOCK OPTIONS
In September 1994, the Company granted options to purchase 400,000 shares of
common stock exercisable at $1.25 per share through September 30, 1997. The
options vest on the basis of 25% of the aggregate as of the end of each quarter
beginning with the quarter ended December 31, 1994.
In September 1994, options to purchase 480,000 shares of common stock at $.69
per share were exercised. The Company received cash payment of the par value
and the balance in three year promissory notes, presented in the Stockholders'
Equity section of the balance sheet, with interest at 5.36%. The notes are
secured by the 480,000 shares purchased, held in escrow by the Company, with
voting rights held by the shareholders until default, if any, under the notes.
The Company has 1,000,000 shares of common stock reserved for future issuance
pursuant to its 1989 Stock Option Plan. On April 18, 1995, the Company granted
non-qualified stock options for 808,000 shares of its common stock as a service
award to officers, directors, consultants and certain employees of the Company
and certain of its subsidiaries under its 1989 Stock Option Plan. The options
are exercisable at $3.00 per share for 10 years and are exercisable 50% on or
after the first anniversary date of grant and in full on or after the second
anniversary date of grant.
In May 1994, Techdyne adopted a stock option plan for non-qualified options to
be exercisable for a period of five years at $1.00 per share vesting over a
two-year period. Pursuant to this plan, in May 1994, Techdyne granted 227,500
options to purchase shares of Techdyne's common stock to certain of its
officers, directors, employees and consultants. On February 27, 1995 Techdyne
granted non-qualified stock options, not part of the 1994 Plan, to directors
of Techdyne for 142,500 shares exercisable at $1.75 per share for five years.
These options may be exercised for cash or subject to Techdyne board approval,
in part by cash, (minimum par value for the shares purchased) and the balance
by a three-year recourse promissory note. Such notes would be secured by the
shares purchased (to be held in escrow with no transfer rights pending full
payment) with interest based on the coupon rate yield of a 52-week U.S.
Treasury Bill immediately preceding the execution and issuance of the
promissory note, with voting rights for the underlying shares remaining with
the shareholder until a default, if any, on the note. In April 1995, Techdyne
granted a non-qualified stock option, not part of the 1994 Plan, to its general
counsel at the same price and terms as the directors' options.
The board of directors of the Company determined that the fair value of the
Company's common stock was not in excess of the exercise price on the date of
grant for the stock options granted and, therefore, no amounts have been
charged to operations in connection with any grants of options.
NOTE 7--COMMON STOCK
In January 1994, the Company granted 410,000 shares of common stock, as
compensation, service and incentive awards, to officers, directors and key
employees of the Company and certain subsidiaries. The shares vested 1/12th
<PAGE> 16
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7--COMMON STOCK
every month. In conjunction with the vesting provision, $38,000 was charged to
operations during the three months ended March 31, 1994.
NOTE 8--CONTINGENCIES
Techdyne is party to certain lawsuits it initiated against a former officer and
director who counterclaimed against that subsidiary. Techdyne intends to
vigorously defend it's position. Management believes the results of these
matters will not have a materially adverse effect on the Company's financial
statements.
<PAGE> 17
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled approximately $4,832,000 at March 31, 1995, a
decrease of approximately $39,000 during the first quarter of 1995. The overall
decrease reflects net changes in the components of working capital resulting
from the 44% increase in sales revenues and increased operating profits.
Working capital reflected an increase of $440,000 exclusive of the net decrease
in working capital of $479,000 resulting from the valuation of marketable
securities and related deferred taxes which is required by Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities".
Included in the changes in components of working capital was a
decrease in cash and cash equivalents of $243,000 which included net cash used
in operations of $68,000, net cash used in investing activates of $96,000
(including $77,000 from additions to property and equipment) and net cash used
in financing activities of $75,000 from payments on long-term debt. The
significant increases in accounts receivable, inventory levels, accounts
payable and accrued expenses reflect the overall increase in sales levels.
In addition to increases resulting from higher sales revenues, the
increase in inventories included an increase in levels maintained by Techdyne
(Scotland), of approximately $300,000 related to the requirements of a system
implemented by its major customer, Compaq Computer Corp. ("Compaq"), which
requires Techdyne (Scotland) to have on hand inventories of finished goods to
meet on demand requirements of Compaq. Compaq has agreed to assume the
responsibility for the cost of any excess inventory not used under the system.
The Company is a guarantor under Techdyne, Inc.'s bank loan
agreement. This loan is secured by Techdyne, Inc.'s receivables, inventory and
fixed assets, and the bank has mortgages on various real properties owned by
the Company. The Company subordinated to the bank $1,500,000 of advances made
to Techdyne, Inc. and agreed to subordinate lease payments from Techdyne, Inc.
in the event of default. The remaining principal balance under this note
amounted to $755,000 and $807,000 at March 31, 1995 and December 31, 1994,
respectively. See Note 4 to "Notes to Consolidated Condensed Financial
Statements".
Techdyne, Inc. has outstanding borrowings of $145,000 from a local
bank with interest payable monthly and the notes maturing April 1997. See Note
4 to "Notes to Consolidated Condensed Financial Statements".
Techdyne (Scotland) has a line of credit with a Scottish bank, with a
U.S. dollar equivalency of approximately $324,000 at March 31, 1995 which is
secured by the assets of Techdyne (Scotland) and guaranteed by Techdyne, Inc.
This line of credit operates as an overdraft facility. No amounts were
outstanding under this line of credit as of March 31, 1995. See Note 4 to
"Notes to Consolidated Condensed Financial Statements".
<PAGE> 18
During 1988, the Company, through DCA, its dialysis subsidiary,
obtained mortgages totalling $1,080,000 on two buildings which housed, until
the dialysis centers were sold in October 1989, two of its dialysis facilities
located in Maryland and Pennsylvania. The mortgages had a combined remaining
balance of $630,000 and $648,000 at March 31, 1995 and December 31, 1994,
respectively. The bank has liens on the real and personal property of the
Company's dialysis subsidiary, including a lien on all rents due and security
deposits from the rental of these properties. The loans contain a provision
allowing the bank mandatory repayment upon 90 days written notice after five
years. The five year period has elapsed; accordingly, while no notice has been
given, the unpaid principal is carried as a current liability. The Maryland
dialysis center sold continues to lease space from the Company in the building;
however, the Pennsylvania center, with lease payments made through April 1994,
has recently relocated. The Company is constructing its own new dialysis center
at that property. See Note 4 to "Notes to Consolidated Condensed Financial
Statements".
The Company owns 1,123,568 shares of Viragen at March 31, 1995 for
which the remaining carrying value was previously written-off. The Company
sold 376,432 shares of Viragen stock during 1994, realizing a gain and cash
proceeds of $524,000. Although the Company did not sell any Viragen stock
during the first quarter of 1995, it intends to sell additional shares as
needed as a source of working capital. See Note 4 to "Notes to Consolidated
Condensed Financial Statements".
Since the Company established Viragen in 1980, it had advanced
substantial sums to that former subsidiary. In August 1993, the Company and
Viragen executed a modified mortgage and promissory note, with interest at
prime plus 1%, effective as of June 1, 1993 in the amount of $429,400, which is
being amortized over a 20 year term in equal monthly installments with a
balloon payment of all remaining unpaid principal and interest due August 1,
1996. Interest is at prime plus 1%. See Note 3 to "Notes to Consolidated
Condensed Financial Statements".
In April 1993, the Company purchased a vacant lot across from
Techdyne, Inc.'s facility in Hialeah, Florida for possible future expansion.
In connection with this purchase, the Company obtained a $130,000 mortgage.
The principal balance outstanding under this mortgage amounted to $105,000 and
$108,000 at March 31, 1995 and December 31, 1994, respectively. See Note 4 to
"Notes to Consolidated Condensed Financial Statements".
In July 1994, the Company obtained a replacement mortgage of $230,000
to refinance the first and second mortgages on a building it leases to
Techdyne, Inc. The principal balance under this mortgage amounted to $223,000
and $226,000 at March 31, 1995 and December 31, 1994, respectively. See Note
4 to "Notes to Consolidated Condensed Financial Statements".
In July 1994, Techdyne (Scotland) purchased the facility housing its
operations for approximately $730,000 obtaining a 15-year mortgage which had a
U.S. dollar equivalency of approximately $648,000 and $638,000 at March 31,
1995 and December 31, 1994, respectively. The first quarterly payment under
this mortgage was due in October 1994. See Note 4 to "Notes to Consolidated
Condensed Financial Statements".
<PAGE> 19
In August 1992, one of Techdyne, Inc.'s major customers Wang
Laboratories, Inc. ("Wang") filed for protection under Chapter 11 of the United
States Bankruptcy Act. Techdyne, Inc.'s unsecured claim was resolved in the
Wang reorganization. Pursuant to the first distribution under Wang's Chapter 11
proceedings, Techdyne, Inc. received 9,512 shares of Wang's reorganized common
stock a portion of which it sold in December 1993, with the remainder sold in
February 1994, with Techdyne, Inc., realizing proceeds from these sales
totalling approximately $166,000 in March 1994. In February 1995, Techdyne,
Inc. received and sold an additional 2,808 shares of Wang's reorganized common
stock pursuant to a second distribution under the Chapter 11 proceedings,
realizing proceeds of approximately $35,000 which was the amount Techdyne, Inc.
had recorded as being due. Wang continues to be a customer but subject to
stricter credit terms.
The Company's liquidity and working capital position are influenced to
a large degree by its electronic and electro- mechanical subsidiary Techdyne,
Inc. Management believes operational improvements implemented have improved the
overall efficiency of product manufacturing and related functions, particularly
in the areas of raw material purchasing and inventory management. These
improvements have been supplemented by cost reduction programs targeting
operational areas deemed non-essential and certain general and administrative
expense. These programs have improved operating results and are expected to
continue to improve the earnings potential of the Company; however, there can
be no assurance as to the ultimate effectiveness of the programs.
The bulk of the Company's cash balances are carried in
interest-yielding vehicles at various rates and mature at different intervals
depending upon the anticipated cash requirements of the Company.
Given the current level of profitable operations and working capital,
and improved efficiencies, particularly in the area of domestic production,
management believes current levels of working capital are adequate to
successfully meet liquidity demands for at least the next twelve months.
RESULTS OF OPERATIONS
Consolidated revenues increased approximately $2,316,000 (43%) during
the three months ended March 31, 1995 compared to the same period of the
preceding year.
Revenues of the Company's electronic and electro-mechanical
subsidiary, Techdyne, increased approximately $2,274,000 (51%) for the three
months ended March 31, 1995 compared to the same period of the preceding year.
Domestic revenues increased $1,639,000 (61%) and European-based revenues
increased $635,000 (36%) for the three months ended March 31, 1995 compared to
the same period of the preceding year.
The increase in domestic revenues of Techdyne compared to the
preceding year, in addition to an overall net increase in sales to existing
customers, reflects new customer development efforts in general and additional
revenues resulting from an increased level of customer service made possible
through Techdyne's Texas manufacturing facility.
<PAGE> 20
The revenues of Techdyne's Scottish-based subsidiary, Techdyne
(Scotland) continue to be highly dependent on sales to Compaq which accounted
for approximately 79% of the sales of Techdyne (Scotland) for the three months
ended March 31, 1995 and for the same period of the preceding year. Sales by
Techdyne (Scotland) to Compaq increased $498,000 (34%) for the three months
March 31, 1995 compared to the same period of the preceding year.
Approximately 75% of Techdyne's consolidated sales and 67% of the
Company's consolidated sales for the first three months of 1995 were made to
five customers. Compaq accounted for 30% and 27%, IBM accounted for 12% and
10% and Avid Technology accounted for 15% and 14% of Techdyne's and the
Company's consolidated sales, respectively. The other two customers each
accounted for less than 10% of Techdyne's and the Company's sales. The loss of
any of these customers would have an adverse effect on the Company's
operations.
Medical supply sales revenues increased by $56,000 (15%) for the three
months ended March 31, 1995 compared to the same period of the preceding year.
Approximately 56% of the increase in sales for the first three months of 1995
compared to the same period of the preceding year resulted increased sales of
the Medi-Lance(R), the principal product of this division, with the balance of
the increase coming from an increased demand for various other products.
Medical services sales revenues, which represents revenues of the
Company's dialysis division, decreased by $28,000 (6%) for the three months
ended March 31, 1995 compared to the same period of the preceding year.
Revenues for the three months ended March 31, 1995 compared to the prior year
included a decrease in revenues from inpatient hospital dialysis treatments of
$14,000 (39%), an increase in revenues from ancillary services $6,000 (6%) and
a decrease in other treatment revenues $20,000 (6%).
Interest and other income remained relatively stable increasing $2,000
for the three months ended March 31, 1995 compared to the same period of the
preceding year.
Cost of goods sold as a percentage of consolidated sales revenues
amounted to 79% for the three months ended March 31, 1995 compared to 80% for
the same period of the preceding year.
Cost of goods sold for the Company's electronic and electro-mechanical
subsidiary, Techdyne, as a percentage of sales decreased to 82% for the three
months ended March 31, 1995 compared to 84% for the same period of the
preceding year largely as a result of improved margins related to product mix,
including new customer sales, and cost reduction efforts. The increase in
margins and increased sales revenues of the Company's electronic and
electro-mechanical subsidiary, along with improved manufacturing efficiencies
and overall cost reduction efforts, resulted in an increase in operating
profits of this subsidiary of $403,000 for the three months ended March 31,
1995 compared to the same period of the preceding year.
Cost of goods sold for the medical supplies operation decreased to 55%
for the three months ended March 31, 1995 compared to 58% for the same period
of the preceding year, largely as a result of increased profit margins on the
principal product of this division. The increase in margins and increased
sales revenues of the medical supplies operation was largely responsible for an
increase in operating profits of $43,000 for the three months ended March 31,
1995 compared to the same period of the preceding year.
<PAGE> 21
Cost of goods sold related to medical services sales decreased to 58%
for the three months ended March 31, 1995 compared to 65% for the same period
of the preceding year, mostly as result of improved margins on home treatment
revenues. The increase in medical services margins was largely responsible
for an increase in operating profits of $36,000 for the three months ended
March 31, 1995, compared to the same period of the preceding year.
Selling, general and administrative expenses increased by $54,000 (5%)
for the three months ended March 31, 1995 compared to the same period of the
preceding year largely as a result of the increased level of activity generated
by the 44% increase in sales revenues.
Interest expense increased by approximately $20,000 (49%) for the
three months ended March 31, 1995 compared to the same period of the preceding
year as a result of increases in interest rates and higher overall levels of
debt outstanding, including the Techdyne (Scotland) mortgage. The prime rate
was 9% and 8.5% at March 31, 1995 and December 31, 1994, respectively.
INFLATION
Inflationary factors have not had a significant effect on the
Company's operations. The Company attempts to pass on increased costs and
expenses by increasing selling prices when and where possible and by developing
different and improved products for its customers that can be sold at targeted
profit margins. Revenue per dialysis treatment for the Company's hemodialysis
operations is set by regulation and cannot be voluntarily increased to keep
pace with increases in nursing and other patient care costs.
<PAGE> 22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statements re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
quarter ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICORE, INC.
By /s/ DENNIS W. HEALEY
----------------------------
DENNIS W. HEALEY, Senior Vice
President, Principal Financial
Officer and Treasurer
By /s/ DANIEL R. OUZTS
-----------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Accounting Officer
Dated: May 12, 1995
<PAGE> 1
MEDICORE, INC. AND SUBSIDIARIES
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
PRIMARY
<S> <C> <C>
Weighted average shares
outstanding 5,454,940 4,974,940
Net effect of dilutive
stock options-based on
the treasury stock method
using average market price 250,299
---------- ----------
5,705,239 4,974,940
========== ==========
Net income $ 460,924 $ 51,285
========== ==========
Net income per share $ .08 $ .01
========== ==========
</TABLE>
Note: Fully diluted earnings per share data has not been presented for 1995 or
1994 as it is not dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,207,476
<SECURITIES> 912,899
<RECEIVABLES> 3,962,367
<ALLOWANCES> 0
<INVENTORY> 3,835,835
<CURRENT-ASSETS> 10,585,443
<PP&E> 8,224,059
<DEPRECIATION> 3,559,991
<TOTAL-ASSETS> 16,407,511
<CURRENT-LIABILITIES> 5,752,977
<BONDS> 1,606,764
<COMMON> 54,549
0
0
<OTHER-SE> 8,035,142
<TOTAL-LIABILITY-AND-EQUITY> 16,407,511
<SALES> 7,574,140
<TOTAL-REVENUES> 7,668,642
<CGS> 5,973,283
<TOTAL-COSTS> 5,973,283
<OTHER-EXPENSES> 1,036,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,016
<INCOME-PRETAX> 600,949
<INCOME-TAX> 140,022
<INCOME-CONTINUING> 460,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460,924
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
