<PAGE> 1
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9167
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MEDICORE, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Florida 59-0941551
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2337 West 76th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
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(305) 558-4000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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, 1996.
<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, 1996 and March 31, 1995 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, 1996 and March 31, 1995.
2) Consolidated Condensed Balance Sheets as of March 31, 1996 and
December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the three months
months ended March 31, 1996 and March 31, 1995.
4) Notes to Consolidated Condensed Financial Statements as of March 31,
1996.
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
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
MEDICORE, INC. AND SUBSIDIARIES
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
REVENUES
Sales $ 8,229,558 $ 7,574,140
Realized gain on sale of marketable securities 562,029
Other income 120,780 94,502
Litigation settlement 139,645
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9,052,012 7,668,642
COST AND EXPENSES
Cost of goods sold 6,636,687 5,973,283
Selling, general and administrative expenses 1,289,290 1,036,917
Interest expense 54,919 62,016
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7,980,896 7,072,216
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 1,071,116 596,426
Income tax provision 189,927 140,022
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INCOME BEFORE MINORITY INTEREST 881,189 456,404
Minority interest in (income) loss of consolidated
subsidiaries (155,936) 4,520
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NET INCOME $ 725,253 $ 460,924
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Net income per share $ .12 $ .08
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
MEDICORE, INC. AND SUBSIDIARIES MARCH 31, DECEMBER 31,
1996 1995(A)
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,473,991 $ 4,836,512
Marketable securities 2,525,808 855,351
Short-term investments 191,292 188,954
Accounts receivable, less allowance of $274,000 at
March 31, 1996 and $244,000 at December 31, 1995 4,121,993 3,853,913
Inventories, less allowance for obsolescence of $318,000 at
March 31, 1996 and $309,000 at December 31, 1995 3,451,198 3,872,912
Current portion of note receivable from Viragen, Inc. 146,245
Prepaid expenses and other current assets 589,904 745,192
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TOTAL CURRENT ASSETS 16,354,186 14,499,079
PROPERTY AND EQUIPMENT
Land and improvements 1,002,855 1,005,255
Building and building improvements 2,825,158 2,814,785
Equipment and furniture 5,360,471 5,300,487
Leasehold improvements 371,479 367,743
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9,559,963 9,488,270
Less accumulated depreciation and amortization 4,030,237 3,880,549
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5,529,726 5,607,721
DEFERRED EXPENSES AND OTHER ASSETS 547,770 393,943
COSTS IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED,
less accumulated amortization of $322,000 at March 31,
1995 and $311,000 at December 31, 1995. 735,245 746,411
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$ 23,166,927 $ 21,247,154
============== ==============
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
MEDICORE, INC. AND SUBSIDIARIES MARCH 31, DECEMBER 31,
1996 1995(A)
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(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,894,271 $ 3,532,971
Accrued expenses and other current liabilities 1,476,621 1,692,985
Current portion of long-term debt 742,000 1,434,000
Income taxes payable 645,733 480,481
Deferred income taxes 959,807 325,033
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TOTAL CURRENT LIABILITIES 6,718,432 7,465,470
LONG-TERM DEBT 1,752,681 963,980
DEFERRED INCOME TAXES 1,563,599 1,564,757
MINORITY INTEREST IN SUBSIDIARIES 1,640,342 1,498,508
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value authorized 12,000,000 shares;
5,454,940 issued and outstanding 54,549 54,549
Capital in excess of par value 11,540,953 11,540,953
Deficit (1,082,470) (1,807,723)
Foreign currency translation adjustment (260,760) (237,258)
Notes receivable from options exercise (326,400) (326,400)
Unrealized gain on marketable securities for sale 1,566,001 530,318
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TOTAL STOCKHOLDERS' EQUITY 11,491,873 9,754,439
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$ 23,166,927 $ 21,247,154
============== ==============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 filed with the Securities and Exchange Commission in
March, 1996.
See notes to consolidated condensed financial statements.
<PAGE> 6
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MEDICORE, INC. AND SUBSIDIARIES
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided
by (used in)operating activities: $ 725,253 $ 460,924
Depreciation 157,286 123,441
Amortization 18,807 16,177
Bad debt expense 29,831 42,625
Gain on Viragen note collection (24,123)
Provision for inventory obsolescence 72,550 98,000
Gain on sale of securities (562,029)
Minority interest 155,936 (4,520)
Increase (decrease) relating to operating activities
from:
Accounts receivable (316,345) (433,745)
Inventories 327,001 (974,319)
Prepaid expenses and other current assets 147,979 (93,014)
Accounts payable (617,837) 540,368
Accrued expenses and other current liabilities (239,565) 43,773
Income taxes payable 171,496 112,785
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Net cash provided by (used in) operating
activities 46,240 (67,505)
INVESTING ACTIVITIES
Additions to property and equipment, net of minor
disposals (88,101) (76,937)
Payments received on note receivable from Viragen, Inc. 170,368 5,368
Proceeds from short-term investments 93,854 89,830
Short-term investments (96,192) (91,507)
Proceeds from sale of securities 562,029 35,046
Deferred expenses and other assets (108,601) (58,005)
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Net cash provided by (used in) investing activities 533,357 (96,205)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 181,476
Payments on long-term borrowings (91,949) (75,455)
Deferred financing costs (14,168) _
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Net cash provided by (used in) financing activities 75,359 (75,455)
Effect of exchange rate fluctuations on cash (17,477) (3,619)
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Increase (decrease) in cash and cash equivalents 637,479 (242,784)
Cash and cash equivalents at beginning of year 4,836,512 1,450,260
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CASH AND CASH EQUIVALENTS AT END OF
PERIOD $5,473,991 $1,207,476
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</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 7
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Condensed Financial Statements include the accounts of
Medicore, Inc., Medicore's 99.1% owned subsidiary, Dialysis Corporation of
America ("DCA") (70% owned after DCA's securities offering became effective on
April 17, 1996, see Note 7) and Medicore's 62.5% owned subsidiary, Techdyne,
Inc. ("Techdyne") (including its wholly-owned subsidiary Techdyne (Scotland)
Limited ("Techdyne (Scotland)"), collectively known as the Company. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Sale of Stock By Subsidiaries
The Company follows an accounting policy of income statement recognition for
sales of stock by its subsidiaries. See Note 7.
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:
<PAGE> 8
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
Electronic and mechanical components, net:
Finished goods $ 639,493 $ 617,851
Work in process 692,888 692,964
Raw materials and supplies 1,739,084 2,202,381
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3,071,465 3,513,196
Medical Supplies 379,733 359,716
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$ 3,451,198 $ 3,872,912
=========== ============
</TABLE>
Business
The Company manufactures and distributes medical products, and through its 80%
owned subsidiary All American Medical & Surgical Supply Corp., is engaged in
the sale and lease of home healthcare durables, principally in the Northeastern
United States. The Company, through its subsidiary, Techdyne, including its
wholly-owned subsidiary, Techdyne (Scotland), is an international contract
manufacturer of electronic, electro-mechanical and plastic insert injection
molded products used by original equipment manufacturers and distributors
primarily in the data processing, telecommunication and instrumentation
industries. The Company, through DCA, operates three kidney dialysis centers,
which are located in Florida and Pennsylvania, and has agreements to provide
inpatient dialysis treatments to various hospitals and provides supplies and
equipment for dialysis home patients.
Major Customers
A majority of the Company's electro-mechanical sales are to certain major
customers. The loss of, or substantially reduced sales to, any of these
customers would have an adverse effect on the Company's operations, if such
sales were not replaced.
Sales by Techdyne (Scotland) to Compaq accounted for 88% of the sales of
Techdyne (Scotland) for the first quarter of 1996. The Company anticipates
that increased competition in the bidding for this Compaq business may result
in some loss of Compaq sales and reduced profit margins on remaining Compaq
sales. Techdyne (Scotland) is pursuing cost reduction and new business
development efforts and is presently unable to quantify the ultimate effects of
the Compaq change.
The Company anticipates a loss of a majority of its sales to a former major
customer in 1995 as a result of a change in of the product it produced for that
customer, and not as a result of quality or service. Although the Company is
pursuing cost reduction and new business development efforts, it anticipates a
substantial reduction in sales in 1996 as a result of lost sales to that
customer although it is presently unable to quantify the ultimate effect of
this sales loss. Sales to that customer amounted to $5,653,000 for 1995 and
approximately $159,000 for the first quarter of 1996 compared to $1,042,000 for
the same period of the preceding year.
Medical services revenues, which represents revenues of DCA, the Company's
dialysis division, are attributable to payments received under Medicare, which
is supplemented by Medicaid or comparable benefits in the states in which the
Company operates. Reimbursement rates under these programs are subject to
regulatory changes and
<PAGE> 9
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --CONTINUED
governmental funding restrictions. Although the Company is not aware of any
future rate changes, significant changes in reimbursement rates could have a
material effect on the Company's operations.
Medical products revenues, which represents medical supply and durable medical
equipment sales, are highly dependent, in the durable equipment division, on
payments received under Medicare and Medicaid and, therefore, are subject to
regulatory changes and governmental funding restrictions. Although the Company
is not aware of any future rate changes, significant changes in reimbursement
rates could have a material adverse effect on the Medical Products Division.
Medical supply sales are highly dependent on government contracts which have
become increasingly difficult to secure due to changes in government
procurement procedures. Significant reductions in government contract revenues
would have a material adverse effect on the operations of the Medical Products
Division.
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.
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 additional 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 filed consolidated federal and state tax returns with Techdyne
through October 2,1995, the date Techdyne's securities offering was completed.
Thereafter, Techdyne is filing separate income tax returns with its income tax
liability reflected on a separate return basis. DCA likewise was included in
the consolidated tax returns with the Company through the completion of its
public offering. See Note 7. Thereafter, it will file separate income tax
returns with its income tax liability reflected on a separate return basis.
Foreign Currency Translation
Sales of Techdyne (Scotland) are primarily to customers in the United Kingdom
with limited sales to other European and Middle East markets. The financial
statements of the foreign subsidiary have been translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52. All
balance sheet
<PAGE> 10
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --CONTINUED
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 period. The translation adjustments resulting from the
change in exchange rates from period to period 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.
Earnings Per Share
Primary earnings per share is computed on the basis of weighted shares
outstanding plus common equivalent shares from dilutive stock options using the
modified treasury stock method for 1996 and the treasury stock method for 1995.
Fully diluted per share data has not been presented for 1996 or 1995 as it is
not dilutive.
Cash and 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. The credit risk associated with cash and cash equivalents is
considered low due to the high quality of the financial institutions in which
these assets are invested.
Customer Payment Terms
The majority of the Company's sales are made on payment terms of net amount due
in 30-45 days, depending on the customer.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
Long-lived assets
In 1996, the Company has adopted the provisions of FAS 121 - Accounting for the
Impairment of Long-Lived Assets. FAS 121 requires impairment losses to be
recorded on long-lived assets when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Based on current circumstances, the Company is
not aware of any significant impairment losses.
Stock-Based Compensation
In 1996, the Company adopted the provisions of FAS 123 - Accounting for
Stock-Based Compensation. The Company will continue to account for stock-based
compensation plans under the provisions of APB 25 - Accounting for Stock Issued
to Employees. The Company will disclose the pro forma information required for
stock-based compensation plans in its annual reports in accordance with FAS
123.
<PAGE> 11
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 2--TRANSACTIONS WITH VIRAGEN, INC.
The Company owns approximately 641,000 shares of common stock of Viragen,
formerly a majority-owned subsidiary of the Company. The carrying value of
these securities was written off as of December 31, 1991. During the first
quarter of 1996, the Company sold 310,000 shares of Viragen stock and
recognized a gain of approximately $562,000. During 1995, the Company sold
173,000 shares of Viragen stock and recognized a gain of approximately
$183,000. 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 by the National
Quotation Bureau, Inc.
The Company has a second mortgage and related note due from Viragen. Under the
terms of this note, the receivable is payable in monthly installments of
$1,789, with a final payment of all unpaid principal and interest due August 6,
1996. The note bears interest at 1% over prime. The note balance includes
amounts due from Viragen that were previously written off by the Company. At
March 31, 1996, the total outstanding note balance was $204,000 which is offset
by an allowance of the same amount for amounts previously written off as
uncollectable. In March, 1996, Viragen prepaid $165,000 on this note which
resulted in the Company recognizing a gain of approximately $24,000 as a result
of the Company collecting a portion of the previously reserved amount.
Interest earned on the note amounted to $9,000 for the three months ended March
31, 1996 and for the three months ended March 31, 1995.
The Company has a royalty agreement with Viragen, pursuant to which it receives
a royalty 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. Royalty payments are
due quarterly. Under the agreement, approximately $108,000 of royalties earned
pursuant to a previous agreement, will comprise the final payment under the new
agreement. Royalties income accrued under the amended agreement amounted to
$2,000 and $10,000 for the three months ended March 31, 1996 and March 31,
1995, respectively.
NOTE 3--LONG-TERM DEBT
On February 8, 1996, Techdyne refinanced its term loan by entering into several
loans with a Florida bank. One credit facility is a $2,000,000 line of credit,
due on demand but in no event after June 30, 1996, secured by Techdyne's
accounts receivable, inventory, furniture, fixtures and intangible assets and
bears interest at the bank's prime rate plus 1.25%. There were no amounts
outstanding under this loan as of March 31, 1996.
The bank has also extended two commercial term loans to Techdyne, one for
$712,500 for five years expiring on February 7, 2001 at an annual rate of
interest equal to 8.28% with monthly payments of principal and interest of
$6,925 based on a 15-year amortization schedule with the unpaid principal and
accrued interest due on the expiration date. This term loan which had an
outstanding balance of $709,000 at March 31, 1996 has a prepayment penalty and
is secured by a mortgage on properties in Hialeah, Florida owned by the Company,
two of which properties are leased to Techdyne and one parcel being vacant land
used as a parking lot. Under this term
<PAGE> 12
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 3--LONG-TERM DEBT--CONTINUED
loan, Techdyne is obligated to adhere to a variety of affirmative and negative
covenants, and Techdyne may not merge or acquire businesses, create or transfer
any assets to a subsidiary, if the aggregate annual value of such transactions
exceeds $750,000, cannot sell its interests in its subsidiary Techdyne
(Scotland) or allow that Scottish subsidiary to sell all or substantially all
of its assets or properties, except inventory in the ordinary course of
business, for which the aggregate book value exceeds $500,000; and this term
loan further provides for restrictions on transactions with related persons,
restrictions on dividends except if such does not exceed 30% of Techdyne's net
income in any year, precludes changes in ownership in Techdyne which would
reduce the Company's ownership to less that 51%, and restricts Techdyne from
engaging in any new unrelated business.
The mortgage issued by the Company to secure the $712,500 term loan provides
the bank with reappraisal rights and should the principal amount outstanding
under the note exceed 75% of the reappraisal value of the mortgaged property,
such excess has to be repaid by Techdyne and/or the Company. The Company as
lessor to Techdyne of these mortgaged properties has assigned the leases, rents
and profits to the bank as further security for this $712,500 term loan,
provided the Company may continue to collect the rents until an event of
default, if any. The Company has also subordinated the $2,500,000 of
indebtedness due to it from Techdyne, provided Techdyne may make payments to
the Company on the subordinated debt from funds received in Techdyne's public
offering (see Note 7) or from retained earnings arising subsequent to March 31,
1995, so long as at the time of payment Techdyne is in compliance with the
financial covenants of the term loan agreement. The Company, as lessor of the
mortgaged properties, has subordinated its interests in the leases to the
mortgage held by the bank to secure this term loan.
The second commercial term loan is for the principal amount of $200,000 for a
period of five years bearing interest at a per annum rate of 1.25% over the
bank's prime rate and requiring monthly principal payments with accrued
interest of $3,333 through expiration on February 7, 2001. This $200,000 term
loan, which had an outstanding balance of $197,000 at March 31, 1996, carries
no prepayment penalty and is secured by all of Techdyne's tangible personal
property, goods and equipment, and all cash or noncash proceeds of such
collateral.
The Company has unconditionally guaranteed the payment and performance by
Techdyne of the $2,000,000 revolving loan and the two commercial term loans.
A default of the $712,500 term loan will be deemed a default of the $2,000,000
revolving line, but only a financial default of the $2,000,000 revolving line
will be deemed a default of the $712,500 term loan.
Techdyne has a promissory note payable to a local bank of $145,000 at March
31, 1996 and December 31, 1995, with interest payable monthly at prime with the
note maturing April 1997.
In July 1994, the Company obtained a $230,000 mortgage to refinance a mortgage
note and a second mortgage note secured by land and building leased to Techdyne
which represents a noncash financing activity and is a supplemental disclosure
required by SFAS 95. This mortgage had a remaining balance of $213,000 at
December 31, 1995. As part of Techdyne's bank loan refinancing, the balance of
this mortgage was paid off.
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 the real property, Techdyne (Scotland) made a $110,000 payment
and obtained a 15 year mortgage of approximately $620,000 with a variable
interest rate of 2% above the bank's base rate. The mortgage transaction
represents a noncash financing activity which is a
<PAGE> 13
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 3--LONG-TERM DEBT--CONTINUED
supplemental disclosure required by SFAS 95. This mortgage had a remaining
balance of $577,000 at March 31, 1996 and $591,000 at December 31, 1995.
Techdyne (Scotland) has established a line of credit with a Scottish bank with
a U.S. dollar equivalency of approximately $612,000 at March 31, 1996. This
line of credit, which was increased in June 1995, operates as an overdraft
facility and is secured by assets of Techdyne (Scotland) and is guaranteed by
Techdyne. No amounts were outstanding under this line of credit as of March
31, 1996 or December 31, 1995.
The Company obtained a $130,000 mortgage on vacant land for possible future
expansion in April 1993. The Company received $30,000 cash proceeds from the
mortgage with $100,000 representing a noncash financing activity which is a
supplemental disclosure as required by SFAS 95. This mortgage had a balance of
approximately $92,000 at March 31, 1996 and $95,000 at December 31, 1995.
In December 1988, DCA 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 $248,000 and $256,000 at March 31, 1996 and December 31, 1995,
respectively. In December 1988, the Company also obtained a $600,000
fifteen-year mortgage through 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 $310,000 and $320,000 at March 31, 1996
and December 31, 1995, 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, 1995, DCA was in violation of certain covenants
under these loans principally relating to net worth and debt service ratio
requirements for DCA. The lender waived these defaults as of December 31, 1995
and waived compliance with these covenants through December 31, 1996.
Other debt includes various capital lease and other financing obligations.
Such new financing obligations, net of down payments, represents a noncash
financing activity which is a supplemental disclosure required by SFAS 95.
These obligations amounted to approximately $10,000 for the first quarter of
1996 with no such obligations during the first quarter of 1995.
The prime rate was 8.25% as of March 31, 1996 and 8.5% as of December 31, 1995.
The carrying amount of borrowings approximate their fair value.
Interest payments on all of the above debt amounted to $57,000 and $61,000 for
the three months ended March 31, 1996 and March 31, 1995, respectively.
NOTE 4 -- INCOME TAXES
At March 31, 1996 and December 31, 1995, the Company had net operating loss
carryforwards of approximately $5 million and $5.7 million, respectively, that
expire in years 2005 through 2008. The remaining net operating loss
carryforwards at March 31, 1996, primarily relate to Techdyne. Techdyne net
operating loss carryforwards are only available to offset future Techdyne (US)
taxable income which became a 62.5% owned subsidiary pursuant to its public
offering completed on October 2, 1995 and which will file separate federal and
state income tax returns with its income tax liability reflected on a separate
return basis subsequent to that date.
<PAGE> 14
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 4 -- 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.
A deferred tax liability of $1,475,000 at March 31, 1996 and December 31, 1995
resulted from income tax expense recorded on a gain 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. A
deferred tax liability of approximately $960,000, has been recorded for the
unrealized gain on marketable securities. See Note 2.
Other deferred tax liabilities, which total approximately $400,000, result from
temporary differences including tax over book depreciation and are more than
offset by deferred tax assets. Deferred tax assets of approximately
$2,276,000, result primarily from the net operating loss carryforwards and from
temporary differences in book and tax bases of receivables and inventory, which
result in related deferred tax assets of approximately $300,000. Deferred tax
assets have not been reflected in the financial statements as a result of their
being offset by a valuation allowance which amounted to approximately
$1,956,000 at March 31, 1996 and $2,209,000 December 31, 1995.
The Company had a domestic income tax expense of approximately $14,000 and
$25,000 for the three months ended March 31, 1996 and March 31, 1995,
respectively.
Techdyne (Scotland) had income tax expense of $176,000 and $115,000 for the
three months ended March 31, 1996 and March 31, 1995, respectively.
Income tax payments were approximately $10,000 and $13,000 for the three months
ended March 31, 1996 and March 31, 1995, respectively.
NOTE 5 -- STOCK OPTIONS AND STOCK COMPENSATION
In September 1994, the Company granted options to a consulting firm to purchase
400,000 shares of common stock exercisable at $1.25 per share through September
30, 1997 which options vested as of September 30,1995.
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 Stockholder's
Equity section of the balance sheet, with interest at 5.36%. The notes are
secured by the
<PAGE> 15
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 5 -- STOCK OPTIONS AND STOCK COMPENSATION -- CONTINUED
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 809,000 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.
On May 6, 1996, the Company adopted a Key Employee Stock Plan reserving 100,000
shares of its common stock for issuance from time to time to officers,
directors, key employees, advisors and consultants as bonus or compensation for
performances and or services rendered to the Company or otherwise providing
substantial benefit for the Company. 2,000 shares under this plan have been
issued to the managing director of the Company's European operations.
In May 1994, Techdyne adopted a stock option plan for up to 250,000
non-qualified options. Pursuant to this plan, in May 1994, Techdyne's Board of
Directors granted 227,500 options to certain of its officers, directors,
employees and consultants. These options are excercisable for a period of five
years at $1 per share. Options for 400 shares were exercised in the fourth
quarter of 1995.
On February 27, 1995 Techdyne granted non-qualified stock options, not part of
the 1994 Plan, to directors of Techdyne and its subsidiary for 142,500 shares
exercisable at $1.75 per share for five years. These options may be exercised
for cash or subject to 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 default, if any, on the note. In April
1995, Techdyne granted a non-qualified stock option for 10,000 shares, not part
of the 1994 Plan, to its general counsel at the same price and terms as the
directors' options.
In November 1995, DCA adopted a stock option plan for up to 250,000
non-qualified options. Pursuant to this plan, in November 1995, DCA's Board of
Directors granted 210,000 options, currently 206,500 based upon termination of
certain DCA employees, to certain of its officers, directors, employees and
consultants. These options are exercisable for a period of five years through
November 9, 2000 at $1.50 per share.
The Board of Directors of the Company has determined that the fair value of the
underlying common stock was not in excess of the exercise price on the date of
grant for the stock options granted during 1995 and 1994 and, therefore, no
amounts have been charged to operations in connection with any grants of
options.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Upon completion of DCA's public offering in April 1996, DCA retained the
representative of the underwriters to provide financial consulting services
pertaining to DCA's business, at a monthly fee of $3,000 per month for a period
of 18 months, all of which was paid in advance on the closing of the offering.
See Note 7.
<PAGE> 16
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES -- CONTINUED
In the first quarter of 1996, a temporary worker provided by a temporary
personnel agency was injured while working at Techdyne. The worker was
insured through the temporary personnel agency. While the full extent of
the temporary worker's injuries and the ultimate costs associtated with those
injuries are not presently known, the Company anticipates that its insurance is
adequate to cover any potential claims which might arise.
A litigation initiated by Techdyne in 1994 in the Florida courts has been
settled on terms favorable to Techdyne.
NOTE 7 -- SUBSIDIARY STOCK OFFERINGS
On October 2, 1995, Techdyne completed a public offering of 1,000,000 shares of
common stock and 1,000,000 common stock purchase warrants with an exercise
price of $5.00 which are exercisable through September 12, 1998, providing that
subsidiary with net proceeds of approximately $3,321,000 for which the Company
has recognized a gain of approximately $2,002,000 with applicable income taxes
of $761,000, which resulted in a net gain of approximately $1,241,000.
Techdyne repaid $1,500,000 toward its intercompany indebtedness to the Company
and will use the balance of the funds for expanding operations, upgrading plant
and equipment and for working capital. The offering reduced the Company's
ownership of Techdyne from approximately 83% to approximately 63%. There is a
convertible note issued by Techdyne, convertible at $1.75 per share for the
balance of intercompany indebtedness due to the Company which amounted to
approximately $2,457,000 at March 31, 1996.
DCA filed a registration statement with the Securities and Exchange Commission
in December 1995 which became effective on April 17, 1996 for 1,000,000 units,
each unit consisting of one share of common stock and two common stock purchase
warrants for an aggregate of 1,000,000 shares of common stock and 2,000,000
warrants, each warrant exercisable at $4.50 per share from April 17, 1997
through April 16, 1999. The offering was completed on April 23, 1996. DCA
intends to use the proceeds from the offering to acquire and/or develop free-
standing outpatient dialysis centers and for expanding its inpatient dialysis
treatment services. The DCA offering reduced the Company's ownership of that
subsidiary from 99% to approximately 70%.
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Consolidated revenues increased approximately $1,383,000 (18%) for the three
months ended March 31, 1996 compared to the same period of the previous year
including $140,000 from a litigation settlement. Techdyne revenues increased
$191,000 (3%) for the three months ended March 31,1996 compared to the
preceding year. Domestic revenues which included the litigation settlement
decreased $998,000 (23%) and European-based revenues increased $1,189,000
(49%).
Approximately 81% of Techdyne's consolidated sales and 67% of the Company's
consolidated sales for the three months ended March 31, 1996 were made to four
customers of which Compaq accounted for 47% and 38% and IBM for 22% and 18%.
The other two customers each accounted for less than 10% of Techdyne's and the
Company's consolidated sales. The loss, or substantially reduced sales to, any
of these customers would have an adverse effect on the Company's operations.
Techdyne had sales of $5,653,000 to another major customer for 1995. As a
result of a change in the product produced for that customer, and not based on
quality or service, Techdyne anticipates a loss of a majority of its sales to
that customer during 1996. Techdyne intends to pursue new business development
efforts to replace these lost sales, although there can be no assurance as to
the success of such efforts. Sales to that customer for the first quarter of
1996 amounted to approximately $159,000 compared to $1,042,000 for the same
period of the preceding year.
The revenues of Techdyne's Scottish-based subsidiary, Techdyne (Scotland),
continue to be highly dependent on sales to Compaq, which accounted for
approximately 88% and 79% of the sales of Techdyne (Scotland) for the three
months ended March 31, 1996 and March 31, 1995, respectively. Sales by
Techdyne (Scotland) to Compaq, for the three months ended March 31, 1996
increased $1,242,000 (65%) compared to the preceding year. While the Company
believes that Techdyne (Scotland) will maintain substantial sales to Compaq,
the bidding for Compaq orders in Scotland has become more competitive, which
the Company anticipates may result in some loss of Compaq business and will
result in lower profit margins on Compaq sales. Techdyne (Scotland) intends to
pursue new business development efforts to replace reductions in Compaq
business and to pursue cost reduction efforts to remain competitive with
respect to Compaq, although there can be no assurance as to the success of such
efforts.
Medical product sales revenues increased $198,000 (45%) for the three months
ended March 31, 1996 compared to the same period of the preceding year. This
increase included sales of approximately $166,000 attributable to All American
Medical & Surgical Supply Corp., the Company's 80% owned subsidiary which
commenced operations in January 1996.
Medical services sales revenues, which represents revenues of DCA, the
Company's dialysis division, increased $452,000 (102%) for the three months
ended March 31, 1996 compared to the same period of the preceding year. This
increase primarily resulted from the commencement of treatments at the
Company's new dialysis centers in Lemoyne, Pennsylvania in June 1995 and
Wellsboro, Pennsylvania in October 1995, which accounted for approximately
$376,000 in sales revenues for the first quarter of 1996. Although the new
Lemoyne and Wellsboro, Pennsylvania centers are expected to result in
increased revenues, during their developmental stage, these centers will
adversely affect the Company's results of operations.
Gain on sale of marketable securities represents a gain attributable to the
sale of Viragen common stock for which the carrying value had been written-off
in previous periods. See Note 2.
Cost of goods sold as a percentage of consolidated sales increased to 81% of
sales revenues for the first quarter of 1996 compared to 79% for the same
period of the preceding year, largely due to reduced margins of the Company's
electronic and electro-mechanical subsidiary, Techdyne.
<PAGE> 18
RESULTS OF OPERATIONS -- CONTINUED
Cost of goods sold for Techdyne increased to 85% for the first quarter of 1996
compared with 82% in the preceding year. The increase was largely attributable
to the decrease in sales to the major customer noted above which had relatively
higher margins.
Cost of goods sold for the medical product division was 59% for the first
quarter of 1996 compared to 58% for the same period of the preceding year,
which reflects increased cost for the principal product of the medical supply
division which were offset by relatively higher margins for the Company's new
medical durable subsidiary, All American Medical & Surgical Supply Corp.
Cost of medical services sales increased to 70% for the first quarter of 1996
compared to 58% for the same period of the preceding year. This increase is
largely attributable to higher costs associated with the low volume of
treatments at the new Pennsylvania dialysis centers and includes relatively
high salary and benefit costs for the new facilities due to the competition for
health care workers in the area.
Selling, general and administrative expenses increased $252,000 (24%) for the
first quarter of 1996 compared to the previous year. This increase included
the Company's two new Pennsylvania dialysis centers and the Company's new 80%
owned subsidiary, All American Medical & Surgical Supply Corp.
Interest expense increased by approximately $7,000 for the first quarter of
1996 compared to the same period of the previous year as a result of changes in
both average outstanding borrowings and average interest rates associated with
those borrowings.
The bulk of the Company's outstanding borrowings are related to real property
and tied to the prime interest rate. The prime rate was 8.25% at March 31,
1996 and 8.5% at December 31, 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $9,636,000 at March 31, 1996, an increase of $2,602,000
during the first quarter of 1996. The increase includes an increase of
$1,036,000 in the net of the tax valuation of marketable securities pursuant to
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The increase also included a
substantial reduction in current debt as a result of Techdyne's bank
refinancing and the litigation settlement proceeds.
Included in the changes in components of working capital was an increase of
$637,000 in cash and cash equivalents, which included net cash provided by
operating activities of $46,000, net cash used in investing activities of
$533,000 (including proceeds of $562,000 from the sale of Viragen stock,
$170,000 in payments received on the Viragen note receivable, and additions to
property plant and equipment of $88,000) and net cash provided by financing
activities of $75,000 (including proceeds from the bank refinancing of $181,000
and repayments on long-term debt of $92,000).
In February 1996, Techdyne refinanced its bank loan agreement with another
Florida bank. The new financing provides for a $2,000,000 line of credit, due
on demand, but in no event after June 30, 1996, secured by Techdyne's accounts
receivable, inventory, furniture, fixtures and intangible assets. There were
no amounts outstanding under this credit facility at March 31, 1996. A
$712,500 term loan which had a balance of $709,000 at March 31, 1996 is secured
by two buildings and land owned by the Company. The second term loan for
$200,000 which had a balance of $197,000 at March 31, 1996 is secured by
Techdyne's tangible personal property, goods and equipment. The Company has
guaranteed these loans and has subordinated $2,500,000 due from Techdyne,
provided that Techdyne may make payments to the Company on this subordinanted
debt from funds from Techdyne's security offering and from earnings. Techdyne
further agreed that in the event that it should sell its interest in Techdyne
(Scotland), which is not anticipated, 50% of
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
the selling price would be used to repay the $712,500 term loan facility. See
Note 3.
Techdyne has outstanding borrowings of $145,000 from a local bank with interest
payable monthly and the notes maturing April, 1997. Techdyne (Scotland) has a
line of credit with a Scottish bank, with a U.S. dollar equivalency of
approximately $612,000 at March 31, 1996 and $620,000 at December 31,1995 which
is secured by the assets of Techdyne (Scotland) and guaranteed by Techdyne.
This line of credit operates as an overdraft facility. No amounts were
outstanding under this line of credit as of March 31, 1996 or December 31,
1995.
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 $577,000 and $591,000 at March 31,
1996 and December 31, 1995, respectively.
During 1988, the Company, through DCA, its dialysis subsidiary, obtained
mortgages totaling $1,080,000 on its two buildings, one in Lemoyne,
Pennsylvania and the other in Easton, Maryland, which housed the Company's
dialysis centers. These centers were sold in October, 1989. The mortgages had
a combined remaining balance of $558,000 and $576,000 at March 31, 1996 and
December 31, 1995, respectively. DCA was in default of certain covenants
principally relating to net worth and debt service ratio requirements under
these loan agreements as of December 31, 1995. The lender has waived
compliance with these covenants through December 31, 1996. The lender has
waived similar defaults in the past and the Company anticipates that the lender
would also waive similar future defaults, although there can be no assurance of
such waivers. In the event that waivers could not be obtained, DCA would
attempt to refinance these loan agreements.
The bank has liens on the real and personal property of DCA, 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, which period has elapsed. Accordingly,
while no notice has been given, the unpaid principal balance is carried as a
current liability. An unaffiliated Maryland dialysis center continues to lease
space from the Company in its building. The Pennsylvania center relocated
during 1995 and the Company constructed its own new dialysis center at that
property which commenced treatments in June, 1995. The Company also opened a
new dialysis center in a leased facility in Wellsboro, Pennsylvania in October
1995. See Note 3.
In July 1994, the Company obtained a replacement mortgage of $230,000 to
refinance the first and second mortgages on a building it leased to Techdyne.
The principal balance under this mortgage amounted to $213,000 at December 31,
1995. This loan was paid off through the refinanced Techdyne bank loan
agreement which became effective in February 1996.
In April 1993, the Company purchased a vacant lot adjacent to Techdyne'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 $92,000 and $95,000 at March 31,
1996 and December 1995, respectively.
Since the Company established Viragen in 1980, it had advanced substantial
sums to that former subsidiary, spun-off in 1986. 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. In March 1996, Viragen prepaid $165,000 on this note resulting in a gain
of approximately $24,000, included in other income as a result of the Company
collecting a portion of the previously reserved note balance. Interest is at
prime plus 1%. Interest earned under the note amounted to $9,000 for the three
months ended March 31, 1996 and for the three months ended March 31, 1995. See
Note 2.
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
During the first quarter of 1996, the Company sold 310,000 shares of Viragen
stock realizing a gain and cash proceeds of $562,000. During 1995, the Company
sold 173,000 shares of Viragen common stock, realizing a gain and cash proceeds
of $183,000. The carrying value of these securities was previously written
off. Under the provisions of FASB Statement No. 115, the remaining shares at
March 31, 1996 have been recorded at an estimated fair value of $2,526,000 with
the unrealized gain, net of income tax effect, credited to a separate component
of stockholder's equity.
Techdyne completed a public offering of 1,000,000 shares of common stock and
1,000,000 common stock purchase warrants on October 2, 1995, realizing net
proceeds of approximately $3,321,000 from which it repaid $1,500,000 of
intercompany indebtedness to the Company with the balance of the proceeds to be
used to establish new facilities, expand existing products, upgrade plant and
equipment, hire additional direct sales personnel and for working capital. As
a result of that offering, the Company's ownership in Techdyne decreased from
83.1% to 62.5%. See Note 7.
The bulk of the Company's cash balances are carried in interest yielding
vehicles at various rates and mature at different intervals depending on the
anticipated cash requirements of the Company.
In November 1995, DCA, the Company's dialysis subsidiary, authorized the
declaration of a $1.30 per share dividend for which the Company's portion
related to its 99.1% ownership interest in DCA (subsequent to DCA's public
offering, approximately a 70% owned subsidiary) amounted to approximately
$3,134,000 which was paid by a reduction in the intercompany advances
receivable from the Company and the minority interest portion of approximately
$29,000 was paid in cash. In October 1995, after receiving a $1,500,000
repayment from Techdyne on intercompany advances, the Company repaid
approximately $1,000,000 of its intercompany indebtedness to DCA. DCA
completed a public offering of 1,000,000 shares of common stock and 2,000,000
redeemable common stock purchase warrants with an exercise price of $4.50 per
share on April 23, 1996. See Note 7.
DCA, having operated on a larger scale in the past, is seeking to expand its
outpatient dialysis treatment facilities and inpatient dialysis care. Such
expansion, whether through acquisition of existing centers, or the development
of its own dialysis centers, requires capital, which was the basis for DCA's
securities offering. No assurance can be given that DCA will be successful in
implementing its growth strategy or that the funds from the public sale of the
DCA securities will be adequate.
Given its current level of working capital, Techdyne's refinanced bank loan and
the proceeds of DCA's public offering, completed in April 1996, management
believes current levels of working capital are adequate to successfully meet
liquidity demands for at least the next twelve months.
<PAGE> 21
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. However, in the Company's medical services segment, revenue per
dialysis treatment is subject to reimbursement rates established and regulated
by the federal government. These rates do not automatically adjust for
inflation. Any rate adjustments relate to legislation and executive and
Congressional budget demands, and have little to do with the actual cost of
doing business. Therefore, dialysis services revenues 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, 1996.
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 8, 1996
<PAGE> 23
EXHIBIT INDEX
Exhibit
No.
- -------
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
<PAGE> 1
MEDICORE, INC. AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY
Weighted average shares outstanding 5,454,940 5,454,940
Net effect of dilutive stock options-based on the modified
treasury stock method for 1996 and the treasury stock
method for 1995 using average market price 678,746 250,299
----------- -----------
6,133,686 5,705,239
=========== ===========
Net income $ 725,253 $ 460,924
=========== ===========
Net income per share $ .12 $ .08
=========== ===========
</TABLE>
Note: Fully diluted earnings per share has not been presented for 1996 or 1995
as it is not dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,473,991
<SECURITIES> 2,525,808
<RECEIVABLES> 4,121,993<F1>
<ALLOWANCES> 0
<INVENTORY> 3,451,198<F2>
<CURRENT-ASSETS> 16,354,186
<PP&E> 9,559,963
<DEPRECIATION> 4,030,237
<TOTAL-ASSETS> 23,166,927
<CURRENT-LIABILITIES> 6,718,432
<BONDS> 1,752,681
0
0
<COMMON> 54,549
<OTHER-SE> 11,437,324
<TOTAL-LIABILITY-AND-EQUITY> 23,166,927
<SALES> 8,229,558
<TOTAL-REVENUES> 9,052,012
<CGS> 6,636,687
<TOTAL-COSTS> 6,636,687
<OTHER-EXPENSES> 1,289,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,919
<INCOME-PRETAX> 1,071,116
<INCOME-TAX> 189,927
<INCOME-CONTINUING> 725,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725,253
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $274,000 AT MARCH 31, 1996.
<F2>INVENTORIES ARE NET OF RESERVE OF $318,000 AT MARCH 31, 1996.
</FN>
</TABLE>
