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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________ to__________
Commission file number 0-6906
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MEDICORE, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-0941551
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2337 WEST 76TH STREET, HIALEAH, FLORIDA 33016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 558-4000
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Securities registered
pursuant to Section 12(b) of the Act:
None
Securities registered
pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, $.01 par value
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 No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the common stock on March 18,
1997 was approximately $14,291,000.
As of March 18, 1997 the Company had outstanding 5,456,940 shares of common
stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on June 11, 1997
Annual Reports, Forms 10-K, for the years ended December 31, 1980, 1981,
1985, 1988 to 1990, and 1992 to 1995, Part IV, Exhibits.
Annual Reports for Registrant's Subsidiary, Techdyne, Inc., Forms 10-K for
the years ended December 31, 1987, 1988, and 1990 to 1991, Part IV, Exhibits.
Annual Report for Registrant's Subsidiary Dialysis Corporation of America,
Form 10-K for the year ended December 31, 1996, Part IV, Exhibits.
Registration Statement of Registrant's Subsidiary, Techdyne, Inc., Form
S-3, Effective December 11, 1996, Registration No. 333-15371, Part II, Item 16,
Exhibits.
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MEDICORE, INC.
Index to Annual Report on Form 10-K
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I
Item 1 Business......................................................... 1
Item 2 Properties....................................................... 11
Item 3 Legal Proceedings................................................ 15
Item 4 Submission of Matters to a Vote
of Security Holders ............................................. 15
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters.................................. 16
Item 6 Selected Financial Data.......................................... 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................................... 18
Item 8 Financial Statements and
Supplementary Data .............................................. 26
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ............................................ 26
PART III
Item 10. Directors and Executive Officers
of the Registrant ............................................... 26
Item 11. Executive Compensation .......................................... 28
Item 12. Security Ownership of Certain
Beneficial Owners and Management ................................ 28
Item 13. Certain Relationships and Related
Transactions .................................................... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K ........................................................ 29
</TABLE>
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PART I
ITEM 1. BUSINESS
Historical
Medicore, Inc. ("Medicore"), incorporated in Florida in 1961, manufactures
and distributes medical products, and through its 95% owned subsidiary, All
American Medical & Surgical Supply Corporation, which commenced operations in
January 1996, has been engaged in the sale and lease of home healthcare
durables. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" regarding shutdown of All American.
Medicore is an international contract manufacturer of electronic,
electro-mechanical and plastic insert and injection molded products primarily
for the data processing, telecommunications and instrumentation industries
through its 63.5% owned public subsidiary, Techdyne, Inc. ("Techdyne"), includ-
ing its wholly-owned subsidiary Techdyne (Scotland) Limited ("Techdyne
(Scotland)") and Techdyne Livingston Limited which is a subsidiary of Techdyne
(Scotland).Medicore also owns and operates three kidney dialysis centers
through its 67.2% owned public subsidiary Dialysis Corporation of America
("DCA").
Medicore and its subsidiaries are collectively hereinafter referred to as
the "Company."
The Company's executive offices are located at 2337 West 76th Street,
Hialeah, Florida 33016 and at 777 Terrace Avenue, Hasbrouck Heights, New Jersey
07604. Its telephone number in Florida is (305) 558-4000 and in New Jersey is
(201) 288-8220.
Financial Information Relating to Industry Segments
<TABLE>
<CAPTION>
Year Ended December 31,
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Revenues 1996 1995 1994
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<S> <C> <C> <C>
Electro-mechanical ..................................................... $24,434,180 $30,424,358 $20,535,683
Medical products ....................................................... 2,012,498 1,702,042 1,557,993
Medical services ....................................................... 4,136,970 2,469,372 2,024,589
Earned at corporate level .............................................. 4,517,673 2,413,790 735,759
Elimination of intersegment revenues:
Parent company real estate rental
charges to electro-mechanical manufacturing .......................... (103,450) (130,000) (130,000)
Electro-mechanical manufacturing
sales to medical services ........................................... (278,465) (219,482) (172,331)
----------- ----------- -----------
Total Revenues .................................................. $34,719,406 $36,660,080 $24,551,693
=========== =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
Year Ended December 31,
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Operating Profit (Loss)(1) 1996 1995 1994
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<S> <C> <C> <C>
Electro-mechanical .................................................... $ 1,282,190 $ 2,218,269 $ 1,289,134
Medical products(4).................................................... (637,360) 34,789 41,967
Medical services ...................................................... 75,706 (322,156) (26,849)
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Total Operating Profit ....................................... 720,536 1,930,902 1,304,252
Earned at corporate level ............................................. 4,517,673 2,413,790 735,759
General corporate expenses ............................................ 977,691 505,169 660,445
Interest expense ...................................................... 217,615 246,393 207,703
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Income before income taxes, and minority interest ..................... $ 4,042,903 $ 3,593,130 $ 1,171,863
=========== =========== ===========
Identifiable Assets (2)
Electro-mechanical .................................................... $13,224,196 $12,879,101 $ 8,741,418
Medical products ...................................................... 985,210 780,343 696,564
Medical services ...................................................... 7,552,289 3,971,867 2,303,560
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21,761,695 17,631,311 11,741,542
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Corporate assets ...................................................... 5,323,157 3,615,843 4,213,782
----------- ----------- -----------
Total Assets ................................................. $27,084,852 $21,247,154 $15,955,324
=========== =========== ===========
</TABLE>
Financial Information Relating to Foreign
and Domestic Operations and Export Sales
<TABLE>
<CAPTION>
Year Ended December 31
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1996 1995 1994
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<S> <C> <C> <C>
Net Sales and other Income
United States ....................................................... $24,559,290 $24,349,700 $16,670,955
Europe (3) .......................................................... 10,160,116 12,310,380 7,880,738
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$34,719,406 $36,660,080 $24,551,693
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Net Income (Loss)
United States(4) ..................................................... $ 1,897,373 $ 1,254,849 $ 297,950
Europe (3) ........................................................... 519,896 996,422 566,158
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$ 2,417,269 $ 2,251,271 $ 864,108
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Identifiable Assets (2)
United States ....................................................... $21,299,640 $14,645,274 $12,044,745
Europe (3) .......................................................... 5,785,212 6,601,880 3,910,579
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$27,084,852 $21,247,154 $15,955,324
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</TABLE>
(Notes on following page)
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(1) Operating profit is total revenue exclusive of revenues earned at the
corporate level, less operating expenses and includes any applicable
amortization of costs in excess of net tangible assets acquired. Operating
expenses exclude general corporate expenses, interest expense and minority
interest of subsidiaries.
(2) Identifiable assets by segment include assets directly identifiable with
the applicable operations. Corporate assets consist primarily of cash,
receivables, marketable securities, real property and deferred expenses.
(3) Techdyne (Scotland) sales are primarily to customers in the United Kingdom.
In 1994, sales were expanded to Ireland, Germany and Israel.
(4) Includes estimated costs of $305,000 for shutdown of durable medical
equipment operations.
MEDICAL PRODUCTS
The Company distributes medical supplies, primarily disposables, both
domestically and internationally, to hospitals, blood banks, laboratories and
retail pharmacies. Products distributed include exam gloves, prepackaged swabs
and bandages and glass tubing products for laboratories. In addition, the
Company distributes a line of blood lancets used to draw blood for testing.
Developed by the Company and manufactured by Techdyne, the lancets are
distributed under the names Medi-Lance(TM) and Lady Lite(TM) or as a private
label item if requested by the customer.
The Company has decided to shutdown its durable medical equipment
subsidiary, All American Medical & Surgical Supply Corp. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Marketing of medical products is conducted by independent manufacturer
representatives and employees of the Company.
ELECTRO-MECHANICAL MANUFACTURING
Techdyne is an international contract manufacturer of electro-mechanical,
electronic, and plastic insert and injection molded products, primarily
manufactured to customer specifications and designed for original equipment
manufacturers ("OEMs") and distributors in the data processing,
telecommunications and instrumentation industries.
Custom-designed products primarily include conventional and molded cables
and wire harnesses, and to a more limited extent, printed circuit boards
("PCBs") and electro-mechanical assemblies. Techdyne also manufactures complete
finished assemblies as well as conducts contract manufacturing for other
company's. Manufacturing is accomplished, if applicable, in accordance with
Underwriters Laboratories specifications and the Canadian Standards Association
requirements. Techdyne has an ISO 9002 quality assurance designation for its
Hialeah, Florida and Houston, Texas facilities, which similar quality assurance
designation is held by its European subsidiary Techdyne (Scotland). See "Quality
Control" below.
Techdyne is also engaged in horizontal injection molding and vertical
insert molding for production of medical products and electronic components.
Medical products produced for the Company's medical supply operations include
the Medi-Lance(TM), Medi-Let and Lady Lite(TM) lancets, the latter developed for
women's use. See "Medical Supplies" above.
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Techdyne custom designs and assembles over 800 components and finished
products for approximately 80 active accounts, principally OEMs and their
suppliers. The customer base consists primarily of Fortune 100 companies.
Approximately 58% of sales are domestic, and 42% effected by Techdyne (Scotland)
are in the European markets. For the year ended December 31, 1996, approximately
73% of Techdyne's sales were made to numerous locations of major customers,
Compaq Computer Corporation ("Compaq") (35%) and IBM (18%), EMC including its
related suppliers (12%), and Motorola (9%). Techdyne's sales to Avid Technology,
Inc. ("Avid") went from 19% in 1995 to 1% in 1996. Techdyne (Scotland) had a
substantial portion of its sales, approximately 84%, to Compaq. During 1996
bidding orders became more competitive which resulted in substantially reduced
sales to that customer with lower profit margins on remaining sales. A loss or
substantially reduced sales of any major customer would have had an adverse
affect on Techdyne and the Company as was the case with the Company in Europe
and with Avid in the United States. The Company is pursuing new customer orders.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Products and Services
Cable and Harness Assemblies
A cable is an assembly of electrical conductors insulated from each other
and twisted around a central core and jacketed. Cables may be molded or
non-molded. Techdyne maintains a large assortment of standard tooling for
D-subminiature connectors, Din connectors (circular connectors with from two to
four pairs of wires used for computer keyboards), flat ribbon cables, and
discrete cable assemblies.
Harnesses are wires with insulation and terminals ready to be attached to
connectors.
Cable and harness sales represent a substantial part of sales revenues,
approximately 82%.
Printed Circuit Boards and Molded Assemblies
PCB assemblies are electronic assemblies consisting of a basic printed
circuit laminate with electronic components including diodes, resistors,
capacitors and transistors, inserted and wave soldered. PCBs may be used either
internally within the customer's products or in peripheral devices. The variety
of PCBs produced include through-hole assemblies, low and medium volume surface
mount PCB assemblies, and mixed technology PCBs. Through-hole assemblies are
standard rigid boards with components on one side and solder pads on the other
side. Surface mount circuit assemblies are components with no leads which are
soldered to pads on the surface of the PCB. The mixed technology PCB combines
both through-hole and surface mount.
Contract Manufacturing Products
Contract manufacturing involves the manufacture of complete finished
assemblies with all sheet metal, power supplies, fans, PCBs, as well as complete
sub-assemblies for integration into an OEM's finished products, such as speaker
and lock key assemblies and diode assemblies that consist of wire, connectors
and diodes that are over-molded, packaged and bar coded for distribution. These
products can be totally designed and manufactured by Techdyne through its
computer-aided design system, engineering and supply procurement. Alternatively,
the customer may provide specifications and Techdyne will assist in the design
and engineering, or just manufacture to the customer's specifications. Contract
manufacturing products also include rack assemblies for data processing and
video editing and custom disk drive enclosures for OEMs.
By contracting assembly production, OEMs are able to keep pace with
continuous and complex technological changes and improvements by making rapid
modifications in their products without costly retooling and without any
extensive capital investments for new or altered equipment.
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Medical Products
Lancets are produced for the Company for its medical supplies distribution.
Lancets produced by Techdyne are vertical insert molded disposable products
distributed under the trade names Medi-Lance,(TM) and Lady Lite(TM) and Medi-Let
or under a private label if requested by the customer. See "Medical Supplies"
above.
Reworking and Refurbishing
Customers provide Techdyne with materials and sub-assemblies acquired from
other sources which the customer has determined requires modified design or
engineering changes. Techdyne redesigns, reworks, refurbishes and repairs these
materials and sub-assemblies. Contract manufacturing, medical product sales,
reworking and refurbishing together constitute approximately 9% of sales.
Manufacturing and Supplies
Components and products are custom designed and developed to fit specific
customer requirements and specifications. Techdyne's industrial, electrical and
mechanical engineers work in close liaison with its customers' engineering
departments from inception through design, prototypes, production and packaging.
The engineering staff also determines any special capital equipment
requirements, tooling and dies, which must be acquired.
Techdyne maintains a large assortment of standard tooling and modern
state-of-the-art equipment at all of its facilities. Techdyne operates
simultaneous production and assembly lines for its diverse mix of electrical and
electro-mechanical products.
Techdyne (Scotland)'s manufacturing facility, located in Livingston,
Scotland, focuses mainly on the electronics industry producing primarily molded
cables, wire harnesses and electro-mechanical assemblies, incorporating
multifaceted design and production capabilities.
Techdyne also has "supplier partnerships" to meet customers' needs. This
involves Techdyne accomplishing the in-house manufacturing requirements of the
customer. Through EDI (electronic data interchange) the customer conveys its
needs on a weekly basis based on a rolling quarterly forecast.
Materials used in Techdyne's operations consist of metals, electronic
components such as cable, wire, resistors, capacitors, diodes, PCBs, and plastic
resins. These materials are readily available from a large number of suppliers
and manufacturers. Techdyne has not experienced any significant disruptions from
shortages in materials or delivery delays of its suppliers and believes that its
present sources and the availability of its required materials are adequate.
Techdyne has a completely computerized system of material requirements planning,
purchasing, sales and marketing functions.
Quality and Process Control
Techdyne has an ISO 9002 quality assurance designation for its Hialeah,
Florida and Houston, Texas facilities, which is the international standard of
quality with respect to all quality systems of operations, including, among
others, purchasing, design, engineering, processes, manufacturing, sales,
inventory control and quality. Techdyne (Scotland) also holds a similar quality
assurance designation.
Quality control is essential to Techdyne's operations since low-cost and
high quality production are primary competitive standards and are vital to the
services of Techdyne. See "Competition" below. Products, components, assemblies
and sub-assemblies manufactured by Techdyne are thoroughly inspected visually
and electronically to assure components are to strict specifications and are
functional and safe. Management believes it is one of the manufacturers of
choice for the major Fortune 100 companies who are its customers based upon
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its excellent record of quality production. The Company's extremely low product
return rate of less than 50 PPM attests to its dedication to quality.
Strict process controls are also standard operating procedure. Process
controls deal with the controls relating to the entire manufacturing process.
The Company strives for a CPK of two, i.e., twice as critical as customer
tolerances.
During the course of initial qualification and production cycles, new and
existing customers inspect Techdyne and its operations. Techdyne's product and
manufacturing quality receives excellent ratings and quality awards.
Marketing and Sales
Domestic sales are generated by five regional sales managers. There are
also two in-house sales people, including the President of Techdyne. The
regional sales managers have six independent manufacturer representative
agencies. Sales are also generated through catalogues, brochures and trade
shows. Within the last year, the Company hired three new sales managers to
maximize its growth potential in circuit board and contract manufacturing sales.
The Company believes that the new additions to the sales staff will effectively
accomplish this in the coming year.
Techdyne (Scotland) has four in-house sales personnel who market its
products and services to customers in Scotland, England, Ireland, Germany and
Israel.
Substantially all of Techdyne's sales and reorders are effected through
competitive bidding. Most sales are accomplished through purchase orders with
specific quantity, price and delivery terms. Some production, such as its
supplier partnerships (see "Manufacturing and Supplies" above), are accomplished
under open purchase orders with components released against customer requests.
Most customers are Fortune 100 companies, with Techdyne's three major
customers for 1996 being Compaq, IBM and EMC. See "Electro-Mechanical
Manufacturing" above.
Backlog
At December 31, 1996, Techdyne's backlog of orders amounted to
approximately $7,300,000, of which approximately $1,320,000 was represented by
the orders for Techdyne (Scotland). Management believes, based on past
experience and relationships with its customers and knowledge of its
manufacturing capabilities, that substantially all of its backlog orders are
firm and will be filled within this fiscal year. The purchase orders within
which Techdyne performs do not provide for cancellation. Over the last several
years cancellations have been minimal. There is no assurance that the backlog
data is a reliable indicator of future sales.
DIALYSIS OPERATIONS
The Company, through DCA and its subsidiaries, operates three out-patient
dialysis treatment centers with a capacity of 42 stations. Through these centers
and other DCA subsidiaries, the Company provides in-patient dialysis services to
several hospitals. The out-patient dialysis centers are located in Fort Walton
Beach, Florida, and Lemoyne and Wellsboro, Pennsylvania. The Wellsboro and Ft.
Walton Beach facilities are leased from unaffiliated third parties. The Lemoyne
dialysis center is located on property owned by DCA and is leased to its
subsidiary. Home patient dialysis services are also provided by DCA as well as
the sale of medical supplies for dialysis treatments. Each of the dialysis
centers offers home training to qualified patients who wish to have their
treatments at home, which includes continuous ambulatory peritoneal dialysis and
continuous cycling peritoneal dialysis.
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Individuals with end stage renal disease ("ESRD"), chronic kidney failure
which is irreversible, require dialysis treatments or kidney transplantation to
sustain life. Most dialysis patients require treatments three times a week, each
treatment taking approximately four hours. Medicare funds a substantial portion
of the costs of the dialysis treatments in accordance with rates established by
the Health Care Financing Administration regardless of the patient's age or
financial circumstances. Most of DCA's revenues are attributable to payments
received from the Medicare ESRD program which reimburses approximately 80% of
the patient charges for each dialysis treatment. DCA is also reimbursed by
Medicaid and commercial insurance companies. The level of DCA's revenues and
profitability are dependent on periodic rate adjustment by Congress. Management
is unable to predict whether future rate changes will be made and even if made
whether they will have a material effect on DCA's revenues and earnings.
Operating costs tend to increase over the years without any comparable
increases, if there are any increases at all, in the prescribed treatment rates,
which usually remain fixed and have decreased over the years. Presently,
Medicare under Part B of the Medicare Act, pays approximately 80% of the
allowable charges for each dialysis treatment, which ranges at DCA's centers for
out-patients between $117 to $123 per treatment, depending on regional wage
variations. The balance of the payments are derived from the patient's insurance
company, state programs such as Medicaid, or the patient's private funds. The
in-patient dialysis services, usually required for hospital patients with acute
renal failure or patients admitted to the hospital suffering from other
illnesses who might require dialysis, are paid by the hospital on the basis of
pre-determined and negotiated treatment fees.
DCA also provides ancillary services including the administration of
Erythropoeitin ("EPO"), a bio-engineered protein used to treat anemia, providing
therapeutic plasmapheresis and certain tests and studies through outside
agencies such as nerve conduction, bone density and doppler flow studies. The
Health Care Financing Administration ("HCFA") of the Department of Health and
Human Services ("HHS") recently eliminated routine Medicare coverage for these
tests except where there is documentation of medical necessity. The ancillary
services are not significant segments of income to DCA.
The most prevalent form of treatment for ESRD patients is hemodialysis,
which involves the use of an artificial kidney known as a dialyzer, to perform
the function of removing toxins and excess fluids from the blood stream. This is
accomplished with a dialysis machine, a complex blood filtering device which
takes the place of certain functions of the kidney and which machine also
controls external blood flow and monitors the toxic and fluid removal process.
Dialysis treatments are performed by teams of licensed nurses and trained
technicians pursuant to physicians instructions.
In accordance with conditions for participation in the Medicare ESRD
program, each facility has a qualified medical director. Each facility has a
nurse administrator who supervises the day-to-day operations and the staff,
which consists of registered nurses, licensed practical nurses, patient care
technicians, a part-time social worker and a part-time registered dietitian.
Since 1989, the dialysis operations consisted of one center in Fort Walton
Beach, Florida until 1995 when DCA established two additional out-patient
dialysis facilities, one in Lemoyne, Pennsylvania which commenced operations in
June, 1995 and the other in Wellsboro, Pennsylvania which commenced operations
in October, 1995. The treatment statistics for the five years ended December 31,
1996 were as follows:
<TABLE>
<CAPTION>
Fiscal Year
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Outpatients at year end.............. 129 108 60 72 69
Outpatient treatments ............... 18,364(1) 10,903(1) 9,500 9,800 8,298
Acute inpatient treatments .......... 1,387 843 419 748 599
</TABLE>
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(1) Includes 4,548 and 3,060 home patient treatment equivalents for 1996 and
1995, respectively, which patients are billed for dialysis treatment
supplies rather than per treatment and is converted into a per treatment
basis pursuant to a formula developed by Medicare.
Since DCA sold four of its dialysis centers in 1989, it has incurred
operational losses. Although DCA has reflected income over the years, this was
due to interest income, including interest on funds received through advances to
the Company. In December, 1995 a new DCA subsidiary, Renal Services of Pa., Inc.
was established to implement DCA's growth strategy to obtain new in-patient
dialysis services at hospitals and to assist in establishing or acquiring
out-patient dialysis centers. Construction has begun on a new dialysis center in
Carlisle, PA and is expected to be operational in the third quarter of 1997 and
the Company is completing a lease, subject to a variance, for a new dialysis
facility in Manahawkin, New Jersey. The two new out-patient centers are in the
developmental stage, but it will provide the same services as the other dialysis
centers, including providing outpatient dialysis services as well as acute care
service to regional hospitals. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Regulation
The dialysis operations must adhere to stringent regulations of federal and
state authorities. Its operations are subject to the terms of the Social
Security Act and similar state laws which provide that it is unlawful to
solicit, offer, receive or pay any remuneration, directly or indirectly, for
referring a patient for treatment that is paid in whole or in part by Medicare,
Medicaid or similar state program.
The Omnibus Budget Reconciliation Act of 1993 contains the Physician
Ownership and Referral Act known as "Stark II" that restrict physician referrals
for certain "designated health services" to entities with which a physician or
an immediate family member has a "financial relationship." Designated health
services include, among others, home health services and in-patient and
out-patient hospital services. DCA at its Fort Walton Beach facility, provided
in-patient dialysis treatments for a local hospital. The physician director of
DCA's Fort Walton Beach center had a financial interest in that facility and has
patients at the local hospital which thereby could be deemed self-referrals for
in-patient hospital services. DCA restructured its in-patient hospital treatment
relationship through another subsidiary. The President and Congress are in the
process of attempting to reform the health care system. It is possible that
federal and state governments will impose additional restrictions upon
activities of the type conducted by DCA, which might have a materially adverse
effect on the Company's business and results of operations.
The Social Security Act prohibits, as do many state laws, the payment of
patient referral fees for treatments that are paid for by Medicare, Medicaid or
similar state programs. As required by Medicare regulation, each of DCA's
dialysis centers is supervised by a Medical Director, a licensed nephrologist or
otherwise qualified physician. The Medical Directors are in private practice and
are one of the most important sources of the dialysis center's business, since
it is such physician's patients that utilize the services of the center. DCA has
never been challenged under these statutes and believes its arrangement with
Medical Directors are in material compliance with applicable law. DCA endeavors
in good faith to comply with all governmental regulations.
DCA must comply with certain rules and regulations of HCFA, which agency
sets the reimbursement rates for dialysis treatments and other medical services.
See "Business-Dialysis Industry-Medicare Reimbursement" above. Although none of
DCA's business arrangements has been the subject of investigation by any
governmental authority, no assurance can be given that legislative developments
will not require restructuring business arrangements or that such will comply or
be subject to governmental review.
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In August, 1996, President Clinton signed the "Health Insurance Portability
and Accountability Act of 1996", a package of health insurance reforms which
include a variety of provisions important to health care providers, such as
significant changes to the Medicare and Medicaid fraud and abuse laws, which
provisions were effective January 1, 1997.
DCA's dialysis centers are subject to hazardous waste laws and
non-hazardous medical waste regulation. Most of the waste is non-hazardous
waste, which is disposed of by medical waste sanitation agencies which are
primarily responsible for compliance with such laws.
There are a variety of regulations promulgated under OSHA relating to
employees exposed to blood and other potentially infectious materials requiring
employers, including dialysis centers, to provide protection, including
providing employees subject to exposure with hepatitis B vaccination, protective
equipment, written exposure control plan and training in infection control and
waste disposal.
The Company's record of compliance with federal, state and local
governmental laws and regulations has been excellent.
Any loss by DCA of its various federal certifications, its authorization to
participate in the Medicare or Medicaid programs or its licenses under the laws
of any state or other governmental authority from which a substantial portion of
its revenues is derived or a change resulting from health care reform reducing
dialysis reimbursement or reducing or eliminating coverage for dialysis services
would have a material adverse effect on DCA's business.
PATENTS AND TRADE NAMES
The Company sells certain of its medical supplies and products under the
trade name Medicore(TM). Certain of its lancets are marketed under the trade
names Medi-Lance(TM) and Lady Lite(TM). See "Medical Supplies" above.
The Company is the assignee of three patents relating to its lancets. The
issuance of a patent does not assure protection against the development of
similar, if not superior processes, know-how and products. The Company does not
rely on patents or trademarks in its electro-manufacturing operations and
manufacturing of medical products. Dependency is placed more on design,
engineering, manufacturing cost containment, quality and marketing skills to
establish or maintain market position.
COMPETITION
The medical supply operations are extremely competitive and the Company is
not a significant competitive factor in this area.
In electro-mechanical manufacturing, Techdyne faces competition from many
areas including divisions of large electronic and high-technology firms as well
as from numerous smaller, specialized companies. Competitive price advantages
may also be available to competitors with less expensive off-shore operations.
Management believes the primary competitive factors to be price, quality of
production, prompt customer service, timely delivery, engineering expertise and
technical assistance to customers. Among this mix of competitive standards,
management believes it is very competitive with respect to delivery time,
quality, cost and customer service. Management also believes its competitive
position is enhanced through Techdyne (Scotland)'s European manufacturing and
marketing operations. See "Business - Electro-Mechanical Manufacturing" above.
9
<PAGE> 13
Due to the number and variety of competitors, reliable data relative to
Techdyne's competitive position in the electronic components and assembly
industry is difficult to develop and is not known.
The operation of kidney dialysis centers is very competitive with numerous
local providers, many owned by physicians, and several major operators, who have
substantially greater financial resources and many more centers and patients
than the Company. In 1996 there were in excess of 2,860 Medicare approved ESRD
facilities of which approximately 2,000 were independent dialysis centers.
Hospitals and other out-patient dialysis centers compete with the Company's
dialysis operations. Competitive factors that are most significant in dialysis
treatments are the quality of scare and service, convenience of location and
pleasantness if environment. A secondary factor is the ability to maintain
qualified nephrologists for supervision and operation of the centers. Peritoneal
dialysis, a more convenient and less expensive dialysis procedure, presents an
additional competitive aspect to hemodialysis treatment. The Company is not a
significant competitive factor in kidney dialysis services primarily based upon
its limited number of centers and size.
EMPLOYEES
The Company and its subsidiaries employ approximately 321 full time
employees of which 14 are administrative, 39 are with the dialysis operations,
13 are engaged in the medical supply and medical durables operations, and 255
are with Techdyne's electro-mechanical manufacturing operations (domestic and
Scotland). In addition, Techdyne utilizes approximately 52 temporary workers,
retained through local agencies, on a regular basis.
10
<PAGE> 14
ITEM 2. PROPERTIES
Ownership
DCA acquired two properties in 1987, one in Easton, Maryland consisting of
land and a one and one-half story frame building of approximately 8,000 square
feet, of which 5,400 square feet is leased to the purchaser of one of the
dialysis centers DCA sold in 1989 and a competitor of DCA. The tenant recently
leased an additional 2,040 square feet at this facility. DCA maintains an office
at this facility. The second property consists of land and a 15,230 square foot
brick building in Lemoyne, Pennsylvania. DCA constructed a new 3,400 square foot
center at this facility, approved for 13 dialysis stations, with space available
for expansion, which it anticipates initiating in the near future. DCA leases
this facility to its subsidiary. See "Certain Relationships and Related
Transactions" of the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on June 11, 1997, which is hereby
incorporated by reference.
The Carlisle, Pennsylvania dialysis facility, currently under construction,
is leased by the Company's subsidiary, Dialysis Services of PA, Inc.-Carlisle
("DSP-C") under a five year lease to commence when the space is substantially
completed, with two renewals of five years each. The facility consists of 4,340
square feet of space to house 12 dialysis stations at an annual rental of
$32,550.
Dialysis Services of NJ, Inc.-Manahawkin ("DSNJ") a new subsidiary of the
Company , has completed a five year lease for its new dialysis facility in
Manahawkin, New Jersey for approximately 4,000 square feet at an annual rate of
approximately $38,000 per annum plus its proportionate share of the real estate
taxes and casualty insurance premiums. The lease is renewable for two
consecutive five year periods. The facility is designed for 12 dialysis
stations. For the lease to be effective and construction to commence, a variance
from the local municipality is being sought. There is no assurance that the
variance will be granted, and, if not, further delays in opening this new
dialysis facility will be encountered until a proper location is secured.
The properties in Lemoyne, Pennsylvania and Easton, Maryland, are subject
to mortgages from a Maryland banking institution. As of December 31, 1996, the
remaining principal amount of the mortgage on the Lemoyne property was
approximately $224,000 and on the Easton, Maryland property was approximately
$280,000. Each mortgage extends through November, 2003, bears interest at 1%
over the prime rate, and is secured by the real property and DCA's personal
property at those locations. The bank also has a lien on rents due DCA and
security deposits from leases of the properties. Written approval of the lender
is required for all leases, assignments or subletting, alterations and
improvements and sales of the properties. Under the terms of the mortgages, the
bank has the immediate right to demand repayment of the outstanding balances.
See Item 7, "Management's Discussions and Analysis of Financial Condition and
Results of Operations."
In 1990, the Company acquired two buildings from Techdyne, one a 16,000
square foot building in Hialeah, Florida housing Techdyne's executive and
administrative offices (approximately 5,000 square feet); engineering
(approximately 2,000 square feet); and prototype and production assemblies and
plastic injection molding (approximately 9,000 square feet). Adjacent to that
facility is the second building consisting of 12,000 square feet which houses
warehouse and inspection segments of Techdyne's operations. The Company leases
these facilities to Techdyne. See below. The Company also purchased a parcel of
land located adjacent to Techdyne's executive and administrative offices in
Hialeah, Florida, used for parking. See "Certain Relationships and Related
Transactions" of the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on June 11, 1997, which is hereby
incorporated by reference.
The Company owns a small parcel of land near Techdyne's offices in Hialeah,
also used as a parking lot, and a small undeveloped parcel adjacent to its
warehouse facilities purchased for future expansion.
11
<PAGE> 15
Leases - Company as Lessor
<TABLE>
<CAPTION>
Lessee Space Property Term Rent
- --------------- ----------- -------------- ------------- -------
<S> <C> <C> <C>
Renal Treatment 7,440 sq. ft 402 Marvel Ct. 5 yrs. to $80,000/yr
Centers-Maryland, Easton, PA March 31, 1998; (for 5,400 sq. ft)
Inc.(1) (2) one 5 year escalating
renewal 5% the last
2 yrs; $2,400 per
year (for 2,040 sq.
ft.) (2) plus
utilities and
real estate
taxes.
Dialysis Services 3,400 sq ft 27 Miller Ave(4) 5 yrs. to $33,730
Pennsylvania, of Lemoyne, PA Nov. 30, 2000; plus utilities,
Inc. - Lemoyne(1)(3) two 5 year real estate
renewals taxes and insurance
MCI Communications 247 sq ft 27 Miller Ave.(4) 5 yrs. to $3,035/yr
Lemoyne, PA Feb. 28, 1998 plus
Corp. electric and
taxes
JA Hunt Services, 1,947 sq ft 27 Miller Ave. (4) 3 yrs. to $17,010/yr.
Inc. Lemoyne, PA March 31, plus taxes.
1998
Techdyne(5) 16,000 sq ft 2230 W 77th St. 5 yrs. to $130,000/yr
(exec. off. Hialeah, FL March 31, plus taxes
mfg.) 2000 utilities,
insurance
(net, net)(6)
Techdyne(5) 12,000 sq ft 2200 W 77th St 5 yrs. to $130,000/yr
(warehouse) Hialeah, FL March 31, plus taxes,
2000 utilities,
insurance
(net, net)(6)
</TABLE>
Leases - Company or Subsidiary as Lessee
<TABLE>
<CAPTION>
Identity of
Lessee Space Property Landlord Term Rent
- ----------- ----------- ---------------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
The Company 2,800 sq ft 2337 W 76th St. Viragen, Inc. (7) 5 yrs. to $19,600/yr
(exec. and Hialeah, FL Dec. 31, plus
admin.) 1997; two taxes and
5 yr. utilities
renewals
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
Identity of
Lessee Space Property Landlord Term Rent
- ----------- ----------- ---------------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
The Company 5,000 sq ft 75 W Commerce Brett and 5 yrs. to Dec. $18,200/yr
(medical Center Suzanne 11, 1997; (escalating
supply and 2647 W 81 St Anderson one 5 year 3%, each
consumer Hialeah, FL renewal year) plus
product utilities
operations-
offices and
warehouse)
The Company 3,900 sq ft 777 Terrace Ave Heights Plaza 5 yrs. to $62,000/yr
(exec. Hasbrouck Associates Mar. 31, plus
offices) Heights, N.J. 2001 electricity
taxes and
operational
increases
Techdyne 11,000 sq ft 9742 and 9750 George Whimpey month $5,490 per
(mfg. Whithorn Drive of Texas, Inc. to month month
& offices) Houston, TX
Techdyne 200 sq ft 200 Turnpike MMP month $250/month
(office) Rd. Southborough Realty to month plus heat,
MASS Trust electricity
and janitorial
Techdyne 6,825 sq. ft. 800 Paloma Drive AmorRon Park 3 yrs. to $45,00/yr
(mfg. & Round Rock Ltd. April 14, plus taxes,
(offices) (Austin), TX(8) 1998; utilities,
one three insurance
year renewal (net, net)
All American 6,000 sq ft 225 60th Street Bart 2 yrs.to Nov. $31,300
Medical & (office & Brooklyn, NY Castallano 30, 1997; 3 first yrs.;
Surgical warehouse) yrs renewal $32,400
Corp.(9) rt. of first second year
refusal to plus utilities
and insurance
Dialysis 5,214 sq. Paradise JACO, L.C. 5 yrs to $61,000/yr
Services ft. (3 story Village Oct. 31,
of Florida, dialysis Professional 1999; one
Inc.-Fort facility) Park 5 yr.
Walton Bch.(10) Fort Walton renewal
Beach, FL
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
Identity of
Lessee Space Property Landlord Term Rent
- ----------- ----------- ---------------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Dialysis 4,000 sq. ft. 675 Route 72 East William P. 5 yrs to $38,000/yr.
Services of (12 stations) Manahawkin, NJ Thomas commence plus taxes
NJ,Inc.- when space insurance and
Manahawkin(3) completed; utilities
two 5 yr.
renewals
Dialysis 4,000 sq. 14 Tioga St. James & 5yrs. to $25,000/yr.; plus
Services of ft. (12 Wellsboro, PA Roger Stager Sept. 27, utilities
PA, Inc- stations) 2000; two
Wellsboro(3) 5 yr. renewals
Dialysis 4,340 sq. 101 Noble Blvd. Lester and 5 yrs. to $32,550/yr
Services ft. (Dialysis Carlisle, PA Kirby commence plus utilities
of PA, Inc.- stations) Burkholder when space and
Carlisle(3) completed janitorial
Renal Services 300 sq. ft. 45 Delaware Street Ronald Peck 1 year to $490 per
(offices) Woodbury, NJ January 1, 1998 month
</TABLE>
Techdyne has an additional lease for two properties in Hialeah, Florida
owned by its parent, the Company. See above "Leases - Company as Lessor."
In 1994, Techdyne (Scotland) purchased the 27,000 square foot facility it
had been leasing in Livingston, Scotland. The purchase was accomplished for
approximately $730,000 with a 15-year mortgage which has a U.S. dollar
equivalency of approximately $591,000 at December 31, 1996. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." This facility was recently expanded by 3,500 square feet.
Techdyne and DCA believe that their equipment and facilities are adequate
for their current operations.
- ----------
(1) DCA (67.2% owned subsidiary) is the Lessor.
(2) Leases guaranteed by parent, Renal Treatment Centers, Inc. DCA has
acknowledged to lessees and their bank that such bank's security interest
in lessees' property is superior to any interest which DCA may have as
landlord. 2,040 square feet leased on a month-to-month basis through the
term.
(Notes continued on the following page)
(3) 100% owned subsidiary of DCA.
(4) The Lemoyne, PA. property has an approximately 37%.
(5) 63.5% owned public subsidiary.
(6) The $130,000 per year rental is the aggregate for both properties, 2230
West 77th Street, Hialeah, Florida and 2200 West 77th Street, Hialeah,
Florida with adjacent parking. The rent was reduced to $94,000 per annum
for the 12 months from April 1, 1996 to March 31, 1997.
(7) Viragen, Inc. ("Viragen") is a former subsidiary of the Company which was
spun-off in 1986. Viragen is indebted to the Company for approximately
$108,000 in accrued royalties.
14
<PAGE> 18
(8) Right of first refusal to lease adjacent space (approximately 5,400
square feet).
(9) 95% owned subsidiary of the Company.
(10) 80% owned subsidiary of DCA.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in or subject to any claims or litigation. A
temporary worker at Techdyne was injured in the first quarter of 1996. The
injured party was insured through the temporary personnel agency. Although the
extent of said injuries are not known nor the associated costs, Techdyne
anticipates that its insurance is adequate to cover any potential claim. See
Note 7 to "Notes to Consolidated Financial Statements."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the Company's fiscal
year to a vote of security holders through the solicitation of proxies or
otherwise.
15
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock traded on the American Stock Exchange until
June 3, 1996 when its Common Stock commenced trading on the Nasdaq National
Market under the symbol "MDKI". The table below indicates the high and low sales
prices by quarter for the Company's common stock for the two years ended
December 31, 1996.
<TABLE>
<CAPTION>
Sale Price
---------------
High Low
---- -----
<S> <C> <C>
1996
----
1st Quarter 9 3/8 4
2nd Quarter 6 5/8 3 3/4
3rd Quarter 5 3/8 3 1/4
4th Quarter 5 3/4 2 3/8
1995
----
1st Quarter 4 2 3/8
2nd Quarter 3 13/16 2 3/4
3rd Quarter 7 1/2 3
4th Quarter 6 1/2 3 1/4
</TABLE>
(b) As of March 12, 1996, there were 1,399 shareholders of record. The
Company estimates, based upon its 1996 proxy solicitation, that its Common Stock
is held by approximately 4,000 shareholders.
(c) The Company has not paid any cash dividends in the last two years.
16
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------
1996(3) 1995 1994 1993 1992(1)
------- ------- ------- ------- -------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues ...................... $34,719 $36,660 $24,552 $18,958 $18,737
Net income
(loss) ...................... 2,417 2,251 864 18 (869)
Income (loss) per
common share ................ .40 .38 .16 -- (.19)
Weighted average
shares out-
standing and
equivalents ................. 6,031,000 5,929,215 5,314,261 4,564,940 4,553,710
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
1996(3) 1995 1994 1993 1992(1)
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital................ $13,844 $ 7,034 $ 4,871 $ 2,497 $ 2,557
Total assets................... 27,085 21,247 15,955 11,322 11,723
Long-term debt................. 1,677 964 1,667 918 1,249
Stockholders' equity(2)........ 13,021 9,754 8,027 5,881 5,885
</TABLE>
- ----------
(1) In 1992 estimated useful lives for plant equipment and tools and molds,
previously 7 years, were increased to 10 years. The effect of this change
in estimate was to reduce 1992 depreciation expense by approximately
$215,000 or $.05 per common share, loss before extraordinary credit by
$203,000 or $.04 per common share and net loss by $215,000 or $.05 per
common share.
(2) In 1993, the Company changed its method of accounting for income taxes and
implemented, on a retroactive basis, Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes". Prior year amounts have
been restated for the $188,000 retroactive effect of adopting Statement No.
109.
(3) In 1996, the Company recorded estimated costs of $305,000 for shutdown of
its durable medical equipment operations.
17
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this Annual Report on Form 10-K that are not
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of the
1934, including statements regarding the Company's expectations, intentions,
beliefs, or strategies regarding the future. Forward looking statements include
the Company's statements regarding liquidity, anticipated cash needs and
availability, and anticipated expense levels in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" including the pursuit
of new Techdyne business development efforts to replace lost sales from several
major customers in 1996, and the development of new products and facilities,
anticipated development and acquisition of dialysis centers, new facility
completions and related anticipated costs. All forward looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward looking statement. It is important to note that the Company's actual
results could differ materially from those in such forward looking statements.
Among the factors that could cause actual results to differ materially are the
factors detailed in the risks discussed in the "Risk Factors" section included
in the Registration Statements of the Company's subsidiaries, Techdyne's
Registration Statement, Form SB-2, as filed with the Securities and Exchange
Commission ("Commission") (effective September 13, 1995) and DCA's Registration
Statement, Form SB-2, as filed with the Commission (effective on April 17,
1996).
Techdyne's electronic and electo-mechanical manufacturing and assembly
operations are subject to substantial competition from divisions of large
electronic and high-technology firms and numerous smaller, specialized
companies. Strong competition derives from price advantages of competitors with
less expensive off-shore operations. This imposes pressure on Techdyne's bidding
orders and profit margins.
The Company's future growth as an international contract manufacturer of
precision electronic, electro-mechanical and plastic insert and injection molded
products for OEMs in the data processing, telecommunication and instrumentation
industries, will be influenced by several factors including technological
developments, the ability of the Company to efficiently meet the design and
production requirements of its customers, and the market acceptance of its
customer's products. Further factors impacting the success of the Company's
electronic manufacturing operations are increases in expenses associated with
continued sales growth, the ability of Techdyne to control costs, management's
ability to evaluate new orders to target satisfactory profit margins, the
capacity of Techdyne to develop and manage the introduction of new products, and
competition. Quality control is also essential to Techdyne's operations, since
customers demand strict compliance with design and product specifications. Any
adverse change in Techdyne's excellent quality and process controls could
adversely affect its relationship with customers and ultimately its revenues and
profitability.
The dialysis industry is highly competitive and subject to extensive
regulation, including the limitation on fees for dialysis treatments and
services. Significant competitive factors include quality of care and service,
convenience of location and pleasant environment. Additionally, there is intense
competition for retaining qualified nephrologists who normally are the sole
source of patient referrals and are responsible for the supervision of the
dialysis centers. There is also substantial competition for obtaining qualified
nurses and technical staff. Major companies, some of which are public companies
or divisions of public companies, have many more centers, physicians and
financial resources than does the Company's subsidiary, DCA, and by virtue of
such have a significant advantage in competing for acquisitions of dialysis
facilities in areas targeted by the Company.
The Company's growth in dialysis operations depends primarily on the
availability of suitable dialysis centers for acquisition or development in
appropriate and acceptable areas, and the Company's ability to compete with
larger companies with greater personnel and financial resources to develop these
new potential dialysis centers at costs within the budget of the Company. Its
ability to retain qualified nephrologists, nursing and
18
<PAGE> 22
technical staff at reasonable rates is also a significant factor. Management
continues in negotiations with nephrologists for the acquisition or development
of new dialysis facilities, as well as with hospitals and other health care
maintenance entities. The Company has its fourth center in Carlisle,
Pennsylvania under construction and its fifth center is awaiting a variance
before the lease can be effective and construction to commence. Several
agreements for acute in-patient services are under review but there is no
assurance that such agreements would be completed. Even if the Company were to
establish new centers in the near future, or complete in-patient treatment
arrangements, there is no certainty as to when any new centers or service
contracts would be implemented, or the number of stations, or patient treatments
such may involve, or if such will ultimately be profitable.
RESULTS OF OPERATIONS
1996 Compared to 1995
Consolidated revenues decreased approximately $1,941,000 (5%) in 1996
compared to the previous year. Sales revenues decreased $4,460,000 (13%) in 1996
compared to the preceding year. 1996 revenues included a $1,521,000 gain on a
securities offering of DCA, the Company's dialysis subsidiary, with 1995
revenues including a $2,002,000 gain on a securities offering of Techdyne, the
Company's electronic and electro-mechanical subsidiary. See Note 8 to "Notes to
Consolidated Financial Statements". 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 to "Notes to
Consolidated Financial Statements") with the 1996 gain amounting to $2,584,000
compared to $183,000 for the preceding year. Other income increased
approximately $600,000, including a $228,000 gain on the Viragen note recovery
(see Note 2 to "Notes to Consolidated Financial Statements"); $140,000 from a
litigation settlement (see Note 7 to "Notes to Consolidated Financial
Statements"); and an increase in interest income of $254,000 resulting from
interest on Scotland funds invested which were previously tied up in receivables
and inventory prior to the cutback in Compaq business in the third quarter of
1996 and interest on funds invested resulting from the Techdyne and DCA public
offerings.
Techdyne sales decreased $6,237,000 (21%) in 1996 compared to the preceding
year. Domestic sales of Techdyne decreased $4,019,000 (22%) and European-based
sales decreased $2,218,000 (18%) in 1996 compared to the preceding year. The
decrease in domestic sales compared to the preceding year was largely
attributable to a decrease in sales of $5,337,000 to Avid Technology which was
offset to some degree by a net increase in sales to other customers. The
decrease in European-based sales was largely attributable to a decrease of
$2,160,000 in sales to Compaq Computer Corp. by Techdyne (Scotland).
Approximately 73% of Techdyne's consolidated sales and 60% of the Company's
consolidated sales for 1996 were made to four customers. Customers generating in
excess of 10% of Techdyne's consolidated sales with their respective portions of
Techdyne's and the Company's consolidated sales included Compaq which accounted
for 35% and 29%, IBM for 18% and 14% and EMC and its related suppliers for 12%
and 9%. 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 are not
replaced. The Company is pursuing new business development efforts to replace
lost sales, although there can be no assurance as to the success of such
efforts.
19
<PAGE> 23
RESULTS OF OPERATIONS--Continued
Revenues of Techdyne Scottish-based subsidiary Techdyne (Scotland),
continue to be highly dependent on sales to Compaq, which accounted for
approximately 84% and 86% of the sales of Techdyne (Scotland) for 1996 and 1995,
respectively. The bidding for Compaq orders in Scotland has become more
competitive, which resulted in substantially reduced Compaq sales and lower
profit margins on remaining Compaq sales. Techdyne (Scotland) is pursuing new
business development efforts to replace significant reductions in Compaq
business and is pursuing 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 $310,000 (15%) for 1996 compared
to the preceding year. This increase included sales of approximately $297,000
attributable to All American Medical & Surgical Supply Corp., the Company's home
healthcare durable subsidiary which commenced operations in January 1996.
Medical services sales revenues, which represents revenues of DCA, the
Company's dialysis division, increased $1,526,000 (66%) for 1996 compared to the
preceding year. This increase was largely attributable to increased revenues of
approximately $1,292,000 (243%) compared to the preceding year for the Company's
new dialysis centers which commenced operations in Lemoyne, Pennsylvania in June
1995 and Wellsboro, Pennsylvania in October 1995. Although the new Lemoyne and
Wellsboro, Pennsylvania centers have resulted in increased revenues, during
their developmental stage, these centers will adversely affect the Company's
results of operations.
Cost of goods sold as a percentage of consolidated sales amounted to 82% of
sales for 1996 and the preceding year.
Cost of goods sold for Techdyne remained relatively stable, increasing to
86% compared to 85% for the preceding year.
Cost of goods sold for the medical products division increased to 68% for
1996 compared to 61% for the preceding year, which reflects reduced margins on
the principal product of the medical supply division and relatively low margins
for the Company's medical durable subsidiary, All American Medical & Surgical
Supply Corp. which the Company decided to shutdown due to unprofitable
operations.
Cost of medical services sales decreased to 65% for 1996 compared to 69%
for the preceding year, largely as a result of a decrease in healthcare salaries
as a percentage of sales due to the increased sales revenues generated by the
Company's new Pennsylvania facilities.
Selling, general and administrative expenses increased $1,463,000 for 1996
compared to the preceding year. This increase included the Company's two new
Pennsylvania dialysis centers and the Company's new subsidiary, All American
Medical & Surgical Supply Corp. which commenced operations in January 1996. The
Company has recorded approximately $305,000 in shutdown costs for All American.
Also included was stock compensation expense during the second quarter of 1996
of approximately $344,000 for forgiveness of notes from option exercises and
accrued interest.
20
<PAGE> 24
RESULTS OF OPERATIONS--Continued
Interest expense decreased by approximately $29,000 in 1996 compared to the
preceding 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
December 31, 1996 and 8.5% at December 31, 1995, respectively.
1995 Compared to 1994
Consolidated revenues increased $12,108,000 (49%) in 1995 compared to the
previous year, including a $2,002,000 gain on a securities offering of Techdyne,
the Company's electronic and electro-mechanical subsidiary. See "Liquidity and
Capital Resources" below and Note 8 to "Notes to Consolidated Financial
Statements." Techdyne accounted for most of the $10,410,000 (44%) sales
increase. Techdyne revenues increased $9,889,000 (48%) over 1994 with domestic
revenues increasing $5,459,000 (43%) and European-based revenues increasing
$4,430,000 (56%).
The increase in domestic revenues of Techdyne for the year resulted from an
overall net increase in sales to existing customers, and continuing new customer
development efforts, coupled with additional revenues resulting from an
increased level of customer service made possible through Techdyne's Texas
manufacturing facilities, one in Houston, Texas and the other recently
established in Austin, Texas.
The revenues of Techdyne's Scottish-based subsidiary, Techdyne (Scotland),
continue to be highly dependent on sales to Compaq Computer Corp. which
accounted for approximately 86% and 80% of the sales of Techdyne (Scotland) for
1995 and 1994, respectively. Sales by Techdyne (Scotland) to Compaq in 1995
increased $4,280,000 (68%) 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.
Approximately 80% of Techdyne's consolidated sales and 72% of the Company's
consolidated sales for 1995 were made to five customers. Compaq accounted for
36% and 32%, Avid Technology for 19% and 17%, and the other three 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 Avid for 1995. As a result of a change in the product platform of the product
produced for Avid, Techdyne anticipates a loss of a majority of its sales to
Avid during the next year. 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.
Medical supply sales revenues increased $144,000 (9%) in 1995 compared to
the preceding year. The principal product of this division the Medi-lance(TM),
accounted for 76% and 70% of medical product sales revenues in 1995 and 1994,
respectively.
Medical services sales revenues, which represents revenues of the Company's
dialysis division, increased $475,000(26%) in 1995 compared to 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
$531,000 in
21
<PAGE> 25
RESULTS OF OPERATIONS--Continued
revenues for the year ended December 31, 1995. Revenues related to the Company's
dialysis center in Fort Walton Beach, Florida decreased approximately $57,000,
which included revenues lost as a result of a hurricane (see "Liquidity and
Capital Resources" below), for the year ended December 31, 1995 compared to the
same period of the preceding year. Although the new Lemoyne and Wellsboro,
Pennsylvania centers (see "Liquidity and Capital Resources" below) are expected
to result in increased revenues, as was the case for the year ended December 31,
1995, during their development 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, Inc. common stock for which the carrying value had been
written-off in previous periods. See "Liquidity and Capital Resources" below.
Cost of goods sold as a percentage of consolidated sales remained
relatively stable between the periods, increasing in 1995 from 81% to 82% of
sales revenues.
Cost of goods sold for the Company's electronic and electro-mechanical
subsidiary, Techdyne, increased to 85% in 1995 compared with 84% in the
preceding year. The increase in sales revenues, along with improved
manufacturing efficiencies and overall cost reduction efforts resulted in an
increase in operating profits of $929,000 for 1995 for this subsidiary compared
to the preceding year.
Cost of goods sold for the medical product division was 61% for both 1995
and 1994. Operating profit for this division decreased approximately $7,000 in
1995 compared to the preceding year, which included start-up costs of
approximately $37,000 for the Company's new medical durable subsidiary, All
American Medical & Surgical Supply Corporation.
Cost of medical services sales increased to 69% for the year ended December
31, 1995 compared to 62% for 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. Operating losses of the Company's new dialysis centers
which are in their developmental stages, resulted in an increase in operating
losses of $295,000 for 1995 for the Company's dialysis subsidiary compared to
the preceding year, which included start-up costs for the two new dialysis
centers of approximately $80,000.
Selling, general and administrative expenses increased $685,000 (17%) in
1995 over the previous year. This increase included increased support activities
associated with the increase in sales revenues, including increases in
administrative personnel and related benefits and sales commissions and also
included start-up costs of approximately $117,000 related to the Company's new
medical durable subsidiary and two new dialysis centers, which were expensed
during the fourth quarter of 1995 rather than being deferred. Management of the
Company believes that due to probable changes in the accounting for start-up
costs it is no longer prudent to capitalize start-up costs. Selling, general and
administrative expenses as a percentage of sales decreased to 14% for the year
ended December 31, 1995, compared to 17% for the preceding year as a result of
increased sales, costs containment efforts and economies of scale, despite
start-up costs for the new companies.
Interest expense increased by approximately $39,000 (19%) in 1995 over the
previous year largely as a result of the mortgage associated with Techdyne
(Scotland)'s purchase of its manufacturing facility, previously leased, and an
increase in average interest rates.
The bulk of the Company's borrowings are related to real property mortgages
and Techdyne's line of credit, all of which are tied to the prime interest rate.
The prime rate was 8.5% at December 31,1995 and 1994, respectively.
22
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $13,844,000 at December 31, 1996, an increase of
$6,810,000 over the prior year. The increase reflects net proceeds of DCA's
public offering of approximately $3,445,000 and proceeds from sales of Viragen
stock of approximately $2,584,000. Also included were an increase of $344,000 in
the net of tax valuation of marketable securities pursuant to Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities and 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
$5,829,000 in cash and cash equivalents, which included net cash used in
operating activities of $23,000, net cash provided by investing activities of
$2,317,000 (including proceeds of $2,584,000 from the sale of Viragen stock,
$374,000 in payments received on the Viragen note receivable, and additions to
property plant and equipment of $798,000) and net cash provided by financing
activities of $3,393,000 (including proceeds from DCA's securities offering of
approximately $3,445,000 and from the bank refinancing of $181,000 and
repayments on long-term debt of $271,000).
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, secured by Techdyne's accounts receivable, inventory, furniture,
fixtures and intangible assets. There were no amounts outstanding under this
line of credit at December 31, 1996 and no amounts have been drawn down on this
line. A $712,500 term loan which had a balance of $691,000 at December 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 $167,000 at December 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 subordinated
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 the selling price would be used to
repay the $712,500 term loan facility. See Note 3 to "Notes to Consolidated
Financial Statements". The Company was in default of certain financial reporting
requirements regarding these loans as of December 31, 1996 for which the bank
has granted waivers as of December 31, 1996 and through December 31, 1997.
Techdyne has outstanding borrowings of $145,000 from a local bank with
interest payable monthly and the notes maturing April, 1997. In October 1994,
the Company obtained a replacement mortgage of $230,000 to refinance the first
and second mortgages on a building it leases 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
$82,000 and $95,000 at December 31, 1996 and December 31, 1995, respectively.
Techdyne (Scotland) has a line of credit with a Scottish bank, with a U.S.
dollar equivalency of approximately $342,000 at December 31, 1996 and had an
option for additional funding which provided a total line of $620,000 at
December 31,1995. The line of credit is secured by the assets of Techdyne
(Scotland) and guaranteed by Techdyne. This line of credit operates as an
overdraft
23
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES -- Continued
facility. No amounts were outstanding under this line of credit as of December
31, 1996 or December 31, 1995. In October, 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 $622,000
and $591,000 at December 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 $504,000 and $576,000 at December 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, 1996. The lender has waived compliance with these covenants as of
December 31, 1996 and through December 31, 1997.
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.
The Company has an equipment purchase agreement for kidney dialysis
machines for its Florida and Pennsylvania dialysis facilities which had a
remaining principal balance of $272,000 and $185,000 at December 31, 1996 and
December 31, 1995, respectively, which reflected an increase due to a financed
equipment purchase for the Company's Florida dialysis center in 1996. See Note 3
to "Notes to Consolidated Financial Statements".
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 September 1, 1993 in the amount of $429,400,
which was 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. Viragen repaid the
remaining balance in August 1996 which had been offset by an allowance for
amounts previously written off as uncorrectable. The Company recognized a gain
of $228,000, included in other income, as a result of collecting the previously
reserved note balance. Interest was at prime plus 1%. Interest earned under the
note amounted to $14,000 for 1996 and $40,000 for the preceding year. See Note 3
to "Notes to Consolidated Financial Statements".
During 1996, the Company sold 682,000 shares of Viragen stock realizing a
gain and cash proceeds of $2,583,000. 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 December 31, 1996
have been recorded at an estimated fair value of $1,406,000 with the unrealized
gain, net of income tax effect, credited to a separate component of
stockholder's equity.
24
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES -- Continued
Techdyne completed a public offering 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. 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 $2,998,000 including accrued interest at December 31, 1996 with
$350,000 of the note having been converted into 200,000 shares of Techdyne
common stock in June 1996. As a result of the offering, the Company's ownership
in Techdyne decreased from 83.1% to 62.5% and was 63.5% at December 31, 1996. In
connection with the Techdyne offering, in the fourth quarter of 1995, the
Company 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. See
Note 8 to "Notes to Consolidated Financial Statements".
Techdyne is seeking to expand its operations possibly through suitable
acquisitions of companies in similar businesses. No assurance can be given that
its present funding, including the proceeds from its securities offering would
be sufficient to finance such acquisitions or that sufficient outside financing
would be available to fund such expansion.
Techdyne anticipates the future establishment of satellite facilities, one
of which is presently under consideration for the Northwestern United States,
such facilities requiring approximately $300,000 for leasehold improvements,
equipment and furniture and fixtures. Most of these costs will be provided from
the proceeds of Techdyne's 1995 security offering which, together with
Techdyne's refinanced credit facilities, should be adequate for these
expenditures required over the next 12 months.
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 ownership interest in DCA 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. In the second quarter of 1996, DCA completed a
public offering realizing net proceeds of approximately $3,445,000. In
connection with the DCA offering, in the second quarter of 1996, the Company
recognized a gain of approximately $1,521,000, with applicable income taxes of
$578,000, which resulted in a net gain of approximately $943,000. As a result of
the offering, the Company's ownership in DCA decreased from 99.1% to 67.2%. See
Note 8 to "Notes to Consolidated Financial Statements".
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 to finance expansion or that sufficient outside
financing would be available to fund expansion.
25
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES -- Continued
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.
Given its current level of working capital and Techdyne's refinanced bank
loan, management believes current levels of working capital are adequate to
successfully meet liquidity demands for at least the next twelve months.
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 voluntary
increased to keep pace with increases in nursing and other patient care costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on directors of the Company is included under the caption
"Election of Directors" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on June 11, 1997, which is hereby
incorporated by reference.
The executive officers of the Company are elected each year by
the Board of Directors at its first meeting following the Annual Meeting of
Shareholders to serve during the ensuing year and until their respective
successors are elected and qualified. There are no family relationships between
any of the executive officers of the Company. The following information
indicates the position and age of the executive officers at March 12, 1997, and
their business experience during the prior five years.
26
<PAGE> 30
<TABLE>
<CAPTION>
Position
Current Position and Held
Name Age Areas of Responsibility Since
- ---- --- ----------------------- --------
<S> <C> <C> <C>
Thomas K. Langbein 51 Chairman of the Board 1980
of Directors, Chief
Executive Officer and
President
Seymour Friend 76 Vice President and 1981
Director 1975
Daniel R. Ouzts 50 Vice President (Finance) 1986
and Controller 1983
</TABLE>
Thomas K. Langbein was appointed as Chairman of the Board of Directors,
Chief Executive Officer and President in 1980, which latter position was
relinquished in January, 1983 and reassumed in April, 1985 upon completion of
Techdyne's public offering. Mr. Langbein is an officer and director of most of
the Company's subsidiaries and was appointed President and Chief Executive
Officer of Techdyne in April, 1990. Barry Pardon succeeded to the Presidency of
Techdyne in November, 1991 at which time Mr. Langbein reassumed the position of
Chairman of the Board. He has been a director of Techdyne since it was acquired
by the Company in 1982. He is also a director of Techdyne's foreign subsidiary,
Techdyne (Scotland). Mr. Langbein is Chairman of the Board and Chief Executive
Officer of DCA. He also held those positions with Viragen, Inc. ("Viragen"), a
public company and former subsidiary of the Company, until his resignation in
April, 1993. Mr. Langbein is President, sole shareholder and director of Todd &
Company, Inc. ("Todd") a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. Mr. Langbein devotes most of his time to the affairs of the
Company, Techdyne and DCA. See "Executive Compensation" and "Certain
Relationships and Related Transactions" of the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 11,
1997, which is incorporated herein by reference.
Seymour Friend is a real estate investor and devotes a portion of his time
to the affairs of the Company. He resigned as a director of Viragen in May,
1993. See "Certain Relationships and Related Transactions" of the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on June 11, 1997, which is incorporated herein by reference.
Daniel R. Ouzts, a certified public accountant, joined the Company in 1980
as Controller of its plasma division. In 1983 he became Controller of the
Company and DCA, and in 1986 became Vice-President of Finance. Mr. Ouzts also
serves as Vice President of Finance and Controller for Techdyne since 1986. In
June, 1996, Mr. Ouzts was appointed Vice President of Finance and Treasurer of
DCA. See "Certain Relationships and Related Transactions" of the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on June 11, 1997, which is incorporated herein by reference.
27
<PAGE> 31
OTHER SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
Position
Current Position and Held
Name Age Areas of Responsibility Since
- ---- --- ----------------------- --------
<S> <C> <C> <C>
Barry Pardon 45 President and 1991
Director of Techdyne 1990
</TABLE>
Barry Pardon joined Techdyne in November, 1980 as national sales manager
and initiated the independent manufacturer representatives sales force. Mr.
Pardon became Vice President of Marketing of Techdyne in 1981, was appointed
Executive Vice President (Marketing) in January, 1988, and appointed President
in November, 1991. Mr. Pardon is a director of Techdyne (Scotland).
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation is included under the caption
"Executive Compensation" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on June 11, 1997, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on beneficial ownership of the Company's voting securities by
each director and all officers and directors as a group, and for each of the
named executive officers disclosed in the Summary Compensation Table (see
"Executive Compensation" of the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders which is incorporated herein by reference),
and by any person known to beneficially own more than 5% of any class of voting
security of the Company, is included under the caption "Beneficial Ownership of
the Company's Securities" of the Company's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on June 11, 1997, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions is included
under the caption "Certain Relationships and Related Transactions" of the
Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on June 11, 1997, which is incorporated herein by
reference.
28
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of documents filed as part of this report.
1. All financial statements
See Index to Consolidated Financial Statements
2. Financial statement schedules
See Index to Consolidated Financial Statements
3. Exhibits
(3) Articles of Incorporation, as amended and By-Laws, as amended
(incorporated by reference to the Company's Annual Report on Form
10-K for the Year Ended December 31, 1980, Part IV, Item 11, (a)
3 (3)); and new Article XXV of the By-Laws.
(4) Instruments defining the rights of security holders, including
indentures.
(i) 1989 Stock Option Plan (incorporated by reference to the
Company's current report on Form 8-K dated July 10, 1989
("July 1989 Form 8-K"), Item 7(c)(ii)).
(ii) Form of Stock Option Agreement issued pursuant to the 1989
Stock Option Plan (incorporated by reference to the
Company's July 1989 Form 8-K, Item 7(c)(iii)).
(iii) Form of Additional Non-Qualified Stock Option Agreement
issuable under the Stock Option Agreement (incorporated by
reference to the Company's July 1989 Form 8-K, Item
7(c)(iv)).
(10) Material contracts.
(i) Employment Agreement between the Company and Thomas K.
Langbein dated May, 1994, (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 ("1994 Form 10-K"), Part IV, Item 14(a)
3(10)(i)).
(ii) Lease between the Company and Heights Plaza Associates,
dated April 30, 1981 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1981, Part IV, Item 11 (a)(3)(xv)).
(iii) Amendment to lease between the Company and Heights Plaza
Associates, dated October 28, 1985 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1985, Part IV, Item 14 (a) 3
(10) (ix)).
(iv) Amendment to Lease between the Company and Heights Plaza
Associates, dated April 11, 1988 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 ("1990 Form 10-K"), Part IV,
Item 14(a) 3 (10) (iv)).
(v) Amendment to Lease between the Company and Heights Plaza
Associates dated March 18, 1991 (incorporated by reference
to the 1990 Form 10-K, Part IV, Item 14(a) 3 (10) (v)).
29
<PAGE> 33
(vi) Lease Agreement between the Company and Techdyne, Inc. (1)
dated July 17, 1990 (incorporated by reference to Techdyne
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1991, Part IV, Item 14(a) 3 (10) (vii)).
(vii) Royalty Agreement between the Company and Viragen, Inc. (2)
dated November 7, 1986 (incorporated by reference to the
Company's Current Report on Form 8-K, December, 1986, Item 7
(c)(iv)).
(viii) Amended Royalty Agreement between the Company and Viragen,
Inc. (2) dated November 21, 1989 (incorporated by reference
to the Company's Current Report on Form 8-K dated December
6, 1989, Item 7(c)(i)).
(ix) Employment Agreement between Techdyne (Scotland) Limited(3)
and John Clark Grieve dated March 11, 1988 (incorporated by
reference to Techdyne's Annual Report on Form 10-K for the
year ended December 31, 1987, Part IV, Item 14(a)(10)(x)).
(x) Guarantee of Techdyne (Scotland) Limited(3) Line of Credit
with The Royal Bank of Scotland Plc dated March 3, 1989
(incorporated by reference to the Techdyne Annual Report on
Form 10-K for the Year Ended December 31, 1988 ("1988 Form
10-K"), Part IV, Item 14(a) (10)(vii)).
(xi) Loan Agreement between Dialysis Corporation of America(4)
and Mercantile-Safe Deposit and Trust Company dated November
30, 1988 (incorporated by reference to the 1988 Form 10-K,
Part IV, Item 14(a) (10)(xxx)).
(xii) Medical Director's Agreement between Dialysis Services of
Florida, Inc. - Fort Walton Beach (5) and Henry M. Haire,
M.D., P.A. dated December 19, 1988 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989 ("1989 Form 10-K"), Part
IV, Item 14(a) 3(10)(xxi)).
(xiii) Renewal of Medical Director's Agreement between Dialysis
Services of Florida, Inc. - Fort Walton Beach (5) and Henry
M. Haire, M.D., P.A. dated August 1, 1994[*](incorporated by
reference to the Company's 1994 Form 10-K, Part IV, Item
14(a) 3(10)(xiv)).
(xiv) Lease between Premier Development of Orlando, Inc. and
Dialysis Services of Florida, Inc. - Fort Walton Beach (5),
with Rider and Guarantee of Dialysis Corporation of
America(4) dated May 24, 1989 (incorporated by reference to
the Company's 1989 Form 10-K, Part IV, Item 14(a)(xxii)).
(xv) Addendum No. 1 to Lease between Premier Development of
Orlando, Inc. and Dialysis Services of Florida, Inc. - Fort
Walton Beach (5) dated August, 1991 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 ("1993 Form 10-K"), Part
IV, Item 14(a) 3(10) (xvi)).
(xvi) Lease Renewal between JACO, L.C. and Dialysis Services of
Florida, Inc. - Fort Walton Beach(5) dated November 29, 1993
(incorporated by reference to the Company's 1993 From 10-K,
Part IV, Item 14(a) 3(10) (xvii)).
[*] Confidential portions omitted, have been filed separately
with the Securities and Exchange Commission.
30
<PAGE> 34
(xvii) Agreement to Sell Real Property between the Company and
Techdyne, Inc.(1) dated March 27, 1990 (incorporated by
reference to Techdyne's Annual Report on Form 10-K for the
year ended December 31, 1989, Part IV, Item 14(a) 3(10)(x)).
(xviii) Lease Agreement between Techdyne (Houston), Inc. (6)
and George Wimpey of Texas, Inc. dated July 30, 1991
(incorporated by reference to Techdyne's 1991 Form 10-K,
Part IV, Item 14 (a) 3 (10) (viii)).
(xix) Assignment and Assumption Agreement between Techdyne
(Houston), Inc. (6), the Company and George Wimpey of Texas,
Inc. dated February 28, 1992 (incorporated by reference to
Techdyne's Annual Report on Form 10-K for the year ended
December 31, 1991 ("Techdyne 1991 Form 10-K"), Part IV, Item
14 (a) 3 (10) (ix)).
(xx) Lease Agreement between Techdyne, Inc.(1) and George Wimpey
of Texas, Inc. dated February 4, 1994 (incorporated by
reference to the Company's 1993 Form 10-K, Part IV, Item
14(a) 3(10) (xxxiv)).
(xxi) Lease between the Company and Viragen, Inc.(2) dated
December 8, 1992 (incorporated by reference to the Company's
current report on Form 8-K dated January 21, 1993 ("January,
1993 Form 8-K"), Item 7(c)(i)).
(xxii) Addendum to Lease between the Company and Viragen, Inc.(2)
dated January 15, 1993 (incorporated by reference to the
Company's current report on Form 8-K dated January 21, 1993
("January, 1993 Form 8-K"), Item 7(c)(ii)).
(xxiii) First Amendment to Lease between Dialysis Corporation of
America(4) and Renal Treatment Centers - Maryland, Inc.
dated November 16, 1992 (incorporated by reference to the
Company's January, 1993 Form 8-K, Item 7(c)(xii)).
(xxiv) Lease Agreement between the Company and Brett D. Anderson
and Suzanne M. Anderson dated November 17, 1992
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, Part IV,
Item 14 (a) (10) (lvi)).
(xxv) Mortgage between Techdyne (Scotland) Limited(3) and The
Royal Bank of Scotland dated August 8, 1994 (incorporated by
reference to the Company's June, 1994 Form 10-Q, Part II,
Item 6 (a) (28) (vi)).
(xxvi) Agreement ("Missives") between Techdyne (Scotland) Limited
(3) and Livingston Development Corporation regarding
Purchase by Techdyne (Scotland) Limited(3) of Its Facility
dated June 15, 1994 (incorporated by reference to the
Company's June, 1994 Form 10-Q, Part II, Item 6 (a) (28)
(vii)).
(xxvii) Medical Directors Agreement between Dialysis Services of
Pennsylvania, Inc. - Wellsboro (7) and George Dy, M.D. dated
September 29, 1994 [*] (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 as amended January, 1995
("September, 1994 Form 10-Q"), Part II, Item 6 (a) (10)
(I)).
(xxviii) Agreement for In-Hospital Dialysis Services between
Dialysis Services of Pennsylvania, Inc. - Wellsboro (7) and
Soldiers & Sailors Memorial Hospital dated September 28,
1994 [*] (incorporated by reference to the Company's
September, 1994 Form 10-Q, Part II, Item 6 (a) (10) (ii)).
[*] Confidential portions omitted have been filed separately
with the Securities and Exchange Commission.
31
<PAGE> 35
(xxix) Form of Promissory Note executed by all optionees to the
Company dated September 12, 1994 ** (incorporated by
reference to the Company's Current Report on Form 8-K dated
October 13, 1994 ("October, 1994 Form 8-K"), Item 7 (c) (99)
(i)).
(xxx) Form of Escrow Agreement executed by all optionees with the
Company and the Escrow Agent dated September, 1994 ***
(incorporated by reference to the Company's October, 1994
Form 8-K, Item 7 (c) (99) (ii)).
(xxxi) Consulting Agreement between the Company and Performance
Capital Corporation dated September 30, 1994 (incorporated
by reference to the Company's October, 1994 Form 8-K, Item 7
(c) (99) (iii)).
(xxxii) Stock Option Agreement between the Company and
Performance Capital Corporation dated September 26, 1996.
(xxxiii) Stock option Agreement between the Company and Joseph
Dillon & Company, Inc. dated September 26, 1996.
(xxxiv) Medical Directors Agreement between Dialysis Services of
Pennsylvania, Inc. - Lemoyne (7) and Herbert I. Soller, M.D.
dated January 30, 1995 [*](incorporated by reference to the
Company's 1994 Form 10-K, Part IV, Item 14(a) 3(10)(ix)).
(xxxv) Lease Agreement between Dialysis Services of Pennsylvania,
Inc. - Wellsboro(7) and James and Roger Stager dated January
15, 1995 (incorporated by reference to the Company's 1994
Form 10-K, Part IV, Item 14(a) 3(10)(lxii)).
(xxxvi) Form of Exclusive Sales Representative Agreement between
Techdyne, Inc. (1) and sales representative ****
(incorporated by reference to the Company's 1994 Form 10-K,
Part IV, Item 14(a) 3(10)(lxiv)).
(xxxvii) 1994 Stock Option Plan of Techdyne, Inc. (1)
(incorporated by reference to the Company's 1994 Form 10-K,
Part IV, Item 14(a) 3(10)(lxv)).
(xxxviii) Form of Stock Option Certificate issued under 1994
Stock Option Plan of Techdyne, Inc. (1) (incorporated by
reference to the Company's 1994 Form 10-K, Part IV, 14(a)
3(10)(lxvi)).
(xxxix) Form of Stock Option Agreement dated February 17, 1995
issued to directors of Techdyne, Inc. (1) *****
(incorporated by reference to the Company's 1994 Form 10-K,
Part IV, Item 14(a) 3(10)(lxvii)).
(xl) Lease Agreement between Dialysis Corporation of America (4)
and Service All Group, Inc. and Terry Sheppard dated March
24, 1995 (incorporated by reference to the Company's Form
10-K, Part IV, Item 14(a) 3(10)(lxviii)).
(xli) Tenant Subordination Agreement by J.A. Hunt Services, Inc.,
dated February, 1997.
[*] Confidential portions omitted, have been filed separately
with the Securities and Exchange Commission.
32
<PAGE> 36
(xlii) Lease Purchase Agreement between the Dialysis Corporation
of America (5) and B. Braun Medical, Inc. dated November 22,
1996 (incorporated by reference to the Dialysis Corporation
of America's Annual report on Form 10-K for the Year Ended
December 31, 1996, Part IV, Item 14 (a) 3(10)(xxviii)).
(xliii) Employment Agreement between All American Medical &
Surgical Supply Corp.(8) and Lou Ghelli dated October 26,
1995 (incorporated by reference to the Company's 1995 Form
10-Q, Part II, Item 6(a)(10)(iii)).
(xliv) Loan and Security Agreement between Techdyne, Inc.(1) and
Barnett Bank of South Florida, N.A. ("Barnett Bank") for
$2,000,000 dated February 8, 1996 (incorporated by reference
to Techdyne, Inc.'s Current Report on Form 8-K, dated
February 23, 1996 ("Techdyne February 1996 Form 8-K), Item
7(c)(99)(i)).
(xlv) Revolving Demand Promissory Note for $2,000,000 from
Techdyne, Inc.(1) to Barnett Bank dated February 8, 1996
(incorporated by reference to Techdyne February 1996 Form
8-K, Item 7(c)(99)(ii)).
(xlvi) Unconditional and Continuing Guaranty of Payment and
Performance by the Company in favor of Barnett Bank dated
February 8, 1996 (incorporated by reference to Techdyne
February 1996 Form 8-K, Item 7(c)(99)(iii)).
(xlvii) Subordination Agreement among Barnett Bank, the Company
and Techdyne, Inc.(1) dated February 8, 1996 (incorporated
by reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(iv)).
(xlviii) Loan Agreement for $712,500 between Techdyne, Inc.(1)
and Barnett Bank dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(v)).
(xlvix) Promissory Note for $712,500 from Techdyne, Inc.(1) to
Barnett Bank, dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(vi)).
(l) Mortgage and Security Agreement between the Company and
Barnett Bank dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(vii)).
(li) Assignment of Leases, Rents and Profits by the Company in
favor of Barnett Bank dated February 8, 1996 (incorporated
by reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(viii)).
(lii) Promissory Note for $200,000 from Techdyne, Inc.(1) to
Barnett Bank dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(ix)).
(liii) Security Agreement between Techdyne, Inc.(1) and Barnett
Bank dated February 8, 1996 (incorporated by reference to
Techdyne February 1996 Form 8-K, Item 7(c)(99)(x)).
33
<PAGE> 37
(liv) Lease between All American Medical & Surgical Supply
Corp.(8) and Bart Castellano dated November 1, 1995
(incorporated by reference to the Company's Annual report on
Form 10-K for the year ended December 31, 1995 ("1995 Form
10-K"), Part IV, Item 14(a) 3(10)(lxi).
(lv) Lease between Dialysis Corporation of America(4) and
Dialysis Services of Pennsylvania, Inc. - Lemoyne(7) dated
November 30, 1995 (incorporated by reference to the
Company's1995 Form 10-K, Part IV, Item 14(a) 3(10)(lxii).
(lvi) 1995 Stock Option Plan of Dialysis Corporation of
America(4) (incorporated by reference to the Company's1995
Form 10-K, Part IV, Item 14(a) 3(10)(lxiii).
(lvii) Form of Stock Option Certificate dated November 10, 1995
issued under 1995 Stock Option Plan of Dialysis Corporation
of America(4) (incorporated by reference to the
Company's1995 Form 10-K, Part IV, Item 14(a) 3(10)(lxiv).
(lviii) Employment Agreement between Techdyne, Inc.(1) and Barry
Pardon dated March 13, 1996(incorporated by reference to
Techdyne, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995, Part IV, Item 13 (a) 2 (10)(viii)).
(lvix) Service Agreement between the Company and Techdyne Inc.,
dated October 25, 1996 (incorporated by reference to
Techdyne's Registration Statement on Form S-3, effective
December 11, 1996, Part II, Item 16, Exhibit 10(a)).
(11) Statement re computation of per share earnings.
(21) Subsidiaries of the registrant.
None
- ----------
(1) 63% owned subsidiary.
(2) Former public subsidiary of the Company; spun-off in 1986.
(3) 100% owned subsidiary of Techdyne, Inc.
(4) 67% owned subsidiary.
(5) 80% owned subsidiary of Dialysis Corporation of America.
(6) Dissolved subsidiary of Techdyne, Inc.
(7) 100% owned subsidiary of Dialysis Corporation of America.
(8) 95% owned subsidiary of the Company.
** All (10) optionees executed their options and executed the same promissory
note except as to amounts due.
*** All (10) optionees entered into the same escrow agreement except as to the
amounts of shares escrowed.
**** There are five such Agreements, all the same but for the territory
assigned.
***** Option to directors is the same except as to amount of underlying shares
purchasable.
34
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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/ THOMAS K. LANGBEIN
--------------------------------
THOMAS K. LANGBEIN, Chairman
of the Board of Directors, Chief
Executive Officer and President
March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ THOMAS K. LANGBEIN Chairman of the Board March 24, 1997
- --------------------------- of Directors, Chief
Thomas K. Langbein Executive Officer and President
/s/ SEYMOUR FRIEND Vice President and Director March 24, 1997
- ---------------------------
Seymour Friend
/s/ DANIEL R. OUZTS Vice-President, Principal Financial
- --------------------------- Officer and Controller March 24, 1997
Daniel R. Ouzts
/s/ PETER D. FISCHBEIN Director March 24, 1997
- ---------------------------
Peter D. Fischbein
/s/ ANTHONY C. D'AMORE Director March 24, 1997
- ---------------------------
Anthony C. D'Amore
</TABLE>
35
<PAGE> 39
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND SUPPLEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
MEDICORE, INC.
HIALEAH, FLORIDA
<PAGE> 40
FORM 10-K--ITEM 14(a)(1) and (2)
MEDICORE, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Medicore, Inc. and
subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets--December 31, 1996 and 1995 ............................................ F-3
Consolidated Statements of Income--Years ended December 31, 1996, 1995, and 1994 ................... F-4
Consolidated Statements of Stockholders' Equity--Years ended December 31, 1996, 1995 and 1994 ...... F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995, and 1994 ............... F-6
Notes to Consolidated Financial Statements--December 31, 1996 ...................................... F-7
</TABLE>
The following financial statement schedule of Medicore, Inc. and subsidiaries is
included in Item 14(d):
Schedule II-Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-1
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SHAREHOLDERS AND BOARD OF DIRECTORS
MEDICORE, INC.
We have audited the accompanying consolidated balance sheets of Medicore, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
Financial Statement Schedule listed in the index at item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Medicore, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
changed its method of accounting for marketable securities in 1994.
ERNST & YOUNG LLP
March 21, 1997
Miami, Florida
F-2
<PAGE> 42
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,665,826 $ 4,836,512
Marketable securities 1,405,579 855,351
Short-term investments 129,472 188,954
Accounts receivable, less allowances of
$385,000 in 1996 and $244,000 in 1995 3,711,600 3,853,913
Inventories, less allowance for obsolescence
of $169,000 in 1996 and $319,000 in 1995 3,637,556 3,872,912
Current portion of note receivable from Viragen, Inc. 146,245
Prepaid expenses and other current assets 589,502 745,192
------------ ------------
Total Current Assets 20,139,535 14,499,079
PROPERTY AND EQUIPMENT
Land and improvements 1,024,455 1,005,255
Building and building improvements 2,986,126 2,814,785
Equipment and furniture 6,364,188 5,300,487
Leasehold improvements 392,607 367,743
------------ ------------
10,767,376 9,488,270
Less accumulated depreciation and amortization 4,728,167 3,880,549
------------ ------------
6,039,209 5,607,721
DEFERRED EXPENSES AND OTHER ASSETS 204,361 393,943
COSTS IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED,
less accumulated amortization of $356,000 in 1996
and $311,290 in 1995 701,747 746,411
------------ ------------
$ 27,084,852 $ 21,247,154
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,726,817 $ 3,532,971
Accrued expenses and other current liabilities 1,412,623 1,692,985
Current portion of long-term debt 832,851 1,434,000
Income taxes payable 788,976 480,481
Deferred income taxes 534,120 325,033
------------ ------------
Total Current Liabilities 6,295,387 7,465,470
LONG-TERM DEBT 1,677,367 963,980
DEFERRED INCOME TAXES 2,155,603 1,564,757
MINORITY INTEREST IN SUBSIDIARIES 3,935,037 1,498,508
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized
12,000,000 shares; issued and outstanding
5,456,940 shares in 1996 and 5,454,940 shares
in 1995 54,569 54,549
Capital in excess of par value 11,493,255 11,540,953
Retained earnings (deficit) 609,546 (1,807,723)
Foreign currency translation adjustment (7,371) (237,258)
Notes receivable from options exercise (326,400)
Unrealized gain on marketable securities for sales 871,459 530,318
------------ ------------
Total Stockholders' Equity 13,021,458 9,754,439
------------ ------------
$ 27,084,852 $ 21,247,154
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 43
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES
Sales $29,680,520 $34,140,573 $23,730,189
Gain on securities offering of subsidiaries 1,521,127 2,002,277
Realized gain on sale of marketable securities 2,583,500 182,670 524,228
Other income 934,259 334,560 297,276
----------- ----------- -----------
34,719,406 36,660,080 24,551,693
COST AND EXPENSES
Cost of goods sold 24,247,403 28,072,444 19,108,768
Selling, general and administrative expense 6,211,485 4,748,113 4,063,359
Interest expense 217,615 246,393 207,703
----------- ----------- -----------
30,676,503 33,066,950 23,379,830
----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 4,042,903 3,593,130 1,171,863
Income tax provision 1,350,746 1,295,626 301,326
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 2,692,157 2,297,504 870,537
Minority interest in income of consolidated subsidiaries 274,888 46,233 6,429
----------- ----------- -----------
NET INCOME $ 2,417,269 $ 2,251,271 $ 864,108
=========== =========== ===========
Earnings per share:
Primary $ .40 $ .38 $ .16
=========== =========== ===========
Fully diluted $ .39
===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 44
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Capital in Retained Foreign Notes Gain on
Common Excess of Earnings Currency Receivable Treasury Marketable
Stock Par Value (Deficit) Translation Options Stock Securities Total
------ --------- ---------- ----------- ---------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 48,466 $11,402,675 $(4,923,102) $(306,189) $(340,838) $5,881,012
Cancellation of 281,700 shares
of common stock held
in treasury (2,817) (338,021) 340,838
Issuance of 410,000 shares
of common stock as
compensation 4,100 149,650 153,750
Exercise of stock options
for 480,000 shares
of common stock 4,800 326,400 $(326,400) 4,800
Foreign currency
translation adjustment 78,444 78,444
Valuation of marketable
securities for sale
(1,123,568 shares Viragen) $1,044,918 1,044,918
Net income 864,108 864,108
---------- ----------- ---------- --------- --------- --------- --------- -----------
Balance at December 31, 1994 54,549 11,540,704 $(4,058,994) (227,745) (326,400) 1,044,918 8,027,032
Exercise of subsidiary
stock options 249 249
Foreign currency translation
adjustments (9,513) (9,513)
Sale of 172,500 shares of
Viragen (160,425) (160,425)
Net decrease in valuation of
remaining Viragen Shares (354,175) (354,175)
Net income 2,251,271 2,251,271
---------- ----------- ---------- --------- --------- --------- --------- -----------
Balance at December 31, 1995 54,549 11,540,953 $(1,807,723) (237,258) (326,400) 530,318 9,754,439
Issuance of 2,000 shares of
common stock as compensation 20 5,540 5,560
Forgiveness of stock option
notes June 1996 326,400 326,400
Exercise of subsidiary stock
options (3,652) (3,652)
Conversion of portion of
Techdyne note (49,586) (49,586)
Foreign currency translation
adjustments 229,887 229,887
Net increase in valuation of
remaining Viragen shares 341,141 341,141
Net income 2,417,269 2,417,269
---------- ----------- ---------- --------- --------- --------- --------- -----------
Balance December 31. 1996 $ 54,569 $11,493,255 $ 609,546 $ (7,371) $ 0 $ 0 $ 871,459 $13,021,458
========== =========== ========== ========= ========= ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 45
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,417,269 $ 2,251,271 $ 864,108
Adjustments to reconcile net
income to net cash (used in) provided
by operating activities:
Depreciation 657,640 542,702 457,711
Amortization 79,329 69,980 103,259
Bad debt expense (net recovery) 275,408 136,221 34,937
Gain on Viragen note collection (227,703)
Provision for inventory
obsolescence 91,913 294,860 282,000
Stock compensation expense 5,560 153,750
Gain on sale of securities (2,583,500) (182,671) (524,228)
Minority interest 274,888 46,233 6,429
Forgiveness of option notes
and accrued interest 344,871
Deferred income taxes 581,266 777,680 26,755
Gain on subsidiary stock offering (1,521,127) (2,002,277)
Increase (decrease) relating
to operating activities from:
Accounts receivable (63,409) (474,008) (1,262,338)
Inventories 320,742 (1,276,376) (1,161,939)
Prepaid expenses and
other current assets 160,999 (373,819) (33,193)
Accounts payable (867,608) 1,246,694 753,277
Accrued expenses and other
current liabilities (249,504) 510,124 482,164
Income taxes payable 279,708 210,398 238,034
Other (1,101)
------------ ------------ ------------
Net cash (used in) provided by
operating activities (23,258) 1,777,012 419,625
INVESTING ACTIVITIES
Additions to property and equipment,
net of minor disposals (797,968) (1,283,597) (414,419)
Payments received on note receivable
from Viragen, Inc. 373,948 21,470 26,837
Proceeds from short-term investments 285,146 272,737 266,885
Short-term investments (225,664) (280,461) (269,623)
Proceeds from sale of securities 2,583,500 217,717 689,747
Deferred expenses and other assets 98,041 (149,417) 20,774
Purchase portion of minority interest
in subsidiary (15,250)
------------ ------------ ------------
Net cash provided
by (used in) investing
activities 2,317,003 (1,216,801) 320,201
FINANCING ACTIVITIES
Net proceeds from subsidiary
stock offering 3,445,158 3,320,784
Proceeds from long-term borrowings 181,476
Payments on long-term borrowings (270,945) (433,673) (366,786)
Proceeds from exercise of stock
options 59,700 400 4,800
Dividend payment to minority
shareholders (7,467) (28,842) (5,000)
Deferred financing costs (14,438) (11,944) (35,920)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 3,393,484 2,846,725 (402,906)
Effect of exchange rate fluctuations
on cash 142,085 (20,684) 10,553
------------ ------------ ------------
Increase in cash and cash
equivalents 5,829,314 3,386,252 347,473
Cash and cash equivalents at beginning
of year 4,836,512 1,450,260 1,102,787
------------ ------------ ------------
Cash and cash equivalents at end of
year $ 10,665,826 $ 4,836,512 $ 1,450,260
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 46
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION: The Consolidated Financial Statements include the
accounts of Medicore, Inc., Medicore's 67.2% owned subsidiary, Dialysis
Corporation of America ("DCA") and Medicore's 63.5% owned subsidiary, Techdyne,
Inc. ("Techdyne") (including its wholly-owned subsidiary Techdyne (Scotland)
Limited ("Techdyne Scotland")), and Techdyne (Livingston) Limited which is a
subsidiary of 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
8.
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>
December 31, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Electronic and mechanical components, net:
Finished goods $ 486,863 $ 617,851
Work in process 478,481 692,964
Raw materials and supplies 2,083,990 2,202,381
---------- ----------
3,049,334 3,513,196
Medical supplies 588,222 359,716
---------- ----------
$3,637,556 $3,872,912
========== ==========
</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. Effective January 1, 1996, the Company adopted the
provisions of the Financial Accounting Standards Board statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets
held for disposal. The adoption of the provisions of FAS 121 had no material
effect on the results of operations, financial conditions, or cash flows of the
Company. The company, based on current circumstances, does not believe any
indicators of impairment are present.
F-7
<PAGE> 47
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
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 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 until October 2, 1995, the date Techdyne's securities offering was
completed, after which Techdyne files separate income tax returns with its
income tax liability reflected on a separate return basis. DCA has been
included in the consolidated tax returns of the Company until the completion of
its public offering in April 1996 (see Note 8). It will file separate
income tax returns with its income tax liability reflected on a separate
return basis.
STOCK BASED COMPENSATION: The Company follows Accounting Principals
Board opinion No. 25 "Accounting for Stock Issued to Employees" (APB25) and
related Interpretations in accounting for its employee stock options. Financial
Accounting Standards Board statement no. 123 (FAS 123), "Accounting for Stock-
Based Compensation" permits a company to elect to follow the accounting
provision of APB 25 rather than the alternative fair value accounting provided
under FAS 123 but requires pro forma net income and earnings per share disclos-
ures as well as various other disclosures not required under APB 25 for compan-
ies following APB 25. See Note 5.
FOREIGN CURRENCY TRANSLATION: 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 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. The change in the exchange rate from $1.55 per U.K. Pound at December
31, 1995 to $1.71 per U.K. Pound at December 31, 1996 was reflected by a
favorable change in foreign currency translation adjustments of approximately
$230,000. The exchange rate had declined to $1.60 per U.K. Pound at March 19,
1997. 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.
F-8
<PAGE> 48
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
OTHER INCOME: Other income is comprised as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income $414,207 $160,470 $ 75,950
Gain on Viragen note recovery 227,703
Litigation settlement 139,645
Other 152,704 174,090 221,326
-------- -------- --------
$934,259 $334,560 $297,276
======== ======== ========
</TABLE>
EARNINGS PER SHARE: Primary earnings per share is computed on the basis
of the weighted average number of shares outstanding plus common equivalent
shares from dilutive stock options using the modified treasury stock method for
1996 and 1995 and the treasury stock method for 1994. Fully diluted per share
data has not been presented for 1995 and 1994 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 are 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 at
payment terms of net amount due in 30-45 days and do not require collateral.
RECLASSIFICATIONS: Certain reclassifications have been made to the 1995
and 1994 financial statements to conform to the 1996 presentation.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable and debt in the
accompanying financial statements approximate their fair value because of the
short-term maturity of these instruments, and in the case of debt because such
instruments bear variable interest rates which approximate market.
NOTE 2--TRANSACTIONS WITH VIRAGEN, INC.
The Company owns approximately 269,000 shares of Viragen (formerly a
majority-owned subsidiary of the Company) common stock as of December 31, 1996.
The carrying value of these securities was written off as of December 31, 1991.
During 1996, 1995 and 1994 the Company sold approximately 682,000 shares,
173,000 shares and 375,000 shares of Viragen stock and recognized gains of
approximately $2,584,000, $183,000 and $524,000, respectively.
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 Nasdaq stock market as of
December 31, 1996 and by The National Quotation Bureau, Inc. at December 31,
1995. The trading price of the Viragen stock has fluctuated significantly. The
closing bid price of Viragen common stock was $5.22 as of December 31, 1996. The
closing bid price was $2.91 as of March 20, 1997.
The Company had a second mortgage and related note due from Viragen.
Under the terms of this note, the receivable was payable in monthly installments
of $1,789, with a final payment of $361,412 due August 6, 1996. The note bore
interest at 1% over prime. The note balance included
F-9
<PAGE> 49
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 2--TRANSACTIONS WITH VIRAGEN, INC.--Continued
amounts due from Viragen that were previously written off by the Company. In
March, 1996, Viragen prepaid $165,000 on this note and paid off the remaining
principal and accrued interest in August 1996. As a result of Viragen repaying
amounts which had been offset by an allowance for amounts previously written off
as uncollectable, the Company recognized a gain of approximately $228,000 in
1996. Interest earned on the note amounted to $14,000, $40,000 and $29,000 for
1996, 1995 and 1994, respectively.
The Company has a royalty agreement with Viragen, pursuant to which it
is to receive 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. The
effective date of the agreement was November 15, 1994, with royalty payments due
quarterly, commencing March 31,1995. 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 $1,000, $27,000 and $38,000 for 1996, 1995 and 1994,
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 secured by the 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 line of credit at
December 31, 1996 and no amounts have been drawn down on this line as of that
date.
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 a monthly payment 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 approximately $691,000 at December 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 loan,
Techdyne is obligated to adhere to a variety of affirmative and negative
covenants.
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 a balance of approximately $167,000 at December 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 financing under the new term loans provided cash proceeds to
Techdyne of approximately $181,000 and included payment of the balance due under
Techdyne's previous term loan of $517,000 and payment of a mortgage of the
Parent, including accrued interest, on a building leased to Techdyne of $215,000
which represent non-cash financing activities which is a supplemental disclosure
required by FAS 95.
F-10
<PAGE> 50
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 3--LONG-TERM DEBT - Continued
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.
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
Term loan secured by real property with a carrying
value of $1,035,000 at December 31, 1996. Monthly
payments of principal and interest as described above $690,894
Term loan secured by tangible personal property,
goods and equipment with a carrying value of
approximately $3,120,000 at December 31, 1996
Monthly payments of principal and interest as
described above 166,764
Term loan secured by receivables, inventory and fixed
assets with a carrying value of approximately
$5,402,000 at December 31, 1996. Refinanced in
February 1996 as described above $549,508
Mortgage note secured by land and building with a net
book value of $941,000 at December 31, 1996
Quarterly payments of approximately $21,000
based on exchange rates at December 31, 1996 for
15 years commencing October, 1994 including interest
at 2% above bank base rate 622,214 590,824
Promissory note secured by three certificates of
deposit. Principal is due on April 21, 1997
with interest payable monthly at prime 145,000 145,000
Mortgage note secured by land and building with a net
book value of $420,000 at December 31, 1996. Monthly
principals payments of $3,333 plus interest at 1% over the
prime rate. The loan is redeemable at the bank's option after
November 30, 1993. 280,032 320,028
Mortgage note secured by land and building with a net book value
of $630,000 at December 31, 1996. Monthly principal payments of
$2,667 plus interest at 1% over the prime rate. The loan is
redeemable at the bank's option after November 30, 1993. 223,968 255,972
</TABLE>
F-11
<PAGE> 51
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 3--LONG-TERM DEBT - Continued
December 31,
-----------------
1996 1995
---- ----
Equipment purchase agreement secured by equipment
with a net book value of $360,000 at December 31,
1996 Monthly payments of $4,435 commencing September
1995, including principal and interest, through
June 2000 with additional monthly payments of
$2,750 commencing December 1996, including principal
and interest, through September 2001 Interest at 12% $ 271,586 $ 184,942
Mortgage note secured by land with a net book value of
$107,000 at December 31, 1996. Monthly principal
payments of $1,083 plus interest at 2% over the prime
rate. The entire unpaid principal balance and
accrued interest is due on April 1, 1998 82,334 95,334
Mortgage note secured by land and building with a net
book value of $484,000 at December 31, 1995. Monthly
principal payments of $1,065 plus interest at 2% over
the prime rate. Paid February 1996 as described above 212,951
Other 27,426 43,421
---------- ----------
2,510,218 2,397,980
Less current portion 832,851 1,434,000
---------- ----------
$1,677,367 $ 963,980
========== ==========
The prime rate was 8.25% as of December 31, 1996 and 8.5% as of
December 31, 1995.
Scheduled maturities of long-term debt outstanding at December 31, 1996
are: 1997 - $833,000; 1998 $244,000; 1999 - $177,000; 2000- $161,000; 2001-
$671,000; thereafter - $424,218. Interest payments on all of the above debt
amounted to $224,000, $246,000 and $176,000 in 1996, 1995, and 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. This
mortgage had a remaining balance of $212,951 at December 31, 1995 and was paid
in February 1996 through Techdyne's bank loan refinancing. These represent
noncash financing activities and is a supplemental disclosure required by SFAS
95.
F-12
<PAGE> 52
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 3--LONG-TERM DEBT - Continued
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 supplemental
disclosure required by SFAS 95. This mortgage had a remaining balance of
$622,000 at December 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 $342,000 at December 31,
1996 and had an option for additional funding which provided a total line of
$620,000 at December 31, 1995. This line of credit, is secured by assets of
Techdyne (Scotland) with a carrying value of approximately $5,786,000 at
December 31, 1996 and $6,602,000 at December 31, 1995, and is guaranteed by
Techdyne. No amounts were outstanding under this line of credit as of December
31, 1996 or December 31, 1995.
Other debt includes various capital lease and other financing
obligations. Such new financing obligations, net of down payments, amounted to
$134,000, $208,000 and $36,000 for 1996, 1995 and 1994, respectively, which
represents a noncash financing activity which is a supplemental disclosure
required by SFAS 95.
NOTE 4--INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards
of approximately $5 million that expire in years 2003 through 2010. These 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 began filing separate federal
and state income tax returns with its income tax liability reflected on a
separate return basis subsequent to that date.
F-13
<PAGE> 53
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
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:
NOTE 4--INCOME TAXES -- Continued
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 314,000 $ 338,644
Gain on sale of Techdyne and DCA stock 2,053,000 1,475,000
Unrealized gain on marketable
securities 534,120 325,033
Other 1,880 -0-
---------- -----------
Total deferred tax liabilities 2,903,000 2,138,677
Deferred tax assets:
Obsolescence and other reserves 125,000 120,000
Inventory capitalization 79,000 62,000
Accrued expenses and other 229,000 109,000
--------- -----------
433,000 291,000
Net operating loss carryforward 1,368,000 2,163,000
Valuation allowance (1,587,723) (2,205,113)
---------- -----------
Net deferred tax assets 213,277 248,887
---------- -----------
Net deferred tax liabilities $2,689,723 $ 1,889,790
========== ===========
</TABLE>
A deferred tax liability of $2,053,000 and $1,475,000 at December
31, 1996 and 1995, respectively, resulted from income tax expense recorded on
gains 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 and DCA at December 31, 1996 and the Company's investment
in Techdyne at December 31, 1996. This temporary difference would reverse upon
the occurrence of certain events relating to the divestiture of Techdyne and
DCA. 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.
Income before income taxes includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $3,260,262 $2,086,741 $ 317,385
Foreign 782,641 1,506,389 854,478
---------- ---------- ----------
$4,042,903 $3,593,130 $1,171,863
========== ========== ==========
</TABLE>
F-14
<PAGE> 54
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 4-INCOME TAXES--Continued
Significant components of the provision (benefit) for income taxes are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 440,000 $ 24,660 $
Foreign 259,270 493,286 261,445
State 70,000 13,126
---------- -------- ----------
769,270 517,946 274,571
Deferred:
Federal 578,000 761,000
Foreign 3,476 16,680 26,755
---------- ---------- ----------
581,476 777,680 26,755
---------- ---------- ----------
$1,350,746 $1,295,626 $ 301,326
========== ========== ==========
</TABLE>
The reconciliation of income tax attributable to income before income
taxes and minority interests computed at the U.S. federal statutory rate (34%)
to income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate $1,374,587 $ 1,221,664 $ 398,433
Increase (reduction) in
taxes resulting from:
State income taxes-net
of federal income tax
effect 49,898 8,584
Lower effective income
taxes of other countries (7,826) (15,064) (8,545)
Valuation allowance
adjustments and other (65,913) 89,026 (97,146)
---------- ----------- -----------
$1,350,746 $ 1,295,626 $ 301,326
========== =========== ===========
</TABLE>
F-15
<PAGE> 55
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 4-INCOME TAXES--Continued
Undistributed earnings of the Company's foreign subsidiary amounted to
approximately $2,930,000 at December 31, 1996 and $2,410,000 at December 31,
1995. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject
to an adjustment for foreign tax credits) and withholding taxes payable.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation; however, foreign tax credits may be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $147,000 and
$121,000 would be payable upon remittance of all previously unremitted earnings
at December 31, 1996 and December 31, 1995, respectively.
Income tax payments were approximately $487,000 in 1996, $300,000 in
1995, and $38,000 in 1994.
NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB25) and related
Interpretations in accounting for its employee stock options because, as is
discussed below, FASB Statement No. 123, "Accounting for Stock Based
Compensation" (FAS123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
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. Options for 200,000 shares were transferred by the
consulting firm to another party in September 1996. The options vested 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 were 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. In June 1996, the Company forgave the balances due under the
notes including accrued interest in accordance with which it recorded
approximately $344,000 in compensation expense.
F-16
<PAGE> 56
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION--Continued
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, of
which there are 807,000 outstanding at December 31, 1996, 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 were
exercisable at $3.00 per share, reduced to $2.38 per share on December 31, 1996,
through April 17, 2000 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 for which
the Company recorded approximately $6,000 in compensation expense during the
second quarter of 1996. The Company recorded compensation expense of
approximately $154,000 in 1994 for the issuance of 410,000 shares of common
stock, to certain officer, directors and employees.
In May 1994, Techdyne adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in May 1994, Techdyne's Board of Directors
granted 227,500 options of which there are 174,000 outstanding at December 31,
1996 to certain of its officers, directors, employees and consultants. These
options are exercisable for a period of five years at $1 per share. Options for
50,700 shares were exercised in 1996 and for 400 shares in 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. 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
options. Pursuant to this plan, in November 1995, DCA's Board of Directors
granted 210,000 options, of which there are 194,000 outstanding as of December
31, 1996, 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.
In August 1996, DCA's Board of Directors granted 15,000 options to the
medical directors at its three kidney dialysis centers. These options vested
immediately and are exercisable for a period of 3 years through August 18, 1999
at $4.75 per share.
Pro forma information regarding net income and earnings per share is
required by Statements 123, and has been determined as if the company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for option grants in 1995 and option modifications in 1996,
respectively: risk-free interest rates of 6.75% and 5.65%; no dividend yield;
volatility factor of the expected market price of the Company's common stock of
.68 and a weighted-average expected life for the 1995 options of 2.5 years and
for the options modified in 1996 of .75 years.
F-17
<PAGE> 57
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION--Continued
The Black Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective input assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different than those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's' opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting period. The Company's
pro forma information which includes the pro forma effect of its own options, as
well as the pro forma effects related to the Company's interest in Techdyne and
DCA pro forma adjustments follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net income $ 2,067,004 $ 1,868,863
============= =============
Pro forma earnings per share
Primary $ .35 $ .32
============= =============
Fully Diluted $ .34
=============
</TABLE>
A summary of the Company's stock option activity, and related
information for the years ended December 31, follows, with newly modified
options being reflected as grants and the original grants being modified
reflected as cancellations:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 1,209,000 $2.42 400,000 $1.25
Granted 809,000 2.38 809,000 3.00
Cancellations (809,000) 3.00
Forfeited (1,000) 3.00
Expired (1,000) 3.00
--------- ---------
Outstanding-end of year 1,207,000 2.01 1,209,000 2.42
========= =========
Exercisable at end of year 803,500 1.82 400,000 1.25
========= =========
Weighted-average fair value of options
granted, including modified options,
during the year $ .59 $1.37
======= =======
</TABLE>
The exercise price for the Company's options outstanding as of December
31, 1996 ranged from $1.25 to $2.38. The weighted average remaining contractual
life of those options is 2.4 years.
The Company has 1,800,000 shares reserved for future issuance.
F-18
<PAGE> 58
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION--Continued
The fair value of Techdyne options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for the options issued during 1995: risk-free interest rate of
6.75%; no dividend yield; volatility factor of the expected market price of
Techdyne common stock of .56% and a weighted average expected life of the
options of 2.5 years.
A summary of Techdyne's stock option activity, and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 378,400 $1.30 227,500 $1.00
Granted 152,500 1.75
Exercised (50,700) 1.00 (400) 1.00
Expired (1,200) 1.00 (1,200) 1.00
------- -------
Outstanding-end of year 326,500 1.35 378,400 1.30
======= =======
Exercisable at end of year 326,500 1.35 378,400 1.30
======= =======
Weighted-average fair value of
options granted during the year $ .69
=======
</TABLE>
Exercise prices for Techdyne's options outstanding as of December 31,
1996 ranged from $1.00 to $1.75. The weighted-average remaining contractual
life of those options is 2.8 years.
The fair value of DCA options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for options issued during 1995 and 1996, respectively; risk-free
interest rates of 6.5% and 5.75%; no dividend yield; volatility factor of DCA
common stock of .50 for both years; and a weighted average expected life of the
options of 2.5 years and 1.5 years.
A summary of DCA's stock option activity, and related information for
the years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 210,000 $1.50
Granted 15,000 4.75 210,000 $1.50
Exercised (6,000) 1.50
Expired (10,000) 1.50
------- -------
Outstanding-end of year 209,000 210,000 1.50
======= =======
November 1995 options 194,000 1.50 210,000 1.50
August 1996 options 15,000 4.75
------- -------
209,000 210,000 1.50
======= =======
Exercisable at end of year 209,000 210,000 1.50
======= =======
November 1995 options 194,000 1.50 210,000 1.50
August 1996 options 15,000 4.75
------- -------
209,000 210,000 1.50
======= =======
Weighted-average fair value of options
granted during the year $ 1.30 $ .54
======= =======
</TABLE>
F-19
<PAGE> 59
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 5-STOCK OPTIONS AND STOCK COMPENSATION--Continued
Exercise prices for the DCA options outstanding as of December 31,
1996 were $1.50 for the November 1995 options and $4.75 for the August 1996
options. The remaining contractual life for the November 1995 options is 3.9
years and for the August 1996 options is 2.6 years.
NOTE 6--OPERATIONS BY INDUSTRY SEGMENT, GEOGRAPHIC LOCATION AND FOREIGN
OPERATIONS
Industry segment and geographical data and foreign operations for the
years ended December 31, 1996, 1995 and 1994, included on pages 1 and 2 of Form
10-K are an integral part of these financial statements. The following
summarizes additional information about the reported industry segments:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
DEPRECIATION EXPENSE
Medical Services $ 199,315 $ 116,510 $ 85,734
Medical Products 33,053 19,735 17,548
Electro-Mechanical 368,619 332,602 285,691
CAPITAL EXPENDITURES
Medical Services $ 386,502 $ 877,545 $ 30,879
Medical Products 149,505 7,132 30,567
Electro-Mechanical 704,304 530,669 1,052,606
</TABLE>
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, as occurred with Compaq and Avid as noted below.
Electro-mechanical sales to major customers are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
Customers 1996 1995 1994
--------- ---- ---- ----
<S> <C> <C> <C>
Compaq Computer Corp. $ 8,497,000 $10,849,000 $ 8,058,000
Avid Technology 5,653,000
IBM 4,275,000 3,305,000
EMC and its related suppliers 2,807,000
</TABLE>
Included in the sales to Compaq were sales by Techdyne (Scotland) of
$8,427,000, which accounted for 84% of the sales of Techdyne (Scotland) for
1996. Increased competition in the bidding
F-20
<PAGE> 60
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 6--OPERATIONS BY INDUSTRY SEGMENT, GEOGRAPHIC LOCATION AND FOREIGN
OPERATIONS--Continued
for this Compaq business has resulted in a substantial loss of Compaq sales by
Techdyne (Scotland) commencing in the third quarter of 1996 and reduced profit
margins on remaining Compaq sales. Techdyne (Scotland) is pursuing cost
reduction and new business development efforts to attempt to make up for
reductions in Compaq business, although there can be no assurance as to the
success of such efforts.
The Company experienced a loss of a majority of its sales to Avid in
1996 as a result of a change in one of the products it produces for Avid. The
Company is pursuing cost reduction and new business development efforts to
attempt to make up for the Avid sales loss, although there can be no assurances
as to the success of such efforts.
Medical services revenues, which represents revenues of 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 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 government 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 product sales are highly dependent on 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. The
Company has decided to shutdown the durable medical equipment portion of its
medical products business due to its unprofitable operations and has recorded
approximately $305,000 in costs in connection with this shutdown. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
NOTE 7--COMMITMENTS AND CONTINGENCIES
COMMITMENTS: The Company and subsidiaries have leases on several
facilities which expire at various dates. The aggregate lease commitments at
December 31, 1996 are approximately: 1997 -
F-21
<PAGE> 61
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 7--COMMITMENTS AND CONTINGENCIES-Continued
$344,000; 1998 - $222,000; 1999 - $174,000; 2000 - $67,000, 2001-$17,000. Total
rent expense was approximately $608,000 in 1996, $533,000 in 1995 and $502,000
in 1994.
Pursuant to completion of its public offering, Techdyne entered into a
consulting agreement with the underwriter for a term of 18 months at $3,000 per
month fully paid on October 2, 1995, the completion date of the underwriting, to
provide financial consulting services pertaining to Techdyne's business. See
Note 8.
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, which sum was paid in advance upon on the closing of the offering.
See Note 8.
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 associated 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 8 -- SUBSIDIARY STOCK OFFERINGS
In October 1995, Techdyne completed a public offering of its securities
providing that subsidiary with net proceeds of approximately $3,321,000 for
which the Company 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. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
DCA completed a public offering in April 1996, with net proceeds of the
offering, including the exercise of the overallotment option for 150,000 units,
of approximately $3,445,000 for which the Company has recorded a gain of
approximately $1,521,000 with applicable income taxes of $578,000, resulting
in a net gain of approximately $943,000. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
NOTE 9 -- RELATED PARTY TRANSACTIONS
During 1996, 1995 and 1994, the Company paid premiums of approximately
$516,000, $490,000, and $460,000, respectively, for insurance through a director
and stockholder, and the relative of a director and stockholder.
During 1996, 1995 and 1994, legal fees of $202,000, $217,000, and
$190,000, respectively, were paid to an officer of the Company.
F-22
<PAGE> 62
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31, 1996
NOTE 10 -- QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following summarizes certain quarterly operating data:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
--------------------------------------------- ---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $8,230 $7,524 $6,634 $7,293 $7,574 $9,511 $9,095 $7,960
Gross profit 1,593 1,396 1,288 1,156 1,601 1,616 1,607 1,244
Gain on securities
offering of subsidiary 1,521 2,002
Realized gain on sale of
marketable securities 562 924 308 790 69 97 17
Net income 725 1,281 333 78 461 488 370 932
Earnings per share:
Primary $ .12 $ .21 $ .06 $ .01 $ .08 $ .09 $ .06 $ .15
Fully diluted $ .12 $ .21 $ .06 $ .01 $ .08 $ .09 $ .06 $ .15
</TABLE>
Since the computation of earnings per share is made independently for
each quarter using the modified treasury stock method, the total of four
quarters earnings do not necessarily equal earnings per share for the year.
The Company recorded the following losses which were material to the
results of the fourth quarter:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Shutdown durable medical equipment operations $305
Inventory valuation and obsolescence $207
Expense startup costs of new dialysis centers 80
---- ---- ----
$305 $ 80 $207
==== ==== ====
</TABLE>
F-23
<PAGE> 63
Schedule II - Valuation and Qualifying Accounts
Medicore, Inc. and Subsidiary
Year ended December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Other Charges Balance
Beginning Cost and Other Accounts Add (Deduct) at End of
Classification Of Period Expenses Describe Describe Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable
accounts $244,000 $275,408 $(134,408)(1) $385,000
Reserve for inventory
obsolescence 319,000 91,913 (241,913)(2) 169,000
-------- -------- --------- --------- --------
$563,000 $367,321 $ 0 $(376,321) $554,000
======== ======== ========= ========= ========
YEAR ENDED DECEMBER 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable
accounts $133,000 $136,221 $ (25,221)(1) $244,000
Reserve for inventory
obsolescence 255,000 294,860 (230,860)(2) 319,000
-------- -------- --------- --------- --------
$388,000 $431,081 $ 0 $(256,081) $563,000
======== ======== ========= ========= ========
YEAR ENDED DECEMBER 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable
accounts $ 44,000 $ 34,000 $ 55,000 $133,000
Reserve for inventory
obsolescence 157,000 282,000 (184,000) 255,000
-------- -------- --------- --------- --------
$201,000 $316,000 $ 0 $(129,000) $388,000
======== ======== ========= ========= ========
</TABLE>
(1) Uncollectable accounts written off, net of recoveries.
(2) Net write-offs against inventory reserves.
<PAGE> 64
Schedule II - Valuation and Qualifying Accounts
Medicore, Inc. and Subsidiary
Year Ended December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Other Charges Balance
Beginning Cost and Other Accounts Add (Deduct) at End of
Classification of Period Expenses Describe Describe Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable accounts $244,000 $275,408 $ (134,408)(1) $385,000
Reserve for inventory obsolescence 319,000 91,913 (241,913)(2) 169,000
--------- -------- --------- --------- --------
$563,000 $367,321 $ 0 $(376,321) $554,000
======== ======== ========= ========= ========
YEAR ENDED DECEMBER 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectable accounts $ 133,000 $126,221 $ (15,221)(1) $244,000
Reserve for inventory obsolescence 235,000 294,860 (230,860)(2) 319,000
--------- -------- --------- --------- --------
$388,000 $421,081 $ 0 $ 246,081 $563,000
======== ======== ========= ========= ========
YEAR ENDED DECEMBER 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for uncorrectable accounts $ 44,000 $ 34,000 $ 54,000 $133,000
Reserve for inventory obsolescence 157,000 282,000 (184,000) 255,000
--------- -------- --------- ---------- --------
$201,000 $316,937 $ 0 $(129,937) $388,000
======== ======== ========= ========= ========
</TABLE>
(1) Uncollectable accounts written off, net of recoveries.
(2) Net write-offs against inventory reserves.
<PAGE> 65
EXHIBIT INDEX
-------------
3. Exhibits
(3) Articles of Incorporation, as amended and By-Laws, as amended
(incorporated by reference to the Company's Annual Report on Form
10-K for the Year Ended December 31, 1980, Part IV, Item 11, (a)
3 (3)); and new Article XXV of the By-Laws.
(4) Instruments defining the rights of security holders, including
indentures.
(i) 1989 Stock Option Plan (incorporated by reference to the
Company's current report on Form 8-K dated July 10, 1989
("July 1989 Form 8-K"), Item 7(c)(ii)).
(ii) Form of Stock Option Agreement issued pursuant to the 1989
Stock Option Plan (incorporated by reference to the
Company's July 1989 Form 8-K, Item 7(c)(iii)).
(iii) Form of Additional Non-Qualified Stock Option Agreement
issuable under the Stock Option Agreement (incorporated by
reference to the Company's July 1989 Form 8-K, Item
7(c)(iv)).
(10) Material contracts.
(i) Employment Agreement between the Company and Thomas K.
Langbein dated May, 1994, (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 ("1994 Form 10-K"), Part IV, Item 14(a)
3(10)(i)).
(ii) Lease between the Company and Heights Plaza Associates,
dated April 30, 1981 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1981, Part IV, Item 11 (a)(3)(xv)).
(iii) Amendment to lease between the Company and Heights Plaza
Associates, dated October 28, 1985 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1985, Part IV, Item 14 (a) 3
(10) (ix)).
(iv) Amendment to Lease between the Company and Heights Plaza
Associates, dated April 11, 1988 (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 ("1990 Form 10-K"), Part IV,
Item 14(a) 3 (10) (iv)).
(v) Amendment to Lease between the Company and Heights Plaza
Associates dated March 18, 1991 (incorporated by reference
to the 1990 Form 10-K, Part IV, Item 14(a) 3 (10) (v)).
<PAGE> 66
(vi) Lease Agreement between the Company and Techdyne, Inc. (1)
dated July 17, 1990 (incorporated by reference to Techdyne
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1991, Part IV, Item 14(a) 3 (10) (vii)).
(vii) Royalty Agreement between the Company and Viragen, Inc. (2)
dated November 7, 1986 (incorporated by reference to the
Company's Current Report on Form 8-K, December, 1986, Item 7
(c)(iv)).
(viii) Amended Royalty Agreement between the Company and Viragen,
Inc. (2) dated November 21, 1989 (incorporated by reference
to the Company's Current Report on Form 8-K dated December
6, 1989, Item 7(c)(i)).
(ix) Employment Agreement between Techdyne (Scotland) Limited(3)
and John Clark Grieve dated March 11, 1988 (incorporated by
reference to Techdyne's Annual Report on Form 10-K for the
year ended December 31, 1987, Part IV, Item 14(a)(10)(x)).
(x) Guarantee of Techdyne (Scotland) Limited(3) Line of Credit
with The Royal Bank of Scotland Plc dated March 3, 1989
(incorporated by reference to the Techdyne Annual Report on
Form 10-K for the Year Ended December 31, 1988 ("1988 Form
10-K"), Part IV, Item 14(a) (10)(vii)).
(xi) Loan Agreement between Dialysis Corporation of America(4)
and Mercantile-Safe Deposit and Trust Company dated November
30, 1988 (incorporated by reference to the 1988 Form 10-K,
Part IV, Item 14(a) (10)(xxx)).
(xii) Medical Director's Agreement between Dialysis Services of
Florida, Inc. - Fort Walton Beach (5) and Henry M. Haire,
M.D., P.A. dated December 19, 1988 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989 ("1989 Form 10-K"), Part
IV, Item 14(a) 3(10)(xxi)).
(xiii) Renewal of Medical Director's Agreement between Dialysis
Services of Florida, Inc. - Fort Walton Beach (5) and Henry
M. Haire, M.D., P.A. dated August 1, 1994[*](incorporated by
reference to the Company's 1994 Form 10-K, Part IV, Item
14(a) 3(10)(xiv)).
(xiv) Lease between Premier Development of Orlando, Inc. and
Dialysis Services of Florida, Inc. - Fort Walton Beach (5),
with Rider and Guarantee of Dialysis Corporation of
America(4) dated May 24, 1989 (incorporated by reference to
the Company's 1989 Form 10-K, Part IV, Item 14(a)(xxii)).
(xv) Addendum No. 1 to Lease between Premier Development of
Orlando, Inc. and Dialysis Services of Florida, Inc. - Fort
Walton Beach (5) dated August, 1991 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 ("1993 Form 10-K"), Part
IV, Item 14(a) 3(10) (xvi)).
(xvi) Lease Renewal between JACO, L.C. and Dialysis Services of
Florida, Inc. - Fort Walton Beach(5) dated November 29, 1993
(incorporated by reference to the Company's 1993 From 10-K,
Part IV, Item 14(a) 3(10) (xvii)).
[*] Confidential portions omitted, have been filed separately
with the Securities and Exchange Commission.
<PAGE> 67
(xvii) Agreement to Sell Real Property between the Company and
Techdyne, Inc.(1) dated March 27, 1990 (incorporated by
reference to Techdyne's Annual Report on Form 10-K for the
year ended December 31, 1989, Part IV, Item 14(a) 3(10)(x)).
(xviii) Lease Agreement between Techdyne (Houston), Inc. (6)
and George Wimpey of Texas, Inc. dated July 30, 1991
(incorporated by reference to Techdyne's 1991 Form 10-K,
Part IV, Item 14 (a) 3 (10) (viii)).
(xix) Assignment and Assumption Agreement between Techdyne
(Houston), Inc. (6), the Company and George Wimpey of Texas,
Inc. dated February 28, 1992 (incorporated by reference to
Techdyne's Annual Report on Form 10-K for the year ended
December 31, 1991 ("Techdyne 1991 Form 10-K"), Part IV, Item
14 (a) 3 (10) (ix)).
(xx) Lease Agreement between Techdyne, Inc.(1) and George Wimpey
of Texas, Inc. dated February 4, 1994 (incorporated by
reference to the Company's 1993 Form 10-K, Part IV, Item
14(a) 3(10) (xxxiv)).
(xxi) Lease between the Company and Viragen, Inc.(2) dated
December 8, 1992 (incorporated by reference to the Company's
current report on Form 8-K dated January 21, 1993 ("January,
1993 Form 8-K"), Item 7(c)(i)).
(xxii) Addendum to Lease between the Company and Viragen, Inc.(2)
dated January 15, 1993 (incorporated by reference to the
Company's current report on Form 8-K dated January 21, 1993
("January, 1993 Form 8-K"), Item 7(c)(ii)).
(xxiii) First Amendment to Lease between Dialysis Corporation of
America(4) and Renal Treatment Centers - Maryland, Inc.
dated November 16, 1992 (incorporated by reference to the
Company's January, 1993 Form 8-K, Item 7(c)(xii)).
(xxiv) Lease Agreement between the Company and Brett D. Anderson
and Suzanne M. Anderson dated November 17, 1992
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, Part IV,
Item 14 (a) (10) (lvi)).
(xxv) Mortgage between Techdyne (Scotland) Limited(3) and The
Royal Bank of Scotland dated August 8, 1994 (incorporated by
reference to the Company's June, 1994 Form 10-Q, Part II,
Item 6 (a) (28) (vi)).
(xxvi) Agreement ("Missives") between Techdyne (Scotland) Limited
(3) and Livingston Development Corporation regarding
Purchase by Techdyne (Scotland) Limited(3) of Its Facility
dated June 15, 1994 (incorporated by reference to the
Company's June, 1994 Form 10-Q, Part II, Item 6 (a) (28)
(vii)).
(xxvii) Medical Directors Agreement between Dialysis Services of
Pennsylvania, Inc. - Wellsboro (7) and George Dy, M.D. dated
September 29, 1994 [*] (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 as amended January, 1995
("September, 1994 Form 10-Q"), Part II, Item 6 (a) (10)
(I)).
(xxviii) Agreement for In-Hospital Dialysis Services between
Dialysis Services of Pennsylvania, Inc. - Wellsboro (7) and
Soldiers & Sailors Memorial Hospital dated September 28,
1994 [*] (incorporated by reference to the Company's
September, 1994 Form 10-Q, Part II, Item 6 (a) (10) (ii)).
[*] Confidential portions omitted have been filed separately
with the Securities and Exchange Commission.
<PAGE> 68
(xxix) Form of Promissory Note executed by all optionees to the
Company dated September 12, 1994 ** (incorporated by
reference to the Company's Current Report on Form 8-K dated
October 13, 1994 ("October, 1994 Form 8-K"), Item 7 (c) (99)
(i)).
(xxx) Form of Escrow Agreement executed by all optionees with the
Company and the Escrow Agent dated September, 1994 ***
(incorporated by reference to the Company's October, 1994
Form 8-K, Item 7 (c) (99) (ii)).
(xxxi) Consulting Agreement between the Company and Performance
Capital Corporation dated September 30, 1994 (incorporated
by reference to the Company's October, 1994 Form 8-K, Item 7
(c) (99) (iii)).
(xxxii) Stock Option Agreement between the Company and
Performance Capital Corporation dated September 26, 1996.
(xxxiii) Stock option Agreement between the Company and Joseph
Dillon & Company, Inc. dated September 26, 1996.
(xxxiv) Medical Directors Agreement between Dialysis Services of
Pennsylvania, Inc. - Lemoyne (7) and Herbert I. Soller, M.D.
dated January 30, 1995 [*](incorporated by reference to the
Company's 1994 Form 10-K, Part IV, Item 14(a) 3(10)(ix)).
(xxxv) Lease Agreement between Dialysis Services of Pennsylvania,
Inc. - Wellsboro(7) and James and Roger Stager dated January
15, 1995 (incorporated by reference to the Company's 1994
Form 10-K, Part IV, Item 14(a) 3(10)(lxii)).
(xxxvi) Form of Exclusive Sales Representative Agreement between
Techdyne, Inc. (1) and sales representative ****
(incorporated by reference to the Company's 1994 Form 10-K,
Part IV, Item 14(a) 3(10)(lxiv)).
(xxxvii) 1994 Stock Option Plan of Techdyne, Inc. (1)
(incorporated by reference to the Company's 1994 Form 10-K,
Part IV, Item 14(a) 3(10)(lxv)).
(xxxviii) Form of Stock Option Certificate issued under 1994
Stock Option Plan of Techdyne, Inc. (1) (incorporated by
reference to the Company's 1994 Form 10-K, Part IV, 14(a)
3(10)(lxvi)).
(xxxix) Form of Stock Option Agreement dated February 17, 1995
issued to directors of Techdyne, Inc. (1) *****
(incorporated by reference to the Company's 1994 Form 10-K,
Part IV, Item 14(a) 3(10)(lxvii)).
(xl) Lease Agreement between Dialysis Corporation of America (4)
and Service All Group, Inc. and Terry Sheppard dated March
24, 1995 (incorporated by reference to the Company's Form
10-K, Part IV, Item 14(a) 3(10)(lxviii)).
(xli) Tenant Subordination Agreement by J.A. Hunt Services, Inc.,
dated February, 1997.
[*] Confidential portions omitted, have been filed separately
with the Securities and Exchange Commission.
<PAGE> 69
(xlii) Lease Purchase Agreement between the Dialysis Corporation
of America (5) and B. Braun Medical, Inc. dated November 22,
1996 (incorporated by reference to the Dialysis Corporation
of America's Annual report on Form 10-K for the Year Ended
December 31, 1996, Part IV, Item 14 (a) 3(10)(xxviii)).
(xliii) Employment Agreement between All American Medical &
Surgical Supply Corp.(8) and Lou Ghelli dated October 26,
1995 (incorporated by reference to the Company's 1995 Form
10-Q, Part II, Item 6(a)(10)(iii)).
(xliv) Loan and Security Agreement between Techdyne, Inc.(1) and
Barnett Bank of South Florida, N.A. ("Barnett Bank") for
$2,000,000 dated February 8, 1996 (incorporated by reference
to Techdyne, Inc.'s Current Report on Form 8-K, dated
February 23, 1996 ("Techdyne February 1996 Form 8-K), Item
7(c)(99)(i)).
(xlv) Revolving Demand Promissory Note for $2,000,000 from
Techdyne, Inc.(1) to Barnett Bank dated February 8, 1996
(incorporated by reference to Techdyne February 1996 Form
8-K, Item 7(c)(99)(ii)).
(xlvi) Unconditional and Continuing Guaranty of Payment and
Performance by the Company in favor of Barnett Bank dated
February 8, 1996 (incorporated by reference to Techdyne
February 1996 Form 8-K, Item 7(c)(99)(iii)).
(xlvii) Subordination Agreement among Barnett Bank, the Company
and Techdyne, Inc.(1) dated February 8, 1996 (incorporated
by reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(iv)).
(xlviii) Loan Agreement for $712,500 between Techdyne, Inc.(1)
and Barnett Bank dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(v)).
(xlvix) Promissory Note for $712,500 from Techdyne, Inc.(1) to
Barnett Bank, dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(vi)).
(l) Mortgage and Security Agreement between the Company and
Barnett Bank dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(vii)).
(li) Assignment of Leases, Rents and Profits by the Company in
favor of Barnett Bank dated February 8, 1996 (incorporated
by reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(viii)).
(lii) Promissory Note for $200,000 from Techdyne, Inc.(1) to
Barnett Bank dated February 8, 1996 (incorporated by
reference to Techdyne February 1996 Form 8-K, Item
7(c)(99)(ix)).
(liii) Security Agreement between Techdyne, Inc.(1) and Barnett
Bank dated February 8, 1996 (incorporated by reference to
Techdyne February 1996 Form 8-K, Item 7(c)(99)(x)).
<PAGE> 70
(liv) Lease between All American Medical & Surgical Supply
Corp.(8) and Bart Castellano dated November 1, 1995
(incorporated by reference to the Company's Annual report on
Form 10-K for the year ended December 31, 1995 ("1995 Form
10-K"), Part IV, Item 14(a) 3(10)(lxi).
(lv) Lease between Dialysis Corporation of America(4) and
Dialysis Services of Pennsylvania, Inc. - Lemoyne(7) dated
November 30, 1995 (incorporated by reference to the
Company's1995 Form 10-K, Part IV, Item 14(a) 3(10)(lxii).
(lvi) 1995 Stock Option Plan of Dialysis Corporation of
America(4) (incorporated by reference to the Company's1995
Form 10-K, Part IV, Item 14(a) 3(10)(lxiii).
(lvii) Form of Stock Option Certificate dated November 10, 1995
issued under 1995 Stock Option Plan of Dialysis Corporation
of America(4) (incorporated by reference to the
Company's1995 Form 10-K, Part IV, Item 14(a) 3(10)(lxiv).
(lviii) Employment Agreement between Techdyne, Inc.(1) and Barry
Pardon dated March 13, 1996(incorporated by reference to
Techdyne, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995, Part IV, Item 13 (a) 2 (10)(viii)).
(lvix) Service Agreement between the Company and Techdyne Inc.,
dated October 25, 1996 (incorporated by reference to
Techdyne's Registration Statement on Form S-3, effective
December 11, 1996, Part II, Item 16, Exhibit 10(a)).
(11) Statement re computation of per share earnings.
(21) Subsidiaries of the registrant.
None
- ----------
(1) 63% owned subsidiary.
(2) Former public subsidiary of the Company; spun-off in 1986.
(3) 100% owned subsidiary of Techdyne, Inc.
(4) 67% owned subsidiary.
(5) 80% owned subsidiary of Dialysis Corporation of America.
(6) Dissolved subsidiary of Techdyne, Inc.
(7) 100% owned subsidiary of Dialysis Corporation of America.
(8) 95% owned subsidiary of the Company.
** All (10) optionees executed their options and executed the same promissory
note except as to amounts due.
*** All (10) optionees entered into the same escrow agreement except as to the
amounts of shares escrowed.
**** There are five such Agreements, all the same but for the territory
assigned.
***** Option to directors is the same except as to amount of underlying shares
purchasable.
<PAGE> 1
MEDICORE , INC.
STOCK OPTION AGREEMENT
AGREEMENT, dated this 26th day of September, 1996, between MEDICORE, INC.,
a Florida Corporation (hereinafter called the "Company"), and PERFORMANCE
CAPITAL CORPORATION (hereinafter called the "Optionee").
WITNESSETH:
WHEREAS, the Board of Directors of the Company authorized the Company to
enter into a Consulting Agreement with the Optionee as of September 30, 1994 and
pursuant thereto granted to the Optionee an option ("Option") to purchase up to
400,000 shares of Common Stock, par value $.01 per share ("Option Shares"), of
the Company at $1.25 per Share (the "Option Price"), such Option to be
exercisable for three years to September 30, 1997.
WHEREAS, the Optionee accepted said Option and to be bound by the terms and
conditions set forth herein.
WHEREAS, as of the date of hereof Optionee has entered into an agreement
with Joseph Dillon & Company, Inc.("Dillon") pursuant to which Optionee has
transferred a portion of its Option for 200,000 Option Shares to Dillon which
firm has agreed to abide by all the terms of the Stock Option Agreement; and
WHEREAS, the Optionee has submitted its original Option for 400,000 Option
Shares to the Company for cancellation in return for an Option for 200,000
Option Shares and requests the Company to issue an Option for 200,000 Option
Shares as per Optionee's agreement with Dillon.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
receipt whereof is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
GRANT OF OPTION: ADJUSTMENT OF SHARES COVERED BY OPTION
- --------------------------------------------------------
1.1 The Company hereby accepts the Optionee's original Option for 400,000
Option shares for cancellation and hereby issues an Option for 200,00 Option
Shares to purchase from the Company, upon the terms and conditions herein
200,000 Option Shares for a cash consideration of the Option Price.
1.2 The number of Option Shares above stated, and the Option Price thereof,
shall be subject to adjustment from time to time as provided herein.
PAYMENT FOR SHARES
- ------------------
2.1 The Option Price for the Option Shares to be purchased pursuant to each
exercise of the within Option shall be paid to the Company by the Optionee in
full in cash or by certified or bank cashier's check at the time of such
exercise of the Option.
EXERCISE OF OPTION
- ------------------
3.1 The within Option is exercisable only to the extent provided herein
during the term of this Option, which was originally for a period of three (3)
years, terminating at the close of business on September 30, 1997 ("Expiration
Date"), subject to earlier termination provided herein.
2
<PAGE> 2
3.2 The Option in exercisable, subject to the terms hereof, in amounts
equivalent to 50,000 Option Shares per exercise up to the Expiration Date. The
Company may delay the exercise of any Option if it determines that the Option
Shares are required to be listed, registered or qualified on any securities
exchange under law. The Company shall not be obligated to deliver any Option
Shares until such Option Shares have been so listed, registered or qualified on
any securities exchange (or authorized for listing, registration or
qualification upon official notice of such exchange). No delay under this
section 3.2 shall extend or otherwise affect the Expiration Date.
3.3 This Option may be terminated by either the Company or the Optionee by
written notice to the other at any time for any reason. If the Option is
terminated by the Company, the Optionee may exercise the Option for a period of
30 days from the Company's termination notice.
If the Option is terminated by the Optionee the Option shall immediately be
null and void with no right of exercise.
3.4 At least five (5) days prior to the date upon which any portion of the
within Option is to be exercised, the Optionee shall deliver to the Company
written notice of its election to exercise all or part of the Option, subject to
the limitations provided herein, which notice shall specify (i) the date and
time for the exercise of the Option, (ii) the number of Option Shares in respect
of which the Option is to be exercised, and (iii) the address to which the
Option Shares are to be mailed. The date specified in such notice shall be a
business day and the time specified shall be during the regular business hours
of the Company.
3.5 The Optionee shall, at the date and time specified in such notice, pay
the Company cash or other consideration acceptable to the Company, at the
principle office of the Company, the Option Price for the Option Shares in
respect of which the Option is being exercised, to wit, the amount of the
product of $1.25 (or such then adjusted exercise price) times the number of
Option Shares into which the Option is being exercised. The notice and payment
shall be delivered in person or shall be sent by registered mail, return receipt
requested, to the Secretary of the Company, 777 Terrace Ave., Hasbrouck Heights,
New Jersey 07604. The Company shall as soon as practicable and with all due
expedition deliver to the Optionee, who shall so have properly exercised the
Option, certificates registered in the name of such person representing the
number of Option Shares in respect of which the Option was exercised, subject to
the approval of any governmental or regulatory authority required in connection
with the authorization, issuance, sale or transfer of such Option Shares.
Delivery shall be deemed effected for all purposes when the Company's stock
transfer agent shall have deposited such Option Share certificate or
certificates in the United States mail, addressed as per the Optionee's notice.
If the Option is only exercised in part, a new Option for the balance of the
unexercised Option Shares will be issued by the Company to the Optionee.
3.6 The Optionee shall not have any rights and privileges of a shareholder
of the Company in respect of any of the Option Shares underlying the Option
unless and until and only to the extent it shall have properly exercised the
Option and paid for the Option Shares in accordance with the terms and
provisions of this Option Agreement. The Option shall be considered exercised on
the date the notice and payment are delivered to or received by the Secretary of
the Company; provided if payment is by check, the exercise date shall be the
date such check clears payment. The Optionee shall have no rights with respect
to such Option Shares not expressly conferred by this Option Agreement.
RESTRICTIONS ON EXERCISE OF OPTION AND SALE OF STOCK
- ----------------------------------------------------
4.1 In addition to the limitations on the exercise of an Option as provided
in Sections 3.2 and 3.3 hereof, the within Option shall not be exercisable if:
(a) The exercise thereof will involve a violation of any applicable federal
or state securities law; or
(b) The exercise thereof will require registration under the Securities Act
of 1933, as amended, (the "Act") of the Option Shares or other securities of the
Company to be purchased by the Optionee pursuant to such exercise.
3
<PAGE> 3
4.2 (a) The Optionee acknowledges that the Option and underlying shares of
Common Stock are not transferable without compliance with the registration
requirements of the federal and state securities laws or an opinion of counsel
for the Optionee has been received by the Company to the effect that such
registration is not required; any determination in this connection by the
Company shall be final, binding and conclusive; that the Optionee has no right
to transfer either the Option or the underlying Common Stock and that the
Optionee has no contractual right to require the registration of the Option or
underlying Common Stock; and
(b) The Optionee understands that the securities are being
issued to it pursuant to a non-public offering exemption under the Act, that the
Common Stock issued upon exercise of the Option shall have a legend on the face
thereof indicating the restrictive nature of the shares in pertinent part as
follows: "The shares of Common Stock represented by this certificate have not
been registered under the Securities Act of 1933 or under the securities laws of
any state and may not be sold or transferred except upon such registration or
upon receipt by the Company of an opinion of counsel satisfactory to the Company
that registration is not required"; and that such Common Stock and the Option
shall have stop transfer instructions issued against the same.
4.3 At the time of any exercise of the within Option, the Optionee shall
represent to and agree with the Company in writing that he is acquiring the
shares in respect of which the Option is being exercised for the purpose of
investment and not with a view to distribution.
4.4 The Optionee agrees that it will not sell or otherwise dispose of any
shares of Common Stock or other securities of the Company purchased by it
pursuant to the exercise of all or any portion of the within Option at any time
under circumstances which would require the filing of a registration statement
in respect of such shares or other securities under the provisions of the Act.
4.5 The Company shall not be obligated to take any other affirmative action
in order to cause or facilitate the exercise of the Option or the issuance of
shares of Common Stock pursuant thereto to comply with any state or federal law,
rule or regulation.
CHANGES IN CAPITAL STRUCTURE
- ----------------------------
5.1 Existence of this Option shall not impair the right of the Company or
its shareholders to make or effect any adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger of consolidation of the Company or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock of the Company, or any
grant of options on its stock through any qualified or non-qualified stock plan
or otherwise, or any other corporate act or proceeding, whether of a similar
character or otherwise.
5.2 Except as hereinafter expressly provided, the issuance by the Company
of shares of Common Stock of any class, for cash or property, or for labor or
services, either upon sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
converted into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number, class or
price of shares of Common Stock then subject to the Option.
5.3 The only adjustment available to the Option Shares are as follows:
(a) If at any time or from time to time after the date of this Option
Agreement, the Company shall distribute to the holders of its Common Stock, with
respect to the Common Stock, without payment therefor, securities or property,
other than shares of the Common Stock, other than rights to purchase shares of
the Common Stock which terminate prior to the exercise of this Option, and other
than cash, then, and in each such case, the Optionee upon the exercise of this
Option shall be entitled to receive the securities and properties to which it
would have been entitled had it been a shareholder of record of the Common Stock
received upon such exercise of the Option at the time the Company made such
distribution of securities or property and had, during the period from the
4
<PAGE> 4
date of this Option to and including the date of such exercise, retained such
shares and the securities and properties receivable by it during such period.
Notice of each such distribution shall be forthwith mailed to the Optionee.
(b) If the Company shall be consolidated with or merged into another
corporation or shall sell all or substantially all of its assets as part of a
reorganization within the meaning of the Internal Revenue Code or shall
reclassify or organize its capital structure (except a stock split or
combination covered by subparagraph (a) hereof), and in such transactions
holders of the Common Stock exchange their Common Stock for shares of stock or
other securities ("Transaction Securities") of the Company or another
corporation, receive additional Common Stock or other securities, or surrender a
portion of their Common Stock, then:
(1) Except as provided in Section 5.2(b)(2) hereof, the Optionee shall be
entitled, in lieu of the Option, to an Option or Options to purchase Transaction
Securities in an amount (if any) equal to the Transaction Securities that the
Optionee would have received if the Optionee had exercised the Option in full
and held the Option Shares to which the Option related at the time of such
transaction. The Option Price per share or other unit of such Transaction
Securities shall be determined by dividing the Option Price per share of common
stock subject to the Option by the number of shares or other units (or the
fraction of a share or other unit) of Transaction Securities into which each
share of common stock is converted or for which common stock is exchanged in
such transaction.
(2) Notwithstanding any other provision hereof, the Board of Directors of
the Company may cancel the Option as of the effective date of any transaction
described in this Section 5.2(b); provided that (A) notice of such cancellation
shall have been given to the Optionee at least thirty (30) days before the
effective date of such transaction, and (B) the Optionee shall have the right to
exercise the Option in accordance with and pursuant to the limits of Sections
3.2 and 3.3 hereof during the thirty (30) day period immediately preceding the
effective date of such transaction.
MISCELLANEOUS
- -------------
6.1 The granting of this Option shall not impose upon the Company any
obligation to employ, retain or become affiliated with or continue to employ or
be affiliated with the Optionee. This Option Agreement shall not be construed as
preventing nor shall it prevent the Company from terminating any agreement or
other affiliation with the Company or its affiliated companies that might exist
with the Optionee.
6.2 This Option Agreement shall be binding upon and inure to the benefit of
the Company and its successors and upon the Optionee and its successors,
assigns, including without limitation the estate of the Optionee and the
executors, administrators and/or trustees of such estate, and any creditor,
receiver, trustee in bankruptcy or representative of any such Optionee; provided
that the within Option shall be non-transferable by the Optionee, and shall not
be encumbered in whole or in part, and the Option shall be exerciseable only by
the Optionee except as may be approved by the Company.
6.3 This Option Agreement shall be deemed to be made under and shall be
construed in accordance with the laws of the State of New Jersey.
6.4 This Option Agreement is effective as of September 30, 1994 and, unless
sooner terminated in accordance with the terms hereof, shall remain in effect
through September 30, 1997. No modification or amendment of this Option
Agreement shall become effective until such modification or amendment shall have
been approved by the Board of Directors of the Company.
6.5 The Company's obligation to deliver Option Shares is subject to all the
terms and conditions of this Option Agreement and shall be subject to applicable
federal, state and local tax withholding and reporting requirements.
5
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by its President, Vice President, or Secretary thereunto duly
authorized, and the Optionee has executed this Option Agreement, the day and
year first above written.
MEDICORE, INC.
By_____________________________
Thomas K. Langbein, President
The Optionee hereby accepts and agrees to be bound by all the terms and
conditions hereof.
PERFORMANCE CAPITAL CORPORATION
(Optionee)
By_____________________________
John Formicola, Chairman
Date: September 26, 1996
6
<PAGE> 1
MEDICORE , INC.
STOCK OPTION AGREEMENT
AGREEMENT, dated this 26th day of September, 1996, between MEDICORE, INC.,
a Florida Corporation (hereinafter called the "Company"), and JOSEPH DILLON &
COMPANY, INC. (hereinafter called the "Optionee").
WITNESSETH:
WHEREAS, the Board of Directors of the Company authorized in September,
1994 the Company to grant to Performance Capital Corporation ("PCC") an option
("Option") to purchase 400,000 shares of Common Stock, par value $.01 per share
("Option Shares"), of the Company at $1.25 per Share (the "Option Price"), such
Option to be exercisable for three years from that date through September 30,
1997.
WHEREAS, PCC has transferred 50% of its Options for 200,000 Option Shares
to Optionee pursuant to an agreement between PCC and Optionee; and
WHEREAS, the Optionee is willing to accept said Option and to be bound by
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
receipt whereof is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
GRANT OF OPTION:
- ----------------
1.1 The Company acknowledges the transfer of 50% of PCC's Options for
200,000 Option Shares to Optionee and hereby issues to the Optionee an Option to
purchase from the Company, upon the terms and conditions set forth herein
200,000 Option Shares for a cash consideration of the Option Price.
1.2 The number of Option Shares above stated, and the Option Price thereof,
shall be subject to adjustment from time to time as provided herein.
PAYMENT FOR SHARES
- ------------------
2.1 The Option Price for the Option Shares to be purchased pursuant to each
exercise of the within Option shall be paid to the Company by the Optionee in
full in cash or by certified or bank cashier's check at the time of such
exercise of the Option.
EXERCISE OF OPTION
- ------------------
3.1 The within Option is exercisable only to the extent provided herein
during the term of this Option, which was originally for a period of three (3)
years, terminating at the close of business on September 30, 1997 ("Expiration
Date"), subject to earlier termination provided herein.
3.2 The Option in exercisable, subject to the terms hereof, in amounts
equivalent to 50,000 Option Shares per exercise up to the Expiration Date. The
Company may delay the exercise of any Option if it determines that the Option
Shares are required to be listed, registered or qualified on any securities
exchange under law. The Company shall not be obligated to deliver any Option
Shares until such Option Shares have been so listed, registered
2
<PAGE> 2
or qualified on any securities exchange (or authorized for listing,
registration or qualification upon official notice of such exchange). No delay
under this section 3.2 shall extend or otherwise affect the Expiration Date.
3.3 This Option may be terminated by either the Company or the Optionee by
written notice to the other at any time for any reason. If the Option is
terminated by the Company, the Optionee may exercise the Option for a period of
30 days from the Company's termination notice.
If the Option is terminated by the Optionee the Option shall immediately be
null and void with no right of exercise.
3.4 At least five (5) days prior to the date upon which any portion of the
within Option is to be exercised, the Optionee shall deliver to the Company
written notice of its election to exercise all or part of the Option, subject to
the limitations provided herein, which notice shall specify (i) the date and
time for the exercise of the Option, (ii) the number of Option Shares in respect
of which the Option is to be exercised, and (iii) the address to which the
Option Shares are to be mailed. The date specified in such notice shall be a
business day and the time specified shall be during the regular business hours
of the Company.
3.5 The Optionee shall, at the date and time specified in such notice, pay
the Company cash or other consideration acceptable to the Company, at the
principle office of the Company, the Option Price for the Option Shares in
respect of which the Option is being exercised, to wit, the amount of the
product of $1.25 (or such then adjusted exercise price) times the number of
Option Shares into which the Option is being exercised. The notice and payment
shall be delivered in person or shall be sent by registered mail, return receipt
requested, to the Secretary of the Company, 777 Terrace Ave., Hasbrouck Heights,
New Jersey 07604. The Company shall as soon as practicable and with all due
expedition deliver to the Optionee, who shall so have properly exercised the
Option, certificates registered in the name of such person representing the
number of Option Shares in respect of which the Option was exercised, subject to
the approval of any governmental or regulatory authority required in connection
with the authorization, issuance, sale or transfer of such Option Shares.
Delivery shall be deemed effected for all purposes when the Company's stock
transfer agent shall have deposited such Option Share certificate or
certificates in the United States mail, addressed as per the Optionee's notice.
If the Option is only exercised in part, a new Option for the balance of the
unexercised Option Shares will be issued by the Company to the Optionee.
3.6 The Optionee shall not have any rights and privileges of a shareholder
of the Company in respect of any of the Option Shares underlying the Option
unless and until and only to the extent it shall have properly exercised the
Option and paid for the Option Shares in accordance with the terms and
provisions of this Option Agreement. The Option shall be considered exercised on
the date the notice and payment are delivered to or received by the Secretary of
the Company; provided if payment is by check, the exercise date shall be the
date such check clears payment. The Optionee shall have no rights with respect
to such Option Shares not expressly conferred by this Option Agreement.
RESTRICTIONS ON EXERCISE OF OPTION AND SALE OF STOCK
- ----------------------------------------------------
4.1 In addition to the limitations on the exercise of an Option as provided
in Sections 3.2 and 3.3 hereof, the within Option shall not be exercisable if:
(a) The exercise thereof will involve a violation of any applicable federal
or state securities law; or
(b) The exercise thereof will require registration under the Securities Act
of 1933, as amended, (the "Act") of the Option Shares or other securities of the
Company to be purchased by the Optionee pursuant to such exercise.
4.2 (a) The Optionee acknowledges that the Option and underlying shares of
Common Stock are not transferable without compliance with the registration
requirements of the federal and state securities laws or an opinion of counsel
for the Optionee has been received by the Company to the effect that such
registration is not required; any determination in this connection by the
Company shall be final, binding and conclusive; that the
3
<PAGE> 3
Optionee has no right
to transfer either the Option or the underlying Common Stock and that the
Optionee has no contractual right to require the registration of the Option or
underlying Common Stock; and
(b) The Optionee understands that the securities are being
issued to it pursuant to a non-public offering exemption under the Act, that the
Common Stock issued upon exercise of the Option shall have a legend on the face
thereof indicating the restrictive nature of the shares in pertinent part as
follows: "The shares of Common Stock represented by this certificate have not
been registered under the Securities Act of 1933 or under the securities laws of
any state and may not be sold or transferred except upon such registration or
upon receipt by the Company of an opinion of counsel satisfactory to the Company
that registration is not required"; and that such Common Stock and the Option
shall have stop transfer instructions issued against the same.
4.3 At the time of any exercise of the within Option, the Optionee shall
represent to and agree with the Company in writing that it is acquiring the
shares in respect of which the Option is being exercised for the purpose of
investment and not with a view to distribution.
4.4 The Optionee agrees that it will not sell or otherwise dispose of any
shares of Common Stock or other securities of the Company purchased by it
pursuant to the exercise of all or any portion of the within Option at any time
under circumstances which would require the filing of a registration statement
in respect of such shares or other securities under the provisions of the Act.
4.5 The Company shall not be obligated to take any other affirmative action
in order to cause or facilitate the exercise of the Option or the issuance of
shares of Common Stock pursuant thereto to comply with any state or federal law,
rule or regulation.
CHANGES IN CAPITAL STRUCTURE
- ----------------------------
5.1 Existence of this Option shall not impair the right of the Company or
its shareholders to make or effect any adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger of consolidation of the Company or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock of the Company, or any
grant of options on its stock through any qualified or non-qualified stock plan
or otherwise, or any other corporate act or proceeding, whether of a similar
character or otherwise.
5.2 Except as hereinafter expressly provided, the issuance by the Company
of shares of Common Stock of any class, for cash or property, or for labor or
services, either upon sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
converted into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number, class or
price of shares of Common Stock then subject to the Option.
5.3 The only adjustment available to the Option Shares are as follows:
(a) If at any time or from time to time after the date of this Option
Agreement, the Company shall distribute to the holders of its Common Stock, with
respect to the Common Stock, without payment therefor, securities or property,
other than shares of the Common Stock, other than rights to purchase shares of
the Common Stock which terminate prior to the exercise of this Option, and other
than cash, then, and in each such case, the Optionee upon the exercise of this
Option shall be entitled to receive the securities and properties to which it
would have been entitled had it been a shareholder of record of the Common Stock
received upon such exercise of the Option at the time the Company made such
distribution of securities or property and had, during the period from the date
of this Option to and including the date of such exercise, retained such shares
and the securities and properties receivable by it during such period. Notice of
each such distribution shall be forthwith mailed to the Optionee.
4
<PAGE> 4
(b) If the Company shall be consolidated with or merged into another
corporation or shall sell all or substantially all of its assets as part of a
reorganization within the meaning of the Internal Revenue Code or shall
reclassify or organize its capital structure (except a stock split or
combination covered by Section 6.2 hereof), and in such transactions holders of
the Common Stock exchange their Common Stock for shares of stock or other
securities ("Transaction Securities") of the Company or another corporation,
receive additional Common Stock or other securities, or surrender a portion of
their Common Stock, then:
(1) Except as provided in Section 5.2(b)(2) hereof, the
Optionee shall be entitled, in lieu of the Option, to an Option or Options to
purchase Transaction Securities in an amount (if any) equal to the Transaction
Securities that the Optionee would have received if the Optionee had exercised
the Option in full and held the Shares to which the Option related at the time
of such transaction. The Option Price per share or other unit of such
Transaction Securities shall be determined by dividing the Option Price per
share of common stock subject to the Option by the number of shares or other
units (or the fraction of a share or other unit) of Transaction Securities into
which each share of common stock is converted or for which common stock is
exchanged in such transaction.
(2) Notwithstanding any other provision hereof, the Board of
Directors of the Company may cancel the Option as of the effective date of any
transaction described in this Section 5.2(b); provided that (A) notice of such
cancellation shall have been given to the Optionee at least thirty (30) days
before the effective date of such transaction, and (B) the Optionee shall have
the right to exercise the Option in accordance with and pursuant to the limits
of Sections 3.2 and 3.3 hereof during the thirty (30) day period immediately
preceding the effective date of such transaction.
MISCELLANEOUS
- -------------
6.1 The granting of this Option shall not impose upon the Company any
obligation to employ or become affiliated with or continue to employ or be
affiliated with the Optionee. This Option Agreement shall not be construed as
preventing nor shall it prevent the Company from terminating any agreement or
other affiliation with the Company or its affiliated companies that might exist
with the Optionee.
6.2 This Option Agreement shall be binding upon and inure to the benefit of
the Company and its successors and upon the Optionee and its successors,
assigns, including without limitation the estate of the Optionee and the
executors, administrators and/or trustees of such estate, and any creditor,
receiver, trustee in bankruptcy or representative of any such Optionee; provided
that the within Option shall be non-transferable by the Optionee, and shall not
be encumbered in whole or in part, and the Option shall be exerciseable only by
the Optionee except as may be approved by the Company.
6.3 This Option Agreement shall be deemed to be made under and shall be
construed in accordance with the laws of the State of New Jersey.
6.4 This Option Agreement shall become effective as of the date hereof and,
unless sooner terminated in accordance with the terms hereof, shall remain in
effect through September 30, 1997. No modification or amendment of this Option
Agreement shall become effective until such modification or amendment shall have
been approved by the Board of Directors of the Company.
6.5 The Company's obligation to deliver Option Shares is subject to all the
terms and conditions of this Option Agreement and shall be subject to applicable
federal, state and local tax withholding and reporting requirements.
5
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by its President, Vice President, or Secretary thereunto duly
authorized, and the Optionee has executed this Option Agreement, the day and
year first above written.
MEDICORE, INC.
By_____________________________
Thomas K. Langbein, President
The Optionee hereby accepts and agrees to be bound by all the terms and
conditions hereof.
JOSEPH DILLON & COMPANY, INC.
(Optionee)
By________________________________
Steven Jaloza,
Chief Executive Officer
Date: September 26, 1996
6
<PAGE> 1
EXHIBIT 11
MEDICORE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Weighted average common shares outstanding 5,456,255 5,454,940 5,120,913
Net effect of dilutive stock options - based on the
modified treasury stock method for 1996 and 1995 and
the treasury stock method for 1994 574,749 474,275 193,348
----------- ----------- -----------
6,031,004 5,929,215 5,314,261
----------- ----------- -----------
Net income $ 2,417,269 $ 2,251,271 $ 864,108
=========== =========== ===========
Net income per share $ .40 $ .38 $ .16
==== ==== ====
FULLY DILUTED
Weighted average common shares outstanding 5,456,255 5,454,940
Net effect of dilutive stock options - based on the
modified treasury stock method using ending market price 683,048 505,155
----------- -----------
6,139,303 5,960,095
=========== ===========
Net income $ 2,417,269 $ 2,251,217
=========== ===========
Net income per share $ .39 $ .38
==== ====
</TABLE>
Note: Fully diluted earnings per common share were the same as primary
earnings per common share and are not presented for 1994.
<PAGE> 1
Exhibit (21)
Subsidiaries
<TABLE>
<CAPTION>
Owned By Jurisdiction of
Registrant Incorporation Percentage
- ---------- --------------- ----------
<S> <C> <C>
All American Medical & Surgical Supply New York 95%
DCA Medical Services, Inc. (1) Florida 99%
Dialysis Corporation of America Florida 67%
Dialysis Medical, Inc. (1) Florida 80%
Dialysis Services of Florida, Inc.-
Fort Walton Beach (2) Florida 79.2%
Dialysis Services of NJ, Inc.-
Manahawkin(1) New Jersey 99%
Dialysis Services of Pennsylvania, Inc.-
Carlisle(1) Pennsylvania 99%
Dialysis Services of Pennsylvania -
Lemoyne(1) Pennsylvania 99%
Dialysis Services of Pennsylvania -
Wellsboro(1) Pennsylvania 99%
Renal Services of Pa., Inc.(1) Pennsylvania 99%
Techdyne, Inc. Florida 62.5%
Techdyne Livingston Limited (3) Scotland 62.5%
Techdyne (Scotland) Ltd.(3) Scotland 62.5%
</TABLE>
- -------------------
(1) Owned 100% by Dialysis Corporation of America.
(2) Owned 80% by Dialysis Corporation of America.
(3) Owned 100% by Techdyne, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,665,826
<SECURITIES> 1,405,579
<RECEIVABLES> 3,711,600
<ALLOWANCES> 0
<INVENTORY> 3,637,556
<CURRENT-ASSETS> 20,139,535
<PP&E> 10,767,376
<DEPRECIATION> 4,728,167
<TOTAL-ASSETS> 27,084,852
<CURRENT-LIABILITIES> 6,295,387
<BONDS> 1,677,367
0
0
<COMMON> 54,569
<OTHER-SE> 12,966,889
<TOTAL-LIABILITY-AND-EQUITY> 27,084,852
<SALES> 29,680,520
<TOTAL-REVENUES> 34,719,406
<CGS> 24,247,403
<TOTAL-COSTS> 24,247,403
<OTHER-EXPENSES> 6,211,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,615
<INCOME-PRETAX> 4,042,903
<INCOME-TAX> 1,350,746
<INCOME-CONTINUING> 2,417,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,417,269
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
<FN>Accounts Receivable are net of allowance of
$385,000 at December 31, 1996.
<FN>Inventories are net of reserve of $169,000
at December 31, 1996.
</TABLE>
