FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 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 incorporation (I.R.S. Employer
or organization) Identification No.)
2337 West 76th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 558-4000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes [x] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value - 5,838,340 shares as of April 30,
1998.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
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The Consolidated Condensed Statements of Income (Unaudited) for
the three months ended March 31, 1998 and March 31, 1997 include the
accounts of the Registrant and all its subsidiaries.
Item 1. Financial Statements
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1) Consolidated Condensed Statements of Income for the three
months ended March 31, 1998 and March 31, 1997.
2) Consolidated Condensed Balance Sheets as of March 31, 1998
and December 31, 1997.
3) Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1998 and March 31, 1997.
4) Notes to Consolidated Condensed Financial Statements as of
March 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME
MEDICORE, INC. AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31,
-------------------------
1998 1997
---- ----
REVENUES
Sales $13,019,409 $ 7,757,836
Gain on subsidiary securities
offering and warrants exercise 60,981
Realized gain on sale of
marketable securities 49,493
Other income 174,310 145,944
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13,193,719 8,014,254
COST AND EXPENSES
Cost of goods sold 10,930,382 6,165,392
Selling, general and
administrative expenses 1,767,593 1,421,120
Interest expense 150,769 55,791
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12,848,744 7,642,303
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 344,975 371,951
Income tax benefit (29,407) (24,341)
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INCOME BEFORE MINORITY INTEREST 374,382 396,292
Minority interest in earnings
of consolidated subsidiaries 162,965 129,929
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NET INCOME $ 211,417 $ 266,363
=========== ===========
Earnings per share:
Basic $.04 $.05
==== ====
Diluted $.03 $.04
==== ====
See notes to consolidated condensed financial statements.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1998 1997(A)
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,191,395 $11,099,418
Marketable securities 888,442 726,538
Accounts receivable, less allowances
of $268,000 at March 31, 1997 and
$231,000 at December 31, 1997 7,141,882 6,298,089
Inventories, less allowance for
obsolescence of $287,000 at
March 31, 1998 and $238,000 at
December 31, 1997 8,194,767 8,683,439
Prepaid expenses and other current assets 781,119 862,613
Deferred tax asset 1,155,516 1,294,535
----------- -----------
Total Current Assets 27,353,121 28,964,632
PROPERTY AND EQUIPMENT
Land and improvements 1,019,655 1,017,255
Building and building improvements 3,078,411 3,066,889
Equipment and furniture 9,277,695 9,129,583
Leasehold improvements 726,223 715,316
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14,101,984 13,929,043
Less accumulated depreciation
and amortization 5,372,260 5,024,016
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8,729,724 8,905,027
DEFERRED EXPENSES AND OTHER ASSETS 250,667 141,844
COSTS IN EXCESS OF NET TANGIBLE
ASSETS ACQUIRED,
less accumulated amortization of
$471,000 at March 31, 1997 and
$438,000 at December 31, 1997 2,970,366 2,850,016
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$39,303,878 $40,861,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings $ 555,273 $ 548,698
Accounts payable 4,472,132 4,384,430
Accrued expenses and other current
liabilities 2,480,023 2,342,197
Current portion of long-term debt 1,079,682 1,073,924
Income taxes payable 188,223 1,758,723
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Total Current Liabilities 8,775,333 10,107,972
LONG-TERM DEBT 5,000,659 5,240,034
DEFERRED INCOME TAXES 2,594,043 2,592,843
MINORITY INTEREST IN SUBSIDIARIES 6,385,133 6,843,412
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 12,000,000 shares;
5,856,940 issued, 5,843,240
shares outstanding at March 31,
1998; 5,856,940 shares issued,
5,848,740 shares outstanding at
December 31, 1997 58,569 58,569
Capital in excess of par value 13,064,263 13,040,877
Retained earnings 3,061,934 2,850,517
Accumulated other comprehensive income:
Foreign currency translation
adjustment (9,905) (31,128)
Unrealized gain on marketable
securities 402,034 175,213
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Total accumulated other
comprehensive income 392,129 144,085
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Treasury stock at cost; 13,700 shares
at March 31, 1998; 8,200 shares at
December 31, 1997 (28,185) (16,790)
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Total Stockholders' Equity 16,548,710 16,077,258
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$39,303,878 $40,861,519
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(A) Reference is made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and Exchange
Commission in March, 1998.
See notes to consolidated condensed financial statements.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
-------------------------
1998 1997
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OPERATING ACTIVITIES
Net income $ 211,417 $ 266,363
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 338,598 176,502
Amortization 37,123 17,670
Bad debt expense (net recovery) 30,459 38,390
Provision for inventory obsolescence 79,271 20,881
Gain on sale of securities (49,493)
Gain on subsidiary securities
offering and warrants exercise (60,981)
Minority interest 162,965 129,929
Deferred income taxes 24,151
Increase (decrease) relating to
operating activities from:
Accounts receivable (863,429) (1,090,087)
Inventories 423,483 (590,609)
Prepaid expenses and other
current assets 48,965 62,797
Accounts payable 82,534 190,183
Accrued expenses and other
current liabilities (6,144) (233,113)
Income taxes payable (1,570,500) (479,259)
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Net cash used in
operating activities (1,025,258) (1,576,676)
INVESTING ACTIVITIES
Redemption of minority interest
in subsidiaries (385,375)
Additions to property and
equipment, net of minor disposals (129,245) (331,734)
Proceeds from sale of securities 49,493
Deferred expenses and other assets (112,392) (2,626)
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Net cash used in
investing activities (627,012) (284,867)
FINANCING ACTIVITIES
Repurchase of stock (11,394)
Proceeds from exercise of subsidiary
public offering warrants 130,625
Short-term line of credit borrowings 6,575
Payments on long-term borrowings (256,937) (64,904)
Deferred financing costs 169 1,032
Proceeds from exercise of stock options 300
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Net cash (used in) provided by
financing activities (261,587) 67,053
Effect of exchange rate fluctuations
on cash 5,834 (101,747)
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Decrease in cash and cash
equivalents (1,908,023) (1,896,237)
Cash and cash equivalents at beginning
of year 11,099,418 10,795,298
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 9,191,395 $ 8,899,061
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See notes to consolidated condensed financial statements.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies
Consolidation
The Consolidated Condensed Financial Statements include the
accounts of Medicore, Inc., Medicore's 66.0% owned subsidiary,
Dialysis Corporation of America ("DCA") and Medicore's 62.9% owned
subsidiary, Techdyne, Inc. ("Techdyne") and its subsidiaries Lytton
Incorporated ("Lytton"), Techdyne (Scotland) Limited ("Techdyne
(Scotland)"), and Techdyne (Livingston) Limited which is a sub-
sidiary of Techdyne (Scotland), collectively known as the Company.
All material intercompany accounts and transactions have been
eliminated in consolidation.
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:
March 31, December 31,
1998 1997
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Electronic and mechanical
components, net:
Finished goods $ 706,719 $ 554,903
Work in process 1,534,819 1,772,724
Raw materials and supplies 5,580,140 5,997,682
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7,821,678 8,325,309
Medical supplies 373,089 358,130
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$ 8,194,767 $ 8,683,439
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Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
FAS 128, "Earnings Per Share", which was adopted on December 31, 1997
requiring a change in the method previously used to compute earnings
per share and restatement of all prior periods. The new requirements
for calculating basic earnings per share exclude the dilutive effect
of stock options and warrants. Earnings per share under the diluted
computation required under FAS 128 includes stock options and warrants
using the treasury stock method and average market price. No poten-
tially dilutive securities were included in the diluted earnings per
share computation for the three months ended March 31, 1998 since
they were anti-dilutive.
Following is a reconciliation of amounts used in the basic and
diluted computations:
Three Months Ended
March 31,
-------------------------
1998 1997
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Net income, numerator-basic
computation $ 211,417 $ 266,363
Adjustment due to subsidiaries'
dilutive securities (32,820) (22,975)
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Net income as adjusted,
numerator-diluted computation $ 178,597 $ 243,388
=========== ===========
Weighted average shares,
denominator-basic computation 5,852,048 5,456,940
Effect of dilutive stock securities:
Stock options 495,738
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Weighted average shares as adjusted,
denominator-diluted computation 5,852,048 5,952,678
=========== ===========
Earnings per share:
Basic $.04 $.05
==== ====
Diluted $.03 $.04
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<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 1--Summary of Significant Accounting Policies--(Continued)
Comprehensive Income
The Company has adopted the provisions of Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income"
(FAS 130) in 1998 which is required by FAS 130 for fiscal years
beginning after December 15, 1997. FAS 130 requires the presentation
of comprehensive income and its components in the financial statements
and the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity
section of the balance sheet. The adoption of FAS 130 has no impact
on the Company's net income or stockholders' equity. Below is a
detail of comprehensive income (loss) for the three months ended
March 31, 1998:
Three Months Ended
March 31,
-----------------------
1998 1997
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Net income $ 211,417 $ 266,363
Other comprehensive income:
Foreign currency translation
adjustments 21,223 35,475
Unrealized gain (loss) on marketable
securities:
Unrealized holding gain (loss) arising
during period, net of tax 226,821 (437,230)
Less: reclassification adjustment,
net of tax, for gain included in
net income (32,364)
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Unrealized gain (loss) on marketable
securities 226,821 (469,594)
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Total other comprehensive income (loss) 248,044 (434,119)
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Comprehensive income $ 459,461 $ (167,756)
========== ==========
Segment Reporting
The Company has adopted the provisions of Financial Accounting
Standards Board Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (FAS 131) in 1998 which is required
by FAS 131 for fiscal years beginning after December 15, 1997. FAS 131
establishes standards for reporting information about operating seg-
ments in annual financial statements with operating segments repre-
senting components of an enterprise evaluated by the enterprise's
chief operating decision maker for purposes of making decisions
regarding resource allocation and performance evaluation. FAS 131
also requires that certain segment information be presented in
interim financial statements. Interim information is not required
in the first year of implementation; however, in subsequent years in
which the first year of implementation is a comparative year, any
required interim information for the initial year of implementation
must be presented.
Reclassification
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.
NOTE 2--Interim Adjustments
The financial summaries for the three months ended March 31, 1998
and March 31, 1997 are unaudited and include, in the opinion of manage-
ment of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the earnings for such periods.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that
these Consolidated Condensed Financial Statements be read in conjunc-
tion with the financial statements and notes included in the Company's
latest annual report for the year ended December 31, 1997.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 3--Transactions With Viragen, Inc.
The Company owns approximately 259,000 shares of common stock of
Viragen, formerly a majority-owned subsidiary of the Company. The
carrying value of these securities was written off as of December 31,
1991.
The Company sold 10,000 shares of Viragen stock and recognized a
gain of approximately $49,000 during the first quarter of 1997, with
no such sales during the first quarter of 1998. The Company has
recorded these securities at their fair value of approximately
$624,000 at March 31, 1998 and $283,000 at December 31, 1997 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. The closing price
of Viragen stock was $2.41 as of March 31, 1998 and $1.09 per share as
of December 31, 1997.
NOTE 4--Long-Term Debt
Techdyne's $1,600,000 line of credit had an outstanding balance
of $1,000,000 at March 31, 1998 and December 31, 1997. This line
matures May 1, 2000 and has monthly payments of interest at prime.
The new commercial term loan effective December 29, 1997 with an
initial principal balance of $1,500,000 had an outstanding balance of
$1,425,000 at March 31, 1998 and $1,500,000 at December 31, 1997,
matures December 15, 2002 with monthly principal payments of $25,000
plus interest. In connection with the term loan, the Company entered
into an interest rate swap agreement with the bank to manage Techdyne's
exposure to interest rates by effectively converting a variable note
obligation with an interest rate of LIBOR plus 2.25% to a fixed rate
of 8.60%.
The bank extended two commercial term loans to Techdyne in February
1996, 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 prin-
cipal 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 had an outstanding balance of approximately $655,000 at
March 31, 1998 and $663,000 at December 31, 1997 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 was 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 $117,000 at
March 31, 1998 and $127,000 at December 31, 1997 is secured by all of
Techdyne's tangible personal property, goods and equipment, and all
cash or noncash proceeds of such collateral.
The Company has unconditionally guaranteed the payment and per-
formance by Techdyne of the revolving loan and the three commercial
term loans and has subordinated Techdyne's intercompany indebtedness
to the Company to the bank's interest.
Lytton has a $1,500,000 revolving bank line of credit requiring
monthly interest payments at prime plus 1/2% which matures August 1,
1998. The interest rate on this loan was 9% at March 31, 1998 and
December 31, 1997. The balance outstanding on this loan was approxi-
mately $555,000 at March 31, 1998 and $549,000 at December 31, 1997.
Lytton has a $1,000,000 installment loan with the same bank maturing
August 1, 2002 at an annual rate of 9% until July 1999, with monthly
payments of $16,667 plus interest, at which time, Lytton will have an
option to convert the note to a variable rate. The balance outstanding
on this loan was approximately $883,000 at March 31, 1998 and $933,000
as of December 31, 1997. Lytton also has a $500,000 equipment loan
agreement with the same bank payable over four years through August 1,
2002 with the same interest rate as the installment loan. There was no
outstanding balance on this loan as of March 31, 1998 or December 31,
1997. All of these bank loans are secured by the business assets of
Lytton.
The prime rate was 8.5% as of March 31, 1998 and December 31, 1997.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 4--Long-Term Debt--(Continued)
DCA has an equipment financing agreement providing financing for
kidney dialysis machines for its facilities with interest at rates
ranging from 8% to 12 % pursuant to various schedules extending through
June 2002. The balance outstanding under this agreement amounted to
approximately $283,000 at March 31, 1998 and $285,000 at December 31,
1997. Additional financing of $17,000 in March 1998 represents a
noncash financing activity which is a supplemental disclosure required
by FAS 95.
Lytton conducts a portion of its operations with equipment acquired
under equipment financing obligations which extend through July 1999
with interest rates ranging from 8.55 to 10.09%. The remaining prin-
cipal balance under these financing obligations amounted to $334,000
at March 31, 1998 and $390,000 at December 31, 1997. Lytton has an
equipment loan at an annual interest rate of 5.5% maturing in April
2001 with monthly payments of principal and interest of $4,298. This
loan had a balance of approximately $188,000 at March 31, 1998 and
$198,000 at December 31, 1997 and is secured by equipment.
Techdyne (Scotland) has a line of credit with a Scottish bank with
a U.S. dollar equivalency of approximately $330,000 at March 31, 1998 and
at December 31, 1997. This line of credit operates as an overdraft
facility and is secured by assets of Techdyne (Scotland) and is guar-
anteed by Techdyne. No amounts were outstanding under this line of
credit as of March 31, 1998 or December 31, 1997. Techdyne (Scotland)
has a mortgage on its facility which had a principal balance with a
U.S. dollar equivalency of $569,000 at March 31, 1998 and December 31,
1997.
Interest payments on long-term debt amounted to $162,000 for the
three months ended March 31, 1998 and $57,000 for the same period of
the preceding year.
NOTE 5--Income Taxes
Subsequent to its public offering completed on October 2, 1995,
Techdyne began filing separate federal and state income tax returns
with its income tax liability reflected on a separate return basis.
Techdyne's new subsidiary, Lytton, will be included in Techdyne's
consolidated federal tax return effective August 1, 1997 with remaining
Techdyne net operating loss carryforwards able to be utilized to offset
income taxable for federal tax return purposes generated by Lytton.
Subsequent to its public offering in April 1996, DCA began filing
separate federal and state income tax returns with its income tax
liability reflected on a separate return basis.
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. The unrealized gain on marketable securities for sale is
net of deferred taxes of approximately $246,000.
The Company had a domestic income tax benefit of approximately
$24,000 for the three months ended March 31, 1998 and a domestic income
tax expense of $32,000 for the same period of the preceding year,
with the prior year amount including deferred taxes of approximately
$23,000 on a gain on Techdyne warrant exercises.
Techdyne (Scotland) had an income tax benefit of approximately
$5,000 for the three months ended March 31, 1998 and $57,000 for the
same period of the preceding year.
Income tax payments were $1,578,000 for the three months ended
March 31, 1998 and $406,000 for the same period of the preceding year.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 6--Stock Options
The Company has 1,000,000 shares of common stock reserved for
future issuance pursuant to its 1989 Stock Option Plan. On April 18,
1995, the Company granted non-qualified stock options for 809,000
shares of its common stock as a service award to officers, directors,
and certain employees of the Company and certain of its subsidiaries
under its 1989 Plan. The options are exercisable at $2.38 per share,
through April 17, 2000. On June 11, 1997, the Company's board of
directors granted a five-year non-qualified stock option under the
1989 Plan for 35,000 shares immediately exercisable with an exercise
price of $3.75 to a new board member, which exercise price was reduced
to $2.38 per share on September 10, 1997, the fair market value on that
date. There are 841,000 options outstanding under the 1989 Plan.
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 171,600 out-
standing as of March 31, 1998, to certain of its officers, directors,
and employees. These options are exercisable at $1 per share through
May 24, 1999.
On February 27, 1995 Techdyne granted non-qualified stock options,
not part of the 1994 Plan, to directors of Techdyne and its subsidiaries
for 142,500 shares exercisable at $1.75 per share through February 26,
2000. 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 June 1997, Techdyne's board of directors adopted a Stock Option
Plan for up to 500,000 options, and pursuant to the plan the Board granted
375,000 options exercisable through June 22, 2002 at $3.25 per share.
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 to certain of its officers, directors
and employees of which there are 19,000 outstanding as of March 31, 1998.
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
its medical directors at its three kidney dialysis centers of which
10,000 options were outstanding at March 31, 1998. These options are
exercisable for a period of three years through August 18, 1999 at $4.75
per share.
NOTE 7--Commitments And Contingencies
Effective January 1, 1997, DCA established a 401(k) savings plan
(salary deferral plan) with an eligibility requirement of one year of
service and 21 year old age requirement. DCA has made no contributions
under this plan as of March 31, 1998.
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially
all of its employees. The discretional profit sharing and matching
expense for the three months ended March 31, 1998 amounted to approxi-
mately $10,000.
Lytton has a deferred compensation agreement with its President
dated August 1, 1997 in the amount of $200,140. The agreement calls
for monthly payments of $8,339 provided that Lytton's cash flow is
adequate to cover these payments with interest to be calculated on
any unpaid balance as of August 1, 1999. During the three months
ended March 31, 1998 a total of $33,357 was paid under this agreement
leaving a balance of approximately
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 7--Commitments And Contingencies--(Continued)
$133,000. Lytton leases its operating facilities from an entity owned
by the president of Lytton and his wife, Lytton's former owner. The
lease, which expires July 31, 2002, requires monthly lease payments of
approximately $17,900 for the first year to be adjusted in subsequent
years for the Consumer Price Index.
NOTE 8--Subsidiary Stock Offerings
During the first quarter of 1997, approximately 28,000 Techdyne
warrants were exercised providing net proceeds of approximately
$131,000 after underwriter commissions on warrant exercises. In accor-
dance with its accounting policy of income statement recognition for
sales of stock by subsidiaries, which includes exercises of warrants
issued in subsidiary stock offerings, the Company recognized a gain
of approximately $61,000 with applicable income taxes of approximately
$23,000, which resulted in a net gain of approximately $38,000 during
the first quarter of 1997.
NOTE 9--Acquisition
On July 31, 1997, Techdyne acquired Lytton, which manufactures
and assembles printed circuit boards and other electronic products.
The purchase price included $2,500,000 cash, paid at closing, and
issuance of 300,000 shares of Techdyne's common stock which has been
registered for the seller. Techdyne has guaranteed that the seller will
realize a minimum of $2,000,000 from the sale of these shares of common
stock. The total purchase price in excess of the fair value of net
assets acquired which originally amounted to approximately $2,230,000
will be amortized over 25 years. Further, additional contingent con-
sideration may be due if Lytton achieves pre-defined earnings and
sales levels. As the contingencies are resolved, if additional consid-
eration is due, the then current fair value of the consideration will
be recorded as goodwill, which will be amortized over the remainder of
the initial 25 year life. Additional consideration of approximately
$154,000 based on sales levels was paid in April 1998 with the Stock
Purchase Agreement providing for possible additional sales level
incentives over a two year period.
The acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operation of Lytton have
been included in the Company's statement of income since August 1,
1997.
The following pro forma consolidated condensed financial infor-
mation reflects the Lytton acquisition as if it had occurred on
January 1, 1997. The pro forma financial information does not purport
to represent what the Company's actual results of operations would
have been had the acquisition occurred as of January 1, 1997 and may
not be indicative of operating results for any future periods.
SUMMARY PRO FORMA INFORMATION
Three Months Ended
March 31,1997
-------------
Total revenues $12,622,000
===========
Net income $ 345,000
===========
Earnings per share:
Basic $.06
====
Diluted $.05
====
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1998
(Unaudited)
NOTE 10--Sale of Subsidiaries' Assets
On October 31, 1997, DCA concluded a sale ("Sale") of its Florida
operations pursuant to an Asset Purchase Agreement. Consideration for
the assets sold was $5,065,000 consisting of $4,585,000 cash and
$480,000 of the purchaser's common stock which the purchaser agreed
to register within one year. Provided that the shares are sold within
30 days of their registration, the purchaser agreed to make up any
difference by which the sales proceeds are less than $480,000 in cash
or additional registered shares of the purchaser at its discretion.
These shares were carried at their market value of approximately
$444,000 at December 31, 1997 with the difference between the guar-
anteed value and the market value being reflected as a receivable
from the purchaser. In February 1998, DCA acquired, in a transaction
accounted for as a purchase, the remaining 20% minority interests in
two of the subsidiaries whose assets were sold. The purchase price
totaled $625,000, which included one-half of the common shares
originally received as part of the consideration of the Sale. The
remaining shares are carried at their market value of approximately
$264,000 at March 31, 1998 with the unrealized gain, net of income
tax effect, included in stockholders' equity in other comprehensive
income.
The pro forma consolidated condensed financial information presented
below reflects the Sale as if it had occurred on January 1, 1997. For
purposes of pro forma statement of income information, no assumption
has been made that expenses have been eliminated which were included in
corporate expense allocations by the Company and DCA to the business
operations sold and which were included in the actual result of opera-
tions of these businesses. Such expenses amounted to approximately
$35,000 for the three months March 31, 1997. No assumption has been
included in the pro forma information as to investment income to be
realized from investment of the proceeds of the sale.
The summary pro forma information, is not necessarily representative
of what the Company's results of operations would have been if the Sale
had actually occurred as of January 1, 1997 and may not be indicative of
the Company's operating results for any future periods.
SUMMARY PRO FORMA INFORMATION
Three Months Ended
March 31,
-------------------------
1998 1997
---- ----
Total revenue $13,137,000 $ 7,519,000
=========== ===========
Net income $ 152,000 $ 191,000
=========== ===========
Earnings per share:
Basic $.03 $.04
==== ====
Diluted $.02 $.03
==== ====
NOTE 11--Repurchase of Common Stock
In November 1997, the Company announced its intent to repurchase
up to $1,000,000 of its outstanding common stock. The reacquired shares
may be used to fund stock option obligations. As of March 31, 1998, the
Company had repurchased 13,700 shares of common stock at a cost of
approximately $28,000 which is reflected as treasury stock.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
- ------ -----------------------------------------------------------
and Results of Operations
-------------------------
Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q 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. The Private Securities Litigation
Reform Act of 1995 (the "Reform Act") contains certain safe harbors re-
garding forward-looking statements. Certain of the forward-looking
statements include management's expectations, intuitions and beliefs
with respect to the growth of the Company, the nature of the elec-
tronics industry in which its 63% owned public subsidiary, Techdyne,
is engaged as a manufacturer, the character and development of the
dialysis industry in which its 66% owned public subsidiary, DCA, is
engaged, the Company's business strategies and plans for future
operations, its needs for capital expenditures, capital resources,
liquidity and operating results, and similar matters that are not
historical facts. Such forward-looking statements are subject to
substantial risks and uncertainties that could cause actual results
to materially differ from those expressed in the statements, in-
cluding general economic and business conditions, opportunities
pursued by the Company, competition, changes in federal and state
laws or regulations affecting the Company, and other factors discussed
periodically in the Company's filings. Many of the foregoing factors
are beyond the control of the Company. 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
Company's Registration Statement, Form S-3, as filed with the Secur-
ities and Exchange Commission ("Commission") (effective May 15, 1997)
and the Registration Statements of the Company's subsidiaries,
Techdyne's Registration Statements as filed with the Commission,
Form SB-2 (effective September 13, 1995) and Forms S-3 (effective
November 11, 1996 and November 4, 1997, respectively), and DCA's
Registration Statement, Form SB-2, as filed with the Commission
(effective on April 17, 1996). Accordingly, readers are cautioned
not to place undue reliance on such forward-looking statements which
speak only as of the date made and which the Company undertakes no
obligation to revise to reflect events after the date made.
Techdyne's electronic and electro-mechanical manufacturing opera-
tions continue to depend upon a relatively small number of customers
for a significant percentage of its net revenue. Significant reduc-
tions in sales to any of Techdyne's major customers would have a
material adverse effect on Techdyne's and the Company's results of
operations.
The industry segments served by Techdyne and the electronics
industry as a whole, are subject to rapid technological change and
product obsolescence. Discontinuance or modification of products
containing components manufactured by Techdyne could adversely affect
the Company's and Techdyne's results of operations. The electronics
industry is also subject to economic cycles and has in the past
experienced, and is likely in the future to experience, recessionary
periods, which could have a material adverse effect on the Company's
and Techdyne's business, financial condition and results of operations.
Although management believes that Techdyne's operations utilize
the assembly and testing technologies and equipment currently required
by Techdyne's customers, there can be no assurance that Techdyne's
process development efforts will be successful or that the emergence
of new technologies, industry standards or customer requirements will
not render its technology, equipment or processes obsolete or noncom-
petitive. In addition, new assembly and testing technologies and
equipment required to remain competitive are likely to require
significant capital investment.
Techdyne has been expanding its geographic and customer base and
management intends to continue to expand within the United States by
continuing to establish new manufacturing facilities and operations in
areas to better serve existing customers and to attract new OEMs, as
well as direct acquisition of contract manufacturing businesses compli-
mentary to Techdyne's operations. The Company will be competing with
much larger electronic manufacturing entities for such expansion oppor-
tunities. Further, any such transactions may result in potentially
dilutive issuance of equity securities, the incurrence of debt and
amortization expenses related to goodwill and other intangible assets,
and other costs and expenses, all of which could materially adversely
affect the Company's and Techdyne's financial results. Such transac-
tions also involve numerous business risks, including difficulties
in successfully integrating acquired operations, technologies and
products or formalizing anticipated synergies, and the diversion of
management's attention from other business concerns. In the event
that any such transaction does occur, there can be no assurance as
to the beneficial effect on Techdyne's and the Company's business and
financial results.
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
and the Company's revenues and profitability.
<PAGE>
With respect to the Company's dialysis operations engaged in through
DCA, essential to the Company's profitability is Medicare reimbursement
which is at a fixed rate determined by HCFA. The level of DCA's, and
therefore, the Company's revenues and profitability may be adversely
affected by potential legislation resulting in rate cuts. Addi-
tionally, operating costs tend to increase over the years without
any comparable increases, if any, in the prescribed dialysis treatment
rates, which usually remain fixed and have decreased over the years.
There also may be reductions in commercial third-party reimbursement
rates.
The dialysis industry is subject to stringent and extensive regula-
tions of federal and state authorities. There are a variety of anti-
kickback regulations, extensive prohibitions relating to self-referrals,
violations of which are punishable by criminal or civil penalties,
including exclusion from Medicare and other governmental programs.
Although the Company has never been challenged under these regulations
and believes it complies in all material respects with such laws and
regulations, there can be no assurance that there will not be unantici-
pated changes in healthcare programs or laws or that DCA will not be
required to change its practice or experience material adverse effects
as a result of any such challenges or changes.
DCA's future growth depends primarily on the availability of
suitable dialysis centers for acquisition or development in appropri-
ate and acceptable areas, and DCA's ability to develop these new
potential dialysis centers at costs within its budget while competing
with larger companies, some of which are public companies or divisions
of public companies with greater personnel and financial resources
who have a significant advantage in acquiring and/or developing facil-
ities in areas targeted by the Company. DCA opened a new center in
Carlisle, Pennsylvania in July, 1997. Its fourth center in Manahawkin,
New Jersey is presently under construction. Two additional centers,
one in Pennsylvania and one in New Jersey are in the planning and archi-
tectural stage. Several agreements for acute inpatient services are
under review but there is no assurance that any of these agreements
will be completed. 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 and for nursing and technical staff at reasonable
rates. There is no certainty as to when any new centers or inpatient
service contracts with hospitals will be implemented, or the number of
stations, or patient treatments such may involve, or if such will ulti-
mately be profitable. Newly established dialysis centers, although
contributing to increased revenues, also adversely affect results of
operations due to start-up costs and expenses with a smaller developing
patient base.
"Year 2000" Impact
The year 2000 computer information processing challenge associated
with the upcoming millennium change, with which all companies, public
and private, are faced to ensure continued proper operations and
reporting of financial condition, has been assessed by management of
the Company and its subsidiaries and is being addressed.
The singular area impacting DCA is in its electronic billing and
maintenance of receivables. Management has evaluated its computer
systems and discussed the year 2000 issue with its computer software
provider with respect to its billing and maintenance of receivables.
The software provider is proceeding to deal with modifying the soft-
ware used by DCA to alleviate any interruptions in electronic billing
and to have the new software system available during fiscal 1998. The
Company believes the conversion of DCA's internal software program will
be completed in a timely manner. The Company does not presently have
an estimate of the cost of the new software modifications, but does
not anticipate any significant expenses to be incurred. As more
information is made available to the Company as to the costs to
obtain a modified software program for DCA, it will provide that
disclosure.
In 1997, Techdyne commenced upgrading its operations software
program by acquiring a new Visual Manufacturing software package. It
has been and will be integrating this new software system into all of
its facilities. The software program is also anticipated to be
installed into Lytton's and Techdyne (Scotland)'s operations sometime
in early 1999, most likely with more sophisticated modifications based
upon the Company's experience with and internal technological advances
to the system. It is anticipated that the Visual Manufacturing software
will be fully integrated by 1999. This system is anticipated to resolve
the "year 2000" issue for Techdyne because the software is already year
2000 compliant.
In addition to addressing each subsidiaries' own internal soft-
ware systems, the Company is communicating with its payors, suppliers,
customers and other key third parties with whom it deals to determine
the extent of their year 2000 problem and what actions they are taking
to assess and address that issue. To the extent such third parties
are materially adversely affected by the year 2000 issue and if it is
not timely corrected, the Company's relationship with such parties and
its operations could be adversely affected. No assurance can be given
that the modifications of the Company's software systems or those of
its key suppliers and payors will be successful and that any such year
2000 compliance failures will not have a material adverse effect on
the Company's business or results of operations.
<PAGE>
Results of Operations
Consolidated revenues increased by approximately $5,179,000 (65%)
for the three months ended March 31, 1998 compared to the same period
of the preceding year. Sales revenues increased by $5,262,000 (68%)
compared to the preceding year.
Techdyne sales increased approximately $5,529,000 (87%) for the
three months ended March 31, 1998 compared to the same period of the
preceding year. The increase was largely attributable to the inclusion
of sales of Lytton of $4,527,000. There was an increase in domestic
sales of $5,149,000 (104%), including the Lytton sales, and an increase
in European sales of $380,000 (27%) compared to the same period of the
preceding year.
Approximately 43% of Techdyne's consolidated sales and 39% of the
Company's consolidated sales for the three months ended March 31, 1998
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 include Motorola which
accounted for 13% and 12% and PMI Food Equipment Group for 12% and 11%,
respectively. PMI Food Equipment Group is Lytton's major customer and
represented 32% of Lytton's sales for the three months ended March 31,
1998. Significant reductions in sales to any of Techdyne's major cus-
tomers would have a material effect on the Company's results of opera-
tion if such sales were not replaced.
Revenues of Techdyne's Scottish-based subsidiary Techdyne (Scotland)
continue to be highly dependent on sales to Compaq, which accounted for
approximately 27% and 55% of the sales of Techdyne (Scotland) for the
three months ended March 31, 1998 and March 31, 1997, respectively. The
bidding for Compaq orders has become more competitive which has resulted
in substantially reduced Compaq sales and lower profit margins on re-
maining Compaq sales. Techdyne (Scotland) is pursuing new business
development and has offset some of the lost Compaq business with sales
to other customers and is also continuing cost reduction efforts to
remain competitive on Compaq business. However, there can be no assur-
ance as to the success of such efforts.
Medical product sales revenues decreased by approximately $53,000
(12%) for the three months ended March 31, 1998 compared to the same
period of the preceding year due to decreased sales of the principal
product of this division.
Medical services revenues, representing the revenues of the Company's
dialysis division, DCA, decreased approximately $216,000 (21%) for the
three months ended March 31, 1998 compared to the same period of the
preceding year. This decrease reflected lost revenues of approximately
$493,000 resulting from the sale of the Company's Florida dialysis opera-
tions on October 31, 1997, which were offset to some degree by approxi-
mately $221,000 in medical services revenues from a new dialysis center
located in Carlisle, Pennsylvania, which commenced operations in July
1997. Although the operations of the new Carlisle center have resulted
in additional revenues, it is in the developmental stage and, accordingly,
its operating results will adversely affect the Company's results of
operations until they achieve a sufficient patient count to cover fixed
operating costs.
Cost of goods sold as a percentage of consolidated sales amounted
to 84% for the three months ended March 31, 1998 compared to 79% for the
same period of the preceding year reflecting increases for Techdyne, the
medical products division and the medical services division.
Cost of goods sold for Techdyne as a percentage of sales amounted
to 86% for the three months ended March 31, 1998 compared to 84% for the
same period of the preceding year reflecting changes in product mix and
a diversification of Techdyne's customer base including changes due to
Lytton.
Cost of goods sold by the medical products division increased to
67% for three months ended March 31, 1998 compared to 60% for the same
period of the preceding year as a result on a change in product mix due
to decreased sales of the principal product of this division.
Cost of medical services sales increased to 72% for the three
months ended March 31, 1998 compared to 61% for the same period of
the preceding year reflecting increases in healthcare salaries and
supply costs as a percentage of sales and including the operations
of the Company's new Carlisle, Pennsylvania center which is still in
its developmental stage.
Selling, general and administrative expenses increased $346,000
for the three months ended March 31, 1998 compared to the preceding
year. This increase reflected the selling, general and administrative
expenses of Lytton, a new dialysis center in Carlisle, Pennsylvania
and increased DCA support functions, which were offset by the decline
in expenses resulting from DCA's sale of its Florida dialysis opera-
tions on October 31, 1997.
<PAGE>
Interest expense increased by approximately $95,000 for the three
months ended March 31, 1998 compared to the same period of the preceding
year. This increase included interest of $53,000 associated with
Techdyne's financing of the Lytton acquisition and interest from
Lytton's financing and debt agreements of $43,000.
A substantial portion of the Company's outstanding borrowings are
tied to the prime interest rate. The prime rate was 8.5% at March 31,
1998 and December 31, 1997.
Liquidity and Capital Resources
Working capital totaled $18,578,000 at March 31, 1998, which
reflected a decrease of $279,000 (1%) during the three months ended
March 31, 1998. Included in the changes in components of working
capital was a decrease of $1,908,000 in cash and cash equivalents,
which included net cash used in operating activities of $1,025,000
(including a decrease in income taxes payable of $1,571,000 largely
from tax payments on the gain on the Florida dialysis operations sale),
net cash used in investing activities of $627,000 (including funds used
for redemption of minority interest of dialysis subsidiaries of
$385,000, additions to property, plant and equipment of $129,000 and
an increase in other assets of $112,000 resulting from development of
a new Manahawkin, New Jersey dialysis center), and net cash used in
financing activities of $262,000 (including payments on long-term
debt of $ 257,000).
Techdyne has a five-year $1,500,000 ("notional amount under
interest rate swap agreement") commercial term loan with monthly
principal payments of $25,000 plus interest at 8.6% which had an
outstanding balance of $1,425,000 at March 31, 1998 and $1,500,000
at December 31, 1997 and a $1,600,000 commercial revolving line of
credit with interest at prime of which $1,000,000 was outstanding at
March 31, 1998 and December 31, 1997. The commercial term loan matures
December 15, 2002 and the commercial line of credit, no longer a demand
line, matures May 1, 2000. See Note 4 to "Notes to Consolidated
Condensed Financial Statements".
Techdyne had obtained two other term loans from its Florida bank.
One is a $712,500 term loan, which had a remaining principal balance of
$655,000 at March 31, 1998 and $663,000 at December 31, 1997, is secured
by two buildings and land owned by the Company. The second term loan for
$200,000, which had a remaining principal balance of 117,000 at March 31,
1998 and $127,000 at December 31, 1997 is secured by Techdyne's tangible
personal property, goods and equipment. The Company has guaranteed these
loans and subordinated the intercompany indebtedness due from Techdyne,
provided that Techdyne may make payments to the Company on this subor-
dinated debt from additional equity that is injected into Techdyne and
from earnings. See Note 4 to "Notes to Consolidated Condensed Financial
Statements".
Techdyne has outstanding borrowings of $145,000 from a local bank
with interest payable monthly with the note, which was renewed during
1997, maturing April 2000. Techdyne (Scotland) has a line of credit
with a Scottish bank, with an U.S. dollar equivalency of approximately
$330,000 at March 31, 1998 and December 31, 1997 that is secured by
assets of Techdyne (Scotland) and guaranteed by the Company. This
line of credit operates as an overdraft facility. No amounts were
outstanding under this line of credit as of March 31, 1998 or December
31, 1997. In July, 1994 Techdyne (Scotland) purchased the facility
housing its operations for approximately $730,000, obtaining a 15-year
mortgage which had a U.S. dollar equivalency of approximately $569,000
at March 31, 1998 and December 31, 1997, based on exchange rates in
effect at each of these dates. See Note 4 to "Notes to Consolidated
Condensed Financial Statements".
On July 31, 1997, Techdyne acquired Lytton, which is engaged in
the manufacture and assembly of PCBs and other electronic products for
commercial customers. This acquisition required $2,500,000 cash at
closing, funded by the modified bank line of credit, as well as
300,000 shares of Techdyne's common stock which had a fair value of
approximately $1,031,000 based on the closing price of Techdyne common
stock on the date of acquisition. Techdyne has guaranteed $2,000,000
minimum proceeds ($2,400,000 if certain earnings objectives are met
over a specified twelve month period) to the seller with respect to
these shares. The Stock Purchase Agreement also provides for in-
centive consideration to be paid in cash based on specific sales
levels of Lytton for each of three successive specified years.
Additional consideration of approximately $154,000 based on sales
levels was paid in April 1998 with the Stock Purchase Agreement
providing for possible additional sales level incentives over a two
year period. Based upon the closing price of Techdyne's common stock
on March 31, 1998 of $4.31 the shares issued in the Lytton acquisi-
tion had a fair value of $1,293,000 which could result in additional
consideration of approximately $707,000 payable in either in cash or
in approximately 164,000 shares of Techdyne's stock. If the earnings
objective is met, an additional $400,000 would be payable in cash or
approximately 93,000 shares of common stock based on the March 31,
1998 closing stock price. The Lytton acquisition has expanded
Techdyne's customer base, broadened its product line, enhanced its
manufacturing capabilities and provided a new geographic area to
better serve Techdyne's existing customer base with opportunities
to attract new customers. See Notes 4 and 9 to "Notes to Consoli-
dated Condensed Financial Statements".
<PAGE>
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 $414,000 and
$432,000 at March 31, 1998 and December 31, 1997, respectively. 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. See Note 4 to "Notes to Consolidated Condensed Financial
Statements".
DCA has an equipment purchase agreement for kidney dialysis
machines for its dialysis facilities which had a remaining principal
balance of $283,000 and $285,000 at March 31, 1998 and December 31,
1997, respectively, which included additional financing of approxi-
mately $17,000 in the first quarter of 1998. See Note 4 to "Notes to
Consolidated Condensed 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 in 1996 and
sale of its Florida dialysis operations in 1997. No assurance can be
given that DCA will be successful in implementing its growth strategy
or that the funds from its security offering and sale of its Florida
dialysis operations will be adequate to finance expansion or that
sufficient outside financing would be available to fund expansion.
See Note 10 to "Notes to Consolidated Condensed Financial Statements".
DCA has entered into agreements with several medical directors, and
intends to establish two dialysis centers, one in New Jersey and one in
Pennsylvania. It is anticipated that a New Jersey facility, currently
under construction, will be operational in the third quarter of 1998.
A lease was recently negotiated for a new center in Pennsylvania and
lease negotiations are currently underway for a new facility in New
Jersey.
In February 1998, DCA redeemed the 20% minority interest in two
of its subsidiaries whose assets were included in the Florida dialysis
operations sale for a total consideration of $625,000, including
$385,000 cash and one-half of the purchaser's securities valued at
$240,000 with the total value of $480,000 for securities received
having been guaranteed by the purchaser. See Note 10 to "Notes to
Consolidated Condensed Financial Statements".
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.
The Company anticipates that current levels of working capital and
working capital from operations will be adequate to successfully meet
liquidity demands for at least the next twelve months, including the
debt and financing obligations incurred in the acquisition of Lytton.
Inflation
Inflationary factors have not had a significant effect on the
Company's operations. The Company attempts to pass on increased costs
and expenses incurred in the electronic and electro-mechanical products
division 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. 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, supply costs or nursing and other patient care costs.
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
None
(b) Reports on Form 8-K
A Form 8-K Current Report was filed on January 20, 1998, Item
5, "Other Events" relating to Techdyne, Inc., the Company's
subsidiary, refinancing its revolving line of credit and
obtaining a term loan. There were no financial statements
filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MEDICORE, INC.
/s/ DANIEL R. OUZTS
By:----------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Accounting Officer
Dated May 13, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- -------
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,191,395
<SECURITIES> 888,442
<RECEIVABLES> 7,141,882<F1>
<ALLOWANCES> 0
<INVENTORY> 8,194,767<F2>
<CURRENT-ASSETS> 27,353,121
<PP&E> 14,101,984
<DEPRECIATION> 5,372,260
<TOTAL-ASSETS> 39,303,878
<CURRENT-LIABILITIES> 8,775,333
<BONDS> 5,000,659
0
0
<COMMON> 58,569
<OTHER-SE> 16,490,141
<TOTAL-LIABILITY-AND-EQUITY> 39,303,878
<SALES> 13,019,409
<TOTAL-REVENUES> 13,193,719
<CGS> 10,930,382
<TOTAL-COSTS> 10,930,382
<OTHER-EXPENSES> 1,767,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,769
<INCOME-PRETAX> 344,975
<INCOME-TAX> (29,407)
<INCOME-CONTINUING> 211,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,417
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
<FN>
<F1>Accounts receivable are net of allowance of $268,000 at March
31, 1998.
<F2>Inventories are net of reserve of $287,000 at March 31, 1998.
</FN>
</TABLE>
