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, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to __________________
Commission file number 0-6906
------
MEDICORE, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-0941551
--------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2337 WEST 76TH STREET, HIALEAH, FLORIDA 33016
---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(305) 558-4000
----------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] or No[ ]
Common Stock Outstanding
Common Stock, $.01 par value - 5,710,540 shares as of April 30, 2000.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the
three months ended March 31, 2000 and March 31, 1999 include the accounts of the
Registrant and all its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS
1) Consolidated Condensed Statements of Operations for the three
months ended March 31, 2000 and March 31, 1999.
2) Consolidated Condensed Balance Sheets as of March 31, 2000 and
December 31, 1999.
3) Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2000 and March 31, 1999.
4) Notes to Consolidated Condensed Financial Statements as of
March 31, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Sales $ 14,729,798 $ 11,259,096
Gain on subsidiary warrants exercise 246,360 --
Other income 115,537 132,307
------------ ------------
15,091,695 11,391,403
COST AND EXPENSES
Cost of goods sold 12,914,360 9,820,621
Selling, general and administrative expenses 2,378,973 1,867,893
Interest expense 206,462 139,022
------------ ------------
15,499,795 11,827,536
------------ ------------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (408,100) (436,133)
Income tax provision (benefit) 90,617 (45,087)
------------ ------------
LOSS BEFORE MINORITY INTEREST (498,717) (391,046)
Minority interest in (loss) earnings of consolidated subsidiaries (129,108) (104,509)
------------ ------------
NET LOSS $ (369,609) $ (286,537)
============ ============
Loss per share:
Basic $ (.06) $ (.05)
============ ============
Diluted $ (.06) $ (.05)
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999(A)
------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,424,634 $ 4,151,150
Marketable securities 66,934 9,520
Accounts receivable, less allowances of
$361,000 at March 31, 2000 and $431,000 at December 31, 1999 9,137,510 8,958,837
Note receivable 2,000,000 --
Inventories, less allowance for obsolescence
of $786,000 at March 31, 2000 and $724,000 at December 31, 1999 9,526,216 10,097,974
Prepaid expenses and other current assets 846,334 810,806
Deferred tax asset 606,770 614,308
------------ ------------
Total current assets 24,608,398 24,642,595
PROPERTY AND EQUIPMENT
Land and improvements 1,219,108 1,012,455
Building and building improvements 3,071,564 3,071,948
Equipment and furniture 11,555,578 11,455,449
Leasehold improvements 2,319,133 2,243,658
------------ ------------
18,165,383 17,783,510
Less accumulated depreciation and amortization 7,723,376 7,309,250
------------ ------------
10,442,007 10,474,260
DEFERRED EXPENSES AND OTHER ASSETS 104,120 111,392
COSTS IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED,
less accumulated amortization of $792,000 at March 31, 2000 and
$749,000 at December 31, 2000 3,735,221 3,381,718
------------ ------------
$ 38,889,746 $ 38,609,965
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings $ 20,024 $ 30,024
Accounts payable 4,369,042 5,568,972
Accrued expenses and other current liabilities 2,648,409 2,210,345
Current portion of long-term debt 754,029 732,677
Income taxes payable 197,222 260,481
------------ ------------
Total current liabilities 7,988,726 8,802,499
LONG-TERM DEBT 9,321,075 8,363,497
DEFERRED INCOME TAXES 1,908,360 1,814,743
MINORITY INTEREST IN SUBSIDIARIES 5,850,631 5,346,779
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 12,000,000 shares; issued and
outstanding 5,710,540 shares at March 31, 2000 and
5,707,540 shares at December 31, 1999 57,105 57,075
Capital in excess of par value 11,862,383 11,961,030
Retained earnings 1,966,272 2,335,881
Accumulated other comprehensive loss:
Foreign currency translation adjustment (80,068) (74,505)
Unrealized gain on marketable securities for sale 15,262 2,966
------------ ------------
Total accumulated other comprehensive loss (64,806) (71,539)
------------ ------------
Total Stockholders' Equity 13,820,954 14,282,447
------------ ------------
$ 38,889,746 $ 38,609,965
============ ============
(A) Reference is made to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission in March, 2000.
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
MEDICORE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (369,609) $ (286,537)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 469,320 407,111
Amortization 51,489 41,463
Bad debt expense 43,531 7,636
Provision for inventory obsolescence 117,938 77,051
Minority interest (129,108) (104,509)
Consultant stock options expense 8,276 --
Finder's fee stock options expense 64,500 --
Gain on subsidiary warrants exercise (246,360) --
Deferred income taxes 93,617 --
Increase (decrease) relating to operating activities from:
Accounts receivable (225,810) (259,519)
Inventories 448,712 129,259
Prepaid expenses and other current assets (45,005) 304,726
Accounts payable (1,198,283) 159,032
Accrued expenses and other current liabilities 60,454 62,818
Income taxes payable (63,259) (201,744)
----------- -----------
Net cash (used in) provided by operating activities (919,597) 336,787
INVESTING ACTIVITIES
Additions to property and equipment, net of minor disposals (419,882) (579,849)
Addition to note receivable (2,000,000) --
Deferred expenses and other assets (2,026) 9,086
Purchase of marketable securities (37,580) --
----------- -----------
Net cash used in investing activities (2,459,488) (570,763)
FINANCING ACTIVITIES
Line of credit net borrowings (payments) 985,336 (326,749)
Payments on short-term bank borrowings (10,000) --
Proceeds from long-term borrowings 150,000 --
Payments on long-term borrowings (194,847) (231,527)
Exercise of stock options and warrants 720,805 --
Deferred financing costs -- (303)
----------- -----------
Net cash provided by (used in) financing activities 1,651,294 (558,579)
Effect of exchange rate fluctuations on cash 1,275 (24,290)
----------- -----------
Decrease in cash and cash equivalents (1,726,516) (816,845)
Cash and cash equivalents at beginning of year 4,151,150 7,294,707
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,424,634 $ 6,477,862
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Condensed Financial Statements include the accounts of
Medicore, Inc., Medicore's 64.9% owned subsidiary, Dialysis Corporation of
America ("DCA") and its subsidiaries and Medicore's 70.9% owned subsidiary,
Techdyne, Inc. ("Techdyne") and its subsidiaries Lytton Incorporated ("Lytton"),
Techdyne (Europe) Limited ("Techdyne (Europe)"), and Techdyne (Livingston)
Limited which is a subsidiary of Techdyne (Europe), 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 and/or
weighted average cost method) or market value. The cost of finished goods and
work in process consists of direct materials, direct labor and an appropriate
portion of fixed and variable manufacturing overhead. Inventories are comprised
of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
Electronic and mechanical components, net:
Finished goods $ 775,576 $ 1,018,131
Work in process 2,313,744 2,463,191
Raw materials and supplies 5,784,115 6,010,987
----------- -----------
8,873,435 9,492,309
Medical supplies 652,781 605,665
----------- -----------
$ 9,526,216 $10,097,974
=========== ===========
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities is comprised as follows:
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
Accrued compensation $ 618,086 $ 609,708
Other 2,030,323 1,600,637
----------- -----------
$ 2,648,409 $ 2,210,345
=========== ===========
</TABLE>
Earnings Per Share
Diluted earnings per share gives effect to potential common shares that
were dilutive and outstanding during the period, such as stock options and
warrants, using the treasury stock method and average market price. No potential
dilutive securities were included in the diluted earnings per share computation
for the three months ended March 31, 2000 or for the same period of the
preceding year as a result of exercise prices and the net loss, since to include
them would be anti-dilutive.
Following is a reconciliation of amounts used in the basic and diluted
computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net loss $ (369,609) $ (286,537)
=========== ===========
Weighted average shares 5,708,375 5,715,540
=========== ===========
Loss per share:
Basic $ (.06) $ (.05)
=========== ===========
Diluted $ (.06) $ (.05)
=========== ===========
</TABLE>
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Sale of Stock By Subsidiaries: The Company follows an accounting policy
of recognizing income on sales of stock by its subsidiaries, which includes
exercise of warrants issued in subsidiary stock offerings. See Note 9.
Marketable Securities: The Company classifies its marketable equity
securities as either trading or available-for-sale. The Company does not
purchase equity 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 relating to
available-for-sale securities are included separately as a component of
accumulated other comprehensive income (loss) included in 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.
Marketable securities are comprised of the following:
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
Cost $ 42,317 $ 4,737
Unrealized holding gains 24,617 4,783
--------- ---------
Fair value $ 66,934 $ 9,520
========= =========
Unrealized holding gains, which amounted to $24,617 less deferred taxes
of $9,355 at March 31, 2000, and $4,783 less deferred taxes of $1,817 at
December 31, 1999, are included separately as a component of accumulated other
comprehensive loss in stockholders' equity.
Comprehensive Income (Loss)
Comprehensive loss consists of net loss foreign currency translation
adjustments and unrealized gain (loss) on marketable securities. Below is a
detail of comprehensive loss for the three months ended March 31, 2000 and March
31, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net loss $ (369,609) $ (286,537)
Other comprehensive income (loss):
Foreign currency translation adjustments (5,563) (42,672)
Unrealized gain (loss) on marketable securities:
Unrealized holding gain (loss) arising during
period, net of tax 12,296 (49,831)
----------- -----------
Total other comprehensive income (loss) 6,733 (92,503)
----------- -----------
Comprehensive loss $ (362,876) $ (379,040)
=========== ===========
</TABLE>
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
New Pronouncements:
In June, 1998, the Financial Accounting Standards Board issued
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is effective
for fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires, among other things, that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and that these instruments be measured at fair value. The Company is in
the process of determining the impact that the adoption of FAS 133 will have on
its consolidated financial statements.
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months ended March 31, 2000 and
March 31, 1999 are unaudited and include, in the opinion of management of the
Company, all adjustments (consisting of normal recurring accruals) necessary to
present fairly the earnings for such periods. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 2000.
While the Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report for the year
ended December 31, 1999.
NOTE 3--LONG-TERM DEBT
In February 2000, Techdyne refinanced its line of credit and term loans
through the same bank which handles Lytton's financing. One credit facility is a
$4,500,000 three year committed line of credit facility maturing February, 2003
with interest payable monthly at prime minus 1/4% and an option to fix the rate
for up to 180 days at Libor plus 2.50%. This line of credit had an outstanding
balance of approximately $2,962,000 at March 31, 2000. The bank also extended a
$1,000,000 five year term loan maturing February 2005 with the same interest
rate as for the line of credit. This term loan had an outstanding balance of
approximately $983,000 at March 31, 2000. If Techdyne achieves certain financial
criteria for its year ended December 31, 2000, it would receive a rate reduction
under both the prime and Libor alternatives. The loans are secured by the
business assets of Techdyne and are cross-collateralized with the debt of
Lytton. These loans replaced bank debt which consisted at December 31, 1999 of a
line of credit with an outstanding balance of $1,600,000, term loans with a
combined outstanding balance of approximately $1,552,000 and another bank loan
with an outstanding balance of $145,000. The total principal balance refinanced
was approximately $3,260,000 representing a non-cash financing activity which is
a supplemental disclosure required by Financial Accounting Standards Board
Statement No. 95, "Statement of Cash Flows" (FAS 95). The refinancing also
included payment of approximately $17,000 accrued interest.
In conjunction with Techdyne's refinancing, the bank amended the terms
of the Lytton line of credit and term loan and equipment loan agreements to make
Lytton's line of credit a three year committed facility and to amend the
interest rates on Lytton's line of credit, term loan and equipment loan
agreements to coincide with those of Techdyne's loan agreements.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 3--LONG-TERM DEBT--CONTINUED
Lytton has a $3,000,000 three year committed line of credit facility
maturing February 2003 with interest payable monthly at prime minus 1/4%. There
was an outstanding balance on this loan of approximately $3,000,000 at March 31,
2000 and $2,830,000 at December 31, 1999. Lytton has a $1,400,000 installment
loan with interest at prime minus 1/4% and monthly payments of $23,333 plus
interest payable in 60 monthly installments commencing August 1, 1999 with the
final installment due June 30, 2004. The balance outstanding on this loan was
approximately $1,218,000 at March 31, 2000 and $1,283,000 at December 31, 1999.
Lytton also has a $500,000 equipment loan agreement with the same bank payable
through June 30, 2004 with interest at prime minus 1/4%. This loan had an
outstanding balance of $150,000 at March 31, 2000 with no outstanding balance as
of December 31, 1999. All of these bank loans are secured by the business assets
of Lytton and all have an option to fix the rate for up to 180 days at Liber
plus 2.50%.
The prime rate was 9.00% as of March 31, 2000 and 8.50% as of December
31, 1999.
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 $101,000 at March 31, 2000 and
$113,000 at December 31, 1999 and is secured by equipment.
In July 1994, Techdyne (Europe) purchased the facility housing its
operations obtaining a 15 year mortgage which had a U.S. dollar equivalency of
approximately $476,000 at March 31, 2000 and $489,000 at December 31, 1999 based
on exchange rates in effect at each of these dates.
The Company's medical products division has two lines of credit with
local Florida banks, one of which is a secured $350,000 line with a maturity of
April 22, 2001 with interest at prime plus 1% payable monthly. This line of
credit is secured by the accounts receivable and inventory of the Company's
medical products division and had an outstanding balance of approximately
$130,000 at March 31, 2000 and no balance outstanding at December 31, 1999. The
other line is an unsecured $65,000 line of credit maturing May 1, 2000 with
interest at prime payable monthly. This line had an outstanding balance of
approximately $20,000 at March 31, 2000 and $30,000 at December 31, 1999.
In December 1988, DCA obtained a $480,000 fifteen year mortgage through
November 2003 on its building in Lemoyne, Pennsylvania with interest at 1% over
the prime rate. The remaining principal balance under this mortgage amounted to
approximately $117,000 and $125,000 at March 31, 2000 and December 31, 1999,
respectively. Also in December 1988, DCA obtained a $600,000 mortgage on its
building in Easton, Maryland on the same terms as the Lemoyne property. The
remaining principal balance under this mortgage amounted to approximately
$147,000 and $157,000 at March 31, 2000 and December 31, 1999, respectively.
DCA through its subsidiary, DCA of Vineland, LLC, pursuant to a
December 3, 1999 loan agreement obtained a $700,000 development and equipment
line of credit with interest at 8.75% which is secured by the acquired assets of
DCA of Vineland and a second mortgage on DCA's real property in Easton, Maryland
on which an affiliated bank holds the first mortgage. Outstanding borrowings are
subject to monthly payments of interest and principal with any remaining balance
due September 1, 2003. There were no outstanding borrowings under this line of
credit as of March 31, 2000 or December 31, 1999.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 3--LONG-TERM DEBT--(CONTINUED)
DCA has an equipment purchase agreement for certain kidney dialysis
machines at its facilities with interest at rates ranging from 4.14% to 11.84%
pursuant to various schedules extending through May 2005. There was additional
financing of $90,000 during the three months ended March 31, 1999 representing a
noncash financing activity which is a supplemental disclosure required by FAS
95. The remaining principal balance under this agreement amounted to
approximately $703,000 and $731,000 at March 31, 2000 and December 31, 1999,
respectively.
The prime rate was 9.00% as of March 31, 2000 and 8.50% as of December
31, 1999.
Interest payments on long-term debt amounted to approximately $165,000
for the three months ended March 31, 2000 and $142,000 for the same period of
the preceding year.
NOTE 4--INCOME TAXES
Techdyne and DCA each file separate federal and state income tax
returns with their 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. For financial
reporting purposes, a valuation allowance has been recognized to offset a
portion of the deferred tax assets.
The Company had a domestic income tax expense of approximately $91,000
for the three months ended March 31, 2000, which included deferred taxes of
$103,000 on DCA warrant exercises, and a domestic income tax benefit of
approximately $45,000 for the same period of the preceding year. See Note 9.
Techdyne (Europe) had no income tax expense or benefit for the three
months ended March 31, 2000 or the same period of the preceding year due to its
loss an it having utilized all available tax loss carrybacks.
Income tax payments were approximately $178,000 for the three months
ended March 31, 2000 and $218,000 for the same period of the preceding year.
NOTE 5--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 were exercisable at
$3.00 per share, reduced to $2.38 per share on December 31, 1996, 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. Including the June 1997 grant, there are 838,000
options outstanding at March 31, 2000 under the 1989 plan, of which 803,000
options have now expired.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 5--STOCK OPTIONS--CONTINUED
On February 17, 2000, the Company adopted a new 2000 Stock Option Plan
for up to 500,000 shares and granted 175,000 non-qualified and 300,000 incentive
stock options. The Plan is subject to shareholder approval, prior to which the
options are restricted from exercise.
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 were issued to
the managing director of Techdyne's European operations.
In May 1994, Techdyne adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in May 1994, the board of directors granted
227,500 options to certain of its officers, directors, and employees. These
options were exercisable for a period of five years at $1 per share. 11,500
options were cancelled and there were aggregate exercises of 216,400 options, of
which 115,000 options were exercised on June 30, 1998, and 50,000 of the
remaining options were exercised on May 10, 1999. The Company received cash
payment of the par value and the balance in three year promissory notes with
interest at 5.16% for the June 1998 exercises and 4.49% for the May 1999
exercises.
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. On February 25, 2000, 145,000 of these options were exercised. Techdyne
received cash payment of the par value and the balance in three year promissory
notes with interest at 6.19%.
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 for five years through June 22, 2002 at $3.25 per share the
closing price of the common stock on the date of grant with 345,000 of these
options outstanding at March 31, 2000. On June 30, 1999, Techdyne granted 52,000
options exercisable for three years through June 29, 2002 at $4.00 per share
with 36,000 options outstanding at March 31, 2000. On August 25, 1999, Techdyne
granted 16,000 options exercisable for three years through August 24, 2002 at
$4.00 per share with 13,000 options outstanding at March 31, 2000. On December
15, 1999, Techdyne granted 19,000 options exercisable for three years through
December 14, 2002 at $4.00 per share with 16,000 options outstanding at March
31, 2000.
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 and
consultants of which there were 4,500 outstanding as of March 31, 2000. These
options vested immediately and are exercisable for a period of five years
through November 9, 2000 at $1.50 per share. On June 10, 1998, DCA's board of
directors granted an option under the 1995 plan to a new board member for 5,000
shares exercisable at $2.25 per share though June 9, 2003.
In April 1999, DCA adopted a stock option plan pursuant to which its
board of directors granted 800,000 options exercisable at $1.25 per share to
certain of its officers, directors, employees and consultants with 340,000
options exercisable through April 20, 2000 and 460,000 options exercisable
through April 20, 2004. DCA recorded expense of $153,000 on 340,000 of these
options pursuant to FAS 123 and APB 25 in the second quarter of 1999. In April
2000, the 340,000 one-year options were exercised for which DCA received cash
payment of the par value and the balance in three-year promissory notes.
In May, 1998, as part of the consideration pursuant to an agreement for
investor relations and corporate communications services agreement, the Company
granted options for 20,000 shares of its common stock exercisable for three
years through May 14, 2001 at $2.25 per share and Techdyne granted options for
25,000 shares of its common stock exercisable for three years through May 14,
2001 at $4.25 per share. Options for 5,000 shares of the Company's common stock
and 6,250 shares of Techdyne's common stock vested during 1998 with no
additional options to vest due to cancellation of this agreement in August,
1998.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 5--STOCK OPTIONS--CONTINUED
Techdyne entered into a consulting agreement on July 1, 1999 for
financial advisory services with the agreement to end on September 15, 2000. As
compensation, the consultant received non-qualified stock options to purchase
100,000 shares of Techdyne's common stock exercisable at $3.50 per share that
will expire on September 15, 2000. These options were valued at $40,000 and
resulted in approximately $8,000 expense during the three months ended March 31,
2000.
NOTE 6--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 years of age requirement. DCA has made no contributions under this plan
as of March 31, 2000.
Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees. The Company and Techdyne adopted this plan as participating
employers effective July 1, 1998. The discretionary profit sharing and matching
expense including that of the Company, Techdyne and Lytton for the three months
ended March 31, 2000 amounted to approximately $23,000, with such expense
amounting to approximately $20,000 for the same period of the preceding year.
Lytton leases its operating facilities from an entity owned by the
former President and currently the part-time Assistant to the President of
Lytton and his wife, Lytton's former owner. The lease, which expires July 31,
2002, requires annual lease payments of approximately $218,000 adjusted each
year based upon the Consumer Price Index. During the three months ended March
31, 2000, approximately $56,000 was paid under the lease compared to
approximately $55,000 paid for the same period of the preceding year.
NOTE 7--BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA
The following summarizes information about the Company's four reported
business segments. The medical products and new technology divisions have been
shown separately even though not required by FAS 131. Corporate activities
include general corporate revenues and expenses. Corporate assets include
unallocated cash, deferred income taxes, corporate fixed assets and goodwill not
allocated to any of the segments. Intersegment sales are generally intended to
approximate market price.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
BUSINESS SEGMENT REVENUES
Electro-mechanical
External $ 12,648,613 $ 9,833,647
Intersegment sales -- 23,468
Medical products 399,894 280,215
Medical services 1,790,364 1,255,124
New technology 27,260 --
Corporate 284,181 91,334
Elimination of corporate rental charges
to electro-mechanical manufacturing (21,620) (23,407)
Elimination of corporate rental charges
to medical products (1,830)
Elimination of corporate interest charge
to electro-mechanical (6,979) (44,607)
Elimination of medical services interest charge
to new technology (27,260) --
Elimination of medical services
interest charge to corporate (928) (903)
Elimination of electro-mechanical
manufacturing sales to medical products (23,468)
------------ ------------
$ 15,091,695 $ 11,391,403
============ ============
</TABLE>
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 7--BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA--(CONTINUED)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
------------ ------------
BUSINESS SEGMENT PROFIT (LOSS)
Electro-mechanical $ (220,699) $ (122,215)
Medical products (41,944) (10,384)
Medical services (212,189) (219,172)
New technology (64,500)
Corporate 131,232 (84,362)
------------ ------------
$ (408,100) $ (436,133)
============ ============
NOTE 8--ACQUISITION
On July 31, 1997, Techdyne acquired Lytton, which manufactures and
assembles printed circuit boards and other electronic products, for $2,500,000
cash, paid at closing, and issuance of 300,000 shares of Techdyne's common
stock. Techdyne guaranteed that the seller would realize a minimum of $2,400,000
from the sale of these shares of common stock based on Lytton having achieved
certain earnings objectives. The purchase price in excess of the fair value of
net assets acquired is being amortized over twenty five years. Additional
contingent consideration was due if Lytton achieved pre-defined sales levels.
Additional consideration of approximately $396,000, $290,000 and $154,000 was
paid in April 2000, April 1999 and April 1998, respectively, based on sales
levels. As the contingencies have been resolved, additional consideration due,
has been recorded as goodwill, and is being amortized over the remainder of the
initial 25 year life of the goodwill.
In July 1998, Techdyne advanced the seller approximately $1,278,000
("Advance") toward the guarantee for the sale of Techdyne's common stock in
addition to the prior sales by the seller. Subsequently, Techdyne also
guaranteed the seller aggregate proceeds of no less than $1,100,000 from the
sale of the remaining common stock if sold on or prior to July 31, 1999. In July
1999, Techdyne forgave the Advance and issued payment of $1,100,000 to the
seller, which together with the proceeds realized by the seller from the sale of
stock in 1998 satisfied Techdyne's remaining obligation under the $2,400,000
guarantee. The 295,000 shares held by the seller were returned to Techdyne and
were cancelled.
NOTE 9--SUBSIDIARY STOCK OFFERINGS
Pursuant to a 1998 public offering, DCA issued common stock and
2,300,000 redeemable common stock purchase warrants to purchase one DCA common
share each with an exercise price of $4.50, originally exercisable through April
16, 1999 and extended to June 30, 2000. The underwriters received options to
purchase 100,000 shares of DCA common stock and 200,000 common stock purchase
warrants, with the options exercisable at $4.50 per unit through April 16, 2001
with the underlying warrants being substantially identical to the public
warrants except that they are exercisable at $5.40 per share.
During the first quarter of 2000, approximately 167,000 DCA warrants
were exercised with net proceeds to DCA of approximately $712,000. Certain of
these proceeds may go to MainStreetIPO.com Inc. if the proposed merger of DCA
with that company is completed. See Note 10. In accordance with its accounting
policy, the Company recognized a gain of approximately $246,000 and deferred
income taxes of approximately $94,000 related to DCA warrant exercises.
<PAGE>
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NOTE 10--PROPOSED MERGER AND ACQUISITION
On October 20, 1999, DCA entered into an Agreement and Plan of Merger
with MainStreet IPO.com, Inc. ("MainStreet") and its wholly-owned subsidiary,
MainStreet Acquisition Inc. ("MainStreet Sub"). The proposed merger anticipates
MainStreet Sub merging into DCA with DCA surviving, changing its name to
MainStreet Sub, and becoming a wholly-owned subsidiary of MainStreet. DCA
shareholders will receive, on a one-for-one basis, shares of common stock of
MainStreet, which company filed a registration statement in February 2000 with
the SEC covering the issuance of approximately 1,396,000 shares of its common
stock, plus an indeterminate number of shares for resale by certain affiliates
of DCA, MainStreet and certain private investors of MainStreet. DCA's proxy
statement, which is part of MainStreet's registration statement, will solicit
the minority shareholders for approval of the merger and related transactions at
such time as the SEC declares the registration effective. There were extensive
comments by the SEC staff to the registration statement including certain
regulatory issues as to MainStreet's requirement to register as a broker-dealer,
which MainStreet is attempting to resolve.
Immediately prior to the proposed merger, DCA will be selling all of
its assets to Dialysis Acquisition Corp., a wholly-owned subsidiary of the
Company, with this subsidiary also assuming all liabilities of DCA. The proposed
sale of assets and merger transactions are subject to a variety of
contingencies, most importantly DCA shareholder approval. Should DCA's minority
shareholders approve the transactions, the Company will own 100% of the dialysis
operations, and DCA's shareholders will become shareholders of MainStreet.
Assuming completion of the merger, 20% of the net proceeds from
exercise of DCA's publicly traded warrants from the date of the Merger
Agreement, October 20, 1999, up to $1,000,000, would go to the Company. If the
merger is not completed, net proceeds from warrant exercises would remain with
DCA to be used in its business and for development of additional dialysis
centers. See Note 9.
MainStreet is a recently established company which has developed a
central website to provide business entities with the necessary tools to perform
direct public offering of their securities. Another company, CEO Letter, LLC,
which will become a wholly-owned subsidiary of MainStreet at the time of the
merger, provides chief executive officers of public companies the forum to
discuss their companies over the internet.
NOTE 11--INVESTMENT
On January 27, 2000, the Company acquired a 6% interest, with an option
to acquire an additional 2%, in Linux Global Partners, a holding company
investing in Linux software companies, and loaned Linux Global Partners
$1,500,000 with a 10% annual interest rate to be repaid with accrued interest by
January 26, 2001. In March 2000, the Company exercised the option to acquire the
additional 2% interest in Linux Global Partners in conjunction with which it
loaned Linux Global Partners an additional $500,000. The Company borrowed the
funds for the loans from DCA with an annual interest rate of 10%. The companies
in which Linux Global Partners invests intend to use The Linux Fund IPO.com,
Inc. ("Linux Fund IPO.com") website for any of their future public offerings.
The Linux Fund IPO.com is a 50% owned subsidiary of the Linux Global Partners,
with 50% owned by MainStreet. See Note 10.
The Company issued options to purchase 150,000 shares of its common
stock to MainStreet and two of its officers as a finder's fee in conjunction
with the Company's investment in the Linux Global Partners and recorded an
expense of approximately $65,000 on these options in January 2000.
<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 contains certain
safe harbors regarding 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 electronics
industry in which its public subsidiary, Techdyne, is engaged as a manufacturer,
the character and development of the dialysis industry in which its public
subsidiary, DCA, is engaged, our business strategies and plans for future
operations, our 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, including 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
our filings. Many of the foregoing factors are beyond our control. 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 our
Registration Statement, Form S-3, as filed with the Securities and Exchange
Commission ("Commission") (effective May 15, 1997) and the Registration
Statements of our subsidiaries, Techdyne's Registration Statements as filed with
the Commission, Form SB-2 (effective September 13, 1995) and Form S-3 (effective
December 11, 1996), and DCA's Registration Statements, Form SB-2, as filed with
the Commission (effective on April 17, 1996) and Form S-3 (effective July 1,
1999) as amended and supplemented. Accordingly, readers are cautioned not to
place undue reliance on such forward-looking statements which speak only as of
the date made and which we undertake no obligation to revise to reflect events
after the date made.
Techdyne's electronic and electro-mechanical manufacturing operations
continue to depend upon a relatively small number of customers for a significant
percentage of its net revenue. Significant reductions in sales to any of
Techdyne's large customers would have a material adverse effect on Techdyne's
and the Company's results of operations. The level and timing of orders placed
by a customer vary due to the customer's attempts to balance its inventory,
design modifications, changes in a customer's manufacturing strategy,
acquisitions of or consolidations among customers, and variation in demand for a
customer's products due to, among other things, product life cycles, competitive
conditions and general economic conditions. Any terminations of manufacturing
relationships or changes, reductions or delays in orders, as has occurred in the
past, could have an adverse effect on our results of operations and financial
condition. Our and Techdyne's results also depend to a substantial extent on the
success of Techdyne's OEM customers in marketing their products. Techdyne
continues the diversification of its customer base to reduce its reliance on its
few major customers.
The industry segments served by Techdyne and the electronics industry
generally are subject to rapid technological change and product obsolescence.
Discontinuance or modification of products containing components manufactured by
Techdyne could adversely affect our 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 our and Techdyne's business,
financial condition and results of operations. To continue to grow and be a
successful competitor, we must be able to maintain and enhance our technological
capabilities, develop and market manufacturing services which meet changing
customer needs and successfully anticipate or respond to technological changes
in manufacturing processes on a cost-effective and timely basis.
Techdyne must continuously develop improved manufacturing procedures to
accommodate customer needs for increasingly complex products. To continue to
grow and be a successful competitor, we must be able to maintain and enhance our
technological capabilities, develop and market manufacturing services which meet
changing customer needs and successfully anticipate or respond to technological
changes in manufacturing processes on a cost-effective and timely basis. There
can be no assurance that our process development efforts will be successful or
that the emergence of new technologies, industry standards or customer
requirements will not render our technology, equipment or processes obsolete or
uncompetitive. Further, to the extent that we determine that new assembly and
testing technologies and equipment are required to remain competitive, the
acquisition and implementation of such technologies and equipment are likely to
require significant capital investment.
<PAGE>
Techdyne uses enterprise resource planning through its Visual
Manufacturing system in its efforts to continuously develop accurate forecasts
of customer volume requirements. Techdyne is dependent on the timely
availability of many components. Component shortages could result in
manufacturing and shipping delays or increased component prices which could have
a material adverse effect on Techdyne's and our results of operations. It is
paramount that Techdyne efficiently manages inventory, follows proper timing of
expenditures and allocates physical and personnel resources in anticipation of
future sales, the evaluation of economic conditions in the electronics industry,
and the mix of products for manufacture.
Techdyne continues to seek to expand its geographic and customer base
through establishment of 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 complimentary to Techdyne's
operations. For such expansion opportunities, Techdyne competes with much larger
electronic manufacturing entities. Further, in order to effectuate any such
transactions, it may result in potentially dilutive issuance of equity
securities, the incurrence of debt and amortization expenses related to goodwill
and other intangible assets, as well as other costs and expenses, all of which
could materially adversely affect our and Techdyne's financial results. Any
expansion may also involve numerous business risks, including difficulties in
successfully integrating acquired operations, technologies and products or
formalizing anticipated synergies, which would require the diversion of
management's attention from other business concerns. In the event that any such
transaction does occur, there can be no assurance that there would be a
beneficial effect on Techdyne and our business and financial results.
Techdyne's, and in turn, our results of operations are also affected by
other factors, including price competition, the level and timing of customer
orders, fluctuations in material costs, the overhead efficiencies achieved in
managing the costs of its operations, experience in manufacturing a particular
product, the timing of expenditures in anticipation of increased orders, and
selling, general and administrative expenses. Accordingly, gross margins and
operating income margins have generally improved during periods of high volume
and high capacity utilization. Techdyne generally has idle capacity and reduced
operating margins during periods of lower-volume production.
With respect to our dialysis operations, essential to profitability is
Medicare reimbursement, which is at a fixed rate determined by HCFA. The level
of DCA's, and therefore, our revenues and profitability may be adversely
affected by any potential legislation resulting in rate cuts. Operating costs in
treatment tend to increase over the years with the commencement of treatment at
new centers. There also may be reductions in commercial third-party
reimbursement rates.
The healthcare and in particular, the dialysis industry, is subject to
extensive regulations of federal and state authorities. There are a variety of
fraud and abuse measures promulgated by the government to combat government
waste, which include 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 DCA and the Company have never been challenged under these regulations
and believe that DCA complies in all material respects with such laws and
regulations, there can be no assurance that there will not be unanticipated
changes in healthcare programs or laws or that DCA will not be required to
restructure its practice and will not 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 development or acquisition in appropriate 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 facilities in areas targeted by DCA. Additionally, there is intense
competition for retaining qualified nephrologists, who are the primary source of
patients and are responsible for the supervision of the dialysis centers. 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 ultimately be profitable. It has been our
experience that newly established dialysis centers, although contributing to
increased revenues, have adversely affected our results of operations due to
start-up costs and expenses with a smaller developing patient base.
<PAGE>
YEAR 2000 READINESS
The Year 2000 computer information processing challenge associated with
the recent millennium change concerns the ability of computerized information
systems to properly recognize date sensitive information, to ensure continued
proper operations and reporting of financial condition. We were fully aware of
the Year 2000 issues, made our assessments, evaluated our computerized systems
and equipment, and communicated with our major vendors, and made our operations
Year 2000 compliant. We have not experienced any material unanticipated negative
consequences from the Year 2000 issues.
RESULTS OF OPERATIONS
Consolidated revenues increased by approximately $3,700,000 (32%) for
the three months ended March 31, 2000 compared to the same period of the
preceding year. Sales revenues increased by approximately $3,471,000 (31%)
compared to the preceding year. Other income decreased approximately $17,000
compared to the preceding year, which includes a decrease in interest earned as
a result of a decrease in invested funds. We recorded a gain of approximately
$246,000 related to DCA warrant exercises during the first quarter of 2000. See
Note 9 to "Notes to Consolidated Condensed Financial Statements."
Techdyne sales increased approximately $2,803,000 (29%) for the three
months ended March 31, 2000 compared to the same period of the preceding year.
There was an overall increase in domestic sales of $2,717,000 (30%), and an
increase in European sales of $86,000 (9%) compared to the preceding year.
Significant reductions in sales of Techdyne (Europe) over recent years have
resulted in continuing losses with net losses for this subsidiary amounting to
$93,000 for the three months ended March 31, 2000 and $77,000 for the same
period of the preceding year. Techdyne (Europe) has continued its efforts at new
business development; however, the continuing losses have resulted in our
ongoing evaluation of the future prospects for this facility.
Approximately 43% of Techdyne's consolidated sales and 38% of our
consolidated sales for the three months ended March 31, 2000 were made to four
customers. Customers generating in excess of 10% of Techdyne's consolidated
sales with their respective portions of Techdyne's and our consolidated sales
include Motorola, which accounted for 11% and 9%, and PMI Food Group, which
accounted for 16% and 14%, respectively. Approximately $2,063,000 (35%) of
Lytton's sales were to PMI Food Group, its major customer. The loss of, or
substantially reduced sales to any of Techdyne's major customers would have a
material adverse effect on Techdyne's and our operations if such sales are not
replaced.
Medical product sales revenues increased by approximately $120,000
(43%) for the three months ended March 31, 2000 compared to the same period of
the preceding year largely due to sales of new products which more than offset
decreased sales of the principal product of this division which resulted from
reductions in government purchases and foreign competition. Management is
attempting to be more competitive in lancet sales through overseas production
and expansion of its customer base. The Medical Products Division has expanded
its product line with several diabetic disposable products. No assurance can be
given that these efforts will be successful.
Medical service revenues, represented by the revenues of our dialysis
division, DCA, increased approximately $524,000 (45%) for the three months ended
March 31, 2000 compared to the same period of the preceding year. This increase
reflects increased revenues of our Pennsylvania dialysis centers of
approximately $348,000, increased revenues of approximately $39,000 for our
Manahawkin, New Jersey center, and includes revenues of $137,000 for our new
center in Vineland, New Jersey which commenced operations in February 2000.
Although the operations of additional centers have resulted in additional
revenues, some are still in the developmental stage and, accordingly, their
operating results will adversely affect DCA's and our 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
88% for the three months ended March 31, 2000 compared to 87% for the same
period of the preceding year.
Cost of goods sold for Techdyne as a percentage of sales amounted to
91% for the three months ended March 31, 2000 and 90% for the same period of the
preceding year reflecting changes in product mix and a diversification of
Techdyne's customer base.
<PAGE>
Cost of goods sold by the medical products division increased to 83%
for the three months ended March 31, 2000 compared to 65% for the same period of
the preceding year, as a result of a change in product mix due to decreased
sales of the principal product of the division and increased sales of other
products.
Cost of medical services sales increased to 67% for the three months
ended March 31, 2000 compared to 74% for the same period of the preceding year
reflecting a increase in both supply costs and healthcare salaries as a
percentage of sales.
Selling, general and administrative expenses increased $511,000 for the
three months ended March 31, 2000 compared to the same period of the preceding
year. This increase reflects operations of DCA's new dialysis centers, and
$65,000 expense from issuance by us of stock options, as a finders fee related
to our investment in Linux Global Printers. Also included are the cost of
additional support personnel for both DCA and Techdyne, and increased marketing
costs associated with Techdyne's efforts to expand sales.
Interest expense increased by approximately $67,000 for the three
months ended March 31, 2000 compared to the same period of the preceding year,
which includes increased borrowings of Lytton, including funding of the
remaining $1,100,000 payment in July, 1999, on the Lytton purchase price
guarantee, increased borrowings by Techdyne due to working capital requirements
from increased business and interest on borrowings under our line of credit for
our medical products division to fund payments under letters of credit for
foreign purchases.
A substantial portion of our outstanding borrowings are tied to the
prime interest rate. The prime rate was 9.00% at March 31, 2000 and 8.50% at
December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $16,620,000 at March 31, 2000, which reflected
an increase of $780,000 (5%) during the three months ended March 31, 2000. This
included a decrease in cash of $1,727,000 including net cash used in operating
activities of $920,000, net cash used in investing activities of $2,459,000
(including additions to property, plant and equipment of $420,000 and a loan to
Linux Global Partners of $2,000,000), and net cash provided by financing
activities of $1,651,000 (including net line of credit borrowings of $985,000,
other long-term borrowings of $150,000, payments on long-term debt of $195,000
and proceeds from exercise of DCA warrants of $713,000).
During the first quarter of 2000, approximately 167,000 of DCA's
2,300,000 publicly traded redeemable stock purchase warrants were exercised with
net proceeds to DCA of approximately $712,000. See Notes 9 and 10 to "Notes to
Consolidated Condensed Financial Statements."
On January 27, 2000, we acquired a 6% interest in Linux Global Partners
for $90, in connection with which we loaned Linux Global Partners $1,500,000 at
a 10% annual interest rate, to be repaid with accrued interest by January 26,
2001. We had an option which we exercised on March 27, 2000 to acquire an
additional 2% interest in Linux Global Partners for $30 in conjunction with
which we loaned an additional $500,000 to Linux Global Partners. We borrowed the
funds for the loans from DCA at a 10% annual interest rate. See Note 11 to
"Notes to Consolidated Condensed Financial Statements".
On February 9, 2000, Techdyne entered into two credit facilities with
The Provident Bank in Ohio for an aggregate borrowing of $5,500,000. This new
financing replaced the line of credit and the three commercial loans with
NationsBank of Florida and a smaller borrowing from another Florida bank. The
new financing includes a three-year revolving line of credit, renewable annually
at the discretion of the bank, which credit line carries an interest rate of
prime minus .25%, or at a fixed rate equal to the relevant quoted LIBOR rate
plus 2.5%, at our election. The line of credit had an outstanding balance of
approximately $2,962,000 at March 31, 2000 and a five-year term loan of
$1,000,000 at the same interest rate as the revolving line of credit. The term
of credit had an outstanding balance of approximately $983,000 at March 31,
2000. Total outstanding borrowings under the refinanced loans amounted to
approximately $3,152,000 at December 31, 2000. See Note 3 to "Notes to
Consolidated Condensed Financial Statements."
<PAGE>
Lytton has a $3,000,000 three year committed line of credit and a
$1,400,000 term loan and a $500,000 equipment loan agreement. The line of credit
originally for one year, was amended to a three-year term coinciding with the
term of our line of credit with the interest rates the same as provided to
Techdyne in its credit facilities. The line of credit had a balance of
approximately $3,000,000 at March 31, 2000 and approximately $2,830,000 at
December 31, 1999. The term loan had a balance of approximately $1,218,000 at
March 31, 2000 and $1,283,000 at December 31, 1999. The equipment loan agreement
had an outstanding balance of $150,000 at March 31, 2000 with no balance
outstanding at December 31, 1999. See Note 3 to "Notes to Consolidated Condensed
Financial Statements."
Lytton has an equipment loan maturing in April 2001 which had an
outstanding balance of $101,000 at March 31, 2000 and $113,000 at December 31,
1999. In July 1994, Techdyne (Europe) obtained a 15-year mortgage on its
facility which had a U.S. dollar equivalency of $476,000 at March 31, 2000 and
$489,000 at December 31, 1999. See Note 3 to "Notes to Consolidated Condensed
Financial Statements."
Techdyne acquired Lytton on July 31, 1997. The Stock Purchase Agreement
also provided for incentive consideration to be paid in cash based on specific
sales levels of Lytton for each of three successive specified years, resulting
in additional consideration of approximately $396,000, $290,000 and $154,000
paid in April 2000, April, 1999, and April, 1998, respectively. See Note 8 to
"Notes to Consolidated Condensed Financial Statements."
Techdyne is seeking to further expand its operations possibly through
acquisitions of companies in similar businesses, as with the Lytton acquisition.
There can be no assurance that Techdyne would be able to finance such
acquisitions from its own capital or be able to obtain sufficient external
financing.
DCA has mortgages on its two buildings, one in Lemoyne, Pennsylvania
and the other in Easton, Maryland, with a combined balance of $264,000 at March
31, 2000 and $282,000 at December 31, 1999. DCA has an equipment financing
agreement for kidney dialysis machines for its facilities. DCA had outstanding
balances under this agreement of $703,000 at March 31, 2000 and $731,000 at
December 31, 1999. See Note 3 to "Notes to Consolidated Condensed Financial
Statements."
DCA through its subsidiary DCA of Vineland, LLC, has a $700,000
development and equipment line of credit secured by the acquired assets of DCA
of Vineland and a second mortgage on DCA's real property in Easton, Maryland.
There were no outstanding borrowings under this line of credit as of March 31,
2000 or December 31, 1999.
DCA is seeking to expand its outpatient dialysis treatment facilities
and inpatient dialysis care. Such expansion, whether through acquisitions of
existing centers or the development of its own dialysis centers, requires
capital. DCA has entered into agreements with medical directors and intends to
establish additional facilities in Georgia and Ohio. As of March 31, 2000, the
professional association providing medical director services to the Vineland,
New Jersey center and the professional corporations providing medical director
services to the Manahawkin, New Jersey and Carlisle and Chambersburg,
Pennsylvania facilities had a 20% interest in those subsidiaries. In April
2000, a professional association with which the medical director for the
Vineland, New Jersey center is affiliated acquired an additional 29% interest
for $203,000, increasing the minority ownership in that facility to 49% and
reducing DCA's ownership to 51%. DCA purchased land in February 2000 in South
Georgia and anticipates commencement of construction of a new dialysis center
in the immediate future. The professional association which will provide
medical director services to the Georgia facility will have an initial 30%
ownership with DCA owning 70%. DCA is in different phases of negotiations
with physicians for additional outpatient centers various states. No assurance
can be given that we will be successful in implementing our growth strategy or
that our available funds will be adequate to finance such expansion.
The bulk of our cash balances are carried in interest-yielding vehicles
at various rates and mature at different intervals depending on our anticipated
cash requirements.
We anticipate 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.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued
Financial Accounting Standards Board Statement No. 133, "Accounting For
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is effective
for fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires, among other things, that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and that those instruments be measured at fair value. We are in the
process of determining the impact that the adoption of FAS 133 will have on our
consolidated financial statements.
PROPOSED DCA MERGER AND ACQUISITION
On October 20, 1999, DCA entered into an Agreement and Plan of Merger
pursuant to which MainStreet IPO.com Inc. would merge with DCA and own
approximately 80% of DCA, and issue its shares to the DCA shareholders, with a
simultaneous sale of DCA's assets to us in consideration for approximately 90%
of our ownership in DCA, our assumption of DCA's long-term debt and other
liabilities, and our waiver of most proceeds from the potential exercise of
outstanding DCA warrants and DCA underwriters' options. These proposed
transactions are subject to the approval of the public minority shareholders of
DCA (we are not voting our minority interest of DCA). The SEC has provided
extensive comments to MainStreet's registration statement, which includes DCA's
proxy statement, including its position that MainStreet should register as a
broker-dealer. The parties are attempting to resolve these matters. There is no
assurance the proposed DCA merger with MainStreet and sale of DCA operations to
us will be approved or completed. See Note 10 to "Notes to Consolidated
Condensed Financial Statements."
INFLATION
Inflationary factors have not had a significant effect on our
operations. We attempt to pass on increased costs and expenses incurred in the
electronic and electro-mechanical and medical products divisions by increasing
selling prices when and where possible, and by developing different and improved
products for our customers that can be sold at targeted profit margins. In our
medical services segment, revenue per dialysis treatment is subject to
reimbursement rates established and regulated by the federal government. These
rates do not automatically adjust for inflation. Any rate adjustments relate to
legislation and executive and Congressional budget demands, and have little to
do with the actual cost of doing business. Therefore, dialysis services revenues
cannot be voluntarily increased to keep pace with increases in 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
(10) Material Contracts
(i) Line of Credit Agreement between
the Company and Equitable Bank
dated November 22, 1999.
(ii) Line of Credit Promissory Note
from the Company to Equitable Bank
Dated November 22, 1999.
(iii) Addendum to Promissory Note from
the Company to Dialysis
Corporation of America dated March
27, 2000.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on February 15, 2000
relating to Item 5. "Other Events" disclosing a loan to and
investment in a new technology fund by our new technology
division. No financial statements were 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.
By /s/ DANIEL R. OUZTS
-----------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Accounting Officer
Dated: May 15, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- --------
Part I Exhibits
(27) Financial Data Schedule (for SEC use only)
Part II Exhibits
(10) Material Contracts
(i) Line of Credit Agreement between the Company
and Equitable Bank dated November 22, 1999.
(ii) Line of Credit Promissory Note from the
Company to Equitable Bank dated November 22,
1999.
(iii) Addendum to Promissory Note from the Company
to Dialysis Corporation of America dated
March 27, 2000.
- ------------------------------------------------------------------------------
MEDICORE, INC. EQUITABLE BANK Line of Credit No 1120423565
2337 WEST 76 STREET 633 S. FEDERAL HIGHWAY Date NOVEMBER 22, 1999
HIALEAH, FL 33016 FT LAUDERDALE, FL 33301 Max. Credit Amt. $350,000.00
Loan Ref. No 1120423565
BORROWER'S NAME AND LENDERS NAME AND
ADDRESS ADDRESS
"I" includes each "You" means the lender,
borrower above, joint its successors and
and severally. assigns.
- ------------------------------------------------------------------------------
You have extended to me a line of credit in the
AMOUNT of THREE HUNDRED FIFTY THOUSAND AND NO/100 $350,000.00
You will make loans to me from time to time until 12:01 A.m. on APRIL 22,
2001. Although the line of credit expires on that date, I will remain
obligated to perform all my duties under this agreement so long as I owe you
any money advanced according to the terms of this agreement, as evidenced by
any note or notes I have signed promising to repay these amounts.
This line of credit is an agreement between you and me. It is not intended
that any third party receive any benefit from this agreement, whether by
direct payment, reliance for future payment or in any other manner. This
agreement is not a letter of credit.
1. AMOUNT: This line of credit is:
[ ] OBLIGATORY: You may not refuse to make a loan to me under this line
of credit unless one of the following occurs:
a. I have borrowed the maximum amount available to me;
b. This line of credit has expired;
c. I have defaulted on the note (or notes) which show my indebtedness
under this line of credit;
d. I have violated any term of this line of credit or any note or other
agreement entered into in connection with this line of credit;
e.-----------------------------------------------------------------------
-------------------------------------------------------------------------
[X] DISCRETIONARY: You may refuse to make a loan to me under this line of
credit once the aggregate outstanding advances equal or exceed ZERO AND
NO/100.
Subject to the obligatory or discretionary limitations above, this line of
credit is:
[X] OPEN-END (Business or Agricultural only): I may borrow up to the
maximum amount of principal more than one time.
[ ] CLOSED-END: I may borrow up to the maximum only one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note, I signed on NOVEMBER 22,
1999, or any note(s) I sign at a later time which represent advances under
this agreement. The note(s) set(s) out the terms relating to maturity,
interest rate, repayment and advances. If indicated on the promissory note,
the advances will be made as follows:
UPON WRITTEN, VERBAL OR TELEPHONIC AUTHORIZATION FROM CUSTOMER.
3. RELATED DOCUMENTS: I have signed the following documents in connection
with this line of credit and note(s) entered into in accordance with
this line of credit:
[X] security agreement dated NOVEMBER 22, 1999
[ ] mortgage dated ------------------------------------------------------
[ ] guaranty dated ------------------------------------------------------
[ ] ---------------------------------------------------------------------
4. REMEDIES: If I am in default on the note(s) you may:
a. take any action as provided in the related documents;
b. without notice to me, terminate this line of credit.
By selecting any of these remedies you do not give up your right to
later use any other remedy. By deciding not to use any remedy should I
default, you do not waive your right to later consider the event a default,
if it happens again.
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I will
pay your reasonable attorney's fees, where permitted by law. I will also
pay your court costs and costs of collection, where permitted by law.
6. COVENANTS: For as long as this line of credit is in effect or I owe you
money for advances made in accordance with the line of credit, I will do the
following:
a. maintain books and records of my operations relating to the need for
this line of credit;
b. permit you or any of your representatives to inspect and/or copy these
records;
c. provide to you any documentation requested by you which support the
reason for making any advance under this line of credit;
d. permit you to make any advance payable to the seller (or seller and me)
of any items being purchased with that advance;
e. ----------------------------------------------------------------------
-------------------------------------------------------------------------
7. NOTICES: All notices or other correspondence with me should be sent to my
address stated above. The notice or correspondence shall be effective when
deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The law of the state in which you are located
will govern this agreement. Any term of this agreement which is contrary to
applicable law will not be effective, unless the law permits you and me to
agree to such a variation.
SIGNATURES: I AGREE TO THE TERMS OF
THIS LINE OF CREDIT. I HAVE
FOR THE LENDER HAVE RECEIVED A COPY ON TODAY'S DATE.
WILLIAM M. KURAU /s/ William M. Kurau MEDICORE, INC.
- -------------------------------------- /s/ Thomas K. Langbein
TITLE: VICE PRESIDENT BY: ---------------------------------
THOMAS K. LANGBEIN, PRESIDENT
/s/ Daniel R. Ouzts
BY:----------------------------------
DANIEL R. OUZTS, VICE PRESIDENT
- ------------------------------------------------------------------------------
MEDICORE, INC. EQUITABLE BANK ACCOUNT #: 1120423500
2337 WEST 76 STREET 633 S. FEDERAL HIGHWAY Loan Number: 1120423565
HIALEAH, FL 33016 FT LAUDERDALE, FL 33301 Date: NOVEMBER 22, 1999
Maturity Date: APRIL 22, 2001
Loan Amount: $350,000,00
Renewal Of:
BORROWER'S NAME AND LENDERS NAME AND LOAN PROC: MMF
ADDRESS ADDRESS
"I" includes each "You" means the lender,
borrower above, joint its successors and
and severally. assigns.
- ------------------------------------------------------------------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of THREE HUNDRED FIFTY
THOUSAND AND NO/100 * * * * * * * * * * * * * * * * * * * Dollars $350,000.00
[ ] Single Advance: I will receive all of this principal sum on .
No additional advances are contemplated under this note.
[X] Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On NOV. 22, 1999 I will receive the
amount of $ and future principal advances are contemplated.
Conditions: The conditions for future advances are UPON WRITTEN, VERBAL
OR TELEPHONIC AUTHORIZTION FROM CUSTOMER,
[X] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on APRIL 22, 2001.
[X] Closed End Credit: You and I agree that I may borrow up to the
maximum only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
NOVEMBER 22, 1999 at the rate of 9.500 % per year until FIRST CEANGE DATE.
[X] Variable Rate: This rate may then change as stated below.
[X] Index Rate: The future rate will be 1.000% OVER the following index
rate: WALL STREET JOURNAL PRIME
[ ] No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[X} Frequency and Timing: The rate on this note may change as often as
DAILY. A change in the interest rate will take effect ON THE SAME DAY THAT
THE PRIME RATE CHANGES.
[ ] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than % or less than %. The rate
may not change more than % each .
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
[X] The amount of each scheduled payment will change.
[X] The amount of the final payment will change.
[X] ---------------------------------------------------------------------.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this
note owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before maturity
(as indicated above).
[X] at a rate equal to THE MAXIMUM AMOUNT ALLOWED BY LAW
[X] LATE CHARGE: If a payment is made more than 10 days after it is due, I
agree to pay a late charge of 5.000% OF THE LATE PAYMENT.
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [X] are not included in the principal amount above: SEE
SCHEDULE A.
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I agree to pay accrued interest ON THE 22ND DAY OF EACH MONTH
BEGINNING DECEMBER 22, 1999.
[X] Principal: I agree to pay the principal APRIL 22, 2001.
[X] Installments: I agree to pay this note in payments. The first
payment will be in the amount of $ and will be due
thereafter. The final payment of the
entire unpaid balance of principal and interest will be due .
ADDITIONAL TERMS:
UCC FILINGS ON ACCOUNTS RECEIVABLE AND INVENTORY OF MEDICAL DIVISION AS
FURTHER DESCRIBED IN AND EVIDENCED BY SECURITY AGREEMENT DATED NOVEMBER 22,
1999.
[X] SECURITY: This note is PURPOSE: The purpose of this loan is
separately secured by (describe BUSINESS: ISSUANCE OF A 30 DAY SIGHT LTR
separate document by type and
date): SECURITY AGREEMENT DATED SIGNATURES: I AGREE TO THE TERMS OF THIS
11/22/99 NOTE (INCLUDING THOSE ON PAGE 2). I have
(This section is for your internal received a copy on today's date.
use. Failure to list a separate
security document does not mean the MEDICORE, INC.
agreement will not secure this
note.) /s/ Thomas K. Langbein
BY:--------------------------------------
Signature for Lender THOMAS K. LANGBEIN, PRESIDENT
/s/ William M. Kurau /S/ Daniel R. Ouzts
X--------------------------------- BY:--------------------------------------
WILLIAM M. KURAU, VICE PRESIDENT DANIEL R. OUZTS, VICE PRESIDENT
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this
loan. "I," "me" or "my" means each Borrower who signs this note and each
other person or legal entity (including guarantors, endorsers, and sureties)
who agrees to pay this note (together referred to as "us"). "You" or "your"
means the Lender and its successors and assigns.
APPLICABLE LAW: The law of the state of Florida will govern this note. Any
term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any
provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement.
No modification of this agreement may be made without your express written
consent. Time is of the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of
each payment will then reduce accrued unpaid interest, and then unpaid
principal. If you and I agree to a different application of payments, we
will describe our agreement on this note. I may prepay a part of, or the
entire balance of this loan without penalty, unless we specify to the
contrary on this note. Any partial prepayment will not excuse or reduce
any later scheduled payment until this note is paid in full (unless, when I
make the prepayment, you and I agree in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to
time, until paid in full. If I receive the principal in more than one
advance, each advance will start to earn interest only when I receive the
advance. The interest rate in effect on this note at any given time will
apply to the entire principal advanced at that time. Notwithstanding
anything to the contrary, I do not agree to pay and you do not intend to
charge any rate of interest that is higher than the maximum rate of interest
you could charge under applicable law for the extension of credit that is
agreed to here (either before or after maturity). If any notice of interest
accrual is sent and is in error, we mutually agree to correct it, and if you
actually collect more interest than allowed by law and this agreement, you
agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on
this note. You do not guarantee by selecting this index, or the margin, that
the rate on this note will be the same rate you charge on any other loans or
class of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page I of
this note. For the purpose of interest calculation, the accrual method will
determine the number of days in a 'year." If no accrual method is stated,
then you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other
amounts to the principal if you make any payments described in the "PAYMENTS
BY LENDER" paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat
those payments made by you as advances and add them to the unpaid principal
under this note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of which
you are entitled to demand payment under the terms of this note at the time
you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on mV sole request
or endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not
apply to any Individual Retirement Account or other tax-deferred retirement
account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or
a residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the
terms of any separate instrument creating the security interest and, to the
extent not prohibited by law and not contrary to the terms of the separate
security instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur:
(1) I fail to make a payment on time or in the amount due; (2) 1 fail to keep
the property insured, if required; (3) 1 fail to pay, or keep any promise, on
any debt or agreement I have with you; (4) any other creditor of mine
attempts to collect any debt I owe him through court proceedings; (5) I die,
am declared incompetent, make an assignment for the benefit of creditors, or
become insolvent (either because my liabilities exceed my assets or I am
unable to pay my debts as they become due); (6) 1 make any written statement
or provide any financial information that is untrue or inaccurate at the time
it was provided; (7) 1 do or fail to do something which causes you to believe
that you will have difficulty collecting the amount I owe you; (8) any
collateral securing this note is used in a manner or for a purpose which
threatens confiscation by a legal authority; (9) 1 change my name or assume
an additional name without first notifying you before making such a change;
(10) I fail to plant, cultivate and harvest crops in due season; (11) any
loan proceeds are used for a purpose that will contribute to excessive
erosion of highly erodible land or to the conversion of wetlands to produce
an agricultural commodity, as further explained in 7 C.F.R. Part 1940,
Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to,
the following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the " Set-off" paragraph herein,
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right
to later use any other remedy. By waiving your right to declare an event to
be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In
addition, if you hire an attorney to collect this note, I also agree to pay
any reasonable fee you incur with such attorney plus court costs (except
where prohibited by law). I agree that reasonable attorneys' fees shall be
construed to mean 10% of the principal sum named in this note, or such larger
fee that the court may determine to be reasonable and just. To the extent
permitted by the United States Bankruptcy Code, I also agree to pay the
reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of
dishonor).
I waive any defenses I have based on suretyship or impairment of collateral.
To the extent permitted by law, I also waive my right to a trial by jury in
respect to any litigation arising from this note and any other agreement
executed in conjunction with this credit transaction.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if
someone else has also agreed to pay it (by, for example, signing this form or
a separate guarantee or endorsement). You may sue me alone, or anyone else
who is obligated on this note, or any number of us together, to collect this
note. You may do so without any notice that it has not been paid (notice of
dishonor). You may without notice release any party to this agreement
without releasing any other party. If you give up any of your rights, with
or without notice, it will not affect my duty to pay this note. Any
extension of new credit to any of us, or renewal of this note by all or less
than all of us will not release me from my duty to pay it. (Of course, you
are entitled to only one payment in full.) I agree that you may at your
option extend this note or the debt represented by this note, or any portion
of the note or debt, from time to time without limit or notice and for any
term without affecting my liability for payment of the note. I will not
assign my obligation under this agreement without your prior written
approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and
to report to others your credit experience with me (such as a credit
reporting agency). I agree to provide you, upon request, any financial
statement or information you may deem necessary. I warrant that the
financial statements and information I provide to you are or will be
accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by
mailing it first class to your address stated on page 1 of this agreement, or
to any other address that you have designated.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------
</TABLE>
ADDENDUM TO PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Medicore, Inc., a Florida corpora-
tion, acknowledges the receipt from Dialysis Corporation of America, a
Florida corporation and 64.9% owned subsidiary of Medicore, Inc., of the
Additional Sum as defined in the Promissory Note issued to Dialysis
Corporation of America dated January 27, 2000 ("Promissory Note"), which
Additional Sum aggregates Five Hundred Thousand Dollars ($500,000.00). The
receipt of the Additional Sum increases the aggregate borrowing from Dialysis
Corporation of America and the aggregate amount owed by Medicore, Inc. under
the Promissory Note to Two Million Dollars ($2,000,000.00). The Additional
Sum is subject to all the terms and conditions of the Promissory Note, which
will continue in full force and effect.
MEDICORE, INC.
/s/ Thomas K. Langbein
By:--------------------------------
THOMAS K. LANGBEIN, Chairman
of the Board, CEO and President
Dated: March 27, 2000
ACKNOWLEDGEMENT
STATE OF NEW JERSEY )
: ss.:
COUNTY OF BERGEN )
Before me personally appeared THOMAS K. LANGBEIN, as Chairman of the
Board, CEO and President of MEDICORE, INC., a Florida corporation, to me
well known and known to me to be the person described in and who executed
the foregoing instrument, and acknowledged to and before me that he
executed said instrument of the purposes therein expressed, on behalf of
the corporation.
WITNESS my had and official seal, this 27th day of March, 2000.
/s/ Nancy A. Cox
-----------------------------------
Notary Public, State of New Jersey
My commission expires:
March 6, 2005
[NOTARIAL SEAL]
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000008643
<NAME> MEDICORE, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,424,634
<SECURITIES> 66,934
<RECEIVABLES> 9,137,510
<ALLOWANCES> 0
<INVENTORY> 9,526,216
<CURRENT-ASSETS> 24,608,398
<PP&E> 18,165,383
<DEPRECIATION> 7,723,376
<TOTAL-ASSETS> 38,889,746
<CURRENT-LIABILITIES> 7,988,726
<BONDS> 9,321,075
0
0
<COMMON> 57,105
<OTHER-SE> 13,763,849
<TOTAL-LIABILITY-AND-EQUITY> 38,889,746
<SALES> 14,729,798
<TOTAL-REVENUES> 15,091,695
<CGS> 12,914,360
<TOTAL-COSTS> 12,914,360
<OTHER-EXPENSES> 2,378,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,462
<INCOME-PRETAX> (408,100)
<INCOME-TAX> 90,617
<INCOME-CONTINUING> (369,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (369,609)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
<FN>
<F1> Accounts receivable are net of allowance of $361,000 at March 31, 2000.
<F2> Inventories are net of reserve of $786,000 at March 31, 2000.
</FN>
</TABLE>
