Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file number 0-20356
MEDICAL INDUSTRIES OF AMERICA, INC.
(exact name of small business issuer as specified in its charter)
FLORIDA 65-0158479
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1903 S. CONGRESS AVENUE, SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of principal executive offices)
(561)737-2227
(Issuer's telephone number)
HEART LABS OF AMERICA, INC.
(Former Name)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,024,958 shares of common
stock, no par value, were outstanding as of November 10, 1996.
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
10-QSB- QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
FORM 10-QSB FORM 10-QSB FORM 10-QSB
PART NO. ITEM NO. DESCRIPTION PAGE NO.
<S> <C> <C> <C> <C>
I. FINANCIAL INFORMATION
1. Financial Statements
- Condensed Consolidated Balance
Sheet as of September 30, 1996 3
- Condensed Consolidated Statements of Operations
and Accumulated Deficit for the Nine
Months Ended September 30, 1996 and 1995 4
- Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended September 30, 1996
and 1995 5
Condensed Consolidated Statements of
Operations for the Three Months ended
September 30, 1996 and 1995 7
- Notes to Condensed Consolidated Financial
Statements 8
2. Management's Discussion and Analysis
or Plan of Operations 10
II. OTHER INFORMATION
1. Legal Information 12
2. Changes in Securities 14
3. Default Upon Senior Securities 14
4. Submission of Matters to a Vote of Security
Holders 14
5. Other Information 14
Signatures
</TABLE>
2
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30,
1996
-----------
ASSETS (Unaudited)
Current assets:
Cash ................................................... 99,827
Trade accounts receivable, net of allowance
for doubtful accounts of $19,446 ................... 425,232
Notes receivable ....................................... 2,169,556
Inventory .............................................. 17,187
Income tax receivable .................................. 80,198
Prepaid expenses and other current assets .............. 700,370
-----------
Total current assets ................. 3,492,370
Property & equipment
Mobile cardiac catheterization laboratories
and medical equipment ............................... 2,915,502
Building ............................................... 564,266
Furniture and office equipment and other assets ........ 1,298,647
Less: accumulated depreciation and amortization ....... (2,988,718)
-----------
Total property and equipment .. 1,789,697
Other assets:
Notes receivable, net of current portion ............... 68,471
Investment in Westmark Group Holdings, Inc. ............ 2,636,733
Goodwill, net .......................................... 1,062,788
Other assets ........................................... 172,930
-----------
Total other assets .................. 3,940,922
Total assets ................................................... 9,222,989
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... 579,487
Accrued liabilities .................................... 413,365
Dividends payable ...................................... 105,000
Current portion of long term debt ...................... 729,321
Current portion of capital lease obligations ........... 412,815
-----------
Total current liabilities ............... 2,239,988
Long term liabilities:
Long-term debt, net of current portion ................. 159,857
Capital lease obligations, net of current portion ...... 88,725
Minority interest ...................................... 7,041
Total long term liabilities ... 255,623
Shareholders' equity:
Preferred Stock-Series B, $10 stated value ............. 1,020,000
Preferred Stock-Series C, $10 stated value ............. 3,932,900
Common Stock, no par value, authorized 8,000,000 ....... 16,810,973
shares; issued and outstanding 1,009,976
Less: Treasury Stock (3,750 shares at stated value) .... (159,375)
Accumulated deficit .................................... (14,877,120)
-----------
Total shareholders' equity .... 6,727,378
-----------
Total liabilities and shareholders' equity ..................... 9,222,989
===========
See accompanying notes
3
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited)
1996 1995
----------- ----------
<S> <C> <C>
Revenue:
Revenue from operations .................................................... 2,031,240 3,918,862
Interest income ............................................................ 114,609 3,946
----------- ----------
Total revenue ........................................... 2,145,849 3,922,808
Expenses:
Cost of services ........................................................... 1,275,755 2,540,676
General and administrative expenses ........................................ 2,856,677 2,073,978
Depreciation and amortization .............................................. 746,306 699,887
Interest expense ........................................................... 143,951 163,269
----------- ----------
Total expenses .......................................... 5,022,689 5,477,810
Other income & expenses:
Other income ............................................................... 333,721 0
Loss from Westmark Group Holdings, Inc. .................................... (331,481) 0
Gain (loss) on sale of equipment ........................................... 6,559 (691,547)
Total other income & (expenses) ......................... 8,799 (691,547)
Net loss ............................................................................ (2,868,041) (2,246,549)
(Accumulated deficit) beginning of year ............................................. (11,870,425) (3,027,082)
Dividends declared: ................................................................. (138,654) (29,364)
----------- ----------
Preferred stock ($.06 per share in 1995)
(Accumulated deficit) - September 30, 1996 .......................................... (14,877,120) (5,302,995)
=========== ==========
Loss per common share ............................................................... (3.89) (18.87)
=========== ==========
Weighted average common shares outstanding,
excluding contingently issuable shares, after
giving effect to a 1 for 20 reverse stock split ................................... 736,648 119,048
=========== ==========
</TABLE>
See accompanying notes
4
<PAGE>
MEDICAL INDUSTRIES OF AMERICA,
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
(Unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net loss ......................................................................... (2,868,041) (2,246,549)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............................................ 746,306 699,887
Minority Interest ........................................................ (24,839) (6,524)
Write off of goodwill .................................................... 0 209,796
Write off of patent ...................................................... 0 205,472
Changes in assets and liabilities:
Trade accounts receivable ......................................... 277,281 (123,442)
Inventory ......................................................... (2,157) 44,738
Income tax receivable ............................................. -- 57,118
Prepaid expenses and other current assets ......................... (643,933) (63,345)
Other assets ...................................................... (98,413) 6,083
Accounts payable .................................................. (245,603) 175,733
Accrued liabilities ............................................... (12,363) 647,186
----------- -----------
Net cash used in operating activities .................................... (2,871,762) (393,847)
Investing activities:
Issuance of notes receivable ..................................................... (2,022,046) (370,572)
Purchase of goodwill ............................................................. (219,052) 0
Conversion of advance into equity ................................................ (700,000) 0
Loss in equity of investment ..................................................... 331,480 0
Purchase of property and equipment ............................................... (296,574) (3,141,378)
Sale of property and equipment ................................................... 0 472,131
----------- -----------
Net cash used in investing activities .................................... (2,906,192) (3,039,819)
Financing activities:
Payment of note payable .......................................................... (183,369) 0
Issuance of common stock ......................................................... 4,054,253 3,372,533
Issuance of preferred stock ...................................................... 8,345,000 0
Conversion of preferred stock .................................................... (4,412,100) 0
Dividend returned ................................................................ 44,958 0
Payments of capital lease obligations ............................................ (362,981) (627,144)
Proceeds from note payable ....................................................... 0 730,982
Payments of long term debt ....................................................... (1,632,411) (244,577)
----------- -----------
Net cash provided by financing activities ................................ 5,853,350 3,231,794
Net increase (decrease) in cash .................................................. 75,396 (201,872)
Cash at the beginning of period .................................................. 24,431 216,348
----------- -----------
Cash at the end of period 99,827 ................................................. 14,476
=========== ===========
Supplemental information:
Interest paid .................................................................... $ 129,355 $ 42,437
=========== ===========
</TABLE>
See accompanying notes
5
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing activities:
Noncash aspects of the acquisition of
DonnWells, M.D. medical center
Fair value of assets acquired ................................. 48,448
Fair value of common stock
issued at acquisition ......................................... 175,000
Cash paid at acquisition ...................................... 75,000
Assets acquired and related obligations incurred
in connection with capital lease obligations .................... 21,247
See accompanying notes
6
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
(Unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Revenue:
Revenue from operations .............................. $ 710,612 $ 1,052,804
Interest income .............................. 47,327 3,687
----------- -----------
Total revenue ......................... 757,939 1,056,491
Expenses:
Cost of services ............................. 545,521 732,296
General and administrative expenses .......... 827,300 623,114
Depreciation and amortization ................ 247,669 197,026
Interest expense ............................. 9,210 26,562
Total expenses ........................ 1,629,700 1,578,998
Other income & expenses:
Other income ................................. 275,324 0
Loss from Westmark Group Holdings, Inc. ...... (150,000) 0
Gain (loss) on sale of equipment ............. 10,000 (677,558)
----------- -----------
Total other income & (expenses) ....... 135,324 (677,558)
Net loss ............................................. (736,437) (1,200,065)
Loss per common share ................................ (.73) (8.75)
Weighted average common shares outstanding,
excluding contingently issuable shares, after giving
effect to a 1 for 20 reverse stock split ........... 1,005,757 137,080
=========== ===========
</TABLE>
See accompanying notes
7
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Medical Industries of America, Inc., a Florida corporation, commenced
operations in 1990. The Company's operations consist of mobile cardiac
catheterization services to hospitals on a shared user basis, managed care
centers, and management information systems. On October 30, 1996, the Company
changed its name from Heart Labs of America, Inc. to Medical Industries of
America, Inc. In November 1996, the Company acquired Florida Physicians
Internet, Inc. ("FPII"), a multi-group specialty medical practice located in
Central Florida.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to state fairly the consolidated
financial position and consolidated results of operations as of and for the
periods indicated. These consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto for year ended December 31, 1995, included in the Company's Form 10-KSB
as filed with the Securities and Exchange Commission.
Loss per Common Share
Loss per common share is calculated by dividing net loss by the weighted
average common shares outstanding, excluding contingently issuable shares and
after giving effect to the 1 for 20 reverse stock split effective November 1,
1996. Contingently issuable shares, are considered common stock equivalents and
have been excluded from the primarily loss per share computation since the
conditions for their issuance have not been met. The effect of contingently
issuable shares on fully diluted earnings per common share is anti-dilutive.
Also, stock purchase warrants underlying 32,500 common shares, Directors stock
options underlying 253,000 shares, employee stock options underlying 20,000
common shares and other stock options underlying 7,500 common shares have been
excluded from the primary earnings per share computation since the conditions
from common stock issuance have not been met and their effect on fully diluted
earnings per common share is anti-dilutive.
8
<PAGE>
Estimates
The preparation of financial statements in conformity with general
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Note 2 - Income Taxes
The Company accounts for income taxes in accordance with FAS 109,
accounting for income taxes.
Note 3 - Stock Transactions
During the first and second quarter of 1996, the Company sold 41,725
shares, on a post reverse basis, of it's Series C convertible preferred stock
for $10 per share in a private placement of its securities to offshore investors
under Regulation S. The Company raised $8,345,000 less costs associated with the
raise of $1,122,400 for a net of $7,222,600. During the 1st and 2nd quarter,
38,025 shares, on a post reverse basis, were presented for conversion. The
conversion of 38,025 shares required that 1,013,484, on a post reverse basis,
common shares be issued. The Company lacked the authorized common shares to
fulfill the terms of the conversion and only 480,138 shares, on a post reverse
basis, were issued during the second quarter of 1996. At the Company's annual
shareholder's meeting held on September 24, 1996, the shareholder's increased
the authorized common and preferred stock.
In February 1996, the company sold 17,857 shares, on a post reverse
basis, of its common stock to offshore investors in a private placement. Net
proceeds to the Company were $357,185.
In March 1996, the Company converted $700,000 of its advances to
Westmark Group Holdings, Inc. to 200,000 shares of Westmark's Series C Preferred
Stock.
Note 4 - Business Acquisitions/Dispositions
In April 1996, the Company acquired 100% of the outstanding common stock
of Greenworld Technologies, Inc., ("Greenworld"). Greenworld is the owner of
world-wide licensing rights to the Talon RMS product, a product which lowers
temperatures in commercial buildings while, at the same time, reducing energy
costs. Consideration for the purchase included (1) the funding of 4 lawsuits
involving the Talon Refrigerant Management System ("Talon RMS"); (2) issue to
seller, ECS International, Inc. ("ECS") 50,000 shares of the Company's preferred
stock ($250,000 par value) and 5,000 shares, on a post reverse basis, of the
Company's common stock; (3) provide $100,000 to Greenworld for operating
capital; (4) provide up to $300,000 to establish the Talon RMS patent worldwide;
(5) grant ECS options to purchase 45,000 shares, on a post reverse basis of the
Company's common stock at $30.00 per share and (6) cancel a bridge loan note in
the amount of $100,000.
9
<PAGE>
In addition, the Company agreed that once Greenworld gross sales
exceeded $100,000,000, the Company would transfer 51% of Greenworld back to ECS
and distribute the other 49% to its shareholders as a dividend.
In July 1996, the Company sold Greenworld Technologies, Inc. to GTB
Company, a company whose president was the former general counsel to the
Company. Consideration for the sale included (a) a note payable to the Company
in the amount of $380,000; (b) the forgiveness of a $700,000 promissory note
owed by the Company pursuant to an Agreement signed in June 1996 (See Part II.
Other Information), to Bradley T. Ray, a former consultant to the Company and
(c) a royalty of 7% of the gross sales of Greenworld Technologies, Inc. for a
period of two years, and 5% of the gross sales of Greenworld Technologies, Inc.
for an additional three years. As of the date of this report, GTB Company has
defaulted on its payment of the promissory note.
The Company is seeking all remedies available.
In May 1996, the Company acquired the assets and business operations of
Donn Wells, M.D. medical center. Consideration for the sale included $75,000 in
cash and the issuance of 12,815 shares of the Company's common stock on a post
reverse basis.
Note 5- Treasury Stock
Seventy-five thousand shares of the Company's common stock were returned
to the Company during the 1st quarter of 1996. The Company accounted for the
Treasury Stock under the par or stated value method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
During 1995, the Company principally derived its revenues from its
mobile cardiac catheterization and its Continuous Passive Motion ("CPM")
operations. During the third and fourth quarter of 1995, the acquisitions of
Technomed and Essential Care Medical Centers expanded the Company's medical
services to include managed care medical centers ("medical centers").
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND SEPTEMBER 30, 1995
Total revenues decreased 45% to $2,145,849 for the nine months ended
September 30, 1996 from $3,922,808 for the nine months ended September 30, 1995.
The decrease in revenue is primarily attributable to a loss in revenue from the
sale of the CPM and Neurological testing divisions in 1995. For the nine months
ended September 30, 1995, the CPM and Neurological testing divisions accounted
for 54% or approximately $2,108,000 of revenue from operations. This decrease in
revenue from the CPM and Neurological testing divisions is offset by the
additional revenue generated by the medical centers and the HIS/MIS operations.
Revenues from the mobile labs decreased 8% to $906,789 from $976,446 for the
nine months ended September 30, 1996 and 1995, respectively. This decrease is
attributable to a short-term fixed fee contract that expired in September 1995.
10
<PAGE>
Cost of Services, which includes medical supplies, technical and sales
personnel salaries and benefits and other expenses directly associated with the
Company's services decreased to $1,275,755, 63% of revenue from operations, from
$2,540,676, 65% of revenue from operations, for the nine months ended September
30, 1996 and 1995, respectively.
General and Administrative expenses increased 38% to $2,856,677 for the
nine months ended September 30, 1996 from $2,073,978 for the nine months ended
September 30, 1996. This increase is attributable to an increase in corporate
overhead of $1,080,487 offset by the net decrease of the Company's sales and
purchases of it's subsidiaries. Salaries increased $335,606 for the nine months
ended September 30, 1996 due to the addition of several management personnel
required to operate the medical centers. In addition to the increase in
salaries, professional fees for the Company rose to $671,500 from $265,873 for
the nine months ended September 30, 1996 and 1995, respectively.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 AND SEPTEMBER 30, 1995.
Total revenues decreased 28% to $757,939 for the three months ended
September 30, 1996 from $1,056,491 for the three months ended September 30,
1995, principally as a result of the loss in revenue from the sale of the CPM
and Neurological testing divisions, which accounted for 34% of revenue from
operations. The decrease in revenue from the CPM and Neurological testing
division is offset by the increase of $244,000 from the medical centers. Revenue
from the mobile labs decreased 19% to $293,671 from $349,974 for the nine months
ended September 30, 1996 and 1995. This decrease is attributable to a short-term
fixed fee that expired in September 1995.
Cost of Services, which includes medical supplies, technical and sales
personnel salaries and benefits and other expenses directly associated with the
Company's services decreased to $545,521, 77% of revenue from operations, from
$732,296, 70% of revenue from operations, for the three months ended September
30, 1996 and 1995, respectively. The increase in the percentage of cost of
services to revenue from operations is due to the medical centers, several of
them in the start up stage, having lower revenues, but high personnel costs
relating the physicians and other technical personnel.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital surplus of $1,252,382 at September 30,
1996 compared to working capital deficiency of $1,615,631 at September 30, 1995.
The working capital surplus in 1996 is attributable to short term notes
receivable in the amount of $1,727,568 due from Westmark Group Holdings, Inc.
During the first three quarters of 1996, the Company advanced Westmark
an aggregate of $2,427,568 in the form of advances and one-year promissory
notes. In the first quarter of 1996, the Company converted $700,000 of its
advances into 200,000 shares of Westmark Group Holdings, Inc. Series C preferred
stock.
11
<PAGE>
In May 1996, the Company purchased the assets and business operations of
Donn Wells, MD medical center located in Fort Lauderdale, Florida. Consideration
for the sale included $75,000 in cash and 256,293 shares of the Company's common
stock.
During the second quarter of 1996, the Company opened six medical
centers, five located in Broward and Dade Counties and the other located in Port
Charlotte, Florida. During the 4th quarter, the Company closed one of these
centers and consolidated three centers into one center.
In November 1996, the Company sold its building located in Plantation,
Florida. Consideration for the building was $42,822.73 in cash, which was used
to pay off existing property tax obligations and a $110,000 balloon note
maturing on October 31, 2001, bearing interest at 8.5%.
In November 1996, the Company offered its Series C Convertible Preferred
Shareholders, the right to purchase Series D Convertible Preferred.
Consideration for the Series D consisted of the retirement of their shares of
Series C Convertible Preferred and an additional payment of cash. The Series D
Convertible Preferred stock entitles the holder to warrants to purchase shares
of the Company's common stock.
In November 1996, the Company acquired Florida Physicians Internet, Inc.
("FPII"), a multi-group specialty medical practice located in Central Florida,
specializing in cardiology subject to certain payments. FPII plans to
aggressively expand operations through the addition of new physicians to the
staff. This acquisition represents the initial marriage between the Company's
cardiac catheterization laboratories and a purchased physician practice.
The Company is currently streamlining operations to reduce corporate
overhead, reviewing the merits of the medical centers and expanding on its
mobile cardiac catheterization business.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
LAWSUITS RELATING TO FORMER SUBSIDIARIES
In January 1995, Thera-Kinetics, Inc. ("TK"), a competitor of the
Company's CPM division filed actions against the Company's wholly owned
subsidiary, U.S. BioInnovations, Inc. and three of its employees in the United
States District Court for the Eastern District of Virginia-Alexandria Division.
The complaint, alleged, among other things, violations by the employees (each of
whom was previously employed by TK) of restrictive covenants, tortuous
interference by the Company's subsidiary and misappropriation of trade secrets
and confidential information. In July 1995, the Company settled the lawsuit with
TK by selling substantially all of its Continuous Passive Motion operations to
TK. Consideration for the sale included a promissory note for $250,000 and the
assumption of approximately $400,000 in equipment leases. Currently, TK has not
assumed any of the leases and is in default on its promissory note. TK alleges
that the Company failed to deliver certain equipment under this Settlement
Agreement. The Company currently is considering all of the remedies available to
enforce the provisions of the settlement agreement and has been advised by
counsel that we overpaid equal to the amount of the TK counter-claim.
12
<PAGE>
In December 1995, Codise, Inc. ("Codise") filed a complaint in the 11th
Judicial Circuit in and for Dade County, Florida. The complaint named HLOA
Diagnostic, Inc., the former name of the Company's neurological testing
subsidiary, Cortex Diagnostic Services, Inc. Codise filed its lawsuit against
the Company's subsidiary for failure to redeem stock issued by the Company as
partial consideration for the purchase of assets of Codise, Inc. The Company
contended that it was misled in connection with the 1993 redemption payment and
that Codise was not entitled to any further consideration. Codise sought $65,190
in damages. In September 1996, Codise and the Company settled for $2,700 in cash
and the exchange of general releases.
In February 1996, a lawsuit was filed in the Circuit Court for Broward
County, Florida by Oakmont Financial against the Company alleging default under
an equipment lease and asking for damages in the amount of $50,000, attorney's
fees, and costs. The case is presently in the discovery stage. The lawsuit is
related to medical equipment that was used in the CPM division that was sold in
1995.
In April 1996, a lawsuit was filed in the Court of Common Pleas for
Somerset, Pennsylvania against the Company by Premium Savings Bank alleging
default and conversion under an equipment lease guarantee relating to its former
subsidiary, U.S. BioInnovations. Damages are requested in excess of $25,000,
including attorney fees and costs. In July 1996, this suit was settled.
In September 1996, a lawsuit was filed in the Circuit Court of Loudoun
County of Virginia against the Company. The suit alleges the default of an
employment contract between John Dwyer and the Company and is seeking damages of
approximately $77,000. The Company is currently reviewing the suit and what
action it will take.
In October 1996, a lawsuit was filed in the Fifth Judicial Court of the
County of Lyon, Minnesota by Lyon Financial Services, Inc. The suit alleges
default under several equipment leases and is asking for damages in excess of
$60,000. The Company is currently reviewing the suit and what action it will
take. The lawsuit is related to the medical equipment that was used in the CPM
division that was sold in 1995.
In August 1996, a lawsuit was filed in the Superior Court of the State
of California, County of Alameda-Eastern division against the Company and et al.
The suit alleges conspiracy to damage the Plaintiff by depriving it of the
benefits of the Agreements between the Plaintiff and the other defendants,
inducing the said defendants to breach their Agreements with Plaintiff so that
the Company could purchase the Talon rights directly from Greenworld. The
Company is currently reviewing the suit and what action it will take.
13
<PAGE>
OPERATIONAL LAWSUITS
In August 1996, a lawsuit was filed in Circuit Court of Broward County,
Florida by G4, Inc. against the Company seeking approximately $36,000 for past
services. The Company is currently reviewing the suit.
ITEM 2 CHANGES IN SECURITIES
On October 31, 1996, the Company effectuated a 1-for-20 reverse stock
split of its Common Shares and Preferred Shares which reduced the authorized
number of common shares from 160,000,000 to 8,000,000 and outstanding shares
from 20,199,511 to 1,009,975.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On September 24, 1996, the Company held its Annual Meeting of
Shareholders, the following members were elected to the Board of Directors:
Paul Pershes
Michael Morrell
Harry Kobrin
The following proposals were approved at the Company's Annual Meeting:
1. Proposal to amend the Company's Articles of Incorporation to increase
number of authorized shares of capital stock of the Company.
2. Proposal to ratify Grant-Schwartz, CPA's as the Company's independent
accountants.
3. Proposal to amend the Articles of Incorporation to change the name of
the Company to Medical Industries of America, Inc.
4. Proposal to approve the 1996 Officers and Directors stock option plan.
5. Proposal to approve the 1996 employee stock option plan.
ITEM 5 OTHER INFORMATION
14
<PAGE>
HARRY KOBRIN
Harry Kobrin, the Company's President and a Director, past away on
November 6, 1996. Mr. Kobrin became involved with the Company in November 1995
through the acquisition of Essential Care Medical Centers. Mr. Kobrin was part
of the management team and his talents and moral strength will be missed.
JEAN JOHNSTONE AGREEMENT
In June 1996, the Company entered into an Agreement with Jean Johnstone,
the Company's Chairman of the Board and a director of the Company, whereby among
other things, the Company would facilitate, through a third party the purchase
of 20,000 shares, on a post reverse basis, of the Company's common stock from
Ms. Johnstone at the closing bid price per share of the Company's common stock
as reported by NASDAQ on the day prior to purchase. If the purchase price is not
at least $284,000.71 the Company will issue Johnstone a convertible debenture in
an amount equal to the shortfall. The Company has agreed to register the shares
underlying the debenture. If a third party purchase cannot be facilitated in 120
days, the Company will repurchase the shares at a price set forth above by
issuance of a Senior Promissory Note bearing interest at the rate of 8% per
annum, paying interest only, quarterly in arrears, with a balloon payment due
June 7, 1997. In addition, the Company purchased 21,000 shares from Ms.
Johnstone at the purchase price of $.87 for a total purchase price of $18,270.
The Company also granted Ms. Johnstone a five-year option to purchase
10,000 shares of the Company's common stock at $20.00 per share. The parties
executed mutual general releases and Ms. Johnstone resigned as Chairman of the
Board and as a Director of the Company.
In April 1996, the Company issued a check to Ms. Johnstone in the amount
of $400,000. This sum was for the following: (i) partial payment for the
repurchase of stock, $13,851; (ii) A/R Mediquest accrued salary $33,603; and
(iii) repayment of her loan to C.J. Holding dba A/R Mediquest, $352,546.
BRADLEY T. RAY AGREEMENT
In June 1996, the Company entered into an Agreement with Bradley Ray, as
consultant to the Company and the son of Ms. Johnstone whereby, among other
things, the Company would facilitate, through a third party the purchase of
15,000 shares, on a post reverse basis, of the Company's common stock from Mr.
Ray at the closing bid price per share of the Company's common stock as reported
by NASDAQ on the day prior to purchase. If the purchase price is not at least
$214,285.71, the Company will issue a one-year Convertible Debenture in the
amount of the shortfall. The Company has agreed to register the shares
underlying the Debenture. If a third party purchase cannot be facilitated in 120
days, the Company will repurchase the shares as the price set forth above by the
issuance of a Senior Promissory Note, bearing interest at the rate of 8% per
annum, paying interest only, quarterly in arrears, with a balloon payment due in
June 7, 1997.
15
<PAGE>
In addition, the Company also granted one-year options to purchase
30,000 and 10,000 shares of the Company's common stock at $6.80 per share and
$8.00 per share respectively. The Company agreed to register the shares
underlying the options.
The Company also issued Mr. Ray a one-year promissory note in the amount
of $700,000 for payment of commissions Mr. Ray earned as a consultant. The Note
will be reduced by the difference between the exercise price of the options and
the bid price as reported by NASDAQ on the day of exercise. This note was
forgiven as part of the sale of Greenworld Technologies sale.
The parties also executed mutual general releases.
In June 1996, the Company entered into a 50-month consulting agreement
with Mr. Ray for a monthly consulting fee of $5,713 per month. In July 1996, the
Company issued Mr. Ray 22,500 shares, on a post reverse basis, of the Company's
common stock which was registered with the Securities and Exchange Commission on
Form S-8. The 22,500 shares, on a post reverse basis, are considered full
payment of Mr. Ray's contract and was issued in lieu of cash due to the
Company's cash restrictions.
REGULATION S OFFERING
In fiscal 1996, the Company sold an aggregate of 41,725 shares, on a
post reverse basis, of Series C preferred stock (the "Preferred") and 17,857
shares, on a post reverse basis, of common stock pursuant to Regulation S
Offerings for gross proceeds in aggregate amount of $8,845,000 (net $7,579,785).
The Preferred Stock is convertible into shares of the Company's common stock at
the lesser of (i) 75% of the closing bid price of the Company's common stock, as
reported by NASDAQ on the date of the closing of the Regulation S Offering or
(ii) 65% of the average closing bid price for the five trading days immediately
preceding the date of conversion. (During the first and second quarter the bid
price of the Company's common stock fell and the Company received notices to
convert 760,500 shares of Preferred Stock in an aggregate of 1,013,484, on a
post-reverse basis, shares of common stock.) Although , the Company did not have
an adequate number of shares authorized to effectuate the conversion, it
negotiated a mutually agreeable solution with the Regulation S subscribers
whereby it offered them a right to purchase Series D Convertible Preferred.
Consideration for the Series D consisted of retirement of their shares of Series
C Convertible Preferred and an additional payment of cash. The Series D
Convertible Preferred entitles the holder to warrants to purchase shares of
common stock.
ESSENTIAL CARE MEDICAL CENTERS, INC. AND PRIME DENTAL CARE, INC.
In October 1995, the Company acquired through a Share Exchange
Agreement, Essential Care Medical Centers, Inc. ("Essential") and Prime Dental
Care, Inc. ("Prime"). This Agreement was amended May 8, 1996. Pursuant to the
terms of the Amended Exchange Agreement, the Company was required to issue
28,776 shares, on a post reverse basis, of its common stock for 100% Essential
and 100% of Prime outstanding common stock. In addition, two parcels of real
property with building improvements were purchased for an additional 12,607
shares, on a post reverse basis. Should Prime and Essential have pre-tax
earnings of $350,000 for their fiscal year ended July 31, 1996, the Company will
issue 18,750 shares, on a post reverse basis, of Technomed at $1.00 per value,
convertible preferred stock, convertible into shares of the Company's common
stock, to one of the Prime/Essential shareholders. If the pre-tax earnings are
less than $350,000, the number of preferred shares to be issued will decrease
proportionately. The Company originally was required to issue an additional
18,750 shares, on a post reverse basis, of Technomed convertible preferred stock
to Harry Kobrin, the other Prime/Essential shareholder, however, since Mr.
Kobrin was appointed as the Company's Executive Vice President and as such was
no longer in control of the day-to-day operations of Prime/Essential, he waived
his rights to the convertible preferred shares. The Company compensated Mr.
Kobrin for his performance in 1996 through the issuance of stock options to
purchase 13,200 shares at $7.50 per share.
16
<PAGE>
Essential and Prime are healthcare medical centers located in the South
Florida area. Essential and Prime have several contracts with area Health
Maintenance Organizations ("HMO"). In addition, the Company has four additional
medical centers in Florida. The Clinical Care division currently and in the
future will derive its revenues from a variety of sources. The main source of
revenue is and will be managed care contracts. The revenue from these contracts
is generated by the amount of patients contracted to the Centers from various
HMO's. The Clinical Care division, to a lesser extent, also generates revenue on
a fee for service basis whereby the Company will be paid at the time services
are rendered.
SYSDACOMP
Sysdacomp has been in operation since 1982. It provides data processing
services to the healthcare industry. Sysdacomp's products include: hospital
financial software which serves as an accounting package for the hospital,
hospital order entry software that networks all departments in the hospital for
ordering all patient services and Physician Practice Management software for all
functions necessary in a physicians office, including scheduling.
In addition to the hospital software, Sysdacomp provides collection
software and processing services for collection agencies and healthcare billing
services. Services for the collection agencies include: Complete account
activity history on line, letter printing and mailing, accounting reports and
credit reporting. Billing services include: Printing and mailing of the billing
forms, electronic submission of claims and accounts receivable management
services.
In June 1996, the Company was informed by the prior shareholders of
Sysdacomp (the "Prior Holders") that Technomed, prior to its acquisition by the
Company, had breached the Agreement pursuant to which Technomed acquired
Sysdacomp. The alleged breaches are: (i) failure to issue the correct number of
shares to the Prior Holders, (ii) failure to merge Sysdacomp with Technomed and
Technomed with the Company; and (iii) failure of the company to register or buy
back the Heart Lab shares issued to the Prior Holders pursuant to the Company's
acquisition of Technomed.
The Company is presently negotiating with the Prior Holders to rescind
the transaction. The Company does not believe that such recession will have a
material adverse impact on the Company's financial condition.
WESTMARK GROUP HOLDINGS, INC.
17
<PAGE>
In November 1995, the Company signed a Share Exchange Agreement with
Westmark Group Holdings, Inc. ("Westmark"). Westmark is a publicly traded
company (NASDAQ-WGHI). This Share Exchange Agreement gave the Company 49%
interest or 1,298,388 shares of Westmark common stock in Westmark in exchange
for $1,210,000 in cash and cash equivalents a note in the amount of $315,000 and
200,000 shares of the Company's Series B preferred stock, with a stated value of
$10. The Stock Exchange Agreement provides that the Company's ownership
position, equal to 49%, will not be diluted and that Westmark is obligated to
issue additional shares to maintain such ownership position. Westmark owns
and/or operates two wholly owned subsidiaries. Also see Item 12. "Certain
Relationships and Related Transactions".
Westmark Mortgage is engaged in the business of originating, purchasing
and selling mortgage loans secured primarily by single family, multi-family and
condominium residences. Westmark Mortgage is registered and/or licensed to
originate, purchase closed loans, underwrite, fund or sell residential mortgage
loans in the states of Alabama, California, Colorado, Florida, Georgia, Hawaii,
Idaho, Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Nevada, Ohio,
Oregon, Utah, Washington and Wyoming. Westmark Mortgage pools and sells loans to
third-party investors including the Federal Home Loan Mortgage Corporation
(Freddie Mac or FHLMC), the Federal National Mortgage Association (Fannie Mae),
the Department of Housing and Urban Development (HUD), its lending agency the
Government National Mortgage Association (Ginnie Mae) and various non-conforming
mortgage conduits.
In the first and second quarter of 1996 the Company provided Westmark
with additional financing in an aggregate amount of $2,427,568 to be used for
Westmark's operations and financing activities. The financing was to be provided
in the form of short-term advances which the Company may, at its option, convert
to equity. As of this date, $700,000 of the loan amounts have been converted to
200,000 shares of Westmark's Series C Preferred Stock .
On September 30, 1996, the Company gave an option to GTB Company to
purchase its shares in Westmark for $.675 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
-None
B. The Company filed a Form 8-K/A, (Event of October 24, 1995), reporting
(Item 2. Acquisition or Disposition of Assets) the acquisition of
Essential Care Medical Centers, Inc. and Prime Dental Care, Inc.
C. The Company filed a Form 8-K/A, (Event of August 23, 1995), reporting
(Item 2. Acquisition or Disposition of Assets) the acquisition of
Technomed, Inc.
D. The Company filed a Form 8-K, (Event of September 30, 1996), reporting
(Item 2. Acquisition or Disposition of Assets), reporting the option to
sell its Westmark Group Holdings, Inc. shares to GTB Company.
18
<PAGE>
SIGNATURES
In accordance with 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.
MEDICAL INDUSTRIES OF AMERICA, INC.
(Registrant)
NOVEMBER 13, 1996 By:/s/ MICHAEL F.MORRELL
(Date) Michael F. Morrell,
Chief Executive Officer & Director
NOVEMBER 13, 1996 By:/s/ DAWN M. DRELLA
(Date) Dawn M. Drella,
Chief Financial Officer
19
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 99,827
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<RECEIVABLES> 425,232
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