Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] 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 0-20356
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
of incorporation or organization) Identification No.)
1903 S. CONGRESS AVENUE, SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of principal executive offices)
(561)737-2227
(Issuer's telephone number)
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: 10,079,387 shares of common
stock, no par value, were outstanding as of September 30, 1997.
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
10-QSB- QUARTER ENDED SEPTEMBER 30, 1997
INDEX
FORM 10-QSB FORM 10-QSB FORM 10-QSB
PART NO. ITEM NO. DESCRIPTION PAGE NO.
I. FINANCIAL INFORMATION
1. Financial Statements
- Condensed Consolidated Balance
Sheet as of September 30, 1997 3
- Condensed Consolidated Statements of Operations
and Accumulated Deficit for the Three and Nine
Months Ended September 30, 1997 and 1996 5
- Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1997 and 1996 6
- Notes to Condensed Consolidated Financial
Statements 8
2. Management's Discussion and Analysis
or Plan of Operations 11
II. OTHER INFORMATION
1. Legal Proceedings 14
2. Changes in Securities 14
6. Exhibits and Reports on Form 8-K 15
Signatures
2
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 671,136
Trade accounts receivable, net ........................ 1,452,206
Litigation receivable ................................. 1,500,000
Current portion of notes and mortgage receivables .... 674,703
Inventory of medical supplies ......................... 24,502
Prepaid expenses and other current assets ............. 427,178
============
Total current assets ................................ 4,749,725
------------
PROPERTY AND EQUIPMENT:
Mobile cardiac catheterization laboratory
and medical equipment ................................ 1,931,917
Furniture and office equipment ........................ 256,708
------------
2,188,625
Less: accumulated depreciation and amortization ....... (1,731,801)
------------
Property and equipment-Net .......................... 456,824
============
OTHER ASSETS:
Notes and mortgage receivables, less current maturities 1,712,295
Goodwill .............................................. 1,553,502
Investment in equity securities ....................... 3,513,200
Other assets .......................................... 83,134
------------
Total other assets .................................. 6,862,131
------------
TOTAL ASSETS ........................................ $ 12,068,680
============
See Notes to Consolidated Financial Statements
3
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 380,611
Accrued liabilities ....................................... 1,211,239
Amount due on purchase of business - current
portion ................................................. 815,000
Current portion of notes payable .......................... 431,923
Current portion of capital lease obligations .............. 134,229
------------
Total current liabilities ............................... 2,973,002
------------
LONG TERM LIABILITIES:
Convertible subordinated debentures ....................... 400,000
Amounts due on purchase of business, net of current portion 600,000
Capital lease obligations, net of current portion ......... 13,793
------------
Total long term liabilities .......................... 1,013,793
------------
Total Liabilities ...................................... 3,986,795
============
SHAREHOLDERS' EQUITY:
Preferred shares, authorized 10,000,000 shares:
issued and outstanding:
Series A convertible shares, 33,414 shares authorized ..... --
Series B convertible shares, 10,000 shares
authorized, issued and outstanding, $200
stated value ............................................. 2,000,000
Series C convertible shares, 75,000 shares authorized ..... --
Series D convertible shares, 375,000 shares authorized .... --
Convertible preferred shares to be issued ................. 832,000
Common shares, no par value, 50,000,000 shares
authorized, 10,079,387 shares issued and
outstanding, including 47,500 in escrow ................... 23,683,439
Accumulated deficit ....................................... (18,433,554)
Total shareholders' equity .......................... 8,081,885
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $ 12,068,680
============
See Notes to Consolidated Financial Statements
4
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue ........................................ $ 1,189,419 $ 256,196 $ 4,292,387 $ 931,272
Interest income ................................ 36,483 106,878 120,816 106,878
Other income ................................... 1,102,657 272,850 1,737,760 272,850
------------ ------------ ------------ ------------
Total ................................. 2,328,559 635,924 6,150,963 1,311,000
------------ ------------ ------------ ------------
Expenses:
Cost of revenues ............................ 947,623 177,702 2,483,118 455,606
General and administrative
expenses ................................. 707,290 425,993 1,800,181 1,816,277
Depreciation and
amortization ............................. 48,062 178,425 287,493 542,632
Interest expense ............................ 25,015 925 121,260 74,458
Other ....................................... -- 188,034 4,911 306,643
------------ ------------ ------------ ------------
Total expenses ........................ 1,727,990 971,079 4,696,963 3,195,616
------------ ------------ ------------ ------------
Income (loss) from continuing
operations .................................... 600,569 (335,155) 1,454,000 (1,884,616)
Loss from discontinued
operations-net of income
taxes ......................................... (3,735) (401,281) (99,765) (983,424)
------------ ------------ ------------ ------------
Net income (loss) .............................. 596,834 (736,436) 1,354,235 (2,868,040)
Accumulated deficit-beginning
of year .................................... (19,030,388) (14,002,028) (19,787,789) (11,870,424)
Accumulated deficit-end of
periods ........................................ $(18,433,554) $(14,738,464) $(18,433,554) $(14,738,464)
Earnings (loss) per share of
common stock:
Primary:
Income (loss) from
continuing operations ....................... $ .10 $ (.33) $ .32 $ (2.56)
Loss from discontinued
operations ............................... -- (.40) (.02) (1.33)
------------ ------------ ------------ ------------
Net Income (loss) ........................... .10 (.73) .30 (3.89)
============ ============ ============ ============
Fully diluted
earnings per share ........................ .09 -- .25 --
============ ============ ============ ============
Weighted average shares
outstanding, excluding
contingently issuable shares
Primary .................................. 5,882,999 1,005,757 4,495,398 736,648
============ ============ ============ ============
Fully diluted ........................... 6,744,999 -- 5,357,398 --
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements MEDICAL
5
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INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Operating activities:
Net income (loss) from continuing operations $1,454,000 $(1,884,616)
Net loss from discontinued operations ................ (99,765) (983,424)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization ................... 287,493 746,306
Minority Interest ............................... (3,129) (24,839)
Loss (gain) on disposition of property
and equipment ................................ 2,544 0
Common stock issued for services
rendered ..................................... 822,502 0
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable .................... (631,252) 277,281
Litigation receivable ........................ (1,500,000) --
Inventories of medical supplies .............. (9,631) (2,157)
Prepaid expenses and other current assets .... (91,128) (643,933)
Other assets ................................. (35,496) (98,413)
Increase (decrease) in:
Accounts payable ............................. 132,180 (245,604)
Accrued liabilities .......................... (55,814) (12,363)
---------- ----------
Net cash provided by (used in)
operating activities ........................... 272,504 (2,871,762)
---------- ----------
Investing activities:
Purchase of equity securities ........................ (300,000) --
Issuance of notes receivable ......................... (697,822) (2,722,046)
Payment of notes receivable .......................... 163,393 --
Purchase of property and equipment ................... (332,957) (296,574)
Purchase of goodwill ................................. (16,000) (219,052)
Loss in equity of investment ......................... -- 331,480
---------- ----------
Net cash (used in) investing activities ........... (1,183,386) (2,906,192)
---------- ----------
Financing activities:
Proceeds from long term debt ......................... 431,271 --
Payment of note payable .............................. -- (183,369)
Proceeds from the issuance of common stock ........... 1,102,465 4,054,253
Proceeds from the issuance of preferred stock ........ -- 3,932,900
Dividend returned .................................... 44,958
Payments of capital lease obligations ................ (39,127) (362,981)
Payments of long term debt ........................... (154,052) (1,632,411)
---------- ----------
Net cash provided by financing activities ......... 1,340,557 5,853,350
---------- ----------
Net increase in cash ................................. 429,675 75,396
Cash at the beginning of period ...................... 241,461 24,431
---------- ----------
Cash at the end of period ............................ 671,136 99,827
========== ==========
</TABLE>
6
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Supplemental disclosure of cash flow information:
Interest paid $48,329 $122,029
======= ========
Supplemental disclosure of non-cash investing and financing activities:
Non-cash aspects of the acquisition of Florida Physicians Internet, Inc.:
Fair value of assets acquired $ 653,048
Accrued payment for acquisition 1,415,000
Preferred shares to be issued in
connection with acquisition $832,000
During the fourth quarter of 1996, the Company converted $700,000 of its
advances to Westmark Group Holdings, Inc. to Westmark Group Holdings, Inc.
preferred stock.
7
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Medical Industries of America, Inc., f/k/a Heart Labs of America, Inc.,
was incorporated in the State of Florida and has its principal executive office
in Boynton Beach, Florida. Medical Industries of America, Inc. through its
wholly owned subsidiary, Florida Physicians Internet, Inc. operates a
multi-specialty medical group practice that is rapidly expanding in the areas of
physician practice management. The Company also provides diagnostic and
therapeutic healthcare services to the surgical and medical community through
its mobile cardiac catheterization services to hospitals and physicians
primarily in the State of Florida.
The Company's Consolidated Financial Statements include the Company's
active subsidiaries: Heart Labs of America, Inc. and Florida Physicians
Internet, Inc. The Company's discontinued operations include Essential Care
Medical Centers, Inc. and Essential Care Medical Centers #5, Inc..
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 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 the
year ended December 31, 1996, included in the Company's Form 10-KSB as filed
with the Securities and Exchange Commission.
Earnings (Loss) Per Common Share
Earnings (loss) per common share is calculated by dividing earnings (loss)
by the weighted average common shares outstanding after giving effect to the 1
for 20 reverse stock split effective November 1, 1996 and common stock
equivalents. Fully diluted earnings per share have been computed based on the
assumption that all of the convertible preferred stock is converted into common
shares. Under this assumption, the weighted average number of common shares
outstanding has been increased accordingly. For 1996, there is no fully dilutive
computation because the effect would be antidilutive.
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.
Reclassifications
Certain reclassifications have been made in the 1996 financial statements
to conform with the 1997 presentation.
Note 2 - Business Acquired
Effective January 9, 1997 the Company entered into a purchase agreement
with Florida Physicians Internet, Inc. ("FPII"). Florida Physicians Internet,
Inc. is a group medical practice specializing in cardiology and primary care
medicine. Consideration for the purchase included the issuance of the Company's
preferred shares in an amount equal to $832,000, cash payments of $1,415,000
over a three year period and the issuance of stock options.
Effective August 1, 1997, the Company entered into an asset purchase
agreement with Dr. Rodney Menk, D.O. to acquire his practice for $20,000.
Note 3 - Discontinued Operations
In the fourth quarter of 1996, the Company closed seven of its nine
medical centers. The remaining two medical centers were spun off into a separate
company controlled by unrelated third parties which is anticipated to become a
publicly traded company.
Note 4 - Accounts receivable
During the 1st quarter of 1997, the Company entered into an agreement with
a company whereby the Company can sell on an ongoing basis and without recourse
an undivided interest in designated accounts receivables. In July 1997, the
Company repaid all advances and mutually terminated the agreement.
Note 5 - S-8 Registration Statements
For the period from January 1997 to September 1997, the Company issued a
total of 555,800 shares of common stock which the vast majority was issued for
legal services pursuant to S-8 registration statements. These shares had an
aggregate market value of $1,160,160.
9
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Note 6 - Note Receivable
In June 1997, the Company and Westmark Group Holdings, Inc. agreed to a
revised payment schedule with a minimum payment plus additional payments
dependent on Westmark's cash flow, capital infusion, and/or other forms of
capital raised.
Note 7 - Stock Issuances
In July 1997, the Company issued 412,000 shares of its restricted common
stock for $600,000.
In September 1997, the Company issued 327,389 shares of its restricted
common stock to Bradley Ray and Jean Johnstone for amounts due them from their
1996 settlement agreements.
Note 8 - Private Placement
In September 1997, the Company, pursuant to a private placement, issued
12% convertible subordinated debentures aggregating $400,000 comprising of
200,000 shares at $2.00. The outstanding principal is due to be repaid on March
31, 1999 or at the option of the registered holder upon the closing by the
Company of any equity private or public financing exceeding $1,500,000.
Interest is paid monthly.
In addition, as part of the private placement, the Company issued warrants
to purchase up to 440,000 shares of the Company's common stock at an exercise
price of $1.25 and the options expire on September 30, 2000.
Note 9 - Litigation Settlement
In September 1997, the Company entered into a settlement agreement with
Glick Enterprises, Inc. and certain other investors who had sued the Company in
March 1997 claiming in the Supreme Court of the State of New York, County of New
York, that the Company had issued an inadequate number of shares in January 1996
when they converted 62,150.5 shares of Series D convertible preferred stock and
that the Company was liable under the penalty provisions of the subscription
agreement.
As part of the settlement, the Company was required to issue 4.7 million
unrestricted common shares to Glick and the other investors and Glick and the
other investors shall return to the Company 62,120.5 shares of Series D
convertible preferred which they still possessed along with a full release. The
Company released Glick and the other investors for any claims which the Company
had against them with respect to their purchase, sale or trading of the
Company's stock. Glick and the other investors paid $1.5 million in cash to the
Company as part of their settlement. All Series C and D previously issued by
Medical Industries of America, Inc. has now been converted into common stock.
Note 10 - Subsequent Events
On August 21, 1997, the Company entered into a letter of intent to acquire
Care America Integrated Health Care Services, Inc., a Florida based corporation,
which provides formulary manager programs and "closed" pharmaceutical services.
The terms and conditions of this acquisition provide for an "earn-out" financing
package whereby the shareholders of Care America will receive preferred
10
<PAGE>
shares, convertible into shares of Medical Industries of America common stock
upon its successfully achieving pre-determined pre-tax profits over the next
year. The company is currently in the due diligence process.
On October 15, 1997, the Company entered into a Letter of Intent with
Amro-Pak Medical Services, a medical service company based in Karachi, Pakistan
to provide personnel training, medical supplies and ongoing support of cardiac
catheterization labs scheduled for delivery to Pakistan within four months. In
addition to training, the Company will supply the Pakistan based cath lab with
all associated medical supplies for a three year period. Consideration for these
services, the Company will receive a 6% fee for the management of the cath lab
and an ongoing revenue expected from the sale of cath lab supplies and materials
and a additional fee for every cardiac catheterization procedure performed in
these labs for a three year period.
On October 22, 1997 the Company entered into a Letter of Intent to acquire
the assets and certain liabilities of Physician Laser Services, Inc., a publicly
traded company, which is a cosmetic mobile laser service company. The terms of
the acquisition is the issuance of 300,000 shares of restricted shares of the
Company's common stock. Prior to the closing of the acquisition, Physician Laser
will conduct a rights offering of its shareholders to raise a total of $200,000.
The company is currently in the due diligence process.
Effective November 1, 1997, the Company acquired PRN of North Carolina
d/b/a Pain Rehabilitation Network, a Florida based private corporation,
operating ten pain management centers in North Carolina and one in South
Carolina. The terms and conditions of the acquisition provide for an "earn-out"
financing package, whereby PRN will be entitled to receive up to one million
Rule 144 shares of the Company's common stock based on paying 125,000 shares of
common stock for each million dollars of pre-tax profits over the next three
years.
In January 1997, a demand for arbitration was filed with the American
Arbitration Association of Orlando, Florida by Pyramid Holdings, Inc. The
plaintiff alleged a breach of a consulting agreement in that the Company failed
to compensate the plaintiff pursuant to the terms of a 1995 agreement. In
October 1997, the Company settled this case by paying the plaintiff up to
$290,000 in cash and 70,000 unrestricted shares of the Company's common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
During 1996, the Company principally derived its revenues from its mobile
cardiac catheterization laboratories. In the first three quarters of 1997, the
Company derived revenue from Florida Physicians Internet, Inc., a group practice
acquired in January 1997 and its mobile cardiac catheterization laboratories.
COMPARISON OF THE RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997
AND SEPTEMBER 30, 1996
Revenues increased 361% to $4,292,387 for the nine months ended September
30, 1997 from $931,272 for the nine months ended September 30, 1996, principally
as a result of the acquisition of FPII in January 1997, and the revenue from the
sale of equipment. During the 1st three quarters of
11
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1997, FPII recorded revenues of $2,178,211. Revenues from the Company's mobile
cardiac catheterization labs increased 41% to $1,314,176 from $931,272 for the
nine months ended September 30, 1997 and September 30, 1996, respectively. This
increase is primarily due to the Company obtaining contracts that fully utilize
two of its mobile labs and the addition of a third mobile lab. Balance of the
revenues was from the sale of the mobile lab. Other income for the nine months
ended September 30, 1997 consists of a cash legal settlements less $382,240 of
direct expenses.
Cost of revenues which includes medical supplies, technical salaries and
benefits and other expenses directly associated with the Company's services
increased to $2,483,118 from $455,606 for the nine months ended September 30,
1997 and 1996, respectively. This increase is due to the acquisition of FPII,
the increased use of the mobile labs and the cost of the equipment sold. FPII
has a higher cost of services due to the cost of the physicians. As a percentage
of revenue, cost of services increased to 58% of revenue from 49% of revenue for
the nine months ended September 30, 1997 and 1996, respectively.
General and administrative expenses decreased 1% to $1,800,181 for the
nine months ended September 30, 1997 compared to $1,816,277 for the nine months
ended September 30, 1996. This decrease is primarily due to the reduction in
salaries and consulting fees.
Interest expense increased to $121,260 for the nine months ended September
30, 1997 as compared to $74,458 for the nine months ended September 30, 1996.
This increase is attributable to the Company entering into an accounts
receivable financing arrangement .
Income from continuing operations increased to $1,454,000 for the nine
months ended September 30, 1997 compared to a net loss of $1,884,616 for the
nine months ended September 30, 1996 resulting from an increase in the results
of operations and other income.
Net income for the nine months ended September 30, 1997 was $1,354,235
compared to a loss of $2,868,040 for the nine months ended September 30, 1996.
This increase is primarily attributable to an increase in revenue, a decrease in
expenses, the acquisition of a profitable practice, a reduction in salaries and
consulting fees and other income.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30,
1997 AND SEPTEMBER 30, 1996
Revenues increased to $1,189,419 for the three months ended September 30,
1997 from $256,196 for the three months ended September 30, 1996, principally as
a result of the acquisition of FPII in January 1997 and the revenue from the
mobile catheterization labs. During the 3rd quarter of 1997, FPII recorded
revenues of $782,220. Revenues from the Company's mobile cardiac catheterization
labs increased 59% to $407,199 from $256,196 for the three months ended
September 30, 1997 and 1996, respectively. This increase is primarily due to the
Company obtaining contracts that fully utilize two of its mobile labs and the
addition of a third mobile lab. Other income for the three months ended
September 30, 1997 consists of a cash legal settlements less $117,343 of direct
expenses.
Cost of revenues, which included medical supplies, technical salaries and
benefits and other expenses directly associated with the Company's services
increased to $947,623 from $177,702 for the three months ended September 30,
1997 and 1996, respectively. This increase is primarily due to the
12
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acquisition of FPII and the increased use of the mobile labs. FPII has a higher
cost of services due to the cost of the physicians. As of percentage of revenue,
costs of services increased to 80% of revenue from operations from 69% of
revenue from operations for the three months ended September 30, 1997 and 1996,
respectively. This resulted from the seasonality of the practice during the off
season.
General and Administrative expenses increased 66% to $707,290 for the
three months ended September 30, 1997 compared to $425,993 for the three months
ended September 30, 1996. This increase is primarily due to the acquisition of
FPII and staffing for the acquisitions expected to be made.
Interest expense increased to $25,015 for the three months ended September
30, 1997 as compared to $925 for the three months ended September 30, 1996. This
increase is attributable to the company entering into an accounts receivable
financing arrangement.
Income from continuing operations increased to $600,569 for the three
months ended September 30, 1997 compared to a net loss of $335,155 for the three
months ended September 30, 1996 resulting from an increase in the results of
operations and other income.
Net income for the three months ended September 30, 1997 was $596,834
compared to a net loss of $736,436 for the three months ended September 30,
1996. This increase is primarily attributable to an increase in revenue, a
decrease in expenses, the acquisition of the medical practice and other income.
In September 1997, the Company entered into a settlement agreement with
Glick Enterprises, Inc. and certain other investors who had sued the Company in
March 1997 claiming in the Supreme Court of the State of New York, County of New
York, that the Company had issued an inadequate number of shares in January 1996
when they converted 62,150.5 shares of Series D convertible preferred stock and
that the Company was liable under the penalty provisions of the subscription
agreement.
As part of the settlement, the Company was required to issue 4.7 million
unrestricted common shares to Glick and the other investors and Glick and the
other investors shall return to the Company 62,120.5 shares of Series D
convertible preferred which they still possessed along with a full release. The
Company released Glick and the other investors for any claims which the Company
had against them with respect to their purchase, sale or trading of the
Company's stock. Glick and the other investors paid $1.5 million in cash to the
Company as part of their settlement. All Series C and D previously issued by
Medical Industries of America, Inc. has now been converted into common stock.
The Company had a working capital surplus of $1,776,723 at September 30,
1997 compared to working capital surplus of $1,252,382 at September 30, 1996.
13
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In January 1997, a demand for arbitration was filed with the American
Arbitration Association of Orlando, Florida by Pyramid Holdings, Inc. The
plaintiff alleged a breach of a consulting agreement in that the Company failed
to compensate the plaintiff pursuant to the terms of a 1995 agreement. In
October 1997, the Company settled this case by paying the plaintiff up to
$290,000 in cash and 70,000 unrestricted shares of the Company's common stock.
In September 1997, the Company entered into a settlement agreement with
Glick Enterprises, Inc. and certain other investors who had sued the Company in
March 1997 claiming in the Supreme Court of the State of New York, County of New
York, that the Company had issued an inadequate number of shares in January 1996
when they converted 62,150.5 shares of Series D convertible preferred stock and
that the Company was liable under the penalty provisions of the subscription
agreement.
As part of the settlement, the Company was required to issue 4.7 million
unrestricted common shares to Glick and the other investors and Glick and the
other investors shall return to the Company 62,120.5 shares of Series D
convertible preferred which they still possessed along with a full release. The
Company released Glick and the other investors for any claims which the Company
had against them with respect to their purchase, sale or trading of the
Company's stock. Glick and the other investors paid $1.5 million in cash to the
Company as part of their settlement. All Series C and D previously issued by
Medical Industries of America, Inc. has now been converted into common stock.
ITEM 2. CHANGES IN SECURITIES
In July 1997, the Company issued 412,000 shares of its restricted common
stock for $600,000.
In September 1997, the Company issued 327,389 shares of its restricted
common stock to Bradley Ray and Jean Johnstone for amounts due them from their
1996 settlement agreements.
In September 1997, the Company, pursuant to a private placement, issued
12% convertible subordinated debentures aggregating $400,000 comprising of
200,000 shares at $2.00. The outstanding principal is due to be repaid on March
31, 1999 or at the option of the registered holder upon the closing by the
Company of any equity private or public financing exceeding $1,500,000.
Interest is paid monthly.
In addition, as part of the private placement, the Company issued warrants
to purchase up to 440,000 shares of the Company's common stock at an exercise
price of $1.25 and the options expire on September 30, 2000.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
The Company filed an 8K/A on July 29, 1997, to include the prior
accountants response to the original 8K filed regarding the change in
accountants.
The Company filed an 8K on October 30, 1997, regarding the settlement of
the lawsuit with Glick Enterprises, Inc. and other certain investors.
15
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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)
MAY 12, 1997 By: /s/ MICHAEL F. MORRELL
- ------------ Michael F. Morrell,
(Date) Chairman of the Board & Chief
Executive Officer
MAY 12, 1997 By: /s/ PAUL C. PERSHES
- ------------ Paul C. Pershes, President
(Date)
MAY 12, 1997 By: /s/ LINDA MOORE
- ------------ Linda Moore, Senior Vice President
(Date)
MAY 12, 1997 By: /S/ ARTHUR P. KOBRIN
- ------------ Arthur P. Kobrin, Chief Financial Officer
(Date)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM 10QSB 9/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 671,136
<SECURITIES> 0
<RECEIVABLES> 1,452,206
<ALLOWANCES> 0
<INVENTORY> 24,502
<CURRENT-ASSETS> 4,749,725
<PP&E> 2,188,625
<DEPRECIATION> 1,731,801
<TOTAL-ASSETS> 12,068,680
<CURRENT-LIABILITIES> 2,973,002
<BONDS> 0
0
2,832,000
<COMMON> 23,683,439
<OTHER-SE> (18,433,554)
<TOTAL-LIABILITY-AND-EQUITY> 12,068,680
<SALES> 4,292,387
<TOTAL-REVENUES> 6,150,963
<CGS> 2,483,118
<TOTAL-COSTS> 4,575,703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,260
<INCOME-PRETAX> 1,454,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,454,000
<DISCONTINUED> 99,765
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,354,235
<EPS-PRIMARY> .30
<EPS-DILUTED> .25
</TABLE>
