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 March 31, 1998
[ ] 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 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)
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: 17,629,548 shares of common
stock, no par value, were outstanding as of April 22,1998.
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
10-QSB- QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
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 March 31, 1998 3
- Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1998
and 1997 5
- Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 1998
and 1997 6
- Notes to Condensed Consolidated Financial
Statements 8
2. Management's Discussion and Analysis
or Plan of Operations 10
II. OTHER INFORMATION
1. Legal Proceedings 12
5. Other Information 12
6. Exhibits and Reports on Form 8-K 13
Signatures
2
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
ASSETS
------
CURRENT ASSETS:
- ---------------
Cash and cash equivalents $ 593,870
Trade accounts receivable, net 2,199,521
Current portion of mortgage and notes receivable 177,829
Inventories of medical supplies 53,215
Prepaid expenses and other current assets 477,592
----------
Total current assets 3,502,027
----------
PROPERTY AND EQUIPMENT:
- -----------------------
Mobile cardiac catheterization laboratory
and medical equipment 1,463,854
Aircraft and related equipment 8,310,838
Building and building improvements 451,410
Furniture and office equipment 500,242
----------
10,726,344
----------
Less: accumulated depreciation and amortization (570,474)
Net property and equipment 10,155,870
OTHER ASSETS:
- -------------
Notes receivable, less current maturities 1,786,977
Goodwill 3,754,636
Investment in equity securities 1,840,938
Other assets 1,545,139
Total other assets 8,927,690
----------
TOTAL ASSETS $ 22,585,587
==============
See Notes to Consolidated Financial Statements
3
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
- --------------------
Current portion of long-term debt and notes payable $ 1,071,159
Current portion of capital lease obligations 133,871
Accounts payable 780,323
Accrued liabilities 551,295
Convertible subordinated debentures 300,000
-------
Total current liabilities 2,836,648
LONG TERM LIABILITIES:
- ----------------------
Long-term debt and notes payable - net of current portion 5,944,503
Capital lease obligations, net of current portion 763,981
Convertible subordinated debentures 100,000
Due to related parties 284,096
-------
Total long term liabilities 7,092,580
SHAREHOLDERS' EQUITY:
- ---------------------
Preferred shares, authorized 10,000,000 shares:
issued and outstanding:
Series B convertible shares, 10,000 issued
$10 stated value 1,740,000
Common shares, no par value, authorized 50,000,000:
issued and outstanding 17,017,712 32,019,275
Preferred shares to be issued 959,500
Accumulated deficit (19,775,154)
Unrealized loss on equity securities (1,112,262)
Stock subscription receivable (1,175,000)
Total shareholders' equity 12,656,359
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,585,587
==========
See Notes to Consolidated Financial Statements
4
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
(Unaudited)
1998 1997
---- ----
Revenue $ 3,221,018 $ 1,919,926
--------- ---------
Expenses:
Cost of revenues 1,613,006 907,050
General and administrative expenses 1,209,499 510,677
Depreciation and amortization 147,793 82,340
Interest expense 136,942 8,360
------- -----
Total expenses 3,107,240 1,508,427
--------- ---------
Net income $ 113,778 $ 411,499
======= =======
Earnings per share of common stock:
Basic earnings per share $ .01 $ .26
=== ===
Diluted earnings per share $ .01 $ .15
==== ===
Weighted average shares outstanding
Primary 15,981,934 1,588,442
========== =========
Fully diluted 17,661,021 2,716,127
========== =========
See Notes to Consolidated Financial Statements
5
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income ................................................ $ 113,778 $ 411,499
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ....................... 147,793 82,340
Loss (gain) on disposition of property and equipment -- 2,544
Common stock issued for services rendered ........... -- 426,800
Reclassification of property and equipment held for
sale ................................................ -- 498,450
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable ........................ (681,922) 75,578
Inventories of medical supplies .................. (144) 3,561
Net assets held for sale ......................... -- (235,548)
Prepaid expenses and other current assets ........ (72,127) (227,213)
Other assets ..................................... (275,624) (6,935)
Accounts payable ................................. (93,450) 87,651
Accrued liabilities .............................. (84,905) 72,936
--------- ---------
Net cash provided by (used in) operating activities .. (946,601) 1,191,663
Investing activities:
Issuance of notes receivable .............................. -- (697,822)
Payment of notes receivable ............................... 467,248 -0-
Disbursements for property and equipment .................. (114,946) (14,234)
Net cash provided by (used in) operating activities ... 352,302 (712,056)
--------- ---------
Financing activities:
Payments of capital lease obligations ..................... (52,961) (59,811)
Proceeds from long-term debt .............................. 404,619 --
Payments of long term debt ................................ (120,935) (144,225)
--------- ---------
Net cash provided by (used in) financing activities .. 230,723 (204,036)
--------- ---------
Net (decrease) increase in cash ........................... (363,576) 275,571
Cash at the beginning of period ........................... 957,446 241,461
--------- ---------
Cash at the end of period ................................. $ 593,870 $ 517,032
========= =========
</TABLE>
6
<PAGE>
Supplemental disclosure of cash flow information:
Interest paid $ 136,942
=======
Supplemental disclosure of non-cash investing and financing activities:
In March 1998, the Company leased a mobile cardiac catheterization laboratory
from Phoenix Leasing. The mobile lab is being recorded as a capitalized lease
payable over 60 months.
7
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Medical Industries of America, Inc. was incorporated in September 1989,
in the State of Florida and has its principal executive offices at 1903 S.
Congress Ave., Suite 400, Boynton Beach, Florida 33426, telephone number (561)
737-2227. Unless the context otherwise requires, all references to the "Company"
include Medical Industries of America, Inc. and its wholly-owned subsidiaries.
The Company's Consolidated Financial Statements include the Company's
active subsidiaries: Heart Labs of America, Inc., Florida Physicians Internet,
Inc., PRN of North Carolina, Inc., Care America Integrated Health Services,
Inc., Global Air Rescue, Inc., Global Air Charter, Inc. and Clearwater Jet
Center, 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 consolidated 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, 1997, included in the Company's Form
10-KSB as filed with the Securities and Exchange Commission.
Earnings Per Common Share
Basic earnings per common share is calculated by dividing earnings by
the weighted average common shares outstanding. Diluted earnings per share have
been computed based on the assumption that all of the convertible preferred
stock is converted into common shares, and that all stock options where the
exercise price is less than the market value have been considered exercised
under the treasury stock method. Under this assumption, the weighted average
number of common shares outstanding has been increased accordingly.
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 - Business Acquired
Effective April 1, 1998, the Company acquired 81% of the outstanding
stock of Ivanhoe Medical Systems ("Ivanhoe") in exchange for 607,500 shares of
the Company's common stock and a predetermined number of shares to be issued
under an "earn-out" financing arrangement whereby shares will be issued upon
Ivanhoe achieving pre-set earnings benchmarks. The acquisition has been
accounted for using the purchase method of accounting and the net assets and
revenue and expenses of Ivanhoe will be included in the Company's consolidated
financial statements from the date of acquisition.
Effective April 1, 1998, the Company acquired 100% of the outstanding
stock of Pharmacy Care Specialists, Inc. ("PCS") in exchange for 680,000 shares
of the Company's common stock, $90,000 in cash and a predetermined number of
shares issued under an "earn-out" financing arrangement whereby shares to be
issued upon PCS achieving pre-set earnings benchmarks. The acquisition has been
accounted for using the purchase method of accounting and the net assets and
revenue and expenses of PCS will be included in the Company's consolidated
financial statements from the date of acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATION FOR THREE MONTHS ENDED MARCH 31, 1998 AND
MARCH 31, 1997
Total revenues from operations increased to $3,221,018 for the three
months ended March 31, 1998 as compared to $1,919,926 for the three months ended
March 31, 1997, principally as a result of the acquisitions of PRN of North
Carolina, Inc., Care America Integrated Health Services, Inc. and Global Air
Charter, Inc.
Cost of revenues, which included medical supplies, technical salaries
and benefits and other expenses directly associated with the Company's services
increased to $1,613,006 from $907,050 for the three months ended March 31, 1998
and 1997, respectively. This increase is primarily due to the acquisitions of
PRN, Care America and Global.
General and Administrative expenses increased to $1,209,499 for the
three months ended March 31, 1998 compared to $510,677 for the three months
ended March 31, 1997. This increase is primarily due to the acquisitions. The
percentage increase in general and administrative expenses was greater than the
percentage increase in revenue primarily from the greater sales of equipment in
the prior period as compared to the current period.
9
<PAGE>
Interest expense increased to $136,942 for the three months ended March
31, 1998 as compared to $8,360 for the three months ended March 31, 1997. This
increase is primarily attributable to interest on the airplane loans assumed as
part of the acquisition of Global Air Rescue, Inc.
Net income from operations decreased to $113,778 for the three months
ended March 31, 1998 compared to a net income of $411,499 for the three months
ended March 31, 1997 resulting from a reduction in income from sales of medical
equipment of approximately $537,000.
In March 1997, the Company leased an additional mobile cardiac
catheterization lab from Phoenix Leasing. The Mobile Lab was financed through a
60 month lease with monthly payments of $19,000.
In April 1998, the Company refinanced certain debt on the aircrafts
calling for interest at 9.75% payable over a seven year period with a ten year
amortization.
The Company had working capital of $665,379 at March 31, 1998 compared
to working capital of $108,007 at March 31, 1997.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective April 1, 1998, the Company acquired 81% of the outstanding
shares of Ivanhoe Medical Systems, Inc. ("Ivanhoe"). Ivanhoe is a medical
services company which owns and operates nine sleep centers located in Florida,
Georgia and South Carolina. The terms of the acquisition provide for the Company
to issue 607,500 restricted common shares of the Company's stock and provide
"earn-up shares" based on specific earnings benchmarks being achieved.
Effective April 1, 1998, the Company acquired 100% of the outstanding
shares of Pharmacy Care Specialists, Inc. ("PCS"). PCS is a closed door pharmacy
company specializing in the delivery of prescription pharmaceuticals to the
adult congregal living facilities industry. The terms of the acquisition provide
for the Company to issue 680,000 shares of the Company's stock, $90,000 in cash
and a predetermined number of shares issued under an "earn-out" financing
arrangement whereby shares will be issued upon PCS achieving pre-set earnings
benchmarks.
On April 20, 1998, the Company entered into a formal letter of intent to
merge with Physician Health Corporation ("PHC"), a privately held,
fully-integrated, physician ancillary services company. The terms and conditions
of the reverse acquisition provide for the Company to issue sufficient common
shares to PHC to give it an approximate 70% controlling interest in the combined
corporate entity as reported on Form 8K filed at the SEC on April 28, 1998.
11
<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)
MAY 6, 1998 By: /s/ MICHAEL F. MORRELL
- ----------- ----------------------
(Date) Michael F. Morrell, Chairman of the Board &
Officer Chief Executive
MAY 6, 1998 By: /s/ PAUL C. PERSHES
(Date) Paul C. Pershes, Director
MAY 6, 1998 By: /s/ LINDA MOORE
(Date) Linda Moore, Senior Vice President
MAY 6, 1998 By: /s/ ARTHUR KOBRIN
(Date) Arthur Kobrin, Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 593,870
<SECURITIES> 0
<RECEIVABLES> 2,199,521
<ALLOWANCES> 0
<INVENTORY> 53,215
<CURRENT-ASSETS> 3,502,027
<PP&E> 10,726,344
<DEPRECIATION> 570,474
<TOTAL-ASSETS> 22,585,587
<CURRENT-LIABILITIES> 2,836,648
<BONDS> 0
0
2,699,500
<COMMON> 32,019,275
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,585,587
<SALES> 3,221,018
<TOTAL-REVENUES> 3,221,018
<CGS> 1,613,006
<TOTAL-COSTS> 3,107,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,942
<INCOME-PRETAX> 113,778
<INCOME-TAX> 0
<INCOME-CONTINUING> 113,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,778
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
