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, 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: 20,362,092 shares of common
stock, no par value, were outstanding as of September 30, 1998.
Transitional Small Business Issuer: Yes __ No X
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
10-QSB/A - QUARTER ENDED SEPTEMBER 30, 1998
INDEX
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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, 1998 3
- Condensed Consolidated Statements of Operations
and Accumulated Deficit for the Three and Nine
Months Ended September 30, 1998 and 1997 5
- Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 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 14
2. Changes in Securities 14
3. Defaults Upon Senior Securities 14
4. Submission of Matters to a Vote Security Holders 15
5. Other Information 15
6. Exhibits and Reports on Form 8-K 15
Signatures
</TABLE>
2
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 990,094
Trade accounts receivable, net .............................. 5,185,182
Current portion of notes and mortgage receivables .......... 234,133
Inventory of medical supplies ............................... 140,769
Prepaid expenses and other current assets ................... 893,165
------------
Total current assets ...................................... 7,443,343
PROPERTY AND EQUIPMENT:
Mobile cardiac catheterization laboratory
and medical equipment ...................................... 2,147,692
Furniture and office equipment .............................. 1,097,123
Aircraft and related equipment .............................. 11,723,635
Building and building improvements .......................... 116,899
------------
15,085,349
Less accumulated depreciation and amortization .............. (4,428,339)
Property and equipment-Net ................................ 10,657,010
OTHER ASSETS:
Notes and mortgage receivables, less current maturities ..... 99,123
Goodwill .................................................... 4,718,760
Investment in equity securities ............................. 3,211,017
License ..................................................... 956,240
Other assets ................................................ 1,345,949
------------
Total other assets ........................................ 10,331,089
TOTAL ASSETS .............................................. $ 28,431,442
============
See Notes to Consolidated Financial Statements
3
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable ............................................................. $ 2,212,515
Accrued liabilities .......................................................... 556,553
Current portion of long term debt and notes payable .......................... 1,846,431
Current portion of capital lease obligations ................................. 135,125
Convertible subordinated debentures .......................................... 125,000
------------
Total current liabilities .................................................. 4,875,624
LONG-TERM LIABILITIES:
Long-term debt and notes payable - net of current portion .................... 6,684,698
Convertible subordinated debentures .......................................... 3,367,500
Due to related parties ....................................................... 242,837
Capital lease obligations, net of current portion ............................ 715,820
------------
Total long-term liabilities ............................................. 11,010,855
Total Liabilities ..................................................... 15,886,479
SHAREHOLDERS' EQUITY:
Preferred shares, 10,000,000 shares authorized, 27,250 shares issued and
outstanding, Series B convertible shares, $10 stated value..................... 272,500
Common shares, no par value, 50,000,000 shares authorized, 20,362,092 shares
issued and outstanding........................................................ 35,329,220
Accumulated deficit............................................................. (21,881,757)
Stock subscription receivable .................................................. (1,175,000)
------------
Total shareholders' equity ......................................... 12,544,963
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................... $ 28,431,442
- - -------------------------------------------------------------------------------- ============
</TABLE>
See Notes to Consolidated Financial Statements
4
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
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Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
------------ ------------ ------------ ------------
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Revenue ............................................................ $ 3,542,749 $ 407,199 $ 10,743,820 $ 2,114,176
Interest income .................................................... 135,449 36,483 281,552 120,816
------------ ------------ ------------ ------------
Total ..................................................... 3,678,198 443,682 11,025,372 2,234,992
------------ ------------ ------------ ------------
Expenses:
Cost of revenues ................................................ 1,443,532 254,506 5,358,301 998,757
General and administrative expenses ............................. 1,368,815 385,017 3,427,346 734,756
Other ........................................................... 3,218 -- 7,150 4,911
------------ ------------ ------------ ------------
Total expenses ......................................... 2,815,565 639,523 8,792,797 1,738,424
------------ ------------ ------------ ------------
Earnings before interest, taxes, depreciation and amortization
862,633 (195,841) 2,232,575 496,568
Depreciation and amortization ...................................... 545,687 87,363 951,123 269,393
Interest expense ................................................... 295,376 49,009 642,250 71,506
------------ ------------ ------------ ------------
Income (loss) from operations ...................................... 21,570 (332,213) 639,202 155,669
Equity in net income (loss) of unconsolidated company
78,984 (25,500) 136,413 (162,681)
------------ ------------ ------------ ------------
Income (loss) from continuing operations ........................... 100,554 (357,713) 775,615 (7,012)
Merger costs .................................................... 117,748 117,748
Loss from discontinued operations .................................. 1,476,098 143,649 1,598,704 439,429
Loss on disposal of discontinued operations
678,529 -- 678,529 --
------------ ------------ ------------ ------------
Net (loss) ......................................................... (2,171,821) (501,362) (1,619,366) (446,441)
Accumulated deficit-beginning of period ............................ (19,709,936) (20,356,368) (20,262,391) (20,411,289)
------------ ------------ ------------ ------------
Accumulated deficit-end of periods ................................. $(21,881,757) $(20,857,730) $(21,881,757) $(20,857,730)
============ ============ ============ ============
Earnings (loss) per share of common stock:
Primary:
Income (loss) from continuing operations....................... $ .01 $ (.06) $ .04 $ --
Merger costs .................................................... -- -- -- --
Loss from discontinued operations ............................... (.08) (.02) (.09) (.10)
Loss from disposal of discontinued operations
(.04) -- (.04) --
------------ ------------ ------------ ------------
Net (loss) ...................................................... $ (.11) $ (.08) $ (.09) $ (.10)
============ ============ ============ ============
Weighted average shares outstanding,
Basic .................................................... 19,472,557 5,882,999 18,398,760 4,495,398
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
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MEDICAL INDUSTRIES OF
AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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1998 1997
----------- -----------
Operating activities:
Income (loss) from continuing operations ...................................... $ 775,615 $ (7,012)
(Loss) from discontinued operations ........................................... (1,598,704) (439,429)
(Loss) from disposal of discontinued operations ............................... (678,529) --
Writedown of merger costs ..................................................... (117,748) --
Adjustments to reconcile net (loss) to net cash Provided by (used in) operating
activities:
Depreciation and amortization .......................................... 951,123 269,393
Loss on disposition of property and equipment .......................... -- 2,544
Common stock issued for services rendered .............................. 22,894 822,502
Net proceeds from litigation settlement ................................ -- 1,737,760
Equity in income (loss) from unconsolidated subsidiary ................. (136,413) 162,681
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable ........................................... (2,914,041) (631,252)
Litigation receivable ............................................... -- (1,500,000)
Inventories of medical supplies ..................................... (31,153) (9,631)
Prepaid expenses and other current assets ........................... (499,419) (91,128)
Other assets ........................................................ (564,840) (35,496)
Increase (decrease) in:
Accounts payable .................................................... 751,254 129,051
Accrued liabilities ................................................. 141,701 (155,579)
----------- -----------
Net cash provided by (used in) operating activities .................... (3,898,260) 254,404
----------- -----------
Investing activities:
Purchase of equity securities ................................................. -- (300,000)
Issuance of notes receivable .................................................. (805,468) (697,822)
Payment of notes receivable ................................................... 852,010 163,393
Purchase of property and equipment ............................................ (1,107,130) (314,857)
Purchase of goodwill .......................................................... (313,760) (16,000)
----------- -----------
Net cash (used in) investing activities .................................... (1,374,348) (1,165,286)
----------- -----------
Financing activities:
Proceeds from long-term debt .................................................. 3,395,179 431,271
Payment of note payable ....................................................... (1,022,067) --
Proceeds from the issuance of common stock .................................... -- 1,102,465
Repurchase of debentures ...................................................... (275,000) --
Proceeds from issuance of debentures .......................................... 3,367,500
Payments of capital lease obligations ......................................... (127,480) (39,127)
Payments of long-term debt .................................................... (34,332) (154,052)
----------- -----------
Net cash provided by financing activities .................................. 5,303,800 1,340,557
----------- -----------
Net increase in cash .......................................................... 31,192 429,675
Cash at the beginning of period ............................................... 958,902 241,461
----------- -----------
Cash at the end of period ..................................................... $ 990,094 $ 671,136
=========== ===========
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6
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Supplemental disclosure of cash flow information:
Interest paid ........................ $536,927 $ 48,329
======== ========
Supplemental disclosure of non-cash investing and financing activities:
Effective September 1, 1998, the Company exchanged 880,000 common shares of the
Company to acquire 100% of the outstanding common stock of Valley Pain Centers,
Inc.
On April 1, 1998, the Company exchanged 680,000 common shares of the Company and
a note payable in the amount of $90,000 to acquire 100% of the outstanding
common stock of Pharmacy Care Specialists.
On April 1, 1998,the Company exchanged 607,500 common shares of the Company
valued for an 81% interest in Ivanhoe Medical Systems, Inc.
7
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MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 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
wholly-owned and substantially owned subsidiaries: Heart Labs of America, Inc.
("HLOA"), Global Air Rescue, Inc., Global Air Charter, Inc. ("Global"), Pharmacy
Care Specialists, Inc. ("PCS"), Ivanhoe Medical Systems, Inc. ("Ivanhoe"),
Valley Pain Centers, Inc. ("Valley") and Clearwater Jet Center, Inc.
("Clearwater").
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 (Loss) Per Common Share
Basic earnings (loss) per common share is calculated by dividing
earnings by the weighted average common shares outstanding. Diluted earnings per
share is computed based on the assumption that all of the convertible preferred
stock is converted into common shares, and that all stock options and warrants
where the exercise price is less than the market value have been considered
exercised under the treasury stock method. For all periods presented, there is
no diluted earnings per share computation because the effect would be
anti-dilutive.
8
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Goodwill
Goodwill was recorded at cost and is amortized using the straight-line
method over twenty-five years.
The Company periodically evaluates the recovery of the carrying amount
of intangibles by determined if any impairment indicators are present. These
indicators include management's plans for the division, income derived from
business acquired and other factors. If this review indicates that intangibles
will not be recoverable, as principally determined based on the estimated
undiscounted cash flows of the entity over the remaining amortization period,
the Company's carrying value of the intangibles is reduced by the amount the
carrying value exceeds its fair value.
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 - Terminated Merger Agreement
On September 16, 1998, the Company terminated the Merger Agreement with
Physician Health Corporation ("PHC") in accordance with the termination
provisions of the Definitive Merger Agreement dated August 3, 1998. The Company
determined that consummating a merger with PHC at that time was not in the best
interest of the Company and its shareholders.
Note 3 - Business Acquired
Effective September 1, 1998, the Company acquired 100% of the
outstanding common stock of Valley Pain Centers, Inc. ("Valley") f/k/a David S.
Klein, M.D., P.C. ("Klein") in exchange for $3,300,000. $1,320,000 was paid at
closing with the balance of $1,980,000 payable in annual installments over a
three-year period. The purchase price will be paid in restricted common stock
valued at $1.00 per share. The installment portion of the purchase price is
conditioned upon Valley earning at least $1,100,000 in pre-tax profits in each
of the first three years subsequent to September 1, 1998. If the earnings
threshold is not reached, the installment payments will be substantially
reduced. David S. Klein, M.D. has the right to receive up to 45% of each
installment payment in cash. The acquisition has been accounted for using the
purchase method of accounting and the net assets and revenue and expenses of
Valley will be included in the Company's consolidated financial statements from
the date of acquisition.
In addition to the purchase price, David S. Klein, M.D. has the right
to earn options to purchase common stock of the Registrant at a rate of 112,000
options per each $1,000,000 of the incremental consolidated earnings of the
Company's interventional pain and sleep business. The options may be exercised
at a strike price of $1.25 to $1.50 per share. These options were previously
granted as part of the acquisition of Ivanhoe.
9
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Effective April 1, 1998, the Company acquired 81% of the outstanding
stock of Ivanhoe in exchange for 607,500 shares of the Company's common stock
valued at $1.50 and a predetermined number of options to be issued under an
"earn-out" financing arrangement whereby options 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 September 1, 1998, the
Company purchased the remaining 19% interest in Ivanhoe for cash and notes
totaling $660,000.
Effective April 1, 1998, the Company acquired 100% of the outstanding
stock of PCS in exchange for 680,000 shares of the Company's common stock valued
at $1.50 per share, $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.
Effective December 31, 1997, the Company acquired 100% of the
outstanding stock of Global Air Charter, Inc. and Global Air Rescue, Inc. and
51% of the outstanding stock of Clearwater Jet Center, Inc. in exchange for
3,609,286 common shares of the Company valued at $1.50 per share.
Note 4 - Discontinued Operations
During the third quarter of 1998, the Company decided to no longer be
in the management and ownership of physician practices. Accordingly, the Company
is disposing of its physician practice and restructuring its physical therapy
pain management company. The financial statements for the three and nine months
ended September 30, 1998 and 1997 reflect the discontinuance and disposal of
these operations.
Note 5 - Sale of Subsidiary
During the third quarter of 1998, the Company repurchased the Company's
common stock and cancelled the related note payable by returning to the former
shareholders of Care America Integrated Health Services, Inc. ("Care America")
the common stock in Care America.
Note 6 - Contingency
During the three months ended June 30, 1998, the Company sold medical
equipment to a national petroleum company in West Africa. Due to the social
upheaval in this country, the collectability of the accounts receivable may be
in question. If these amounts are not collected by December 31, 1998, then the
Company will reserve the approximate $1,000,000 of potential loss.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENT
This Quarterly Report on Form 10-QSB contains forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, changes
in the regulation of the healthcare industry at either the federal and state
levels, changes in reimbursement for services by government or private payors,
competitive pressures in the healthcare industry and the Company's response
thereto, the Company's ability to obtain and retain favorable arrangements with
third-party payors and general conditions in the economy.
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Company's condensed
consolidated unaudited Financial Statements listed in Part I, Item 1 and the
Notes thereto appearing elsewhere in this Form 10-QSB, and the Company's audited
Financial Statements listed in Item 7 and the Notes thereto appearing in the
Company's 1997 Annual Report on Form 10-KSB.
COMPARISON OF THE RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
Total revenues from continuing operations increased to $10,743,820 for
the nine months ended September 30, 1998 as compared to $2,114,176 for the nine
months ended September 30, 1997, principally as a result of the acquisitions of
Global, Ivanhoe, PCS, Valley and equipment sales and internal growth.
Cost of revenues, which included medical supplies, technical salaries
and benefits and other expenses directly associated with the Company's revenues
increased to $5,358,301 from $998,757 for the nine months ended September 30,
1998 and 1997, respectively. This increase is primarily due to the acquisitions
of Global, Ivanhoe, PCS, Valley and the cost of equipment sales at HLOA.
General and Administrative expenses increased to $3,427,346 for the
nine months ended September 30, 1998 compared to $734,756 for the nine months
ended September 30, 1997. This increase is primarily due to the general and
administrative expenses of the acquired companies.
Interest expense increased to $642,250 for the nine months ended
September 30, 1998 as compared to $71,506 for the nine months ended September
30, 1997. This increase is primarily attributable to interest on the airplane
loans acquired as part of the acquisition of Global Air Rescue, Inc. and the
line of credit.
Income from continued operations increased to $775,615 for the nine
months ended September 30, 1998 as compared to a net loss of $7,012 for the nine
months ended September 30, 1997.
11
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Due to the termination of the proposed merger in the third quarter of
1998 with Physician Health Corporation ("PHC"), the Company expensed $117,748 of
costs relating to the merger.
During the third quarter of 1998, the Company discontinued three
subsidiaries; Florida Physicians Internet, Inc. ("FPII"), Medical Billing of
America, Inc. ("MBOA") and PRN of North Carolina, Inc. ("PRN"). Loss from
discontinued operations and cost of disposal totaled $2,277,233 for the nine
months ended September 30, 1998 as compared to $439,429 for the nine months
ended September 30, 1997.
Net loss increased to $1,619,366 for the nine months ended September
30, 1998 as compared to a net loss of $446,441 for the nine months ended
September 30, 1997 resulted from discontinued operations.
The Company had working capital of $2,567,719 at September 30, 1998
compared to working capital surplus of $754,702 at September 30, 1997.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30,
1998 AND SEPTEMBER 30, 1997
Revenues from continuing operations increased to $3,542,749 for the
three months ended September 30, 1998 from $407,199 for the three months ended
September 30, 1997, principally as a result of acquisitions and internal growth.
Cost of revenues, which included medical supplies, technical salaries
and benefits and other expenses directly associated with the Company's services
increased to $1,443,532 from $254,506 for the three months ended September 30,
1998 and 1997, respectively. This increase is a result of acquisitions.
General and Administrative expenses increased to $1,368,815 for the
three months ended September 30, 1998 compared to $385,017 for the three months
ended September 30, 1997. This increase is a result of acquisitions.
Interest expense increased to $295,376 for the three months ended
September 30, 1998 as compared to $49,009 for the three months ended September
30, 1997 primarily as a result of new borrowings.
Due to the termination of the proposed merger with PHC, the Company
expensed $117,748 of costs relating to the merger.
The Company discontinued three subsidiaries; FPII, MBOA and PRN. Loss
from discontinued operations and cost of disposal totaled $2,154,627 for the
three months ended September 30, 1998 as compared to $143,649 for the three
months ended September 30, 1997.
Net loss, including those from discontinued operations, for the three
months ended September 30, 1998 was $2,171,821 compared to a net loss of
$501,362 for the three months ended September 30, 1997.
12
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Year 2000 Costs
In July 1996, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue 96-14. Accounting for
the costs associated with modifying computer software for the year 2000 which
provides that costs associated with modifying computer software for the year
2000 be expended as incurred. The Company is assessing the extent of the
necessary modification to its computer software but anticipates that it will not
have material effect on the Company's financial statements.
13
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company entered into an exchange agreement with Westmark Group
Holdings, Inc. ("WGHI") settling pending litigation all outstanding issues
relating to the common and preferred shares of WGHI held by the Company. The
agreement provided for conversion of $700,000 face amount Series C Convertible
Preferred Stock of WGHI at a conversion price of $2.00 per share. WGHI also
issued to the Company a two-year warrant to buy an additional 100,000 shares of
WGHI common stock at $3.25 per share.
The exchange agreement called for WGHI to return to the Company $1.725
million in the Company's Series B Preferred Stock with total cash payments of
$277,500 which satisfied in full the debt obligation of approximately $1.85
million due the Company from WGHI.
The exchange agreement also calls for WGHI to repurchase, at the
Company's option, up to $1,000,000 worth of WGHI common stock owned by the
Company over a two-year period based on WGHI's earnings not exceeding certain
earnings per share levels. The shares are to be repurchased at prices ranging
from $4.82 to $5.73 per share.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the third quarter of 1998, the Company issued 1,320,000 shares
of unregistered common stock in connection with the purchase of Valley. In
connection therewith, the Company filed a Form 8-K on August 24, 1998
On July 31, 1998, the Company issued $3,000,000 of 6% convertible A
debentures, calling for semi-annual interest with a maturity date of July 29,
2001. The holders of the 6% convertible A debentures received options to
purchase 300,000 shares of the Company's common stock at an exercise price of
$2.50. The underwriter's received options to purchase 60,000 shares of the
Company's Common Stock at an exercise price of $2.00. The convertible A
debentures were issued through J.W. Genesis Financial Services Capital Markets
and were issued to accredited investors. The total offering price was $3,000,000
and the underwriter's commission was $180,000.
The debentures are convertible into the Company's Common Stock based on
the lower of $2.00 per share or 82.5% of the 5 five day average closing bid
price of the Company's Common Stock just prior to conversion.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
14
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On September 16, 1998, the Company terminated the Merger Agreement with
Physician Health Corporation ("PHC") in accordance with the termination
provisions of the Definitive Merger Agreement dated August 3, 1998. The Company
determined that consummating a merger with PHC at that time was not in the best
interest of the Company and its shareholders. In connection therewith, the
Company filed a Form 8-K on September 22, 1998.
The Company entered into an exchange agreement with Westmark Group
Holdings, Inc. ("WGHI") settling pending litigation all outstanding issues
relating to the common and preferred shares of WGHI held by the Company. The
agreement provided for conversion $700,000 face amount Series C Convertible
Preferred Stock of WGHI at a conversion price of $2.00 per share. WGHI also
issued to the Company a two-year warrant to buy an additional 100,000 shares of
WGHI common stock at $3.25 per share.
The exchange agreement also called for WGHI to return to the Company
$1.725 million in the Company's Series B Preferred Stock with total cash
payments of $277,500 which satisfied in full the debt obligation of
approximately $1.85 million due the Company from WGHI.
The exchange agreement also calls for WGHI to repurchase, at the
Company's option, up to $1,000,000 worth of WGHI common stock owned by the
Company over a two-year period based on WGHI's earnings not exceeding certain
earnings per share levels. The shares are to be repurchased at prices ranging
from $4.82 to $5.73 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
Reports on Form 8K
8-K filed on August 18, 1998 describing the proposed merger with
Physicians Health Corporation with and into the Registrant that if consummates
would have resulted in a change of control of the Registrant.
8-K filed on August 24, 1998 describing the acquisition of David S.
Klein, M.D., P.C.
8-K filed on September 22, 1998 describing the termination of the
proposed merger with Physician Health Corporation with and into the Registrant.
8-K/A filed on October 13, 1998 describing the acquisition of David S.
Klein, M.D., P.C.
8-K/A filed on October 23, 1998 describing the acquisition of David S.
Klein, M.D., P.C
15
<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 12, 1998 By: /s/ MICHAEL F. MORRELL
- - ----------------- ----------------------
(Date) Michael F. Morrell, Chairman of the
Board & Chief Executive Officer
NOVEMBER 12, 1998 By: /s/ PAUL C. PERSHES
- - ----------------- ----------------------
(Date) Paul C. Pershes, President
NOVEMBER 12, 1998 By: /s/ LINDA MOORE
- - ----------------- ----------------------
(Date) Linda Moore, Senior Vice President &
Corporate Secretary
NOVEMBER 12, 1998 By: /s/ ARTHUR KOBRIN
- - ----------------- ----------------------
(Date) Arthur P. Kobrin, Senior Vice
President of Financial Operations
16
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