Form 10-QSB/A
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, 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 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: 4,540,652 shares of common
stock, no par value, were outstanding as of May 12,1997.
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
10-QSB/A - QUARTER ENDED MARCH 31, 1997
INDEX
FORM 10-QSB/A FORM 10-QSB/A FORM 10-QSB/A
PART NO. ITEM NO. DESCRIPTION PAGE NO.
I. FINANCIAL INFORMATION
1. Financial Statements
- Condensed Consolidated Balance
Sheet as of March 31, 1997 3
- Condensed Consolidated Statements of
Operations and Accumulated Deficit for the
Three Months Ended March 31, 1997 and 1996 5
- Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
1997 and 1996 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, 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... 517,032
Trade accounts receivable, net ................................ 877,658
Current portion of notes receivable ........................... 2,510,291
Inventories of medical supplies ............................... 11,310
Net assets held for sale ...................................... 235,548
Prepaid expenses and other current assets ..................... 354,953
----------
Total current assets ........................................ 4,506,792
----------
PROPERTY AND EQUIPMENT:
Mobile cardiac catheterization laboratory
and medical equipment ........................................ 1,685,373
Furniture and office equipment and other assets ............... 242,977
----------
1,928,350
Less: accumulated depreciation and amortization ............... (1,683,653)
----------
Net property and equipment .................................. 244,697
----------
OTHER ASSETS:
Notes receivable, less current maturities ..................... 105,206
Goodwill ...................................................... 1,593,958
Investment in Westmark Group Holdings, Inc. ................... 2,233,200
Other assets .................................................. 135,175
----------
Total other assets .......................................... 4,067,539
----------
TOTAL ASSETS ................................................ 8,819,028
==========
See Notes to Consolidated Financial Statements
3
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C>
Accounts payable ................................................. 567,503
Accrued liabilities .............................................. 2,348,965
Current portion of note payable .................................. 1,091,242
Current portion of capital lease obligations ..................... 391,075
----------
Total current liabilities ...................................... 4,398,785
----------
LONG TERM LIABILITIES:
Amounts due on purchase of business, net of current portion ...... 1,100,000
Capital lease obligations, net of current portion ................ 15,695
----------
Total long term liabilities ................................. 1,115,695
==========
SHAREHOLDERS' EQUITY:
Preferred shares, authorized 2,500,000 shares:
issued and outstanding:
Series A convertible shares, 22,276 issued
Series B convertible shares, 10,000 issued
$200 stated value, less 4,900 shares minority interest ........... 1,020,000
Series D convertible shares, 112,929 shares issued and outstanding 1,752,256
Common shares, no par value, authorized 8,000,000:
issued and outstanding 1996, 1,989,742 shares;
including 47,500 escrow .......................................... 20,357,743
Preferred shares to be issued ....................................... 832,000
Less treasury shares (3,750 shares at stated value) ................. (657,661)
Accumulated deficit ................................................. (19,999,790)
----------
Total shareholders' equity ....................................... 3,304,548
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... 8,819,028
==========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Revenue .................................. 1,919,926 283,294
----------- -----------
Expenses:
Cost of revenues ...................... 907,050 143,827
General and administrative expenses ... 510,677 648,677
Depreciation and amortization ......... 82,340 97,944
Interest expense, net ................. 8,360 35,934
----------- -----------
Total expenses .................. 1,508,427 926,382
----------- -----------
Income (loss) from operations ............ 411,499 (643,088)
Loss from discontinued operations ........ -- (354,605)
----------- -----------
Net income (loss) ........................ 411,499 (997,693)
Accumulated deficit-beginning of year .... (20,411,289) (11,870,424)
----------- -----------
Accumulated deficit-end of 1st quarter ... (19,999,790) (12,868,117)
=========== ===========
Earnings (loss) per share of common stock:
Primary:
Earnings from operations .............. .26 (1.34)
Loss from discontinued operations ..... -- (.74)
----------- -----------
Earnings (loss) ....................... .26 (2.08)
=========== ===========
Fully diluted earnings per share . .15 -0-
----------- ===========
Weighted average shares outstanding,
excluding contingently issuable shares
Primary ........................... 1,588,442 480,952
=========== ===========
Fully diluted ..................... 2,716,127 -0-
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) from operations .................................... 411,499 (643,088)
Net loss from discontinued operations ................................ -- (354,605)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization ..................................... 82,340 220,075
Equity loss on investments ....................................... -0- 134,900
Minority Interest ................................................ (3,129) (4,095)
Loss (gain) on disposition of property and equipment ............ 2,544 -0-
Common stock issued for services rendered ....................... 426,800 -0-
Reclassification of property and equipment held for sale ........ 498,450 -0-
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable .................................... 75,578 187,118
Inventories of medical supplies .............................. 3,561 -0-
Net assets held for sale ..................................... (235,548) -0-
Prepaid expenses and other current assets .................... (227,213) (453,707)
Other assets ................................................. (6,935) 16,747
Accounts payable ............................................. 90,780 (429,297)
Accrued liabilities .......................................... 72,936 (32,408)
---------- ----------
Net cash provided (used) by operating activities .................. 1,191,663 (1,358,360)
---------- ----------
Investing activities
Payment of note payable .............................................. -0- (183,369)
Issuance of notes receivable ......................................... (697,822) (590,000)
Payment of notes receivable .......................................... -0- 78,420
Proceeds from sale of property and equipment ......................... -0- -0-
Disbursements for property and equipment ............................. (14,234) (15,665)
---------- ----------
Net cash used in operating activities ............................. (712,056) (710,614)
---------- ----------
Financing activities
Conversion of debt to preferred stock
in Westmark Group Holdings, Inc. ................................. -0- (700,000)
Proceeds from the issuance of common stock ........................... -0- 1,931,028
Proceeds from the issuance of preferred stock ........................ -0- 5,775,000
Payments of capital lease obligations ................................ (59,811) (244,168)
Payments of long term debt ........................................... (144,225) (955,798)
---------- ----------
Net cash provided (used) by financing activities .................. (204,036) 5,806,062
---------- ----------
Net increase in cash ................................................. 275,571 3,737,088
Cash at the beginning of period ...................................... 241,461 24,431
---------- ----------
Cash at the end of period ............................................ 517,032 3,761,519
========== ==========
6
<PAGE>
Supplemental disclosure of cash flow information:
Interest paid ........................................................ 3,825 74,631
========== ==========
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
</TABLE>
7
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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. and Florida Physicians
Internet, 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 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. Fully 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 have
been exercised. 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,
neurology, pulmonology, pediatrics, and internal medicine. This group
practice is led by Dr. A. Razzak Tai, MD, FACCP, ACCP, MRCP. 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.
Note 3 - Discontinued Operations
In the fourth quarter of 1996, the Company closed seven of its nine
medical centers. It is the Company's intent that the remaining two medical
centers are to be spun off into a separate company that is anticipated to become
a publicly traded company in the third quarter of 1997.
The components of net assets held for sale on the consolidated Balance Sheet are
as follows:
Accounts receivable ...................................... 107,956
Prepaid and other current ................................ 64,304
Property and equipment ................................... 498,450
Deposits ................................................. 2,540
Accounts payable ......................................... (103,106)
Accrued liabilities ...................................... (142,345)
Leases payable ........................................... (19,401)
Notes payable ............................................ (172,850)
--------
235,548
--------
9
<PAGE>
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. At March 31, 1997,
approximately $354,000 had been received under this agreement.
Note 5 - S-8 Registration Statements
During the 1st quarter of 1997, the Company issued a total of 240,620
shares of common stock to consultants and advisors pursuant to S-8 Registration
Statements. These shares had an aggregate market value of $529,800.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
During 1997 and 1996, the Company principally derived its revenues from
its mobile cardiac catheterization laboratories. In the first quarter of 1997,
the Company also derived revenue from Florida Physicians Internet, Inc., a group
practice acquired in January 1997.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1996
Total revenues increased to $1,919,926 for the three months ended March
31, 1997 from $283,294 for the three months ended March 31, 1996, principally as
a result of the acquisition of FPII in January 1997 and the revenue from the
sale of equipment. During the 1st quarter of 1997, FPII recorded revenues of
$721,244. Revenues from the Company's mobile cardiac catheterization labs
increased 41% to $398,682 from $283,294 for the three months ended March 31,
1997 and 1996, respectively. This increase is primarily due to the Company
obtaining contacts that fully utilize two of its mobile labs and the addition of
a third mobile lab.
Cost of revenues, which included medical supplies, technical salaries and
benefits and other expenses directly associated with the Company's services
increased to $907,050 from $143,827 for the three months ended March 31, 1997
and 1996, respectively. This increase is primarily due to the acquisition of
FPII, the increased use of the mobile labs and $185,844 from the sale of
equipment. FPII has a higher cost of services due to the cost of the physicians.
As of percentage of revenue, costs of services decreased to 47% of revenue from
operations from 51% of revenue from operations for the periods ended March 31,
1997 and 1996, respectively.
General and Administrative expenses decreased 21% to $510,677 for the
three months ended March 31, 1997 compared to $648,677 for the three months
ended March 31, 1996. This decrease is primarily due to a reduction in salaries
and consulting fees.
10
<PAGE>
Interest expense decreased to $8,360 for the three months ended March 31,
1997 as compared to $35,934 for the three months ended March 31, 1996. This
decrease is attributable to the company carrying lower interest bearing debt in
March 31, 1997.
Net income from operations increased to $411,499 for the three months
ended March 31, 1997 compared to a net loss of $643,088 for the three months
ended March 31, 1996 resulting from an increase in the results of operations.
Net income for the three months ended March 31, 1997 was $411,499 compared
to a net loss of $997,693 for the three months ended March 31, 1996. This
increase is primarily attributable to an increase in revenue, a decrease in
expenses, the acquisition of a profitable practice and a reduction in salaries
and consulting fees.
In January 1997, the Company leased its third mobile lab from Comdisco.
The Mobile Lab was financed through a 36 month lease with monthly payments of
$22,000.
On January 9, 1997 the Company effectuated a purchase agreement with
Florida Physicians Internet, Inc. ("FPII"). Consideration for the purchase
included the issuance of the Company's Series E 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.
In March 1997, the Company entered into an asset purchase agreement
whereby it sold one of its mobile cardiac catheterization labs for $100,000 in
cash and a promissory note in the amount of $700,000 bearing interest at ten
percent to be paid over nine months at $60,000 per month with a balance of
unpaid principal and accrued interest due and payable on December 15, 1997. Upon
execution of the sale of the mobile lab, the Company entered into a service
agreement with the purchaser of the mobile lab whereby the Company will manage
all the affairs of the lab for a fee equal to 14% of the owners revenue plus the
costs incurred in performing its duties under this Agreement.
In April 1997, the Company entered into a settlement agreement with the
plaintiffs of the Tula Business, Inc. et al lawsuit. The terms of this
settlement required the Company to issue 2,063,346 unrestricted common shares,
the plaintiffs to exercise 144,384 warrants into common stock at $1.50 per
share, an aggregate of $216,576 received by the Company and the payment by the
plaintiffs and other claimants of $900,000 to the Company in settlement of its
claims.
The Company had a working capital surplus of $108,007 at March 31, 1997
compared to working capital deficiency of $2,837,955 at March 31, 1996. Working
capital in 1996 included $3,761,519 cash that was received from a Regulation S
offering during the quarter.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In February 1997, a lawsuit was filed in the United States District Court,
Southern District of New York, by Tula Business, Inc. et al alleging the Company
failed to accurately convert preferred shares of stock issued pursuant to a
transaction exempt from the registration requirements of the SEC pursuant to
Regulation S promulgated under the Securities Act of 1933 as amended
("Regulation S") into shares of common stock. Similar charges were made by four
other shareholders of preferred stock who threatened to file a lawsuit similar
to the one brought by Tula Business, Inc. et al. The plaintiffs sought
additional shares. Effective April 7, 1997, the Company entered into a
settlement agreement and mutual releases with the plaintiffs of the Tula
Business, Inc. et al lawsuit and four other shareholders of preferred stock. The
terms of the settlement required the Company to issue 2,063,346 unrestricted
common shares, the exercise of 144,384 warrants into common stock at $1.50 per
share (for an aggregate of $216,576 received by the Company) and the payment by
the Tula Business, Inc. et al plaintiffs and certain of the four other claimants
of $900,000 to the Company in settlement of its claims.
ITEM 5. OTHER INFORMATION
On April 28, 1997, the Board of Directors of the Company elected Glen
E. Barber and Terry R. Lazar, CPA to its Board of Directors. Mr. Barber
founded New Age Communications, Inc. in 1988 and currently serves as
president. New Age Communications, Inc., of Tallahassee, Florida is a master
distributor of operator services to Oncor, Conquest and LDDS. For the past
four years, Mr. Barber has served as president and director of the Museum of
Art in Tallahassee, Florida. From 1991 through 1993, Mr. Barber served on
the Advisory Board to Oncor Communications, Inc. of Bethesda, Maryland.
Mr. Lazar founded and serves as the senior partner of Lazar, DeThomasis,
Sanders and Company, LLP of Jericho, New York, a full service accounting firm
specializing in real estate, healthcare, manufacturing, insurance, hotel
industry and entertainment. In addition, Mr. Lazar serves as partner and
director of finance of the Ambulatory Surgery Center.
On January 9, 1997 the Company effectuated a purchase agreement with
Florida Physicians Internet, Inc. ("FPII"). Florida Physicians Internet,
Inc. is a group medical practice specializing in cardiology, neurology,
pulmonology, pediatrics, and internal medicine. This group practice is led by
Dr. A. Razzak Tai, MD, FACCP, ACCP, MRCP. 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.
12
<PAGE>
Financial Statements of the Business Acquired:
The unaudited financial statements of Florida Physicians Internet, Inc.
for the three months ended December 31, 1996 and the audited financial
statements of A. Razzak Tai, M.D. P.A. for the year ended September 30, 1996
are attached to the first amended 10QSB for the period ended March 31, 1997.
Pro forma Financial Statements
The registrant acquired Florida Physicians Internet, Inc. on January 9,
1997. Historical unaudited pro forma condensed combined financial statements
giving effect to the acquisition are attached to the first amended 10QSB for the
period ended March 31, 1997.
EMPLOYMENT AGREEMENT
In May 1997, the Company effectuated an employment agreement with Paul
Pershes. The term of the agreement is 5 years, with compensation equal to an
annual salary of $150,000, the granting of 775,000 -925,000 stock options to be
vested over a 4 year period and the payment of normal business expenses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.16 Employment Agreement-Paul Pershes
13
<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)
<TABLE>
<CAPTION>
<S> <C>
JUNE 1, 1998 By: /s/ MICHAEL F. MORRELL
(Date) Michael F. Morrell, Chairman of the Board & Chief Executive Officer
JUNE 1, 1998 By: /s/ PAUL C. PERSHES
Date) Paul C. Pershes, President & Chief Financial Officer
JUNE 1, 1998 By: /s/ LINDA MOORE
Linda Moore, Senior Vice President
JUNE 1, 1998 By: /s/ ARTHUR P. KOBRIN
(Date) Arthur P. Kobrin, Senior Vice President of Financial Operations
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 517,032
<SECURITIES> 0
<RECEIVABLES> 1,021,906
<ALLOWANCES> 144,248
<INVENTORY> 11,310
<CURRENT-ASSETS> 4,506,792
<PP&E> 1,928,350
<DEPRECIATION> 1,683,653
<TOTAL-ASSETS> 8,819,028
<CURRENT-LIABILITIES> 4,398,785
<BONDS> 0
0
2,772,256
<COMMON> 20,357,743
<OTHER-SE> 832,000
<TOTAL-LIABILITY-AND-EQUITY> 8,819,028
<SALES> 1,919,926
<TOTAL-REVENUES> 1,919,926
<CGS> 907,050
<TOTAL-COSTS> 1,508,427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,360
<INCOME-PRETAX> 411,499
<INCOME-TAX> 0
<INCOME-CONTINUING> 411,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,499
<EPS-PRIMARY> .26
<EPS-DILUTED> .15
</TABLE>
