UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------------------------------
Date of Report (Date of earliest event reported): August 24, 1998
MEDICAL INDUSTRIES OF AMERICA, INC.
(Exact name of registrant as specified in its Charter)
FLORIDA 0-20356 65-0158479
(State of other jurisdiction (IRS Employer ID (Commission file no.)
of incorporation) Number)
1903 S. CONGRESS AVENUE, SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of principal executive offices)
Registrant's telephone number, including area code: 561-737-2227
<PAGE>
Item 2. Acquisition and Disposition of Assets
(a) Description of Acquisition
Due to a typographical error, the date of the original 8-K filing was
dated August 6, 1998 but should have been dated August 24, 1998.
On September 1, 1998, the Registrant acquired David S. Klein, M.D., P.C.
pursuant to the merger agreement dated August 24, 1998. The Registrant acquired
100% of the outstanding stock of David S. Klein, M.D., P.C. for $3,300,000. One
Million Three Hundred Twenty Thousand Dollars ($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 to David S. Klein, M.D. in the
Registrant's restricted common stock at a value of $1.50 per share. The
installment portion of the purchase price is conditioned upon David S. Klein,
M.D., P.C. earning at least $1,100,000 in pre-tax profits in each of the first
three years following the closing. If the earnings threshold is not reached,
then the installment payments will be substantially reduced. David S. Klein,
M.D. has the option to receive up to 45% of each installment payment in cash.
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 100,000
options per each $1,000,000 of the incremental consolidated earnings of the
Registrant's interventional pain and sleep business. The options may be
exercised at a strike price of $1.50 per share.
The Registrant also entered into a 3 year employment agreement with David
S. Klein, M.D. at an annual salary of $200,000 plus profit participation.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Audited financial statements of David S. Klein, M.D. P.C. as of
December 31, 1997 and the year then ended.
December 31, 1997
Report of: Balance sheet
Statement of operations
Statement of changes in stockholder's equity
Statement of cash flows
Notes to financial statements
(b) Pro forma financial information required pursuant to Article II
of Regulation S-X:
Pro forma Condensed Combined Balance Sheet as of June 30,
1998
Pro forma Condensed Statements of income for the six
months ended June 30, 1998 and for the twelve months
ended December 31, 1997.
<PAGE>
The unaudited pro forma condensed balance sheet as of June 30,
1998 and the unaudited pro forma condensed statements of
income for the six months ended June 30, 1998 and for the
twelve months ended December 31, 1997 give effect to the
acquisition, accounted for as a purchase, as if it had
occurred on January 1, 1997. The pro forma information is
based on historical financial statements of David S. Klein,
M.D. P. C. and Medical Industries of America, Inc. after
giving effect to the proposed transaction using the purchase
method of accounting and the assumptions and adjustments in
the accompanying notes to the pro forma financial statements.
The pro forma financial statements have been prepared on the
basis of preliminary estimates.
The pro forma statements have been prepared by Medical
Industries of America, Inc., based upon the financial
statements of David S. Klein, M.D.P.C., which have been
provided by David S. Klein, M.D. P.C. These pro forma
statements may not be indicative of the results that actually
would have occurred if the combination had been in effect on
the dates indicated or which may be obtained in the future.
The pro forma financial statements should be read in
conjunction with the audited financial statements and notes to
the David S. Klein, M.D., P.C. audited financial statements.
(c) Exhibits
Exhibit Number Description
2 Agreement and Plan of Merger between Medical
Industries of America, Inc., MIOA Acquisition
Company V, Inc., David S. Klein, M.D.,P.C. and
David S. Klein, M.D.*
2.1 Employment Agreement between David S. Klein, M.D.,
P.C. and David S. Klein, M.D.*
*Previously filed as an exhibit to the Company's Form 8-K dated August 6, 1998
<PAGE>
Date: 10/22/98 MEDICAL INDUSTRIES OF AMERICA, INC.
By: /s/ ARTHUR KOBRIN
Arthur Kobrin
Senior Vice President
of Financial Operations
<PAGE>
DAVID S. KLEIN, M.D., P.C.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To David S. Klein, M.D., P.C.:
We have audited the accompanying balance sheet of DAVID S. KLEIN, M.D., P.C. (a
Virginia corporation) as of December 31, 1997 and the related statements of
operations, stockholder's equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Davis S. Klein, M.D., P.C. as
of December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Atlanta, Georgia
August 20, 1998
<PAGE>
DAVID S. KLEIN, M.D., P.C.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 63,151
Accounts receivable, less estimated allowances for
uncollectible accounts of $67,000 ............................ 758,705
Due from related parties ....................................... 35,000
Other current assets ........................................... 8,760
Marketable equity securities ................................... 68,614
--------
Total current assets .................................... 934,230
PROPERTY AND EQUIPMENT, NET ....................................... 30,736
OTHER ASSETS ...................................................... 8,450
--------
Total assets ............................................ $973,416
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 38,060
Accrued expenses ............................................... 9,906
Note payable ................................................... 84,933
--------
Total current liabilities ............................... 132,899
--------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDER'S EQUITY:
Common stock, $10 par value; 2,500 shares
authorized; 10 shares issued and outstanding ................. 100
Additional paid-in capital ..................................... 8,048
Retained earnings .............................................. 832,369
--------
Total stockholder's equity .............................. 840,517
--------
Total liabilities and stockholder's equity .............. $973,416
========
The accompanying notes are an integral part of this balance sheet.
<PAGE>
DAVID S. KLEIN, M.D., P.C.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
NET PATIENT SERVICE REVENUES ........................... $ 3,105,666
-----------
OPERATING EXPENSES:
Salaries, wages, and benefits ....................... 961,755
Compensation to physician-owner ..................... 890,000
General and administrative expenses ................. 809,106
Bad debt expense .................................... 101,600
Depreciation ........................................ 11,680
-----------
Total operating expenses ..................... 2,774,141
-----------
INCOME FROM OPERATIONS ................................. 331,525
INTEREST EXPENSE ....................................... (14,349)
UNREALIZED GAIN ON MARKETABLE EQUITY SECURITIES ........ 10,267
-----------
NET INCOME ............................................. $ 327,443
===========
The accompanying notes are an integral part of this statement.
<PAGE>
DAVID S. KLEIN, M.D., P.C.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 10 $ 100 $ 8,048 $ 653,662 $ 661,810
Net income .............. 0 0 0 327,443 327,443
Dividend distributions... 0 0 0 (148,736) (148,736)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997.. 10 $ 100 $ 8,048 $ 832,369 $ 840,517
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
DAVID S. KLEIN, M.D., P.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 327,443
---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation .............................................. 11,680
Bad debt expense .......................................... 101,600
Unrealized gain on marketable equity securities ........... (10,267)
Changes in assets and liabilities:
Accounts receivable .................................... (181,284)
Other assets ........................................... 4,835
Other current assets ................................... (7,730)
Accounts payable ....................................... (76,601)
Accrued expenses ....................................... 2,418
---------
Total adjustments .................................... (155,349)
---------
Net cash provided by operating activities ............ 172,094
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ........................... (860)
Repayments by related parties ................................. 176,305
---------
Net cash provided by investing activities ............ 175,445
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend distributions ........................................ (148,736)
Principal payments on note payable ............................ (135,652)
---------
Net cash used in financing activities ................ (284,388)
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 63,151
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 0
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 63,151
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ........................ $ 18,377
=========
The accompanying notes are an integral part of this statement.
<PAGE>
DAVID S. KLEIN, M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND OPERATIONS
David S. Klein, M.D., P.C. (the "Company"), a Virginia corporation, was
incorporated in August 1983. The Company currently has three employed
physicians and one owner-physician, specializing in pain management, with
four clinics located in Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable principally represent receivables from patients and
third-party payors for medical services provided by the physician-owner and
the employees. Such amounts are recorded net of estimated contractual
allowances and bad debts. Contractual adjustments result from the
differences between the rates charged by the physicians for services
performed and the amounts allowed by the Medicare and Medicaid programs and
other public or private insurers.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed on an
accelerated cost recovery method over the estimated service lives of
depreciable assets (five to seven years for equipment, five years for
vehicles, and seven years for furniture and fixtures). Maintenance and
repairs are charged to expense as incurred. The cost of renewals and
betterments is capitalized and depreciated over the applicable estimated
useful lives. The cost and accumulated depreciation of assets sold, retired,
or otherwise disposed of are removed from the accounts, and the related gain
or loss is credited or charged to income.
<PAGE>
-2-
INVESTMENTS
The Company records its investments under Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under SFAS No. 115, all of the Company's securities are
classified as trading securities and are carried at market value, with the
resulting unrealized gain or loss reflected in the statement of operations.
Market values of the trading securities have been determined using market
quotations.
STOCKHOLDER'S EQUITY
Stockholder's equity includes the respective common stock, paid-in capital,
and retained earnings of the Company. The common stock of the Company is
wholly owned by one physician.
NET PATIENT SERVICE REVENUES
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payors (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates or for capitated payments. Provisions for third-party payor
adjustments are estimated and recorded in the period in which the services
are provided. Any adjustments to the estimated amounts are recorded in the
period in which the revised amount is determined.
CONCENTRATION OF CREDIT RISK
The Company extends credit to patients covered by insurance programs, such
as governmental programs like Medicare and Medicaid, and private insurers.
The Company manages credit risk with the various public and private
insurance providers, as appropriate. Allowances for uncollectible accounts
have been made for potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997:
Leasehold improvements $ 39,260
Furniture, fixtures, and equipment 165,566
Vehicles 20,549
---------
225,375
Less accumulated depreciation 194,639
---------
$ 30,736
=========
4. NOTE PAYABLE
As of December 31, 1997, the Company has one outstanding note payable to an
individual, due July 31, 1998 and payable in equal monthly installments at a
fixed rate of 9%.
<PAGE>
-3-
5. MARKETABLE EQUITY SECURITIES
The adjusted cost, gross unrealized gain, and fair value of the Company's
trading securities are as follows at December 31, 1997:
GROSS
UNREALIZED FAIR
COST GAIN VALUE
-------- ----------- ----------
Equity securities $30,268 $38,346 $68,614
======== ======= =======
6. INCOME TAXES
The Company has elected to be taxed as an S corporation, as permitted by the
Internal Revenue Code. As an S corporation, the Company is not a taxable
entity, and separately stated items of income, loss, deduction, and credit
are passed through to and taken into account by the individual stockholder
in computing federal and state individual income tax liabilities.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain facility space from an unrelated party under a
noncancelable operating lease, which expires in February 1999. Future
minimum lease payments under this operating lease are as follows as of
December 31, 1997:
1998 $17,900
1999 3,580
INSURANCE
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Accordingly, coverage relates only to claims made during
the policy term. Historically, any claims paid have been within the
insurance policy limits. Management is not aware of any claims against it or
its affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
<PAGE>
-4-
8. RELATED-PARTY TRANSACTIONS
The Company extends interest-bearing loans to its employed physicians. As of
December 31, 1997, $35,000 of these loans remains unpaid.
The Company also leases certain space related to its clinic facilities from
its sole stockholder. For the year ended December 31, 1997, the Company
recognized a total of $134,500 in rent expense related to this agreement.
9. SUBSEQUENT EVENT TRANSACTION
In August 1998, the Company entered into the Plan of Merger Agreement (the
"Agreement") with Medical Industries of America, Inc. ("MIOA"). In
accordance with the Agreement, all of the stock of the Company will be
purchased by MIOA for $3,300,000 payable in MIOA restricted common stock at
$1.50 per share, subject to certain postmerger operating thresholds to be
achieved.
<PAGE>
Medical Industries of America, Inc.
Pro Forma Condensed Combined Balance Sheet (Unaudited)
As of June 30, 1998
<TABLE>
<CAPTION>
MEDICAL
INDUSTRIES DAVID S.
OF KLEIN, PRO FORMA PRO FORMA
AMERICA M.D.P.C. ADJUSTMENTS COMBINED
-------------- ----------- -------------- ---------------
ASSETS
<S> <C> <C> <C> <C>
Cash .................................. $ 879,432 81,378 960,810
Accounts Receivable ................... 5,187,990 782,183 (c)(350,000) 5,620,173
Current portion of
notes and mortgages
receivables ......................... 257,726 257,726
Inventories ........................... 146,660 146,660
Prepaid expenses and
other current assets ................ 756,766 756,766
------------ ------------ ------------ ------------
Total current
assets ........................... 7,228,574 863,561 (350,000) 7,742,135
Property and
equipment, net ...................... 11,186,489 20,429 11,206,918
Notes and mortgages
receivables, less
current maturity .................... 1,836,074 -- 1,836,074
Goodwill .............................. 5,563,899 -- (a)1,090,331 6,588,830
(b) (65,400)
Investment in equity
securities .......................... 2,483,126 -- 2,483,126
Other assets .......................... 1,187,428 23,098 1,210,526
License ............................... 970,588 970,588
------------ ------------ ------------ ------------
Total assets ....................... $ 30,456,178 $ 907,088 $ 674,931 $ 32,038,197
============ ============ ============ ============
Liabilities and Shareholders'
Equity
Accounts payable ...................... $ 2,034,808 677,419 (c)(350,000) 2,362,227
Accrued liabilities ................... 777,716 -- 777,716
Current portion of
notes payable and
long-term debt ....................... 1,993,869 -- 1,993,869
Current portion of
capital lease
obligations .......................... 145,764 -- 145,764
Convertible
subordinated
debentures ........................... 400,000 -- 400,000
Due to related party .................. 1,101,893 1,101,893
------------ ------------ ------------ ------------
Total current
liabilities ....................... 6,454,050 677,419 (350,000) 6,781,469
------------ ------------ ------------ ------------
Notes payable &
long-term debt, net
of current portion ................... 6,840,691 6,840,691
Convertible
subordinated
debentures ........................... 367,500 367,500
Capital lease
obligations, net of
current portion ...................... 740,908 740,908
Due to related parties ................ 305,790 305,790
------------ ------------ ------------ ------------
Total long term
liabilities .......................... 8,254,889 -- -- 8,254,889
------------ ------------ ------------ ------------
Total liabilities .................. 14,708,939 677,419 (350,000) 15,036,358
------------ ------------ ------------
Shareholders'
equity ............................ 15,747,239 229,669 (a)1,090,331
------------ ------------
(b) (65,400) 17,001,839
Total liabilities
and shareholders'
equity ............................ $ 30,456,178 907,088 674,931 32,038,197
============ ============ ============ ============
</TABLE>
<PAGE>
Medical Industries of America, Inc.
Pro Forma Condensed Combined Statement of Income (Unaudited)
For the six months ended June 30, 1998
MEDICAL
INDUSTRIES DAVID S.
OF KLEIN, PRO-FORMA PRO FORMA
AMERICA M.D.P.C. ADJUSTMENTS COMBINED
----------- ---------- -------------- -----------
Revenue ........... $ 8,985,143 1,797,815 (c) (350,000) 10,432,958
----------- ---------- -------------- -----------
Expenses
Cost of revenue . 4,580,429 1,104,181 -- 5,684,610
General and
administrative
expenses ....... 3,035,040 540,561 (c) (350,000) 3,225,601
Depreciation and
amortization ...... 486,309 5,471 (b) 21,800 513,580
Interest expense 388,339 2,289 390,628
----------- ---------- -------------- -----------
Total expenses 8,490,117 1,652,502 (328,200) 9,814,419
----------- ---------- -------------- -----------
Net income ........ $ 495,026 $ 145,313 $ (21,800) $ 618,539
=========== =========== ============== ===========
Income per share .. $ .03 $ 1,453 $ .03
=========== =========== ===========
Weighted average
common shares
outstanding ..... 17,272,812 10 18,152,812
=========== =========== ===========
<PAGE>
Medical Industries of America, Inc.
Pro Forma Condensed Combined Statement of Income (Unaudited)
For the year ended December 31, 1997
MEDICAL
INDUSTRIES DAVID S.
OF KLEIN, PRO-FORMA PRO FORMA
AMERICA M.D.P.C. ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
Revenue
Revenue .......... $ 4,529,461 3,105,666 -- 7,635,127
Interest income .. 182,757 -- -- 182,757
----------- ----------- ----------- -----------
Total revenue .. 4,712,218 3,105,666 -- 7,817,884
----------- ----------- ----------- -----------
Expenses
Cost of services . 2,924,840 1,851,755 -- 4,776,595
General and
administrative
expenses ........ 2,054,034 910,706 -- 2,964,740
Depreciation and
amortization ....... 338,306 11,680 (B) 19,200 369,186
Interest expense . 147,732 14,349 -- 162,081
Non-recurring
physician costs .... 400,000 -- -- 400,000
Unrealized gain on
marketable
securities ...... -- (10,267) -- (10,267)
----------- ----------- ----------- -----------
Total expenses . 5,864,912 2,778,223 19,200 8,662,335
----------- ----------- ----------- -----------
Net income (loss) .. $(1,152,694) 327,443 (19,200) (844,451)
=========== =========== =========== ===========
Income per share ... $ (.21) 32,744 (.13)
=========== =========== ===========
Weighted average
common shares
outstanding ...... 5,476,495 10 6,356,495
=========== =========== ===========
<PAGE>
Medical Industries of America, Inc.
Notes to Pro Forma Condensed Combined Financial Statements (Unaudited)
(a) The following pro forma adjustments are made to reflect estimated fair
value adjustments at June 30, 1998 between Medical Industries of America,
Inc. and David S. Klein, M.D.,P.C.
Consideration for acquisition $ 1,320,000
Fair market value of assets acquired 229,669
-------
Goodwill $ 1,090,331
---------
(b) Amortization of Goodwill over 25 years beginning 1/1/97.
(c) The Registrant invoiced David S. Klein, M.D., P.C. $350,000 for management
and consulting services rendered as of June 30, 1998.
