U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER 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.
(Name of small business issuer in its charter)
FLORIDA 65-0158479
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1903 S. CONGRESS AVE., SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of principal executive offices, including zip code)
(561) 737-2227
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock
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 reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( )
State issuer's revenue for its most recent fiscal year. $4,712,218
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the last sales price on March 3, 1998 was $21,492,854.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. At March 3, 1998 there were
17,663,212 shares of common stock outstanding.
.
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MEDICAL INDUSTRIES OF AMERICA, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-KSB
PART I
PAGE
Item 1 Description of Business 3
Item 2 Description of Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 17
Item 6 Management's Discussion and Analysis 18
Item 7 Financial Statements 21
Item 8 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 21
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 23
Item 10 Executive Compensation 26
Item 11 Security Ownership of Certain Beneficial Owners and
Management 30
Item 12 Certain Relationships and Related Transactions 31
Item 13 Exhibits and Reports on Form 8-K 34
SIGNATURES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
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., its wholly-owned
subsidiaries and its majority-owned subsidiaries.
The Company's subsidiaries include: Heart Labs of America, Inc., Florida
Physicians Internet, Inc., PRN of North Carolina, Inc., Care America Integrated
Health Services, Inc., Global Air Charter, Inc., Global Air Rescue, Inc., a 51%
ownership in Clearwater Jet Center, Inc., and an 81% ownership in Ivanhoe
Medical Systems, Inc.
The Company is in the business of developing integrated medical delivery
services by operating and managing physician practices and the providing of
diversified medical technologies including ancillary services, high tech
infusion, international air ambulance services, pain management and diagnostic
testing. The Company also provides diagnostic and therapeutic healthcare
services to the surgical and medical community through its mobile cardiac
catheterization services to hospitals and physician practices primarily in the
State of Florida.
At the last annual shareholders meeting that took place on June 27,
1997, the shareholders approved an increase in the number of authorized common
and preferred shares to 50,000,000 and 10,000,000, respectively.
BUSINESS OPERATIONS
CARDIOLOGY ANCILLARY SERVICES
The Company, through its wholly owned subsidiary Heart Labs of America,
Inc., currently operates three mobile cardiac catheterization laboratories (the
"Mobile Labs") which perform a full range of outpatient cardiology procedures
and diagnostic tests. Each Mobile Lab comprises a 48-foot mobile trailer with
state-of-the-art diagnostic medical equipment. The Company typically contracts
with smaller, non-urban hospitals which may not have in-house cardiac
catheterization capabilities, or larger hospitals which use the Mobile Labs for
when they exceed their existing capacity.
Cardiac catheterization is a relatively low-risk, widely used diagnostic
procedure which utilizes catheters, contrast agents, and sophisticated
radiological instrumentation to provide clinical evaluation of heart functions
and blood vessel
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analysis. Based on the Company's experience, the entire cardiac catheterization
procedure generally lasts less than one hour.
Generally a team of cardiovascular technicians and registered nurses
trained in cardiac catheterization are assigned to a Mobile Lab. A physician
employed by the healthcare facility at which the Mobile Lab is operating
supervises the Company's personnel. Movement of the Mobile Labs typically occurs
at night by a driver employed by the Company. The driver sets up the Mobile Lab
upon arrival making it operational for the Company's personnel the following
scheduled day.
In September 1993, the Mobile Labs were the first mobile laboratories
accredited by the Joint Commission on Accreditation of Healthcare Organizations
(the "Joint Commission"). During 1997 and 1996, the Company went through an
extensive standard review of the medical procedures and operations of the Mobile
Labs to become reaccredited. The Company was granted recertification effective
through September 1999.
The Company recently signed letters of intent with two independent
Florida physician practices for use of the Mobile Labs adjacent to the physician
clinics. The Company is poised to branch outside of Florida with Mobile Labs in
Arkansas and South Carolina. The Company plans to expand its international
business this year under a recent letter of intent to sell a Mobile Lab to a
company operating air ambulance services, insurance and cardiac catheterization
services on the continent of Africa.
PHYSICIAN PRACTICE MANAGEMENT
The Company entered the physician practice management market in January
1997 with the purchase of Orlando-based Florida Physicians Internet, Inc.
("FPII"). FPII is a multi-specialty group practice headed by cardiologist A.
Razzak Tai, M.D., a director of the Company. Dr. Tai's practice includes five
physicians operating in five clinics in Central Florida.
The Company's objective is to continue building and/or acquiring and/or
managing comprehensive and integrated networks of physicians in selected markets
in order to (i) negotiate favorable payor contracts and (ii) provide a vast
array of physician and ancillary healthcare services. The Company is currently
targeting select physician practices in Central Florida to consolidate into
FPII, as well as management contracts, as the Company believes that healthcare
is essentially a regional or local business. The Company intends aggressively to
expand the quantity and quality of ancillary services supported by the group
practices. No assurance can be given that this strategy will be successful.
The Company seeks to affiliate with physicians who are prominent in the
delivery of care and who operate their practices using sound business judgment.
The Company believes that physicians are best at developing appropriate
treatment protocols while the Company uses its resources to manage and provide
physicians with proper equipment and resources to enhance their decision making
processes.
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Since the Company acquired FPII it has added another physician practice to the
group and expanded the practice with new ancillary services, including a nuclear
camera and pulmonary test equipment.
In March 1998, the Company signed a management agreement to provide
billing and other management services to a large physician practice in Central
Florida.
PAIN MANAGEMENT
With the acquisition of PRN of North Carolina, Inc. ("PRN"), effective
November 1, 1997, the Company entered the pain management field. PRN, a wholly
owned subsidiary of the Company, operates eight pain management clinics in North
Carolina, South Carolina and Virginia. Each pain management center contains
diagnostic and treatment equipment which, with PRN's established training and
marketing program, enables physicians to fully utilize the system. PRN receives
a pre-established fixed management fee from each center as well as revenues from
the initial sale or lease of the equipment package required to establish a
center. The Company intends to expand this division into Texas, Louisiana,
Arizona, Nevada, Illinois and Ohio in the near future. No assurance can be given
that this expansion will be successful.
HOME HEALTHCARE
Care America Integrated Health Services, Inc. ("Care America") adds to
the Company's goal of creating a seamless vertically integrated healthcare
delivery system. Care America, acquired by the Company effective November 1,
1997, provides personalized services to patients in virtually every aspect of
homecare and out-patient services. Its broad range of services include, without
limitation, I.V. therapies, oral prescription services, rehabilitation services,
mail order pharmacy, H.I.V. services, oxygen and respiratory care.
Care America's home care personnel include certified home health aides,
certified personal care workers and nurses aides. The Company's personnel offer
these services to home patients, physicians, physician practices and other
healthcare practitioners. Managed care services are also provided including
capitated programs and a national infusion pharmacy network. Care America's
integrated pharmacy services offer full comprehensive pharmaceutical care from
simple oral to advanced hi-tech I.V. therapies. In addition, Care America's
D.M.E./respiratory care division has complete diagnostics, oximetry, respiratory
therapists and rehabilitation capabilities.
During a typical home care case, Care America's health care professional
assigned to the case visits the patient on a daily basis to administer the
treatment regime or protocol and to provide other general care to the patient.
Often the professional spends the entire day with the patient. All home care
cases are supervised and reviewed daily for quality of service assurance. Home
care cases conducted on a subcontracted basis for a primary contractor are also
supervised by
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the primary contractor. Care America's personnel remain in constant contact with
the patient's physician and other members of his health care team.
Payments for Care America's services are typically made by: (i)
assignment of insurance benefits from the patient, (ii) the primary contracting
organization; or (iii) the patient.
AIR AMBULANCE TRANSPORT
The Company is taking advantage of the growing air ambulance industry
through its subsidiary, Global Air Charter, Inc. ("Global"), acquired December
31, 1997. Founded in 1992, Global offers national and international fixed wing
air ambulance transport services to ill, injured or otherwise incapacitated
persons requiring relocation and possible emergency medical care during flight.
Based in Clearwater, Florida, Global's aircraft fleet includes two
extended range Model 36 Learjets, one Model 35 Learjet, one Model 25 Learjet and
a Beechcraft Kingair C-90 Turboprop. Global has the competitive advantage
generated by the long range capabilities of its Model 36 Learjets offering
worldwide, intercontinental response capabilities. It also has the added
advantage of an in-house maintenance team, providing expedient flight readiness.
Global's aircrafts are equipped with state-of-the-art medical equipment
including the lifeport stretcher system, 7,000 liters of oxygen, 2 suction
pumps, compressed air and a 1500 watt AC inverter. Additional equipment includes
the Siemens A G MiniMed III infusion pump, Propac 106 cardiac monitor, pulse
oximeter and blood pressure monitor. A comprehensive drug and medical supply,
including a full compliment of advanced cardiac life support drugs, make the
aircraft a state-of-the-art airborne critical care unit.
Circumstances requiring Global's transport services include the
relocation of patients requiring specialized medical procedures such as organ
transplants, cancer treatment, specialized cardiac surgery, burn care, stroke
care and advanced brain and spinal cord surgery as well as transportation to
hospitals and medical facilities recognized nationally for excellence in their
respective fields. The flights are generally long distance in nature.
Global's dedicated flight coordinators are available 24 hours a day, 365
days a year, via a toll-free telephone number. The operations staff are
authorized to provide price quotes, make arrangements for ambulances, ground
transportation, and handle all aspects of domestic and international travel.
Global is licensed and regulated by the State of Florida and the Federal
Aviation Administration to operate air ambulance services. To maintain
regulatory compliance, Global has engaged a medical director trained as a
licensed physician specializing in emergency medicine. The medical director
reviews each transport to ensure the patient received the best treatment
possible. Global's nurses and paramedics have advanced certifications and are
qualified to administer drugs. In
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the event a problem arises beyond the capacity of the onboard medical team, the
aircraft is diverted to the closest medical facility capable of providing the
level of care necessary to stabilize the patient.
If after January 2001 (three years from the date of the Company acquired
Global) the Company elects to spin-off Global to its shareholders, the
shareholders from whom the Company originally acquired Global shall have the
right to purchase 49% of the outstanding common stock of Global at Book value.
SLEEP CENTERS
Through its March 1998 acquisition of Ivanhoe Medical Systems, Inc.
("Ivanhoe"), the Company offers sleep and disordered breathing diagnostic
programs to physicians and hospitals. Each Ivanhoe system uses the latest
diagnostic equipment along with the proprietary DataSmart screening program,
involving screening, home testing and testing in a complex lab. The majority of
patients suffering from sleep disorders have obstructive sleep apnea ("OSA") and
snoring. It has been estimated that 40 million people suffer from OSA and that
95% of these cases go undiagnosed and untreated. In the past several years,
sleep center studies have been increasing by approximately 25% per year as
technology and testing programs are improved. Most of the studies to date have
been performed by hospitals and smaller, independent companies. The Company
intends to expand its market share in this $400 million industry through
internal growth and a structured acquisition plan. No other acquisition targets
have been identified and no assurance can be given that, if identified, suitable
acquisition candidates can be acquired on terms and conditions acceptable to the
Company.
DISCONTINUED OPERATIONS
CLINICAL CARE - ESSENTIAL CARE MEDICAL
Effective May 1, 1997, the Company sold its wholly-owned subsidiaries
Essential Care Medical Centers, Inc. and Essential Care Medical Center #5, Inc.
to a non-public entity in exchange for 300,000 preferred shares convertible into
300,000 common shares in the non-public entity and 200,000 warrants in the
non-public entity. This new entity intends to undertake an initial public
offering at which time the Company will convert its preferred shares.
GOVERNMENT REGULATION
GENERAL
The health care industry in general and the medical ancillary service
business in particular is subject to extensive federal, state and local
regulation relating to licensure, conduct of operations, ownership of
facilities, environment rules, pricing and reimbursement policies. Although the
Company believes that its current operations comply with applicable regulations,
the Company believes that the health care industry will continue to change,
requiring it to modify its agreements
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and operations from time to time. While the Company believes it will be able to
structure its agreements and operations in accordance with applicable law, there
can be no assurance that the subsequent adoption of laws or interpretations of
existing laws will not regulate, restrict or otherwise adversely affect the
Company's business.
The laws and regulations applicable to financial arrangements in the
health care industry are complex and may be subject to varying interpretations.
This section summarizes the principal federal and state statutes and regulations
which are applicable to the Company's business.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
On August 10, 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993 ("OBRA `93") which contained numerous provisions that
significantly affect health care providers who participate in the Medicare and
Medicaid programs. The principal impact of OBRA `93 in the health care area is
(i) to expand the existing prohibition against the referral of patients to
entities with which the referring physician has a financial relationship
(self-referral), and (ii) to curtail the cost of the Medicare program by
limiting reimbursement.
MEDICARE AND MEDICAID FRAUD AND ABUSE
The Anti-Kickback Law prohibits the offer, payment, solicitation or
receipt of any form of remuneration in return for, or in order to induce: (i)
the referral of a person; (ii) the furnishing or arranging for the furnishing of
items or services reimbursable under Medicare or Medicaid programs; or (iii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid.
Pursuant to the Anti-Kickback Law, the federal government has announced a policy
of increased scrutiny of joint ventures and other transactions among health care
providers in an effort to reduce potential fraud and abuse relating to Medicare
costs. The applicability of these provisions to many business transactions in
the health care industry has not yet been subject to judicial and regulatory
interpretation. Noncompliance with the Anti-Kickback Law can result in exclusion
from Medicare and Medicaid programs and civil and criminal penalties. Several of
the Company's subsidiaries currently derive a significant portion of their
revenues from Medicare or Medicaid payments.
Significant prohibitions against physician referrals have been enacted
by Congress. These prohibitions, commonly known as "Stark II" amended prior
physician self-referral legislation known as "Stark I" by substantially
enlarging the field of physician-owned or physician-interested entities to which
the referral prohibitions apply. Stark II prohibits a physician from referring
Medicare or Medicaid patients to an entity providing "designated health
services" in which the physician has an ownership or investment interest, or
with which the physician has entered into a compensation arrangement, unless a
statutory exemption applies. The designated health services include, for
example, prosthetic devices, clinical laboratory services, radiology (such as
ultrasound, MRI and CT), home health, physical and occupational therapy,
prescription drugs and inpatient and outpatient
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hospital services. The penalties for violating Stark II include a prohibition on
payment by these government programs and civil penalties of as much as $15,000
for each referral violation and $100,000 for participation in a "circumvention
scheme." To the extent that the Company or any subsidiary is deemed to be
subject to the prohibitions contained in Stark II, the Company believes its
activities fall within the permissible activities defined in Stark II.
While the Company and several of its subsidiaries will receive service
fees under its agreements for management and administrative services, the
Company believes that it is not generally in a position to make or receive
referrals of patients or services reimbursed under the Medicare or Medicaid
programs. Such service fees are intended by the Company to be consistent with
fair market value in arm's-length transactions for the nature and amount of
management services rendered and therefore, would not constitute unlawful
remuneration under Anti-Kickback Law and regulations. For these reasons, among
others, the Company does not believe that fees payable to it would be viewed as
remuneration for referring and influencing referrals of patients or services
covered by such programs as prohibited by statute. If the Company is deemed to
be in a position to make, influence or receive referrals from or to physicians,
the operations of the Company could be subject to scrutiny under federal and
state anti-kickback and anti-referral laws.
In Florida, which does not prohibit the corporate practice of medicine,
the Company through a wholly-owned subsidiary, owns practices and employs
physicians. Thus, with respect to such practices, the Company is a provider of
services and would be capable of receiving referrals from other physicians
affiliated with the Company in those markets. In these circumstances, the
Company either will not accept referrals involving designated health services
from other physicians affiliated with the Company, or will form group practices
comprised of Company practices in that market.
In addition, the Company also believes that the methods used to acquire
the assets of existing practices and ancillary services do not violate
anti-kickback and anti-referral laws and regulations. Specifically, the Company
believes the consideration paid by the Company to physicians to acquire such
assets is consistent with fair market value in arm's-length transactions and not
intended to induce the referral of patients. Should this or any other Company
practice be deemed to constitute an arrangement designed to induce the referral
of Medicare or Medicaid patients, then such could be viewed as possibly
violating anti-kickback and anti-referral laws and regulations. A determination
of liability under any such laws could have a material adverse effect on the
Company's business, financial condition or results of operations.
FEE-SPLITTING; CORPORATE PRACTICE OF MEDICINE
The laws of many states prohibit physicians from splitting fees with
non-physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by the
courts and by regulatory authorities with broad discretion. Although the Company
believes its
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operations are in material compliance with existing applicable laws, the
Company's business operations have not been the subject of judicial or
regulatory interpretation; thus, there can be no assurance that review of the
Company's business by courts or regulatory authorities will not result in
determinations that could adversely affect the operations of the Company or that
the health care regulatory environment will not change so as to restrict the
Company's existing operations or their expansion. In addition, the regulatory
framework of certain jurisdictions may limit the Company's expansion into such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework.
A determination in any state that the Company is engaged in the
corporate practice of medicine or any unlawful fee-splitting arrangement could
render any management agreement between the Company and a practice located in
such state unenforceable or subject to modification, which could have a material
adverse effect on the Company. There can be no assurance that regulatory
authorities or other parties will not assert that the Company or a practice is
engaged in the corporate practice of medicine in such states or that the
management fees paid to the Company by the managed practices constitute unlawful
fee-splitting or the corporate practice of medicine. If such a claim were
asserted successfully, the Company could be subject to civil and criminal
penalties, managed physicians could have restrictions imposed upon their
licenses to practice medicine, and the Company or the managed practices could be
required to restructure their contractual arrangements. Such results or the
inability of the Company or the managed practices to restructure their
relationships to comply with such prohibitions could have a material adverse
effect on the Company's financial condition and results of operations.
CHANGES IN PAYMENT FOR MEDICAL SERVICES
The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction in per-patient revenue for
Company practices. The federal government has implemented, through the Medicare
program, the RBRVS payment methodology for physician services. The RBRVS is a
fee schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the discretion
of Congress. To date, the implementation of RBRVS has reduced payment rates for
certain procedures historically performed by Company physicians. There can be no
assurance that any reduced operating margins could be recouped by the Company
through cost reductions, increased volume, introduction of additional procedures
or otherwise.
Rates paid by non-governmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician, ambulatory
surgery center and hospital charges, and are generally higher than Medicare
payment rates. A change in the makeup of the patient mix of Company practices as
well as the medical practices under Company management that results in a
decrease in patients covered by private insurance or a shift by private payors
to RBRVS or
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similar payment structures could adversely affect the Company's business,
financial condition or results of operations.
FLORIDA PATIENT SELF-REFERRAL ACT OF 1992
During its 1992 session, the Florida Legislature passed into law the
Patient Self-Referral Act of 1992 ("Self-Referral Act"). The Self-Referral Act
is far broader than OBRA since it is applicable to all types of health care
services and to all patients (not just Medicare and Medicaid beneficiaries).
Under the Self-Referral Act, "designated health services" are defined as
clinical laboratory, physical therapy, comprehensive rehabilitative,
diagnostic-imaging and radiation therapy services. The Company plans to purchase
and operate facilities that provide some or all of these designated health
services. All health care products and services not enumerated above, are
classified as "other health services."
Under the Self-Referral Act, a physician is prohibited from referring a
patient for designated health services to an entity in which the physician is an
investor.
The Self-Referral Act also prohibits the referral by a physician of a
patient for other health services to an entity in which that physician is an
investor, unless the ownership of the entity meets one of two tests:
1. The physician's investment interest is in the registered securities of a
publicly traded corporation whose shares are traded on a national
exchange or over-the-counter market and which has net equity at the end
of its most recent fiscal quarter in excess of $50,000,000, or
2. For entities that do not qualify under the first test, no more than
50% of the value of the investment interests in the entity may be held
by investors who are in a position to make referrals to the entity, and
the terms under which an investment interest is offered must be the
same for referring investors and non-referring investors. In addition,
the terms under which an investment interest is offered may not be
related to the investor's volume of referrals to the entity. Finally,
the investor must not be required to make referrals or be in the
position to make referrals to the entity as a condition for becoming or
remaining an investor.
Entities that meet either test must also meet two additional tests.
First, the entity may not lend to or guarantee a loan to an investor who is in a
position to make referrals if the investor uses any part of that loan to obtain
the investment interest. Second, distributions of profits and losses to
investors must be directly proportional to their capital investment.
The Self-Referral Act also imposes certain disclosure obligations on the
Company and referring physicians. Under the Self-Referral Act, a physician may
not refer a patient to an entity in which he or she is an investor unless,
before doing
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so, the patient is given a written statement disclosing, among other things, the
physician's investment interest in the entity to which the referral is made. The
Self-Referral Act also imposes disclosure obligations on the entities to which
physicians refer patients.
Since the Company plans to purchase and operate facilities that provide
some or all of the "designated health services" and intends to network its
medical services, the Self Referral Act, and OBRA will have a significant
adverse impact on the Company's proposed plan of operations and may necessitate
(i) a change in the way the Company acquires its clinical care facilities (ii) a
change in the corporate structure (i.e., a spin-off of the clinical care
companies coupled with an initial public offering in order to qualify for the
federal and state "Safe Harbor Standards"), (iii) a secondary offering for the
Company (in order to qualify for the federal and state "Safe Harbor Standards"
or (iv) a merger with a company with substantially more assets than the Company
(in order to qualify for the "Safe Harbor" standards).
CERTIFICATE OF NEED
Some states, including Florida, require a "certificate of need" ("CON")
prior to the acquisition of medical equipment or provision of cardiac
catheterization services by hospitals. In Florida, a certificate of need is
required for cardiac catheterization services only if the hospital wishes to
provide such services to inpatients. Typically, obtaining a CON approval is a
costly and lengthy process, and may involve adversarial proceedings brought by
competing facilities. The hospital or health care provider, rather than the
Company, must apply for and obtain the CON, where required. As a result, the
Company is unable to control or accurately predict whether and how many
potential customers will obtain CON's. The Company's ability to provide cardiac
catheterization services to hospitals and health care providers is dependent
upon those entities obtaining a CON for such services.
LEGISLATIVE DEVELOPMENTS
In addition, proposed legislation regarding health care reform has been
introduced before many state legislatures. Any such reform at the federal or
state level could significantly alter patient-provider relationships. State and
federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect on
the Company. Any federal or state legislation prohibiting investment interests
in, or contracting with, the Company by health care providers for which there is
no statutory exception would have a material adverse effect on the Company's
business, financial or results of operations.
LICENSES
Although the Company's cardiac catheterization services generally are
not subject to health care licensing requirements (it contracts directly with
hospitals), the Company must adhere to the same standards as the hospitals it
contracts with,
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including standards for sanitation, safety and personnel qualifications. The
Company is also required to register its X-ray equipment and pay annual
registration fees to state radiation control agencies. The Company believes that
its cardiac catheterization operations are in compliance with applicable
registration and hospital license requirements.
Global is licensed by the Federal Aviation Administration as a FAR Part
135 operation with worldwide operation specifications. Global is licensed by the
State of Florida Department of Health Emergency Medical Services as an
inter-facility fixed-wing transport provider. Florida requires Global to have
advanced life support capabilities on all aircraft at all times. This is the
highest level of licensure for inter-facility transport services.
LEGISLATIVE DEVELOPMENTS
There are presently efforts underway on both the federal and state
levels to enact major reforms of the U.S. health care system. Proposals include
cost containment measures through health care alliances and improved access to
insurance coverage for the working uninsured or unemployed. The Florida "Health
Care Reform Act of 1992" (the "Florida Health Plan"), was designed to create a
managed competition model for health care delivery in Florida based on quality,
geographic coverage and reduced costs. The Company cannot predict what effect,
if any, future federal or state health care reform legislation will have on the
Company.
OTHER STATES; OTHER REGULATORY MATTERS
The Company anticipates that it will be doing business in other states
besides Florida, North and South Carolina and Virginia. The Company will be
subject to the laws of each state that it does business in, including among
others, the laws regulating the corporate practice of medicine, self-referrals,
licensing, and the division of fees between licensed physicians and
non-physicians.
PROFESSIONAL LIABILITY INSURANCE
The Company currently maintains general and professional liability
insurance for its operations in the single limit amount and aggregate annual
limit amount of $5,000,000. There is no assurance that any potential claims will
or will not exceed this limit. While the Company's Mobile Labs are at a
customer's facility, they operate only under the direction of licensed
physicians on the customer's staff who direct the procedures, supervise the
Company's nurses and technologists, and interpret the results of the
examinations. The Company requires that the users of the Mobile Labs carry
medical malpractice insurance to cover the physicians using the Company's Mobile
Labs.
COMPETITION
The health care industry in general, and the market for medical services
and equipment in particular, is highly competitive.
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With respect to the Company's mobile cardiac catheterization services,
the Company competes not only directly with other contract providers, but also
with health care providers that have their own equipment and with equipment
manufacturers and leasing companies that sell or lease equipment to health care
providers for full-time utilization. Some of the Company's direct competitors
which provide contracted medical services may have access to considerably
greater financial resources than the Company. The Company competes against other
contract providers on the basis of quality of services and equipment, price and
reliability.
The Company competes with companies that are larger in size than the
Company and may have access to considerably greater financial resources than the
Company. The Company competes by providing more personalized care to the
patients they serve as well as providing patient transportation and
pharmaceutical delivery.
The main competitors to FPII's group practice are Med-Partners, Phycor,
and a number of smaller physician lead groups. Phycor is of the size that
prefers to buy existing group practices of twenty-five or more physicians, which
is a market the Company is not in at this time.
Ivanhoe Medical Systems, Inc. is in an industry where there are no clear
market leaders or major competition. Most of the independents are either labs in
hospitals or physicians interested in sleep that have started labs as an adjunct
to their local practice.
PRN of North Carolina, Inc. is in an industry where there are thousands
of small pain treatment clinics, centers and facilities. There exists only a
portion of these locations that are accredited and follow standards for
multi-disciplinary procedures.
Global Air Charter, Inc. has numerous competitors with short-range
aircraft, but has limited competitors with aircraft capability of performing
international and, in particular, trans-Atlantic flights. Medjet in Alabama,
Kalitta in Detroit, and Sky Service in Toronto are the biggest competitors in
the international market.
Care America Integrated Health Services, Inc. competes directly and
indirectly with national companies as well as locally owned services. The main
competitors are Apria Healthcare, Coram Health Care, and Integrated Health
Services, Inc.
MARKETING
Heart Labs relies heavily on referrals to perform high-tech procedures.
Most of the marketing for its Mobile Labs is based on the Company's reputation
in the medical community.
14
<PAGE>
Florida physicians internet markets its practice on various forms;
referrals from other physicians, group presentation through sponsorship of
meetings, personal contacts and advertising in local newspapers.
Care America offers a full range of integrated health services to
include high tech infusion, home medical equipment, oxygen and respiratory
services. The referrals are generated through direct marketing to the
physicians, insurance providers, nursing agencies and tertiary subcontractural
agreements.
Ivanhoe relies upon physician referrals for its customer base. In
addition, the Company has in place a three tier service system that enters local
communities and utilizes a screening program and an in-home lab program.
PRN's primary target market is free-standing general practitioners
offices and/or groups of professional associations. Sales leads are generated
through several sources including marketing programs, telephone contact, direct
mail, referrals and networking.
Global relies upon personal contacts and physician referrals to approach
new customers. The Company also staffs exhibit booths at major industry-specific
conventions to attract hospital groups, insurance companies, assistance
companies and managed care organizations.
EMPLOYEES
As of March 3, 1998, the Company employed 133 persons, of which 92 are
full time. The Company's ability to provide its services is dependent upon the
Company recruiting, hiring and retaining qualified technical personnel. To date,
the Company has been able to recruit and retain sufficient qualified personnel.
None of the Company's employees is represented by a labor union. The Company has
not experienced any work stoppages and considers its relations with its
employees to be good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases approximately 6,000 square feet of office space in
Boynton Beach, Florida for its corporate offices at an average monthly net
rental of $5,212 over the term of the lease. The lease expires in April 2001.
The Company is in the process of expanding this space.
The Company leases five clinical offices located in the Central Florida
area for Florida Physicians Internet, Inc. The three locations in Kissimmee are
2,600, 1,700 and 1,300 square feet, while the Loughman space is 1,700 square
feet, and the St. Cloud space is 700 square feet . The average monthly net
rental is $1,597 for the five clinics. Each lease is of various length, with the
longest running through January 1999.
The Company leases approximately 2700 square feet of office space
located in the Central Florida area for PRN of North Carolina. The average
monthly net rental is $1,413. The lease expires in December 1999.
15
<PAGE>
The Company leases approximately 1,100 square feet of office space in
Altamonte Springs, Florida for Care America, at an average monthly net rental of
$1,154 over the term of the lease, which expires in August 1998.
The Company leases office and hangar space in Clearwater, Florida for
Global Air Charter/Rescue, at an average monthly net rental of $4,350 over the
term of the lease, which expires in June 1998. The Company expects to utilize
its FBO for office and hangar space.
The Company sublets 3,300 square feet of office space in Boca Raton,
Florida, which previously served as its corporate offices.
The Company owns a medical building located in Miami, Florida. There are
two mortgages on the building. The first mortgage is payable in monthly
installments of $1,382 including interest at the bank's prime rate plus 2%,
balance due in November 2001. The second mortgage is payable in monthly
installments of $636, including interest at 12%, balance due in December 1998.
The Company holds a mortgage receivable for real estate located in
Plantation, Florida. The mortgage has monthly installments of $1,083, which
includes interest at 8.5%, with a maturity date of January 1, 2002.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party,
which the Company believes, if adversely determined, would have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
16
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Common Stock of the Company trades on the NASDAQ Small Cap Market
under the symbol "MIOA." The following table sets forth the high and low closing
bid prices (post-reverse) of the Company's Common Stock as reported by NASDAQ:
1997 HIGH LOW
---- ---- ---
First Quarter 4 3/16 1/4
Second Quarter 3 1/16 1 13/16
Third Quarter 2 9/32 1 5/8
Fourth Quarter 2 17/32 1 1/8
1996 HIGH LOW
---- ---- ---
First Quarter 47 1/2 19 3/8
Second Quarter 20 5/8 7 1/2
Third Quarter 13 3/4 5 5/8
Fourth Quarter 6 4/5 2 5/32
(b) Holders
As of February 28, 1998, there were approximately 212 holders of record
of the common stock, not including beneficial owners, which approximates an
additional 2,500 shareholders.
(c) Dividends on The Company's Common Stock
No cash dividends have ever been paid, and the Company does not intend
to pay cash dividends in the foreseeable future.
SALE OF UNREGISTERED SECURITIES
In October 1997, the Company issued 139,096 shares of its restricted
common stock with a value of $280,000 in settlement of amounts in dispute.
In October 1997, the Company issued 500,000 shares of its restricted
common stock for the acquisition of PRN of North Carolina, Inc.
In November 1997, the Company issued 6,000 shares of the Company's
restricted common stock valued at $12,000 as a commission for raising funds.
In November 1997, the Company made a donation by issuing 2,500 shares of
the Company's restricted common stock with a value of $3,438.
17
<PAGE>
Effective December 31, 1997, the Company issued 3,609,285 shares of the
Company's restricted common stock with a value of $5,413,928 for the acquisition
of Global Air Charter, Inc., Global Air Rescue, Inc., and Clearwater Jet Center,
Inc. The assets acquired have a value of over $8,000,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following should be read in conjunction with the Financial
Statements and Notes thereto contained herein.
OVERVIEW
The Company has a new management team in place. Commencing in the later
part of 1996, the Company embarked on a reorganization plan. Management decided
that it was in the best interest of the Company and its shareholders to
discontinue all subsidiaries except Heart Labs of America, Inc. and to focus its
future efforts on the expansion of its mobile cardiac catheterization
laboratories. As part of the reorganization plan, the Company acquired in
January 1997 a physician practice in Central Florida that specializes in
cardiology.
In 1996, as a result of this decision, all subsidiaries, except for the
mobile labs, have been accounted for as discontinued operations in accordance
with Accounting Principles Board #30, which provides for the reporting of
operating results of discontinued operations separately from continuing
operations. Loss from discontinued operations and loss from disposal of
discontinued operations amounted to $1,624,352, and $3,296,413, respectively,
for the year ended December 31, 1996.
Since new management has embarked on the reorganization plan, the
Company has increased revenues and decreased the losses incurred. Net loss
decreased to $1,152,694 or $.21 loss per share as compared to $8,540,864 or
$10.33 loss per share for 1996. Included in the December 1997 loss is $400,000
of non-recurring physician costs.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1997 AND DECEMBER 31, 1996
Revenues from the mobile cardiac catheterization subsidiary for the year
ended December 31, 1997 was $2,375,310 compared to $1,276,904 for the year ended
December 31, 1996. This increase is due to the Company increased utilization
through additional contracts with hospitals, and the sale of a mobile lab. In
1997, the Company had six contracts with hospitals compared to four for 1996.
PRN had revenues of $135,147 for the two months ended December 31, 1997.
18
<PAGE>
FPII had revenue from January 10, 1997 (date of acquisition) through
December 31,1997 in the amount of $1,945,252.
Care America had revenue during the period November 1, 1997 (date of
acquisition) through December 31, 1997 in the amount of $73,752.
Cost of services, which includes medical supplies, technical and sales
personnel salaries and benefits, and other expenses directly associated with the
Company's services, increased 336% to $2,924,840 compared to $669,484 in 1996.
The increase is due to the cost of service expenses relating to the acquisition
of Florida Physicians, Care America and PRN, which aggregated $1,532,998. Heart
Labs had an increase in cost of services due to increased operating costs and an
increase in cost of personnel.
General and administrative expenses decreased 33.4% from $3,084,025 to
$2,054,034. The decrease was due to the Company implementing a cost reduction
program. This decrease was offset by additional costs relating to the
acquisitions of Florida Physicians, Care America and PRN, which aggregated
$891,279.
Depreciation and amortization decreased 4.4% to $338,306 from $353,785
in 1996. This decrease is due to one of the Company's mobile lab leases being
renewed in July 1997 and recorded as an operating lease versus a capitalized
lease, as in previous years.
Interest expense increased 5% to $147,732 in 1997 from $140,674 in 1996.
This increase is due to FPII entering into a temporary accounts receivable
financing arrangement which was terminated in July 1997.
As a result of the foregoing factors, the Company had net loss of
$1,152,694 in 1997, compared to $8,540,864 in 1996. The non-recurring losses
from physician practices resulted from new doctors hired and subsequently
terminated with no material impact on revenue which amounted to $400,000.
LIQUIDITY AND CAPITAL RESOURCES
In 1997 and 1996, the Company financed its operating and investment
activities through a combination of cash flow from operations, Regulation S
securities offerings, private placements and proceeds from litigation
settlements. Net cash provided by operating activities in 1997 was $362,339
compared to net cash used in operating activities of $2,879,070 in 1996,
primarily due to the Company's 1996 net loss. Net cash used by investing
activities was $297,231 in 1997, compared to $2,930,648 used by investing
activities in 1996. Net cash provided by financing activities was $650,877 in
1997 compared to $6,026,748 in 1996.
At December 31, 1997, the Company had a working capital deficiency of
$1,016,557 compared to a working capital deficiency of $1,458,966 at December
31,
19
<PAGE>
1996. In April 1998, the Company signed a letter of intent to refinance balances
due on aircraft that will eliminate this deficiency.
In January 1997, the Company leased a mobile lab from Comdisco, a New
York Stock Exchange company. The Mobile Lab was financed through a 36 month
lease with monthly payments of $22,000.
In March 1997, the Company entered into an asset purchase agreement
whereby it sold a mobile cardiac catheterization lab for $800,000; $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 the balance of
unpaid principal and accrued interest due and payable on December 15, 1997. The
note was paid off in March 1998.
In April 1997, the Company entered into a settlement agreement with the
plaintiffs of the Tula Business, Inc. et al lawsuit. The terms of the 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 counter
claims against Tula Business, Inc. et al.
In July 1997, the Company issued 412,000 shares of its restricted common
stock for $600,000.
In September 1997, the Company, pursuant to a private placement, issued
12% convertible subordinated debentures aggregating $400,000 comprising of
200,000 shares at $2. The outstanding principal is due to be repaid on February
28, 1999 or at the option of the registered holder upon the closing of the
Company of any equity private or public financing exceeding $1,500,000. Interest
is paid monthly.
In addition, as part of the private placement, the Company issued
warrants to purchase up to 440,000 shares of the Company's common stock at an
exercise price of $1.25 and expire on September 30, 2000.
In October 1997, the Company entered into a settlement agreement with
Glick Enterprises, Inc., and certain other investors, who had sued the Company
in March 1997 in the Supreme Court of the State of New York, County of New York,
claiming that the Company had issued an inadequate number of shares in January
1996 when they converted 62,120.5 shares of Series D Convertible Preferred Stock
and that the Company also was liable under the penalty provisions of the
Subscription Agreement.
As part of the settlement, the Company was required to issue 4.7 million
unrestricted common shares to Glick and the other investors and Glick and the
other investors shall return to the Company 62,120.5 shares of Series D
Convertible Preferred which they still possessed along with a full release. The
Company
20
<PAGE>
released Glick and the other investors for any claims which the Company had
against them with respect to their purchase, sale or trading of the Company's
stock. Glick and the other investors paid $1.5 million in cash to the Company as
part of their settlement for claims made by the Company. All Series C and D
previously issued by Medical Industries of America, Inc. has now been converted
into common stock.
The Company may continue to receive working capital from the exercise of
warrants, private placements, long term debt and operations. If the Company's
working capital is insufficient to fund its operations, it would have to explore
additional sources of financing. No assurances, however, can be given that
future financing would be available or, if available, that it could be obtained
at terms satisfactory to the Company.
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements and the report of
independent accountants thereon appear beginning on Page F-2. See index to
consolidated financial statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In February 1996, the Company engaged the services of McGladrey and
Pullen, LLP ("McGladrey").
On June 10, 1996, McGladrey resigned as the Company's independent
auditors and advised the Company that it lacked the internal controls necessary
for the development of reliable financial statements and that McGladrey was no
longer willing to rely on management's representations.
McGladrey based this statement on the fact that there was a material
weakness in the internal control structure of the Company relating to the
documentation of agreements and decisions made by the Board of Directors and
that written documentation that had been furnished to it during the course of
the audit had been subsequently modified and that some events had occurred that
had not been documented at all. Due to the modifications and new information
provided by management, McGladrey was required to reevaluate the accounting for
a significant transaction which could have materially impacted the fairness and
reliability of the financial statements. This also required them to extend their
subsequent event audit procedures to the new audit date and required updated
responses to legal confirmation.
Despite the Company's best efforts to furnish additional information
that would allow McGladrey to resolve the inconsistencies and complete the
audit, McGladrey was not able to reconcile the evidential matter obtained during
the course of its audit with management's representations concerning certain
events
21
<PAGE>
and transactions and the manner in which those events and transactions had been
reflected in the Company's financial statements.
The Company does not agree with McGladrey's findings or the reason for
its resignation.
During the 1995 audit, there were no disagreements between the Company
and McGladrey on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey, would have caused it to make a
reference to the subject matter of the disagreements in connection with its
reports.
Since McGladrey was retained in February 1996 and never completed an
audit for the Company, it did not issue any reports on financial statements for
either of the past two years and therefore no report contained an adverse
opinion or disclaimer of opinion, or was modified as to uncertainty, audit
scope, or accounting principles.
The Company has received from McGladrey a letter addressed to the
Securities and Exchange Commission ("SEC") stating that it agrees with the
statements made by the Company in response to Item 304 (a) of Regulation S-K.
The Company filed this letter as an exhibit to Form 8-K/A dated June 18, 1996.
On June 13, 1996, the Company engaged the services of Grant-Schwartz
Associates, CPA's. The Company authorized McGladrey to respond to any and all
inquires of the successor accountant.
In June 1997, the Board of Directors of the Company voted to terminate
the employment of its prior independent accountants, Grant, Schwartz and
Company, the Company's auditors. Grant Schwartz's report on the Company's
financial statements during the two most recent fiscal years contained no
adverse opinion or disclaimer of opinion and was not qualified except that Grant
Schwartz's report dated March 10, 1997 , except for Note 23 which is dated March
23, 1998, was modified for uncertainties about the Company's ability to continue
as a going concern
On June 21, 1997, the Company engaged the services of Grant Thornton,
LLP, an international accounting firm. The Company authorized Grant Schwartz to
respond to any and all inquiries of the successor accountant.
The Company received from Grant Schwartz a letter addressed to the
Securities and Exchange Commission ("SEC") stating that it agrees with the
statements made by the Company in response to Item 304(a) of Regulation S-K. The
Company filed this letter as an Exhibit to Form 8-K/A dated July 29, 1997.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of March 3, 1998:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Michael F. Morrell 56 Chairman of the Board, Chief Executive
Officer, and Director
Paul C. Pershes 54 President, Chief Operating Officer, and
Director
Linda Moore 46 Senior Vice President and Secretary
Arthur Kobrin 36 Chief Financial Officer
A. Razzak Tai, M.D. 64 Medical Director and Director
Theodore J. Orlando 61 Director
Glen Barber 48 Director
Terry Lazar 54 Director
Michael F. Morrell, Chairman of the Board and Chief Executive Officer.
Mr. Morrell has served as Chairman and CEO since August 1996. From November 1995
to August 1996 he was an independent consultant in the field of corporate
finance. From March 1994 to November 1995 Mr. Morrell served as President and a
director of Westmark Group Holdings, Inc. From March 1984 through March 1994 he
founded and served as President of Nexus Leasing Corp. and Nexus Realty. From
1966 to 1984 Mr. Morrell served in executive management positions with Reliance
Group Holdings (NYSE), a multi-billion dollar provider of insurance, leasing and
other services.
Paul C. Pershes, President, Chief Operating Officer and Director. Mr.
Pershes has served as a director since August 1996 and as President and Chief
Operating Officer since May 1997. Prior to joining the Company, Mr. Pershes was
a founding shareholder of a local accounting firm and prior thereto was a senior
partner of the international accounting firm Laventhol and Horvath for 18 years,
with extensive experience in healthcare.
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<PAGE>
Linda Moore, Senior Vice President, Secretary. Ms. Moore, the spouse of
Mr. Morrell, has served as Senior Vice President and Secretary since January
1996. From March 1994 through December 1995, she served as Senior Vice President
and Assistant Secretary of Westmark Group Holdings, Inc. From 1986 to 1994 she
was an executive officer of Moore Financial Services, Inc., a financial public
relations firm she founded in 1986.
Arthur Kobrin, Chief Financial Officer. Mr. Kobrin joined the Company in
June 1997 as Chief Financial Officer. Prior to joining the Company, Mr. Kobrin,
a Certified Public Accountant, from August 1987 to June 1997 was employed by
Weinberg, Pershes & Company, P.A. From June 1983 to August 1987 he was employed
by Dorfman, Abram & Music, P.A., and has extensive experience in management
consulting and public company reporting.
A. Razzak Tai, M.D., FACCP, ACCP, MRCP, Medical Director and Director.
Dr. Tai is Board Certified in Internal Medicine and Cardiovascular Diseases. For
more than the past five years, he has been practicing all aspects of invasive
and diagnostic cardiology, angiography, and nuclear and internal medicine. Dr.
Tai is presently on staff and in good standing with the Florida Hospital,
Columbia Regional Hospital and Orlando Regional Medical Center.
Theodore J. Orlando, Director. Mr. Orlando has served as an outside
director of the Company since March 1997. In 1994, Mr. Orlando founded and is
currently President of Barkus Capital Resources, Ltd., a real estate and
securities investment company. From 1984 to 1994 he founded and served as
Chairman and Chief Executive Officer of TJ Systems Corporation, a computer
leasing company.
Glen Barber, Director. Mr. Barber has served as an outside director of
the Company since April 1997. In 1988, Mr. Barber founded, and is currently
President of, New Age Communications, Inc., a master distributor of operator
services. Since 1993, he has served as President and Director of the Museum of
Art in Tallahassee, Florida.
Terry Lazar, Director. Mr. Lazar has served as an outside director of
the Company since April 1997. In 1977, Mr. Lazar founded, and is currently
senior partner of, Lazar, DeThomasis, Sanders and Company, LLP, a full service
accounting firm specializing in healthcare and other industries. He also is a
partner and Director of Finance of the Ambulatory Surgery Center and Vice
President of Empress Travel.
The Company's officers are appointed annually by the Board of Directors
and serve at the discretion of the Board. The Company's directors hold office
until the next annual meeting of shareholders and until their successors have
been duly elected and qualified.
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<PAGE>
OTHERS
The following individuals play a significant role in the Company's
operations:
MR. ROBERT SEGARRA, RCPT, RCDMS, FAMA
Mr. Segarra is currently a consultant and has been involved with the
Company since January 1990. He attended the Cardiovascular and Cardiopulmonary
Program at San Diego Regional Medical Center and Brooke Army Medical Center,
1980 - 1982. Mr. Segarra is Board Registered in all aspects of non-invasive and
invasive cardiology. Mr. Segarra has received formal training in MRI, nuclear
medicine, ultrasound, pulmonary testing, and electrophysiology. From October
1987 to February 1990, Mr. Segarra served as Director of Cardiology Services at
North Broward Medical Center. Mr. Segarra was Director of Cardiac
Catheterization Laboratory and Supervisor of Special Procedures-Radiology at St.
Lukes Lutheran Hospital in San Antonio, Texas from January 1987 to October 1987.
Since November 1989, Mr. Segarra has also served as Assistant Dean for Invasive
Cardiology at Barna College in Fort Lauderdale, Florida. Additionally, Mr.
Segarra assisted in Cardiovascular Research on Right Ventricular Volume
Calculations at the University of Texas Health Science Center and performed
Research Hemodynamics at Brooke Army Medical Center. Mr. Segarra served as
President of the American Society of Cardiovascular Professionals. Since June
1989, Mr. Segarra has been a faculty member and a part of the Cardiac
Catheterization Lab Task Force at Broward Community College in Fort Lauderdale,
Florida.
DR. ROBERT B. HAGHGOU, CHIEF EXECUTIVE OFFICER OF CARE AMERICA INTEGRATED HEALTH
SERVICES, INC.
Dr. Haghgou is a licensed pharmacist with clinical experience in all
facets of pharmacy practice. He is Registered and Board Certified from the
American College of Forensic Examiners. Since 1996 he has been the President and
a Director of Care America Integrated Health Services, Inc. Prior thereto and
for more than ten years he has held employment positions in the home healthcare
industry with both local and national corporations. Dr. Haghgou holds a Bachelor
of Science and a Doctor of Pharmacy degree from the University of Florida.
MR. ROGERS W. KIRVEN, JR., CHIEF EXECUTIVE OFFICER OF IVANHOE MEDICAL SYSTEMS,
INC.
Since 1989, Mr. Kirven has been the Chief Executive Officer of The
Kirven Group, Inc., a company he founded. He has extensive experience in
business and corporate finance and has served as a director on several private
and public corporations including various manufacturing, communication and
investment companies. He graduated from Clemson University in 1975 with a
Bachelor of Arts degree.
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<PAGE>
MR. RANDY LUBINSKY, CHIEF EXECUTIVE OFFICER OF PRN OF NORTH CAROLINA, INC.,
GLOBAL AIR RESCUE, INC. AND GLOBAL AIR CHARTER, INC.
Mr. Lubinsky is a Director and Chief Executive Officer of PRN of North
Carolina, Inc., a company he founded in 1994. From 1988 to 1995 he was Chief
Executive Officer and a founding Director of Medical Equity, Inc., a medical
investment and finance company and MedX West, Inc., a distributor of medical
equipment. Mr. Lubinsky received a Bachelor of Arts degree in Finance from
Florida International University.
MR. NICHOLAS DAVIS, GENERAL COUNSEL
Mr. Davis holds the degrees of Masters of Laws Taxation (LL.M.), Juris
Doctor (J.D.), Masters in Business Administration (M.B.A.) and a Bachelor of
Science in Business Administration. Mr. Davis practiced law in the State of
Florida from 1981 until 1993, specializing in healthcare, tax, securities,
mergers, reorganizations and acquisitions. From 1993 until 1996, Mr. Davis owned
and operated a consulting firm whereby he provided planning, design, management,
operation, accounting and capital funding systems and structures to companies
seeking public and private sector funding. From 1996 until March 1997, Mr. Davis
served as General Counsel and Executive Vice President for PRN of North
Carolina, Inc.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10
percent of the Company's Common Stock, to file with the SEC initial reports of
ownership and reports of changes in ownership, furnishing the company with
copies of all Section 16(a) forms they file.
To the best of the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company, all Section 16(a) filing
requirements applicable to its officers and directors were complied with during
the year ended December 31, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and other executive officers for
services rendered to the Company during 1997 and 1996. No other person, who,
during 1997 and 1996 served as an executive officer of the Company, had a total
annual salary and bonus in excess of $100,000.
26
<PAGE>
SUMMARY OF COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LTIP
Name & Principal SALARY Other Annual PAYOUTS
Position YEAR ($) BONUS($) COMPENSATION OPTIONS ($)
-------- ---- --- -------- ------------ ------- ---
Michael F. Morrell (1) 1997 $173,461 1,475,000
1996 $74,999 25,000
Paul C. Pershes (2) 1997 $104,808 1,425,000
A. Razzak Tai (3) 1997 $348,354 50,000
</TABLE>
(1) Chief Executive Officer from August 1996 to the present.
(2) President and Chief Operating Officer from April 1997 to present.
(3) Director and Director of Medicine of Florida Physicians Internet, Inc. from
June 1997 and January 1997, respectively, to the present.
OPTION GRANTS DURING 1997 AND AGGREGATED FISCAL YEAR-END OPTION VALUE
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES TO EXERCISE OR
UNDERLYING EMPLOYEES BASE EXPIRATION
NAME OPTIONS IN FISCAL YEAR PRICE ($/SH) DATE
---- ------- -------------- ------------ ----
Michael Morrell(3) 250,000 8.3 .50 4/9/07
925,000 30.8 .50 (1) 10/24/07
100,000 3.3 1.25 10/24/07
100,000 3.3 1.25 10/24/08
100,000 3.3 1.25 10/24/09
Paul Pershes (4) 250,000 8.3 .50 4/9/07
925,000 30.8 .50 (1) 10/24/07
83,333 2.8 1.25 10/24/07
83,333 2.8 1.25 10/24/08
83,333 2.8 1.25 10/24/08
A. Razzak Tai (5) 50,000 1.7 .50 1/8/00
12,500 .4 * (2) 7/8/01
12,500 .4 * (2) 1/9/02
15,000 .5 * (2) 7/9/02
15,000 .5 * (2) 1/9/03
(1) Vesting date was revised on 10/24/97 from a three year vest to immediate.
(2) Price is at market value at vesting date.
(3) Does not include options to purchase 600,000 shares of the Company's common
stock granted on 2/10/98 at an exercise price of $1.25 per share.
(4) Does not include options to purchase 500,000 shares of the Company's common
stock granted on 2/10/98 at an exercise price of $1.25 per share.
(5) Does not include options to purchase 50,000 shares of the Company's common
stock granted on 2/10/98 at an exercise price of $1.25 per share.
27
<PAGE>
AGGREGATED OPTIONS EXERCISES IN 1997 AND 1997 OPTION VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN THE MONEY OPTIONS
ACQUIRED VALUE AT 12/31/97 AT 12/31/97
NAME ON EXERCISE REALIZED EXERCISED UNEXERCISED EXERCISABLE UNEXERCISABLE
Michael Morrell 0 0 1,275,000 200,000 $1,200,000 $50,000
Paul C. Pershes 0 0 1,258,333 166,666 $1,195,833 $41,667
A. Razzak Tai 0 0 50,000 55,000 $50,000 0
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
CASH COMPENSATION SECURITY GRANTS
----------------------------------- ------------------------------
CONSULTING NUMBER OF
ANNUAL FEE / SECURITIES
RETAINER MEETING OTHER NUMBER OF UNDERLYING
NAME FEE ($) FEES ($) FEES ($) SHARES (#) OPTIONS/SARS (#)
---- ------- -------- -------- ---------- ----------------
Terry Lazar - 2,000 (1) - 175,000(2) 175,000
Glen Barber - 2,000 (1) - 175,000(2) 175,000
Theodore J. Orlando - 2,000 (1) - 175,000(2) 175,000
</TABLE>
(1) The Directors had eight meetings during 1997, of which four were telephonic
meetings.
(2) Does not include options granted on 2/10/98 to purchase 50,000 shares of the
Company's common stock at an exercise price of $1.25 per share.
1996 STOCK OPTION PLAN FOR OFFICERS AND DIRECTORS
Under the Company's 1996 Stock Option Plan for officers and directors,
5,000,000 shares of the Company's common stock may be issued. The plan is
administered by the Company's compensation committee which has the authority to
determine to whom awards shall be granted. To date, 4,750,000 options have been
granted under the plan.
EMPLOYEE STOCK OPTION PLAN
Under the Company's 1996 Stock Option Plan for employees, 1,000,000
shares of the Company's common stock may be issued. The Company's Compensation
Committee administers and interprets the Plan and is authorized to grant options
thereunder to all eligible employees of the Company. To date, 993,000 options
have been granted under the plan.
The Plans provide for the granting of both incentive and non-qualified
stock options. Options are granted under the Plan on such terms and at such
prices as determined by the Committee, except that the per share exercise price
of incentive stock options cannot be less than the fair market value of the
Common Stock on the date of grant and the per share price of non-qualified stock
options will not be less than 85% of the fair market value on the date of grant.
Options granted under the Plans are not transferable other than by will or
intestate distribution and no option
28
<PAGE>
can be exercised until six months after the date of grant or after the
expiration of 10 years from the date of grant.
EMPLOYMENT AGREEMENTS
In January 1997, the Company signed an employment agreement with Michael
Morrell. The term of the agreement is for four years and provides for annual
salary of $150,000, the granting of 775,000-925,000 stock options to be vested
over a four year period and the payment of normal business expenses. On November
1, 1997, the Board of Directors approved an increase in salary to $200,000 per
year.
In January 1997, the Company signed an employment agreement with Paul
Pershes. The term of the agreement is for four years and provides for annual
salary of $150,000, the granting of 775,000-925,000 stock options to be vested
over a four year period and the payment of normal business expenses. On November
1, 1997, the Board of Directors approved an increase in salary to $175,000 per
year.
Effective January 1997, the Company signed an employment agreement with
Dr. A. Razzak Tai. The term of the agreement is for three years, with
compensation equal to an annual salary of $400,000.
On June 16, 1997, the Company signed an employment agreement with Arthur
Kobrin. The term of the agreement is for four years and provides for annual
salary of $78,000, the granting of 100,000 stock options to be vested over a
three year period, and the payment of normal business expenses. Effective
February 8, 1998 the annual salary was increased to $100,000.
On November 6, 1996, the Company signed an employment agreement with
Linda Moore. The term of the agreement is for five years and provides for annual
salary of $80,000, the granting of 100,000 stock options to be vested
immediately, and the payment of normal business expenses. Effective February 8,
1998 the annual salary was increased to $100,000.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company maintains a $5,000,000 Director and Officer and Company
Reimbursement Insurance Policy ("the Policy") with a retention of $250,000. The
Policy will pay the judgments, damages, settlement and defense costs ("loss") of
each director or officer of the Company and reimburse the Company for any loss
due to any alleged breach of duty, neglect, erroneous misstatement, misleading
statement, omissions or act by the directors or officers of the Company except
losses arising out of or in connection with, among other things (i) gaining
personal profit or advantage; (ii) criminal or deliberate fraudulent acts; (iii)
self dealing; (iv) violations of Section 16 (b) of the Securities Exchange Act
of 1934 and amendments thereto or similar state laws; (vi) certain corporate
takeover transactions; (vii) failure to maintain insurance; (viii) pending or
prior litigation or actions derived from the same facts as the pending or prior
litigation; (ix) violations of the Environmental
29
<PAGE>
Protection Act or similar laws and, (x) violations of the Employee Retirement
Income Security Act of 1974 or amendments thereto or any similar state or common
law.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as of March 3, 1998 as to each
person known by the Company to be the beneficial owner of more than 5% of the
Common Stock of the Company and as to the beneficial ownership of the Company's
Common Stock by each director of the Company and by all directors and executive
officers of the Company as a group:
SHARES OF
COMMON STOCK PERCENTAGE
NAME AND BUSINESS ADDRESS (1) OF CLASS (1)
- ------------------------- --- ------------
Michael F. Morrell (2)
1903 S. Congress Ave., Suite 400
Boynton Beach, FL 33426 1,500,000 7.88%
Paul C. Pershes (3)
1903 S. Congress Ave., Suite 400
Boynton Beach, Florida 33426 1,437,500 7.55%
Linda Moore (4)
1903 S. Congress Ave., Suite 400
Boynton Beach, FL 33426 202,000 1.06%
Arthur Kobrin (5)
1903 S. Congress Ave., Suite 400
Boynton Beach, FL 33426 150,000 *
A. Razzak Tai (6)
1903 S. Congress Ave., Suite 400
Boynton Beach, Florida 33426 66,667 *
Theodore J. Orlando (7)
1903 S. Congress Ave., Suite 400
Boynton Beach, Florida 33426 41,667 *
Terry Lazar (8)
1903 S. Congress Ave., Suite 400
Boynton Beach, Florida 33426 41,667 *
Glen Barber (9)
1903 S. Congress Ave., Suite 400
Boynton Beach, Florida 33426 101,667 *
All Directors and Officers as a group
(8 persons) 3,541,168 18.61%
- -------------------------
*less than 1%
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days from March 3, 1998 upon
the exercise of options, and that person's option's are assumed to have
been exercised in determining such person's percentage ownership.
(2) Includes 500,000 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 625,000 unvested options. On
February 11, 1998 Mr. Morrell exercised options to acquire 1,000,000
shares of Common Stock at a collective exercise price of $500,000,
issuing the
30
<PAGE>
Company a promissory note in payment for the shares, which note
contained the following terms: (i) repayment of principal with interest
at the prime lending rate, (ii) pledge of the shares as collateral
security for repayment of the loan, and (iii) repayment of the principal
and interest upon the earlier to occur of the sale of the shares or
February 11, 2001.
(3) Includes 437,500 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 512,500 unvested options. On
February 11, 1998 Mr. Pershes exercised options to acquire 1,000,000
shares of Common Stock at a collective exercise price of $500,000,
issuing the Company a promissory note in payment for the shares, which
note contained the following terms: (i) repayment of principal with
interest at the prime lending rate, (ii) pledge of the shares as
collateral security for repayment of the loan, and (iii) repayment of
the principal and interest upon the earlier to occur of the sale of the
shares or February 11, 2001.
(4) Includes 77,000 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 50,000 unvested options. On February
11, 1998 Ms. Moore exercised options to acquire 125,000 shares of Common
Stock at a collective exercise price of $81,250, issuing the Company a
promissory note in payment for the shares, which note contained the
following terms: (i) repayment of principal with interest at the prime
lending rate, (ii) pledge of the shares as collateral security for
repayment of the loan, and (iii) repayment of the principal and interest
upon the earlier to occur of the sale of the shares or February 11,
2001.
(5) Includes 75,000 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 100,000 unvested options. On
February 11, 1998 Mr. Kobrin exercised options to acquire 75,000 shares
of Common Stock at a collective exercise price of $93,750, issuing the
Company a promissory note in payment for the shares, which note
contained the following terms: (i) repayment of principal with interest
at the prime lending rate, (ii) pledge of the shares as collateral
security for repayment of the loan, and (iii) repayment of the principal
and interest upon the earlier to occur of the sale of the shares or
February 11, 2001.
(6) Includes 66,667 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 88,333 unvested options. Does not
include 780,000 shares of Preferred Stock convertible into up to 883,333
shares of Common Stock that the Company is obligated to issue in
connection with the acquisition of Florida Physicians Internet, Inc.
(7) Includes 41,667 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 183,333 unvested options.
(8) Includes 41,667 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 183,333 unvested options.
(9) Includes 41,667 shares of Common Stock that are issuable upon exercise
of vested options. Does not include 183,333 unvested options.
On January 13, 1997, three shareholders filed a Schedule 13D with the
Securities and Exchange Commission for an aggregate of 2,303,253 common shares.
The shareholders had acquired preferred shares of the Company pursuant to
Regulation S. The Company's position is that these shareholders are grossly
overstating their post-conversion beneficial ownership. The error appears to be
the result of the misapplication on the parts of four investors of the
conversion formula applicable to the conversion of preferred stock to common
stock. The investors have received the correct number of common shares from the
Company's transfer agent.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WEINBERG, PERSHES & COMPANY
During 1997 and 1996, the Company engaged Weinberg, Pershes & Company
("Weinberg"), an accounting services firm, for consulting services. Paul C.
Pershes,
31
<PAGE>
a director of the Company, was a director and shareholder of Weinberg.
In April 1997 and December 1996, Weinberg received 5,000 ($30,000) and 28,000
($35,000) shares of common stock, respectively, from the Company pursuant to a
consulting contract dated October 1, 1996.
WESTMARK GROUP HOLDINGS, INC.
In November 1995, the Company acquired a 49% interest of Westmark
Mortgage Corporation, a NASDAQ listed company, in exchange for $1,210,000 in
cash and cash equivalents, a note payable in the amount of $315,000 and 10,000
shares of the Company's Series B preferred stock, with a stated value of $10.
The then officers of Westmark, Mr. Morrell and Ms. Moore resigned as
officers and Mr. Morrell resigned as a director. The Company issued Mr. Morrell
a promissory note in the principal amount of $415,000, bearing interest at a
rate of 12% per annum, to repay a $415,000 advance previously made to Westmark.
Mr. Morrell has the right to convert all or a portion of this loan into shares
of the Company's common stock at a rate equal to 50% of the closing bid price on
the day preceding such conversion. The Company granted certain registration
rights in connection therewith. Ms. Moore was issued a Promissory Note by the
Company in the principal amount of $60,000, bearing interest at a rate of 12%
per annum, to repay a $60,000 advance previously made to Westmark. Mr. Morrell
and Ms. Moore presently act as the chief executive officer and senior vice
president of the Company.
In the first and second quarters of 1996, the Company lent to Westmark
$2,427,568 to be used for Westmark's operations. The Company may convert the
loan to equity.
On June 26, 1997, Westmark executed a promissory note in the amount of
$1,953,000 with interest at 10% and minimum monthly payments of $25,000 through
June 30, 2000, at which time the unpaid principal and accrued interest shall be
paid in full. The Company is entitled to additional payments based on the
receipt by Westmark of additional capitalization. The Company is also entitled
to 15% of the net cash flow of Westmark for 1997 and 20% for 1998.
JEAN JOHNSTONE AND BRADLEY RAY AGREEMENTS
In August 1997, the Company issued 327,389 shares of the Company's
common stock for payment on subordinated debentures totaling $498,286. The
subordinated debentures originated from a 1996 agreement whereby the Company
agreed to repurchase common stock held by Jean Johnstone and Bradley Ray.
EXERCISE OF OPTIONS
On February 11, 1998 Mr. Morrell exercised options to acquire
1,000,000 shares of Common Stock at a collective exercise price of $500,000,
issuing the Company a promissory note in payment for the shares, which note
contained the following terms: (i) repayment of principal with interest at the
prime lending rate,
32
<PAGE>
(ii) pledge of the shares as collateral security for
repayment of the loan, and (iii) repayment of the principal and interest upon
the earlier to occur of the sale of the shares or February 11, 2001.
On February 11, 1998 Mr. Pershes exercised options to acquire
1,000,000 shares of Common Stock at a collective exercise price of $500,000,
issuing the Company a promissory note in payment for the shares, which note
contained the following terms: (i) repayment of principal with interest at the
prime lending rate, (ii) pledge of the shares as collateral security for
repayment of the loan, and (iii) repayment of the principal and interest upon
the earlier to occur of the sale of the shares or February 11, 2001.
On February 11, 1998 Ms. Moore exercised options to acquire
125,000 shares of Common Stock at a collective exercise price of $81,250,
issuing the Company a promissory note in payment for the shares, which note
contained the following terms: (i) repayment of principal with interest at the
prime lending rate, (ii) pledge of the shares as collateral security for
repayment of the loan, and (iii) repayment of the principal and interest upon
the earlier to occur of the sale of the shares or February 11, 2001.
On February 11, 1998 Mr. Kobrin exercised options to acquire
75,000 shares of Common Stock at a collective exercise price of $93,750, issuing
the Company a promissory note in payment for the shares, which note contained
the following terms: (i) repayment of principal with interest at the prime
lending rate, (ii) pledge of the shares as collateral security for repayment of
the loan, and (iii) repayment of the principal and interest upon the earlier to
occur of the sale of the shares or February 11, 2001.
INTEREST PAYABLE
As of December 31, 1997, Michael Morrell was owed interest in the amount
of $47,572 on various loans.
ESSENTIAL CARE MEDICAL CENTERS, INC.
As part of the acquisition of Essential Care Medical Centers, Inc., the
Company agreed to issue a total of 320,000 shares of the Company's common stock
to Morton Schnessel and Eve Kobrin, on behalf of the estate of Harry Kobrin. Eve
Kobrin is the mother of the Chief Financial Officer of the Company and the wife
of the former President.
33
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBITS DESCRIPTION
3.1 Amended and Restated Articles of Incorporation *
3.2 Amended and Restated Bylaws *
4.1 Form of Common Stock Certificate *
4.2 Form of Warrant Certificate *
4.3 Form of Underwriter's Warrant *
4.4 Form of Warrant Agreement *
10.1 Form of Indemnification Agreement between the Registrant * and
each of its directors and certain executive officers *
10.2 Form of agreement between the Company and its client hospitals *
10.3 Master Lease Agreement, dated October 16, 1991, between the
Registrant and Comdisco Medical Leasing Group, Inc. *
10.4 Agreement between the Registrant and Northwest Broward
Invasive Cardiology Associates *
10.5 Promissory Note, dated December 9, 1992, executed by Joseph S.
Zinns, M.D. and Marilyn Zinns in favor of Northern Trust Bank of
Florida, N.A. (the "Bank"), Guaranty, dated December 9, 1992,
executed by and between the Registrant and the Bank. **
10.6 Financial Consulting Agreement *
10.7 Escrow Agreement, effective as of September 1, 1992, by and among
the Company, Joseph S. Zinns, M.D., Marilyn Zinns, Milton
Barbarosh and Broad and Cassel *
10.8 Technomed, Inc. Share Exchange Agreement ***
10.9 Westmark Group Holdings, Inc. Agreement ****
10.10 Greenworld Technologies, Inc. Agreement ****
10.11 Employment Agreement - Harry Kobrin ****
10.12 Employment Agreement - Dawn M. Drella ****
10.13 Essential Care Share Exchange Agreement ****
10.14 Amendment to Essential Care Share Exchange Agreement ****
10.15 Employment Agreement - Michael Morrell *****
10.16 Employment Agreement - Arthur Kobrin
10.17 Employment Agreement - Linda Moore
21 Subsidiaries of Medical Industries of America, Inc.
23 Consents of Independent Accountants
- --------------------------------------
* Incorporated by reference from the Exhibit with the same reference number
in the Company's Registration Statement.
** Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1992.
*** Previously filed as an exhibit to the Company's Form 8-K dated August 23,
1995.
**** Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
***** Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996.
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEDICAL INDUSTRIES OF AMERICA, INC.
/s/ MICHAEL F. MORRELL
Michael F. Morrell
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
APRIL 13, 1998 /s/ MICHAEL F. MORRELL
Michael F. Morrell
Chief Executive Officer &
Director
APRIL 13, 1998 /s/ PAUL C. PERSHES
Paul C. Pershes
Director
APRIL 13, 1998 /s/ THEODORE J. ORLANDO
Theodore J. Orlando
Director
APRIL 13, 1998 /s/ GLEN BARBER
Glen Barber
Director
APRIL 13, 1998 /s/ A. RAZZAK TAI, M.D.
A. Razzak Tai, M.D. Director
APRIL 13, 1998 /s/TERRY LAZAR
Terry Lazar
Director
APRIL 13, 1998 /s/ LINDA MOORE
Linda Moore
Senior Vice President
APRIL 13, 1998 /s/ ARTHUR KOBRIN
Arthur Kobrin
Chief Financial Officer
35
<PAGE>
Medical Industries of America, Inc.
Index to Consolidated Financial Statements
PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Shareholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-12
F-1
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Medical Industries of America, Inc.
We have audited the accompanying consolidated balance sheet of Medical
Industries of America, Inc. and subsidiaries as of December 31, 1997, and the
related consolidated statements of earnings, stockholders' 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 consolidated financial position of Medical Industries
of America, Inc. and subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton, LLP
Fort Lauderdale, Florida
March 26, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Medical Industries of America, Inc.
We have audited the accompanying consolidated balance sheet of Medical
Industries of America, Inc. and its subsidiaries as of December 31, 1996, and
the related consolidated statement of operations, changes in stockholders'
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 from 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Medical
Industries of America, Inc. and subsidiaries as of December 31, 1996 and the
results of its consolidated operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Grant-Schwartz Associates, CPA's
March 10, 1997 (except for Note 23 as to which the date is March 23, 1998) Boca
Raton, Florida
F-3
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
ASSETS
1997 1996
---- ----
CURRENT ASSETS (As re-stated)
Cash and cash equivalents ............................ 957,446 $ 241,461
Accounts receivable - trade, net of allowance for
doubtful accounts of $473,392 and $20,520,
respectively ........................................ 1,423,385 237,385
Accounts receivable - other .......................... 94,214 85,851
Current maturities of mortgage and notes receivable .. 611,677 1,811,140
Inventories of medical supplies ...................... 53,071 14,871
Prepaid expenses and other current assets ............ 405,465 113,179
---------- -----------
Total current assets ............................ 3,545,258 2,503,887
---------- -----------
PROPERTY AND EQUIPMENT
Mobile cardiac catheterization laboratories and
medical equipment ................................... 517,003 2,911,952
Aircraft and related equipment ....................... 8,310,838 -0-
Building and building improvement .................... 432,156 412,117
Furniture and office equipment ....................... 491,211 319,141
---------- -----------
9,751,208 3,643,210
Less: accumulated depreciation and amortization ..... (464,184) (2,871,414)
---------- -----------
Net property and equipment ...................... 9,287,024 771,796
---------- -----------
OTHER ASSETS
Investment in equity securities ...................... 1,412,813 2,233,200
Mortgage and notes receivable, less current maturities 1,820,377 106,535
Goodwill, net of accumulated amortization $75,362 and
$-0-, respectively .................................. 3,776,197 -0-
Other assets ......................................... 1,269,515 128,240
---------- -----------
Total other assets .............................. 8,278,902 2,467,975
---------- -----------
TOTAL ASSETS ...............................$21,111,184 $ 5,743,658
- -------------------------------------------------------- ========== ===========
See Notes to Consolidated Financial Statements
F-4
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
---- ----
CURRENT LIABILITIES (As re-stated)
Current maturities of notes payable and long-term .
debt ............................................. 2,483,791 $ 1,088,911
Current maturities of capital lease obligations ... 58,051 466,581
Accounts payable .................................. 873,773 446,332
Accrued expenses .................................. 1,146,200 1,961,029
------------ ------------
Total current liabilities ................... 4,561,815 3,962,853
Notes payable and long-term debt, less current
maturities ....................................... 4,248,037 146,556
Convertible subordinated debentures ................. 400,000 -0-
Capital lease obligations, less current maturities .. 12,781 -0-
Payable to officers ................................. 284,096 -0-
Total liabilities ........................... 9,506,729 4,109,409
------------ ------------
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred shares, authorized 10,000,000 shares:
issued and outstanding:
Series A convertible shares, 22,276 issued ........ -0- -0-
Series B convertible shares, 10,000 issued
$10 stated value, less 1,300 and 4,900 shares
minority interest ................................ 1,740,000 1,020,000
Series C convertible shares, 4,725 issued ......... -0- 945,000
Series D convertible shares, 220,496 issued ....... -0- 3,425,480
Preferred stock to be issued ...................... 959,500 -0-
Common shares, no par value, authorized 50,000,000:
issued and outstanding 14,565,712 and 1,126,188
shares, respectively; including 47,500 escrow
shares ........................................... 30,334,275 16,655,058
Net proceeds from settlement of litigations ....... 1,675,050 -0-
------------
Unrealized loss on equity securities .............. (1,540,387) -0-
Accumulated (deficit) ............................. (21,563,983) (20,411,289)
------------ ------------
Total shareholders' equity .................. 11,604,455 1,634,249
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' ....
EQUITY .................................$ 21,111,184 5,743,658
- -----------------------------------------------------============ ============
See Notes to Consolidated Financial Statements
F-5
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996
---- ----
REVENUE
(As re-stated)
Revenue from operations .......................... 4,529,461 1,276,904
Interest income .................................. 182,757 9,329
Other revenue .................................... -0- 25,910
Total revenue .............................. 4,712,218 1,312,143
---------- ----------
COST AND EXPENSES
Cost of services ................................. 2,924,840 669,484
General and administrative expenses .............. 2,054,034 3,084,025
Depreciation and amortization .................... 338,306 353,785
Interest expense ................................. 147,732 140,674
Equity in net loss of investee ................... -0- 666,381
Non-recurring physician costs .................... 400,000 -0-
Other ............................................ -0- 17,893
Total cost and expenses .................... 5,864,912 4,932,242
---------- ----------
Loss from continuing operations .................. (1,152,694) (3,620,099)
Loss from discontinued operations ................ -0- (1,624,352)
Loss from disposal of discontinued operations .... -0- (3,296,413)
========== ==========
Net (loss) ................................. (1,152,694) (8,540,864)
========== ==========
Loss per common share:
Loss from continuing operations .................. (.21) (4.38)
Loss from discontinued operations ................ -- (1.96)
Loss from disposal of discontinued operations .... -- (3.99)
========== ==========
Net (loss) ....................................... (.21) (10.33)
========== ==========
F-6
<PAGE>
See Notes to Consolidated Financial Statements MEDICAL
INDUSTRIES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT OTHER DEFICIT TOTAL
------ ------ ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 .... 5,100 $ 1,020,000 409,345 12,518,733 -- (11,870,425) 1,668,308
Sales-as per regulation "S" ... -- -- 502,638 4,912,100 -- -- 4,912,100
Sale of common stock .......... -- -- 3,000 67,500 -- -- 67,500
Shares issued for
services .................... -- -- 38,428 715,122 -- -- 715,122
Shares issued for
acquisitions ................ -- -- 12,815 175,000 -- -- 175,000
Sales-as per regulation "S" ... -- -- 122,512 664,900 -- -- 664,900
Shares for services ........... -- -- 76,200 65,250 -- -- 65,250
Repurchase of common
stock ....................... -- -- (38,750) (657,661) -- -- (657,661)
Less: capital raise costs ..... -- -- -- (1,805,886) - -- (1,805,886)
Net (loss) .................... -- -- -- -- -- (8,540,864) (8,540,864)
Issued-Series C-Net of
conversion to common ........ 4,725 945,000 -- -- -- -- 945,000
Issued-Series D-Net of
conversion to common ....... 220,496 3,425,480 -- -- -- -- 3,425,480
------- --------- -------- ----------- ------------- ----------- ----------
Balance, December 31, 1996
(as re-stated) .............. 230,321 5,390,480 1,126,188 16,655,058 -- (20,411,289) 1,634,249
Conversion of preferred
stock ...................... (225,221) (4,370,480) 7,065,530 (4,370,480) -- -- --
Shares issued for services ... -- -- 638,100 1,216,671 -- -- 1,216,671
Shares issued in settlement
of lawsuit ................. -- -- 560,336 464,206 -- -- 464,206
Sale of common stock ......... -- -- 412,000 568,770 -- -- 568,770
Shares issued from exercise
of warrants ................ -- -- 144,384 216,578 -- -- 216,578
Shares issued in exchange in
subordinate debentures ..... -- -- 409,889 491,085 -- -- 491,085
Shares issued for businesses
acquired ................... 1,289,000 959,500 4,209,285 6,351,427 -- -- 7,310,927
Adjustment for equity
investment ................. 3,600 720,000 -- -- -- -- 720,000
Unrealized loss on
marketable equity
securities ................. -- -- -- -- (1,540,387) -- (1,540,387)
Net proceeds from settlement
of litigations - ........... -- -- -- 1,675,050 -- 1,675,050
Net loss ................... -- -- -- -- -- (1,152,694) (1,152,694)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Balance, December 31, 1997 ... 1,297,700 2,699,500 14,565,712 30,334,275 134,663 (21,563,983) 11,604,455
========== ========== ========== ========== ========== ============ ===========
</TABLE>
F-7
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES (As re-stated)
Net loss from continuing operations ................. $(1,152,694) $(3,620,099)
Net loss from discontinued operations ............... -- (4,920,765)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Liabilities on discontinued operations ........... (574,966)
Depreciation and amortization .................... 338,306 822,126
Equity loss on investments ....................... -- 666,381
Minority interest ................................ -- (28,751)
Write-off of Goodwill ............................ -- 1,146,042
Gain on disposition of property and equipment .... -- 887,458
Common stock issued for services rendered ........ 1,216,671 620,997
Common stock issued in settlement of litigation .. 464,206 --
Net proceeds from settlement of litigation ....... 1,675,050 --
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable .............................. (500,671) 379,277
Inventories of medical supplies .................. (12,753) 159
Prepaid expenses and other current assets ........ (242,311) (56,742)
Refundable income taxes .......................... -- 20,000
Other assets ..................................... 192,693 6,475
Accounts payable ................................. (79,791) (336,929)
Accrued expenses ................................. (961,401) 1,535,301
---------- -----------
Net cash provided by (used in) operating
activities .................................. 362,339 (2,879,070)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Disbursements for property and equipment ............ (221,179) (302,235)
Proceeds from sale of property and equipment ........ -- 45,031
Issuance of notes receivable ........................ (741,057) (2,537,569)
Payments received on notes receivable ............... 261,211 (135,875)
Payments received on mortgage receivable ............ 3,794 --
Proceeds from debentures ............................ 400,000 --
---------- -----------
Net cash used in investing activities ....... (297,231) (2,930,648)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on long-term debt and capital lease
obligations ........................................ (229,268) (2,240,346)
Proceeds from notes payable ......................... 205,230 58,000
Capital raise costs ................................. -- (1,805,886)
Proceeds from issuance of preferred stock ........... -- 9,447,480
Proceeds from issuance of common stock .............. 892,108 567,500
F-8
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996
(AS RE-STATED)
Repayment on capitalized leases .............. (217,193) -0-
-------- ---------
Net cash provided by financing activities .... 650,877 6,026,748
-------- ---------
Increase in cash ............................. 715,985 217,030
Cash and cash equivalents:
Beginning ............................................ 241,461 24,431
-------- ---------
Ending ............................................... 957,446 241,461
======== =========
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest ........................... 65,880 119,174
======== =========
See Notes to Consolidated Financial Statements
F-9
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Supplemental disclosure on non-cash investing and financial activities:
In August 1997, the Company issued 409,889 shares of the Company's common stock
for payment of subordinated debentures totaling $491,085.
Effective January 9, 1997, the Company acquired 100% of the outstanding stock of
Florida Physicians Internet, Inc. in exchange for preferred shares in amount
equal to $832,000, cash payments of $1,415,000 over a three year period and the
issuance of stock options. In 1998, the purchase price was adjusted in the
amount of $313,000. The acquisition has been accounted for using the purchase
method of accounting and the net assets and revenue and expenses are included in
the Company's consolidated financial statements from the date of the
acquisition. The excess of the purchase price over the fair market value of the
net assets acquired of approximately $1,582,000 was recognized as Goodwill.
Effective October 31, 1997, the Company acquired 100% of the outstanding stock
of PRN in exchange for 500,000 shares of the Company's common stock. The
acquisition has been accounted for using the purchase method of accounting and
the net assets, revenue and expenses are included in the Company's consolidated
financial statements from the date of acquisition. The excess of the purchase
price over the fair market value of the net assets acquired of approximately
$854,000 was recognized as Goodwill.
Effective October 31, 1997, the Company acquired 100% of the outstanding stock
of Care America in exchange for preferred shares convertible into 100,000 shares
of the Company's common stock. The acquisition has been accounted for using the
purchase method of accounting and the net assets and revenue and expenses of
Care America are included in the Company's consolidated financial statements
from the date of acquisition. The excess of the purchase price over the fair
market value of the net assets acquired of approximately $53,000 was recognized
as Goodwill. In addition, the former stockholders have the right to earn 200,000
shares of the Company's common stock for each $1,000,000 or portion thereof of
pretax profit over a three year period.
Effective December 31, 1997, the Company acquired 100% of the outstanding stock
of Global Air Charter, Inc. in exchange for 1,432,000 shares of the Company's
common stock. The acquisition has been accounted for using the purchase method
of accounting and the net assets of Global Air Charter, Inc. are included in the
Company's
F-10
<PAGE>
consolidated financial statements from the date of acquisition. The excess of
the purchase price over the fair market value of the net assets acquired of
approximately $1,263,000 was recognized as Goodwill.
Effective December 31, 1997, the Company acquired 100% of the outstanding stock
of Global Air Rescue, Inc. in exchange for 2,174,285 shares of the Company's
common stock. The acquisition has been accounted for using the purchase method
of accounting and the net assets of Global Air Rescue, Inc. are included in the
Company's consolidated financial statements from the date of acquisition. The
fair value of the net assets acquired equaled the purchase price, therefore no
Goodwill was recorded.
Effective December 31, 1997, the Company acquired 51% of the outstanding stock
of Clearwater Jet Center, Inc. in exchange for 3,000 shares of the Company's
common stock. The acquisition has been accounted for using the purchase method
of accounting and the net assets of Clearwater Jet Center, Inc. are included in
the Company's consolidated financial statements from the date of this
acquisition. The excess of the purchase price over the fair market value of the
net assets acquired of approximately $26,000 was recognized as Goodwill.
In 1997, the Company's Series C and D preferred stock were converted into
7,065,530 shares of the Company's common stock.
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION
Medical Industries of America, Inc. ("Medical Industries" or the "Company"),
incorporated in the State of Florida on September 29, 1989 and commenced
operations on February 27, 1990.
The Company is in the business of developing integrated medical delivery
services by operating and managing physician practices and through the providing
of diversified medical technologies including home infusion, international air
ambulance services, pain management, sleep centers and diagnostic testing. The
Company also provides diagnostic and therapeutic healthcare services to the
surgical and medical community through its mobile cardiac catheterization
services to hospitals and physician practices primarily in the State of Florida.
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements for 1997 include the activity of the
Company and its wholly owned subsidiaries Heart Labs of America, Inc. ("HLOA"),
and Florida Physicians Internet, Inc. ("FPII") for the year ended December 31,
1997. The financial statements include from the date of acquisition PRN of North
Carolina, Inc. ("PRN") Care America Integrated Healthcare Services, Inc. ("Care
America"), Global Air Charter, Inc., Global Air Rescue, Inc. and Clearwater Jet
Center, Inc. ("Global").
The consolidated financial statements for 1996 include the accounts of the
Company, C J Holdings, Inc. ("CJH"), Sysdacomp, Inc. ("Sysdacomp"), Essential
Care Medical Centers, Inc. ("Essential"), Prime Dental Centers, Inc. ("Prime"),
Cortex Diagnostic Services, Inc. ("Cortex"), US Bio Innovations, Inc. ("BIO"),
HLA Acquisition Corp. d/b/a KVM Rehabilitation, Inc. ("KVM") and Managed Home
Recovery, Inc. ("MHR").
All inter-company accounts and transactions have been eliminated in
consolidation. The Company has reflected CJH, Sysdacomp, Essential, Prime and
CPM subsidiaries as discontinued operations in 1996.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid debt instruments
with a maturity of three months or less.
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 disclosure of
contingent 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.
INVENTORIES OF MEDICAL SUPPLIES
Inventories of medical supplies are stated at the lower of cost, determined on
the first-in, first-out method, or market.
F-12
<PAGE>
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.
INVESTMENT IN WESTMARK GROUP HOLDINGS, INC.
In 1996, the Company accounted for its investment in Westmark Group Holdings,
Inc. ("Westmark"), a 49%-owned affiliate, by the equity method of accounting
under which the Company's share of the net income (loss) of Westmark is
recognized as income (loss) in the Company's statement of operations and added
(subtracted) to the investment account, and dividends received from Westmark are
treated as a reduction of the investment account. In 1997, the Company has
accounted for this investment on the cost basis since its ownership percent has
been reduced to approximately 13%. In accordance with Financial Accounting
Standards #115, the Company is required to adjust the investment in Westmark to
its fair market value as of December 31, 1997. Therefore, the Company has
reduced the cost of its investment by $1,540,387 and flowed this adjustment
through shareholders' equity
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Amortization
of property held for lease is included in depreciation and amortization expense
and is provided using the straight-line method over the shorter of the lease
term or estimated useful lives of the assets. Property and equipment at December
31, 1997 and 1996 consisted of the following:
1997 1996
---- ----
Property and equipment owned ......................... $9,751,208 $2,302,516
Property and equipment held under capital leases ..... 0 1,340,694
---------- ----------
$9,751,208 $3,643,210
========== ==========
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 determining 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 estimated
shortfall of cash flows.
During 1996, the board of directors reviewed the operations and the financial
condition of the Essential Care Medical Centers and voted to close down seven of
the nine medical centers in 1996 with the remaining two medical centers sold in
May 1997. As a result of this decision in 1996, management has written off
goodwill related to these medical centers in the amount of $1,658,042.
F-13
<PAGE>
LOSS PER SHARE
The Company adopted Financial Accounting Standards No. 128 (FAS 128), "Earnings
per share" in 1997. FAS 128 requires dual presentation of basic and diluted
earnings per share on the face of the income statement as well as restatement of
prior periods presented. Basic loss per share is calculated by dividing net loss
by the weighted average common shares outstanding. In 1997 and 1996, the effect
of the common stock equivalents on diluted loss per common share was
antidilutive. Therefore, they were not considered in the calculation.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.
REVENUE
HLOA has agreements with hospitals for the hospitals' use of mobile cardiac
catheterization units and staff, and receives revenue based upon contracted
prices. Terms of the agreements vary and range from periods of approximately one
to two years.
PRN has agreements with physicians practices for management of the pain clinics
setup in the physicians office and receives a fixed monthly management fee per
physician office.
FPII, Care America and Ivanhoe have contracts with Health Maintenance
Organizations, Managed Care Companies and also receive revenue from fee for
service patients.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 financial statements to
conform with the 1997 presentation.
REVERSE STOCK SPLIT
On November 1, 1996, the Company effectuated a 1 for 20 reverse stock split. All
references to the number of common shares and per common share amounts have been
restated to reflect the reverse split.
2. BUSINESS ACQUIRED
In April 1996, the Company acquired 100% of the outstanding common stock of
Greenworld Technologies, Inc. ("Greenworld") Consideration for the purchase
included (1) the funding involving the Talon Refrigerant Management System
("Talon RMS"); (2) issue to seller, ECS International, Inc. ("ECS") 50,000
shares of the Company's preferred stock ($250,000 par value) and 5,000 shares,
on a post reverse basis, of the Company's common stock; (3) provide $100,000 to
Greenworld for operating capital; (4) provide up to $300,000 to establish the
Talon RMS patent worldwide; (5) grant ECS options to purchase 45,000 shares, on
a post reverse basis of the Company's common stock at $30.00 per share and (6)
cancel a bridge loan note in the amount of $100,000. The acquisition was
accounted for using the purchase method of accounting. In July 1996, Greenworld
was sold to GTB Company.
F-14
<PAGE>
In May 1996, the Company acquired the assets and business operations of Donn
Wells, M.D. medical center. Consideration for the sale included $75,000 in cash
and the issuance of 12,815 shares of the Company's common stock. This company
was discontinued in late 1996.
Effective January 9, 1997, the Company acquired 100% of the outstanding stock of
Florida Physicians Internet, Inc. in exchange for preferred shares in amount
equal to $832,000, cash payments of $1,415,000 over a three year period and the
issuance of stock options. In 1998, the purchase price was adjusted in the
amount of $313,000. The acquisition has been accounted for using the purchase
method of accounting and the net assets and revenue and expenses are included in
the Company's consolidated financial statements from the date of the
acquisition. The excess of the purchase price over the fair market value of the
net assets acquired of approximately $1,582,000 was recognized as Goodwill.
Effective October 31, 1997, the Company acquired 100% of the outstanding stock
of PRN in exchange for 500,000 shares of the Company's common stock. The
acquisition has been accounted for using the purchase method of accounting and
the net assets, revenue and expenses are included in the Company's consolidated
financial statements from the date of acquisition. The excess of the purchase
price over the fair market value of the net assets acquired of approximately
$854,000 was recognized as Goodwill.
Effective October 31, 1997, the Company acquired 100% of the outstanding stock
of Care America in exchange for preferred shares convertible into 100,000 shares
of the Company's common stock. The acquisition has been accounted for using the
purchase method of accounting and the net assets and revenue and expenses of
Care America are included in the Company's consolidated financial statements
from the date of acquisition. The excess of the purchase price over the fair
market value of the net assets acquired of approximately $53,000 was recognized
as Goodwill. In addition, the former stockholders have the right to earn 200,000
shares of the Company's common stock for each $1,000,000 or portion thereof of
pretax profit over a three year period.
Effective December 31, 1997, the Company acquired 100% of the outstanding stock
of Global Air Charter, Inc. in exchange for 1,432,000 shares of the Company's
common stock. The acquisition has been accounted for using the purchase method
of accounting and the net assets of Global Air Charter, Inc. are included in the
Company's consolidated financial statements from the date of acquisition. The
excess of the purchase price over the fair market value of the net assets
acquired of approximately $1,263,000 was recognized as Goodwill.
Effective December 31, 1997, the Company acquired 100% of the outstanding stock
of Global Air Rescue, Inc. in exchange for 2,174,285 shares of the Company's
common stock. The acquisition has been accounted for using the purchase method
of accounting and the net assets of Global Air Rescue, Inc. are included in the
Company's consolidated financial statements from the date of acquisition. The
fair value of the net assets acquired equaled the purchase price, therefore no
Goodwill was recorded.
Effective, December 31, 1997, the Company acquired 51% of the outstanding stock
of Clearwater Jet Center, Inc. in exchange for 3,000 shares of the Company's
common stock. The acquisition has been accounted for using the purchase method
of accounting and the net assets of Clearwater Jet Center, Inc. are included in
the Company's consolidated financial statements from the date of this
acquisition. The excess of the purchase price over the fair market value of the
net assets acquired of approximately $26,000 was recognized as Goodwill.
The following unaudited pro forma summary presents the consolidated results of
operations as if acquisitions had occurred on January 1, 1997, after giving
effect of certain adjustments, including amortization of goodwill and related
income tax effects. The pro forma financial information does not purport to be
indicative of the results of operations that would have occurred had the
transactions taken place at the beginning of the periods presented or of future
results of operations.
F-15
<PAGE>
1997
Net revenue $ 11,690,324
Net income (874,211)
Income per common share (.09)
3. NOTES RECEIVABLE
Notes receivable as of December 31, 1997 and 1996 consisted of the following:
1997 1996
---- ----
Note receivable - related party:
Various notes from Westmark, bearing interest at
10%, due with a monthly minimum payment of
$25,000 and a balloon payment due June 30, 2000.
Additional payments are based on Westmarks
excess cash flow. The receivable is
collateralized by the Company's preferred stock
held by Westmark. $1,839,789 $1,727,569
Note Receivable - other:
Notes receivable - in monthly installments
of $2,000 , which includes principal and
interest, bearing interest at 10%, balance
due November 15, 1997 -0- 65,106
Mortgage receivable - in monthly installments
of $1,083, including interest at 8.5%, with a maturity
date of January 1, 2002 106,206 110,000
Notes receivable, in monthly installments of
$60,000, which includes interest at 10%, balance due
December 31, 1997. This note was subsequently paid. 437,000 -0-
Other 49,059 15,000
------ ------
2,432,054 1,917,675
Less: current maturities 611,677 1,811,140
------- ---------
1,820,377 106,535
========= =========
4. INVESTMENT IN WESTMARK GROUP HOLDINGS, INC.
In December 1995, the Company acquired a 49% interest in the common stock of
Westmark Group Holdings, Inc. for $1,525,000 in cash and notes payable and
10,000 shares of Class B convertible preferred stock with a stated value of $200
per share.
As of December 31, 1997 and 1996, the net assets of Westmark Group Holding, Inc.
included $2,000,000 of the Class B convertible preferred stock of the Company.
The investment in Westmark Group Holdings, Inc. as of December 31, 1997 and 1996
has been adjusted to eliminate the Company's 13% and 49% interest in these net
assets.
Currently, the Company is negotiating with Westmark to repurchase the Company's
investment in Westmark. If no agreement can be reached, the Company will
continue to hold its investment with no intention to sell in the near future. In
accordance with Financial Accounting Standard #115, the investment in Westmark
is classified as "available for sale" and unrealized gains/losses are reported
as adjustment to stockholder equity. Therefore, the Company is required to
reduce this investment by $1,540,387 to its fair market value in accordance with
Financial Accounting Standards 115.
F-16
<PAGE>
5. RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to year-end 1996 the Company discovered errors relating to the
oversight and omission of facts that existed at the time the 1996 financial
statements were prepared. The following items have been reflected in the
accompanying financial statements.
DESCRIPTION AMOUNT
Interest payable $ 21,500
Amount due to former employee from
default judgment entered into in 1996 90,000
Consulting fee not accrued 435,500
Property taxes 27,500
Additional losses for discontinued
operations 660,000
-----------
Increase in net loss $ 1,234,500
===========
The Company failed to accrue interest payable on a loan for the period July 1996
through December 1996 due to an oversight. The additional interest amounted to
approximately $21,500.
On December 10, 1996, a former employee obtained a default judgment for
approximately $90,000 in connection with a suit in which the former employee
charges the Company that the Company failed to pay all considerations due under
his employment agreement. On October 15, 1997, the Company settled this matter
by issuing 45,000 shares of free trading common stock.
On October 1, 1996, the Company entered into a consulting contract with a
company to serve as corporate development consultant and advisor. The total cost
for 1996 was $22,500. In previously issued financial statements, this accrual
was not recorded.
In 1995, the Company entered into a consulting agreement. As of December 31,
1996, the Company, in error, did not accrue the amount due under the consulting
agreement. In October 1997, the Company settled the amount due by issuing cash
and common stock of the Company in the amount of $413,000.
In previous issued financial statements, the Company failed to record
approximately $27,500 due to Palm Beach County for property taxes for 1995. This
has been reflected in the accompanying statement of operations for the year
ended December 31, 1996.
The Company discontinued certain operating companies and failed to record the
cost to dispose and ultimate sale of the operations in the amount $150,000. In
addition, the Company failed to record additional amounts due under an earn out
agreement from the 1995 acquisition of a former subsidiary in the amount of
$510,000.
The effect of these transactions on the loss from continuing operating for the
year ended December 31, 1996 was to increase the loss by $574,500. The effect of
the additional expense related to the discontinued operations for the year ended
December 31, 1996 was to increase the loss on discontinued operations by
$660,000.
The per share effect was as follows:
1996
----
Per share of common stock:
Loss from continuing
operations $ 1.50
Loss for discontinued
operations (4.00)
Loss from disposal of
discontinued operations 3.99
------
Net loss per share $ 1.49
======
F-17
<PAGE>
In 1997, the Company agreed to settle an obligation by repurchasing the stock
from shareholders as described in footnote 16 for $498,286 and issue 35,000
shares to liquidate the debt. In the previously issued financial statements,
this transaction was not recorded and should have been recorded as notes payable
and as treasury stock. The transaction does not have any effect on net loss for
the two years ended December 31, 1996.
6. CUSTOMERS AND CREDIT CONCENTRATION
The Company had contracts with two hospitals for its cardiac catheterization
subsidiary that accounted for approximately 51% of revenue from that
subsidiaries operations in 1997. The Company had a contract with one hospital
that accounted for approximately 59% of revenue from operations in 1996. During
1997 and 1996, the Company derived its revenue in Florida, North Carolina and
South Carolina.
7. DISPOSAL OF BUSINESSES
In July 1996, the Company sold Greenworld Technologies, Inc. To GTB Company, a
company whose president was the former general counsel to the Company.
Consideration for the sale included (a) a note payable to the Company in the
amount of $380,000; (b) the forgiveness of a $700,000 promissory note owed by
the Company pursuant to an Agreement signed in June 1996 to Bradley T. Ray, a
former consultant to the Company and (c) a royalty of 7% of the gross sales of
Greenworld Technologies, Inc. for a period of two years, and 5% of the gross
sales of Greenworld Technologies, Inc. for an additional three years. As of the
date of this report, GTB Company has defaulted on its payment of the promissory
note.
Effective May 1, 1997, the Company sold its wholly owned subsidiaries, Essential
Care Medical Centers, Inc. and Essential Care Medical Center #5, Inc. to a non
public entity in exchange for preferred shares convertible into 300,000 shares
of stock in the non public entity and 200,000 warrants in the non public entity.
This new entity intends to under take an initial public offering at which time
the Company will convert its preferred stock.
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt as of December 31, 1997 and 1996 consisted
of the following:
1997 1996
---------- ----------
Notes payable to former officers and
directors, non-interest-bearing, due on
demand ............................................. $ 126,000 $ 21,000
Notes payable to stockholders, interest
payable at 8% with balloon payments due in
June 1997 .......................................... -0- 498,286
Note payable in default at December 31, 1995,
principal and interest at 18%, due on demand,
collateralized by HLOA's accounts receivable,
leaseholds, chattel paper, general intangibles
and contract rights ................................. 300,000 300,000
Note payable to related parties, payable in
semi-annual installments of $5,207,
interest at 10% maturing December, 2002 ............ 40,000 -0-
Note payable to related party, payable
semi-annual non-interest bearing, maturing
January 2000 ....................................... 1,101,893
Note payable to a stockholder, payable
interest only at 12%. This note was paid
off in 1997 ....................................... -0- 175,000
Note payable to a bank, payable in monthly
F-18
<PAGE>
installments of $1,382 including interest
at the banks prime rate (8.5% as of December
31, 1997 & 1996) plus 2% balance due in
November 2001, collateralized by building .......... 96,328 91,518
Note payable, payable in monthly installments
of $636 including interest at 12%, balance
due in December 1998, collateralized by
building ........................................... 44,902 47,007
Note payable in default at December, 1995 and
1994, payable in monthly installments of $589
including interest at 12.172%, balance due
in July 2004 ........................................ -0- 38,201
Note payable to a bank, payable in monthly
installments of $23,300, interest at
approximately 9%, collateralized by
aircraft, maturing December, 1998 .................. 1,196,577 -0-
Note payable to a bank, payable in monthly
installments of $7,256, interest at
approximately 9.75%, collateralized by
aircraft, maturing April, 2003 ..................... 362,477 -0-
Note payable to a bank, payable in monthly
installments of $2,770, interest at
approximately 11%, collateralized by
aircraft, maturing January, 1999 ................... 246,822 -0-
Note payable to financing company, payable
in monthly installments of $43,166,
interest at approximately 9.75%, collateralized
by aircraft, maturing July, 2007 ................... 3,216,829 -0-
Other ................................................ -0- 64,455
---------- ----------
6,731,828 1,235,467
Less current maturities .............................. 2,483,791 1,088,911
---------- ----------
$4,248,037 $ 146,556
========== ==========
F-19
<PAGE>
Aggregate maturities required on notes payable and long-term debt as of December
31, 1997 are as follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ------
1998 $2,483,791
1999 1,125,363
2000 341,720
2001 375,820
2002 413,405
Thereafter 1,991,729
-----------
$6,731,828
===========
9. LEASES
The Company had a capital lease for a mobile cardiac catheterization laboratory
and other medical equipment with a cost of $1,437,785 as of December 31, 1997.
Accumulated depreciation on this asset totaled $1,437,785 as of December 31,
1997. The lease was renewed in July 1997 and is being recorded as an operating
lease and matures June 2000.
In January 1997, the Company leased an additional mobile lab under an operating
lease which expires February 2000.
The Company leases various office space under non-cancelable operating leases
which expire through April 2001.
Future minimum payments of non-cancelable operating leases consisted of the
following as of December 31, 1997:
YEAR ENDING DECEMBER 31, OPERATING LEASES
----------- ------------ ----------------
1998 $155,957
1999 75,523
2000 68,952
2001 29,311
---------
Total lease payments $ 329,743
=========
Rent expense for the years ended December 31, 1997 and 1996 totaled $191,303 and
$215,319, respectively.
CAPITALIZED LEASES
The Company has acquired equipment under the provisions of long-term leases. The
future minimum lease payments under the capital leases at December 31, 1997 are
as follows:
Total minimum lease payments $70,832
Current maturities of capital leases 58,051
-------
Long-term capital leases less current maturities $12,781
=======
F-20
<PAGE>
1998 60,509
1999 6,265
2000 6,265
2001 3,161
---------
TOTAL 76,200
Less: Imputed interest 5,368
---------
70,832
=========
10. INCOME TAXES
The Company's temporary differences result in federal income asset which is
reduced to zero by a related valuation allowance summarized as follows:
December 31, December 31,
12/31/97 12/31/96
------------------ -----------------
Deferred tax assets:
Operating loss carryforwards ................. 4,909,200 4,175,600
Accounts receivable .......................... 125,300 --
Note receivable reserve ...................... 202,700 --
Prepaids ..................................... 25,500 5,800
Contingent liability ......................... 6,600 205,300
---------- ----------
Total gross deferred tax assets .............. 5,269,300 4,386,700
Less valuation allowance ..................... (5,089,100) (4,357,800)
---------- ----------
Net deferred tax assets ...................... 180,200 28,900
========== ==========
Deferred liabilities:
Fixed assets ................................. 29,600 28,900
Preferred gain on sale ....................... 150,600 -0-
---------- ----------
Total gross deferred tax liabilities ......... 180,200 28,900
---------- ----------
Net deferred tax assets ...................... -0- -0-
========== ==========
At December 31, 1997, the Company had operating loss carryforwards for US income
tax purposes of approximately $13,017,000 available to reduce future taxable
income, which expire as follows:
YEAR OF NET OPERATING
EXPIRATION LOSS
---------- -------------
2011 6,000
2012 106,000
2013 620,000
2014 2,760,000
2015 4,185,000
2016 3,410,000
2017 1,930,000
--------------
$ 13,017,000
==============
F-21
<PAGE>
Included in the operating loss carryforward is $517,600 of losses which can only
be utilized by C.J. Holding, Inc. and by Sysdacomp, Inc., discontinued
subsidiaries of Medical Industries of America. It appears that the company may
have experienced a change in control, as defined under section 382 of the
Internal Revenue Service Code. As a result, the utilization of a significant
portion of the tax loss carry forwards may be limited.
These net operating losses may have certain limitations.
11. LOSS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
BASIC EPS
Available to common stockholders $ (1,152,694) 5,476,495 $ (.21)
=============== ============= ==============
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
BASIC EPS
Available to common stockholders $ (8,540,864) 826,127 $ (10.33)
=============== ============= =============
The warrants and stock options outstanding during 1997 and 1996 were
antidilutive therefore, no diluted earnings per share calculation is required.
12. STOCK OPTION
In 1997, the Company terminated the 1994 Employee Stock Option Plan and the
Directors Stock Option Plan. Options outstanding under these plans of 19,000 and
1,750, respectively, at December 31, 1996, were forfeited in 1997. The Company's
plans are the 1996 Officer and Director Stock Option Plan and the 1996 Employee
Stock Option Plan. The Compensation Committee of the Company's Board of
Directors, administers and interprets the plan and is authorized to grant
options to eligible participants. Prior to December 31, 1995, the Company
accounted for such options under APB Opinion 25 and related Interpretations.
Commencing January 1, 1996, the Company accounts for non-qualified options
issued to non-employees, under SFAS 123, Accounting for Stock Based
Compensation.
The exercise price of all options granted by the Company equals the market price
at the date of grant. No compensation expense has been recognized.
Had compensation cost for the 1996 Officers and Directors Stock Option Plan and
1996 Employee Stock Option Plan issued to employees been determined based on the
fair value of the options at the grant dates consistent with the method of SFAS
123, the Company's net earnings (loss) and net earnings (loss) per common share
would have been changed to the pro forma amounts indicated below.
1997 1996
---- ----
Net (loss)
As reported $ (1,152,694) $ (8,540,864)
Pro forma $ (2,408,458) $ (8,566,274)
Net (loss)
As reported $ (.21) $ (10.33)
Pro forma $ (.44) $ (10.37)
F-22
<PAGE>
The above pro forma disclosures may not be representative of the efforts on
reported net income for future years as options vest over several years and the
Company may continue to grant options to employees.
The fair value of each option grant is estimated on the date of grant using the
binomial option-pricing model with the following weighted-average assumptions
used for grants in 1997 and 1996, respectively: dividend yield of 0.0 percent in
both years; expected volatility of 143.73 and 124 percent: risk-free interest
rates of 5.70 - 6.60 and 6.550 percent; and expected holding period up to 5
years.
A summary of the status of the Company's fixed stock options as of December 31,
1997 and 1996, and changes during the years ending on those dates is as follows:
1997 1996
--------------------- -----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
Outstanding at beginning
of year ....................... 175,000 3.83 -- --
Granted .......................... 4,125,000 .79 175,000 3.83
Exercised ........................ -- -- -- --
Expired .......................... -- -- -- --
Forfeited ........................ (48,000) 1.50 -- --
---------- ---------- -------
Outstanding at end of year ....... 4,252,000 .87 175,000 3.83
========== =======
Options exercisable at end
of year ....................... 2,802,000 125,000
========== =======
Weighted-average fair
value of options granted
during the year ................. .68 .33
========== =======
The following information applies to options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED -
REMAINING WEIGHTED - AVERAGE
RANGE OF CONTRACTUAL AVERAGE EXERCISE
EXERCISE PRICES SHARES LIFE EXERCISE PRICE SHARES PRICE
--------------- ------ ---- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
$ 0 - .50 2,652,000 8.30 .50 2,602,000 .50
$1.25 - $20.00 1,650,000 6.69 1.33 200,000 1.90
</TABLE>
13. WARRANTS
During the year ended December 31, 1997, the Company issued warrants to acquire
common stock of the Company. Each warrant represents the right to purchase one
share of common stock for prices ranging from $.50 to $4.00 per warrant.
Warrants unexercised as of December 31, 1997 are as follows:
F-23
<PAGE>
NUMBER OF WARRANTS EXERCISE PRICE EXPIRATION DATE
------------------ -------------- ---------------
50,000 $ .50 September 1998
240,000 $ .50 January 1999
240,000 $1.25 September 2002
100,000 $1.50 December 2002
16,667 $1.75 July 1999
16,667 $2.00 July 1999
150,000 $2.00 November 2002
100,000 $2.00 December 2002
150,000 $2.50 December 2002
16,667 $2.75 July 1999
250,000 $3.00 November 1999
186,362 $4.00 May 1998
14. PROFESSIONAL LIABILITY INSURANCE
The Company maintains its professional liability insurance with an independent
commercial insurance company. Professional liability coverage is on a
claims-made basis. The Company has not experienced any historical professional
liability losses.
15. MINORITY INTEREST
The 1997 minority interest represents 49% interest of Clearwater Jet Center,
Inc. which has been included in accounts payable.
The 1996 minority interest represents the 5% interest of an unrelated third
party who purchased a 5% interest of one of the Company's mobile cardiac
catheterization units for $75,000 which has been included in accounts payable .
16. RELATED PARTY TRANSACTIONS
JEAN JOHNSTONE
In June 1996, the Company entered into an Agreement with Jean Johnstone, the
Company's former Chairman of the Board and a former director of the Company,
whereby among other things, the Company repurchased 20,000 shares of the
Company's common stock at a price of $284,000 by issuance of a Senior Promissory
Note bearing interest at the rate of 8% per annum, paying interest only,
quarterly in arrears, with a balloon payment due June 7, 1997. In addition, the
Company purchased 1,050 shares from Ms. Johnstone at the purchase price of
$17.40 for a total purchase price of $18,270. In September 1997, the Company
issued shares of its restricted common stock in exchange for the senior
promissory note plus interest accrued as discussed above.
In 1996, the Company also granted Ms. Johnstone a five-year option to purchase
10,000 shares of the Company's common stock at $20 per share. The parties
executed mutual general releases and Ms. Johnstone resigned as Chairman of the
Board and a Director of the Company.
In April 1996, the Company issued a check to Ms. Johnstone in the amount of
$400,000. This sum was for the following; (i) partial payment for the repurchase
of stock, $13,851; (ii) AR Mediquest accrued salary, $33,603; and (iii)
repayment of her loan to C.J. Holding/AR/Mediquest, $352,546.
BRADLEY RAY AGREEMENT
In June 1996, the Company entered into an Agreement with Bradley Ray, as a
former consultant to the Company and the son of Ms. Johnstone whereby, among
other things, the Company repurchased 15,000 shares of the Company's common
stock at a price of $214,286 by the issuance of a Senior Promissory Note,
bearing interest at the rate of 8% per annum, paying interest only, quarterly in
arrears, with a balloon payment due June 7, 1997. In September 1997, the Company
issued shares of its restricted common stock in exchange for the senior
promissory note plus accrued interest discussed above.
F-24
<PAGE>
In addition, in 1996, the Company also granted one-year options to purchase
30,000 and 10,000 shares of the Company's common stock at $6.80 per share and
$8.00 per share, respectively. The Company agreed to register the share
underlying the options.
The Company also issued Mr. Ray a one-year promissory note in the amount of
$700,000 for payment of commissions Mr. Ray earned as a consultant. This
promissory note was canceled as partial consideration for the Greenworld sale.
The parties also executed mutual general releases.
CONSULTING AGREEMENTS
During 1997 and 1996, the Company engaged an accounting and consulting firm of
which a director of the Company is a director and shareholder of this firm. In
December 1997 and 1996, the firm received $30,000 and $35,000 in the form of
common stock for these services.
17. SETTLEMENT OF REGULATION S LITIGATION
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. The Company was in the process of determining the damages to
its operations, reputation and its ability to raise funds as a basis for its own
lawsuit when a settlement was reached. 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 in conversion of the preferred stock, 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 the Company's claims for operating and other issues against the
plaintiffs.
In October 1997, the Company entered into a settlement agreement with Glick
Enterprises, Inc., and certain other investors, who had sued the Company in
March 1997, claiming in the Supreme Court of the State of New York, County of
New York, that the Company had issued an inadequate number of shares in January
1996 when they converted 62,120.5 shares of Series D Convertible Preferred Stock
and that the Company also was liable under the penalty provisions of the
Subscription Agreement.
As part of the settlement, the Company was required to issue 4.7 million
unrestricted common shares to Glick and the other investors and Glick and the
other
F-25
<PAGE>
investors shall return to the Company 62,120.5 shares of Series D Convertible
Preferred which they still possessed along with a full release. Glick and the
other investors paid $1.5 million in cash to the Company as part of their
settlement for operating and other issues to the Company. The Company released
Glick and the other investors for any claims which the Company had against them
with respect to their purchase, sale or trading of the Company's stock and
effect on the Company's operations.
All Series C and D previously issued by the Company has now been converted into
common stock.
The $1,675,051 net proceeds from these litigation settlements, resulting from
the Company's claims, after deducting related legal and other expenses, has been
credited to other included in shareholders' equity.
18. LITIGATION AND CONTINGENCIES
In December 1995, the Company was named as defendant in a lawsuit which contends
that a former subsidiary failed to redeem stock purchased by the plaintiff as
partial consideration for the purchase of certain assets. The Company contends
that the price of the redemption was excessive . The Company settled the lawsuit
in September 1996
In August 1996, a lawsuit was filed in the Circuit Court of Broward County,
Florida by a plaintiff, against the Company seeking approximately $36,000 for
past computer related services.
In January 1997, a complaint was filed in the Circuit Court of Dade County,
Florida against the Company and a former subsidiary. The complaint alleges that
the Company defaulted on payments to employees and to independent consultants.
The plaintiffs are seeking approximately $500,000 in damages. The Company
intends to vigorously defend the lawsuit.
In January 1997, a demand for arbitration was filed with American Arbitration
Association of Orlando, Florida by a plaintiff. The plaintiff alleged a breach
of a consulting agreement in that the Company failed to compensate the plaintiff
pursuant to the terms of a 1995 agreement. In October 1997, the Company settled
this case by paying the plaintiff $290,000 in cash and 70,000 unrestricted
shares of the Company's common stock.
19. COMMITMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
employees. These agreements specify, among other things, salary and/or
commissions, car allowance, stock incentives and expense reimbursement. The
contracts range in length from one year to five years. Future minimum payments
committed by the Company under these contracts as of December 31, 1997 are as
follows:
1998 $1,624,000
1999 1,534,000
2000 1,630,000
2001 1,224,333
2002 786,833
Thereafter 220,000
------------
$7,019,166
============
LINE OF CREDIT
F-26
<PAGE>
The Company entered into a loan agreement with Pointe Bank, a Florida banking
corporation. This Line of Credit Agreement is for $250,000 and has an interest
rate of prime (8.5% as of December 31, 1997) plus 2%, with a maturity date of
11/17/98. The bank's security interest in the assets of the Company is limited
to the working capital line of credit. As of December 31, 1997, the Company has
not borrowed against this Line of Credit.
20. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash, trade accounts receivable, notes receivable, excess of outstanding checks
over bank balance, accounts payable: The carrying amounts approximate fair value
because of the short maturity of those instruments.
Notes payable and Long term debt: The carrying amounts approximate fair value
due to the length of the maturities and the interest rates not being
significantly different from the current market rates available to the Company.
The estimated fair values of the Company's financial instruments as of December
31, 1997 are as follows:
FAIR UNREALIZED
VALUE HOLDING LOSSES
----- --------------
Investment in Westmark Group Holdings,
Inc. $ 1,412,813 $ 1,540,387
============== ===============
21. SALE OF MOBILE LAB
On March 28, 1997, the Company entered into an asset purchase agreement whereby
it sold a mobile cardiac catheterization lab for $800,000 subsequently reduced
to $700,000, $100,000 in cash and a promissory note in the amount of $700,000
bearing an interest rate of ten percent to be paid over nine months at $60,000
per month with the balance of unpaid principal and accrued interest due and
payable on December 15, 1997. This note was paid in March 1998.
22. PREFERRED STOCK
In connection with the December 1995 investment in Westmark, the Company issued
10,000 shares of its Series B convertible preferred stock ("Series B Preferred
Stock") which accrues dividends at a rate of 7% per annum. The shares of Series
B Preferred Stock are convertible, at the option of the holder, for a period of
ten years from the date of issuance, exercisable by giving written notice to the
Company not less than thirty days prior to such conversion date into shares of
common stock at a price which is fixed at an average of the bid and ask price as
listed by NASDAQ for the thirty days prior to the conversion date.
The Company has the right, in its sole discretion, upon receipt of a notice of
conversion, or earlier without receipt of any notice of conversion, to redeem,
in whole or in part any shares of Series B Preferred Stock submitted for
conversion, immediately prior to conversion, or otherwise outstanding and
subject to a right of conversion. The redemption payment per share for each
redemption of the Series B Preferred Stock shall be at a stated value of $200.00
per share. If less than all of the outstanding shares of the
F-27
<PAGE>
Series B Preferred Stock are redeemed at any time, then the shares of Series B
Preferred Stock held by such holder, subject to such adjustment as may be
equitably determined by the Company in order to avoid the redemption of
fractional shares.
In February 1996, pursuant to a Regulation S agreement the Company issued a
total of 41,725 shares of Company's Series C Convertible Preferred Stock with a
stated value of $200 per share. The preferred shares were convertible at the
lesser of (1) 75% of the closing bid at date of closing or (2) 65% of the 5
trading day average bid immediately preceding the date of conversion.
In November 1996, the Company closed a rights offering of units each consisting
of one $15 Series D Convertible Preferred Shares (the "Series D Shares") and 1.5
warrants to purchase common stock (the "warrants"). The units were offered,
through Baytree Associates, Inc. Acting as placement agent, solely to holders of
the Company's $200 per share Convertible Series C Preferred Stock and the
consideration received by the Company was one Series C Preferred Share and $5.00
for each unit purchased. At the conclusion of the rights offering, 220,496
Series D Shares and 330,774 warrants were issued to investors (See note 16).
As part of the settlements of the Tula and Glick lawsuits, all Series C and D
Shares were converted and 144,384 warrants were executed.
23. CONVERTIBLE SUBORDINATED DEBENTURES
The Debentures are unsecured debt securities, subordinated in right of payment
to any debt of the Company (defined in the Debentures as any indebtedness,
borrowed money or guarantee of such indebtedness) except debt that by its terms
is not senior ("Senior Debt") in right of payment to the Debentures. The
Debentures bear interest at the annual rate of 12% and mature in February 1999.
Interest is payable monthly.
Pursuant to the terms of the Debentures as originally issued, the Debentures
were convertible into shares of Common Stock at the rate of one share of Common
Stock for each $2.00 of principal amount, subject to adjustment in the event of
certain events, including: dividends or distributions on the Common Stock
payable into shares of Common Stock; subdivisions, combinations or certain
reclassifications of Common Stock; distributions to all holders of the Common
Stock at less than the current market price at the time; or distributions to
such holders of Common Stock of assets or debt securities of the Company or
certain rights to purchase securities of the Company (excluding cash dividends
or distributions from current retained earnings).
24. TREASURY STOCK
38,750 shares of the Company's common stock were returned to the Company in
1996. The Company accounted for the Treasury Stock under the par or stated value
method.
25. DISCONTINUED OPERATIONS
During the fourth quarter of 1996, the Company adopted a plan to focus the
Company's energies on its mobile cardiac catheterization labs and dispose of the
Clinical care and Technomed divisions. Revenues from the Technomed division
accounted for $478,587 for the year ended December 31, 1996. Loss from the
operation of the Technomed division was $372,155 for the period ending December
31, 1996.
During 1996, the Company closed down seven of its nine medical centers. In 1997,
the Company sold the remaining two medical clinics. Revenues from the clinical
care division accounted for $785,616 for the year ended December 31, 1996. Loss
from the operation of the clinical care division was $3,911,248 for the period
ending December 31, 1996.
During 1996, the Company sold Greenworld Technologies, Inc. Revenue for 1996 was
$11,024. Loss from operations was $380,000.
F-28
<PAGE>
During 1996, the Company sold the CPM Division. Revenue for 1996 was $47,850
with a loss from operations of $257,362.
26. SEGMENT INFORMATION
The Company operates in the following segments: Mobile Cardiac Catheterization
Services, Physician Practices, Ancillary Services, High Tech Infusion,
International Air Ambulance Services, Pain Management and Diagnostic Testing.
The following presents information on the various segments:
<TABLE>
<CAPTION>
Years
ended Mobile Air
December Cardiac Physician Other Ambulance
31 Cath Labs Practice Segments Service Corporate Total
-------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ................. 1997 2,375,309 1,945,252 208,900 -- 182,757 4,712,218
1996 1,302,814 -- -- -- 9,329 1,312,143
Income (loss)
from continuing
operations ............. 1997 647,806 *(786,775) (17,183) -- (996,542) (1,152,694)
1996 (3,620,099) -- -- -- -- (3,620,099)
Capital
expenditures ........... 1997 -- 176,655 11,809 -- 132,262 320,726
1996 -- -- -- -- 312,235 312,235
Depreciation and
amortization
expense ................ 1997 181,793 98,070 8,001 -- 50,442 338,306
1996 822,126 -- -- -- 822,126
Identifiable
assets at year end ..... 1997 188,304 2,532,144 1,358,503 11,607,343 5,424,890 21,111,184
1996 205,824 5,537,834 5,743,658
* includes $400,000 of non-recurring expenses
</TABLE>
27. ESCROW AGREEMENT
In September 1992, the Company's Pre-Initial Public Offering, the ("Escrow
Holders") IPO shareholders, entered into an Escrow Agreement whereby an
aggregate of 47,500 shares of their common stock were owned by Mrs. Marilyn
Zinns and Mr. Milton Barbarosh were being held in escrow until the date all such
shares were to be released to the Escrow Holders or transferred to the Company
in accordance with the provisions described below.
The Escrow Shares would have been released to the shareholders only if either of
the following conditions were met: (1) the Company's income before income taxes
during 1994, 1995 and 1996 exceeded certain defined levels or (2) if the bid
price of the common stock exceeded $12.50 at any time prior to December 31,
1996.
Neither of the conditions for release were met in 1996, 1995 or 1994, therefore
47,500 Escrow Shares will be forfeited and contributed to the capital of the
Company subsequent to December 31, 1997.
28. SUBSEQUENT EVENTS
Effective March 31, 1998, the Company acquired 81% of the outstanding stock of
Ivanhoe Medical Systems in exchange for 607,500 shares of the Company's common
stock. In addition, the Company has allocated up to an additional 2,720,000
shares of the Company's common stock to be earned by management of Ivanhoe
Medical Systems and future acquisitions based on profitability. This acquisition
will be accounted for as a purchase.
F-29
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 16th day of June, 1997 by and between Medical
Industries of America, Inc. a Florida corporation (the "Company"), and Arthur
Kobrin ("Employee").
In consideration of the mutual convenants and agreements herein contained, the
monies to be paid hereunder and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledge, the parties hereto
agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby employs Employee and Employee hereby
accepts employment with the Company for a period beginning as of the date hereof
and terminating, unless sooner terminated as provided herein, on June 30, 2001.
2. DUTIES OF EMPLOYEE. Employee is hereby hired and employed by the Company to
perform the duties and accept the responsibilities as herein set forth. During
the term thereof, Employee shall be Chief Financial Officer of the Company and
shall devote his efforts to rendering services to the Company in such
capacities. In such capacity, Employee shall be responsible for all preparation
of financial statements, audit, internal controls, payments of bills, etc.
3. EXCLUSIVITY. During the term the Employee shall devote all of his productive
time, ability and attention to the business of the Company.
4. COMPENSATION OF EMPLOYEE.
(a) BASE SALARY. As compensation for services rendered under this
Agreement, Employee shall be entitled to receive from the Company a base salary
("Base Salary") of seventy eight thousand dollars ($78,000) per year, payable in
accordance with the normal payroll practices of the Company plus annual reviews.
(b) INCENTIVE BONUSES. In addition to his Base Salary, the Company may
pay Employee an annual incentive cash bonus ("Incentive Bonus") based upon the
Company's performance, in such amount as may be deemed appropriate by the Board.
(c) STOCK OPTIONS. The employee shall be entitled to stock options to
purchase 100,000 shares of common stock, no par value, at an exercise price of
$1.48 per share. The options can be granted each year based on performance
evaluation. Effective with the signing of this agreement, 50,000 are granted and
can be exercised at any time. The balance will be granted over the next three
years equally.
5. EMPLOYEE BENEFITS. Employee shall be entitled to receive all benefits
generally made available to officers of the Company including life insurance and
disability insurance and normal sick time. The individual will be reimbursed for
AICPA and FICPA dues and continuing education courses.
36
<PAGE>
6. VACATION. Employee shall be entitled to annual vacation at full pay in
accordance with the Company's vacation and leave policies in effect for its
officers from time to time except that officer is entitled to up to three weeks
vacation..
7. REIMBURSEMENT OF EMPLOYEE EXPENSES. Employee shall be expected to incur
various business expenses customarily incurred by persons holding like
positions, including, but not limited to, traveling, entertainment and similar
expenses, for the benefit of the Company. Subject to the Company's policy
regarding the reimbursement of such expenses, the Company shall reimburse
Employee for such expenses from time to time, at Employee's request, and
Employee shall account to the Company for such expenses. Employee is entitled to
$400 a month car allowance plus insurance and gas.
8. TERMINATION BY THE COMPANY.
(a) The Company shall have the right to terminate this Agreement under
the following circumstances:
(i) Upon the death of Employee;
(ii) Upon notice from the Company to Employee in the event of an
illness or other disability which has incapacitated him from performing his
duties for three (3) consecutive months as determined in good faith by the
Board; or
(iii) For "good cause" upon notice from the Company. Termination
by the Company of Employee's employment for "good cause" shall be limited to the
following circumstances:
(A) Employee is convicted of, pleads guilty to or
pleads nolo contendere to a felony crime involving moral turpitude;
(B) Employee is found guilty of or pleads no contest to
fraud, conversion, embezzlement, falsifying records or reports or a similar
crime involving the Company's property;
(C) Employee willfully breaches this Agreement;
(D) The voluntary resignation by Employee as an
employee of the Company.
(b) If this Agreement is terminated pursuant to Section 8(a) above,
Employee's rights and the Company's obligations hereunder shall forthwith
terminate except as expressly provided in this Agreement.
Exh. 10.16- Page 2
<PAGE>
(c) If this Agreement is terminated pursuant to Section 8(a) (i) or (ii)
hereof, Employee or his estate shall be entitled to receive:
(i) A cash payment equal to Employee's Base Salary hereunder for
six months, payable one-sixth each month from the date of such termination; and
(ii) All Incentive Bonuses granted to him by the Board pursuant
to Section 4 (b) above.
The Company may purchase insurance to cover all or any part of its obligations
set forth in this Section 8(c), and Employee agrees to take a physician
examination to facilitate the obtaining of such insurance. However, death and
disability benefits are not conditioned upon the Employee's insurability or the
Company's obtaining insurance.
(d) Whenever compensation is payable to Employee hereunder during a time
when he is partially or totally disabled and such disability (except for the
provisions hereof) would entitle him to disability income or to salary
continuation payments from the Company according to the terms of any plan now or
hereafter provided by the Company or according to any Company policy in effect
at the time of such disability, the compensation payable to him hereunder shall
be inclusive of any disability income or salary continuation and shall not be in
addition thereto. If disability income is payable directly to Employee by an
insurance company under an insurance policy paid for by the company, the amounts
paid to him by said insurance company shall be considered to be part of the
payments to be made by the Company to him pursuant to this Section, and shall
not be in addition thereto.
9. NOTICES AND DEMANDS. Any notice or demand which, by any provision of this
Agreement or any agreement, document or instrument executed pursuant hereto,
except as otherwise provided therein, is required or provided to be given shall
be deemed to have been sufficiently given or served for all purposes if sent by
certified or registered mail, postage and charges prepaid, to the following
addresses: if to the Company, Attention: Medical Industries of America, Inc.,
1903 S. Congress Avenue, Suite 400, Boynton Beach, FL 33426, or at any other
address designated by the Company to Employee in writing, and if to Employee,
9760 NW 47th Drive, Coral Springs, Florida 33076 or at any other address
designated by Employee to the Company in writing.
10. SEVERABILITY. In case any covenant, condition, term or provision contained
in this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, in whole or in part, by judgment, order or decree of any court or other
judicial tribunal of competent jurisdiction, from which judgment, order or
decree no further appeal or petition for review is available, the validity of
the remaining covenants, conditions, terms and provisions contained in this
Agreement, and the validity of the remaining part of any term or provision held
to be partially invalid, illegal or unenforceable, shall in no way be affected,
prejudiced or disturbed thereby.
Exh. 10.16- Page 3
<PAGE>
11. WAIVER OR MODIFICATION. No waiver or modification of this Agreement or of
any covenant, condition or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith. Furthermore, no
evidence of any waiver or modification shall be offered or received in evidence
in any proceeding, arbitration or litigation between the parties arising out of
or affecting this Agreement, or the rights or obligations of any party
hereunder, unless such waiver or modifications is in writing and duly executed
as aforesaid. The provisions of this Section may not be waived except as herein
set forth.
12. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter of this Agreement and
supersedes any and all previous agreements between the parties, whether written
or oral, with respect to such subject matter.
13. The Company will indemnify individual in connection with normal acts per
formed for the Company and will provide officers insurance, if available.
14. APPLICABLE LAW, BINDING EFFECT AND VENUE. This Agreement shall be construed
and regulated under and by the laws of the State of Florida, and shall inure to
the benefit of and be binding upon the parties hereto and their heirs, personal
representatives, successors and assigns. Venue for any action related to or
arising out of this Agreement shall lie in Palm Beach County, Florida.
IN WITNESS WHEREOF, the undersigned have executed this Employment agreement as
of the date first written above with the intent to be legally bound.
Employee /s/ ARTHUR KOBRIN
Arthur Kobrin
MEDICAL INDUSTRIES OF AMERICA, INC.
BY:/s/ PAUL C. PERSHES
Paul C. Pershes, President
Exh. 10.16- Page 4
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), entered into as of the 11th
of November, 1996 by and between MEDICAL INDUSTRIES OF AMERICA a Florida
corporation (hereinafter referred to as "Employer"), and Linda Moore
("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein; and
WHEREAS, Employee desires to accept such employment,
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledge, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee will serve Employer as its Sr. Vice
President and will faithfully and diligently perform the services and functions
relating to such offices or otherwise reasonable incident to such offices,
provided that all such services and functions will be reasonable and within
Employee's area of expertise. Employee will during the term of this Agreement
(or any extension thereof), devote his full business time, attention and skills
and best efforts to the promotion of the business of Employer. The foregoing
will not be construed as preventing Employee from making investments in other
business or enterprises provided that (a) Employee agrees not to become engaged
in any other business activity that interferes with his ability to discharge his
duties and responsibilities to Employer and, (b) Employee does not violate any
other provision of this Agreement.
3. TERM. The term of this Agreement will commence as of the date hereof
and will end on that date in the year 2001 unless earlier terminated by either
party pursuant to the terms hereof. The term of this agreement is referred to
herein as the "Term". Assuming all conditions of this Agreement have been
satisfied and there has been no breach of the Agreement during its initial term,
Employer and Employee may mutually extend the term for an additional one (1)
year term at their election ("Extended Term"), written notice of which must be
given at least sixty (60) days prior to the end of such preceding term.
4. COMPENSATION. As compensation for the services rendered under this
Agreement, Employee will be entitled to receive the following:
Exh. 10.17- Page 1
<PAGE>
(a) SALARY. Commencing upon the date of this Agreement, Employee
will be paid a minimum annual salary of $80,000 per year, payable in accordance
with the then current payroll policies of Employer or as otherwise agreed to by
the parties (the "Salary). At any time and from time to time the Salary may be
of Employer after a review of Employee's performance of his duties hereunder.
(b) OPTIONS. Commencing on the date of this Agreement, Employee
shall be issued a five (5) year option to purchase 40,000 shares of common stock
of the Company, half of which shares shall vest immediately and will be
exercisable throughout the term at a price of $1.50 per share.
(c) EXPENSES. Upon submission of a detailed statement and
reasonable documentation, Employer will reimburse Employee in the same manner as
other executive officers for all reasonable and necessary or appropriate out of
pocket travel and other expenses incurred by the Employee in rendering services
required under this Agreement.
(d) BENEFITS, INSURANCE.
(i) MEDICAL DENTAL AND VISION BENEFITS. During this
Agreement, Employee and his dependents will be entitle d to receive such group
medical dental and vision benefits as Employer may provide to its other
employees, provided such coverage is reasonable available, or be reimbursed if
Employee is carrying his own similar insurance.
(ii) BENEFIT PLANS. The Employee will be entitled to
participate in any benefit plan or program of the Employer which may currently
be in place or implemented in the future.
(iii) OTHER BENEFITS. During the Term, Employee will be
entitled to receive, in addition to and not in lieu of base salary, bonus or
other compensation, such as other benefits and normal perquisites as Employer
currently provides, including participation in Westmark Group Holdings stock
options plans, or such additional benefits as Employer may provide for its
officers in the future.
(e) VACATION. Employee will be entitled to two (2) weeks vacation
per year.
5. Confidentiality. In the course of the performance of Employee's
duties hereunder, Employee recognizes and acknowledges that Employee may have
access to certain confidential and proprietary information of Employer or any of
its affiliates. Without the prior written consent of Employer, Employee shall
not disclose any such confidential or proprietary information to any person or
firm, corporation, association or other entity for any reason or purpose
whatsoever, and shall not use such information, directly or indirectly, for
Employee's own behalf or on behalf of any other party. Employee agrees and
affirms that all such information is the sole property of Employer and that at
the termination and/or expiration of this Agreement, at Employer's written
request, Employee shall promptly return to Employer any and all such information
so requested by Employer.
The provisions of this Section 5 shall not, however, prohibit Employee
from disclosing to others or using in any manner information that:
Exh. 10.17- Page 2
<PAGE>
(a) has been published or has become part of the public domain other
than by acts, omissions or fault of Employee;
(b) has been furnished or made known to Employee by third parties (other
than those acting directly or indirectly for or on behalf of Employee) as a
matter of legal right without restriction on its use or disclosure;
(c) was in the possession of Employee prior to obtaining such
information from Employer in connection with the performance of this Agreement;
or,
(d) is required to be disclosed by law.
6. INDEMNIFICATION. The Corporation shall to the full extent
permitted by law indemnify, defend and hold harmless Employee from and against
any and all claims. Demands, liabilities, damages, losses and expenses
(including reasonable attorney's fees, court costs and disbursements) arising
out of the performance by him of his duties hereunder except in the case of his
willful misconduct.
7. TERMINATION. This Agreement and the employment relationship
created hereby will terminate upon the occurrence of any of the following
events:
A. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company may
terminate the Employee's employment pursuant to the terms of this Agreement
without cause by written notice to the Employee. Such termination will become
effective upon the date specified in such notice, provided that such
termination, the Company shall pay the Employee all salary due for the remainder
of the employment term and all commissions earned up to the date of termination
and all stock options shall vest immediately. Such compensation shall be paid at
the same dates due to be paid as if this agreement were still in effect.
B. TERMINATION WITH CAUSE BY THE COMPANY. The Company may
terminate the Employee's employment pursuant to the terms of this Agreement at
any time for cause by giving written notice of termination, and termination will
become effective upon the giving of such notice. However, Employee will not be
deemed to have been terminated "for just cause" unless at least two-thirds of
the members of the Board of Directors of Employer so determine. Upon any such
termination for cause for any period subsequent to the effective date of
termination, the Employee shall be paid all salary and commissions earned as of
the date of termination. Such commissions shall be paid at the same date as if
the agreement were still in effect. The Employee shall have no right to stock
options under Section 4 or participate in any employee benefit programs which
may then be in effect, except as required by law.
For purposes of Section 7(B), "just cause" means (I) Employee has
willfully, intentionally and continuously failed to substantially perform his
duties as specified under this Agreement, after a demand for substantial
performance is delivered to the Employee by the Employer which specifically
identifies the manner in which Employer believes Employee has not substantially
performed his duties; (ii) Employee has willfully engaged in gross misconduct
materially and demonstrably injurious to the Employer: (iii) the Employee
commits acts of dishonesty or disloyalty to Employer or misappropriates Company
funds or otherwise defrauds the Company; (iv) the Employee materially breaches
any provision of Section 5 of this Agreement; (v) material failure by Employee
to comply
Exh. 10.17- Page 3
<PAGE>
with applicable laws or government regulations; or (vi) Employee's criminal
conviction by any state or federal court of a felony.
In the case of termination for items (I), (ii) or (iii) of the
preceding paragraph, Employee shall be given at least one (1) written notice
describing in reasonably detail the perceived deficiencies in Employee's
performance, and Employee shall be given at least thirty (30) days' opportunity
to correct such perceived deficiencies prior to any termination.
C. DEATH OR DISABILITY. This Agreement and the obligations
hereunder will terminate upon the death or disability of the Employee. For
purposes of this Section 7(C), "Disability" shall mean for a period of three
months in any twelve month period the Employee is incapable of substantially
fulfilling the duties set forth in Section 2 of this Agreement because of
physical, mental or emotional incapacity resulting from an injury, sickness or
disease. Upon any such termination upon death or disability, the Employer will
pay the Employee or his legal representative, as the case may be, his annual
salary at such time pursuant to Section 4 through the date of such termination
of employment.
D. CONTINUING EFFECT. Notwithstanding, any termination of the
Employee's employment as provided in this Section 7, the provisions of Section 5
shall remain in full force and effect.
E. CONSIDERATION. The payments (if any) required to be paid by
the Employer to Employee pursuant to Section 7 shall be in full and complete
satisfaction of any and all obligations owing to Employee under this Agreement.
8. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
9. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
10. NOTICES. Any notices, demands, requests, approvals and other
communications to be given under this agreement by either party to the other
will be deemed to have been duly given in writing and personally delivered or
within two (2) days if sent by mail, registered or certified, postage prepaid
with return receipt requested as follows:
If to Employer: Medical Industries of America, Inc.
1903 S. Congress Ave. Suite 400
Boynton Beach, FL 33426
If to Employee: Linda Moore
3445 S. Ocean Blvd.
Palm Beach, FL 33480-5358
Notices delivered personally will be deemed communicated as of actual receipt.
Exh. 10.17- Page 4
<PAGE>
11. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understanding,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
12. GOVERNING LAW.This Agreement and the rights and obligations
of the parties will be governed by and construed and enforced in accordance with
the substantive laws (but not the rules governing conflicts of laws) of the
State of Florida.
13. SEVERABILITY. If any provision of this Agreement otherwise is
deemed to be invalid or unenforceable or is prohibited by the laws of the state
or jurisdiction where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding and of like effect as though such provision were not
included.
14. CAPTIONS. The captions in this Agreement are for convenience
of reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
15. GENDER AND NUMBER. When the context requires the gender of
all words used herein will include the masculine, feminine and neuter and the
number of all words will include the singular and plural.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYER:
Medical Industries of America
Inc.
BY:/s/ MICHAEL F. MORRELL
Name:
Title:
EMPLOYEE:
/s/ LINDA MOORE
Linda Moore
Exh. 10.17- Page 5
EXHIBIT 21
Subsidiaries of Medical Industries of America, Inc.
Heart Labs of America, Inc.
Florida Physicians Internet, Inc.
Care America Integrated Health Services
PRN of North Carolina, Inc.
Medical Consultants of America, Inc.
Medical Billing of America, Inc.
Medical Industries Acquisition Company I, Inc.
Medical Industries Acquisition Company II Inc.
Medical Industries Acquisition Company III, Inc.
Medical Industries Acquisition Company IV, Inc.
Medical Industries Acquisition Company V, Inc.
Global Air Rescue, Inc.
Global Air Charter, Inc.
Clearwater Jet Center, Inc.
Ivanhoe Medical Systems, Inc.
Exh. 21 - Page 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the 10 KSB dated April 15, 1998 of our report
dated March 10, 1997, except for Footnote 23 which is as of March 23, 1998,
related to the financial statements of Medical Industries of America, Inc.,
formally known as Heart Labs of America, Inc.
/s/ Grant-Schwartz Associates, CPA's
Boca Raton, Florida
April 14, 1998
Exh. 23 - Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 957,446
<SECURITIES> 0
<RECEIVABLES> 1,896,777
<ALLOWANCES> 473,392
<INVENTORY> 53,071
<CURRENT-ASSETS> 3,545,258
<PP&E> 9,751,208
<DEPRECIATION> 464,184
<TOTAL-ASSETS> 21,111,184
<CURRENT-LIABILITIES> 4,561,815
<BONDS> 0
0
2,699,500
<COMMON> 30,334,275
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,111,184
<SALES> 4,529,461
<TOTAL-REVENUES> 4,712,218
<CGS> 2,924,840
<TOTAL-COSTS> 5,717,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,732
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,152,694)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,152,634)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
