Form 10-QSB
U.S. Securities and Exchange Commission
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file number 0-20356
MEDICAL INDUSTRIES OF AMERICA, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0158479
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1903 S. CONGRESS AVENUE, SUITE 400, BOYNTON BEACH, FLORIDA 33426
(Address of principal executive offices)
(561)737-2227
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 25,496,369 shares of common
stock, no par value, were outstanding as of March 31,1999.
<PAGE>
MEDICAL INDUSTRIES OF AMERICA, INC.
10-QSB- QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
FORM 10-QSB FORM 10-QSB FORM 10-QSB
PART NO. ITEM NO. DESCRIPTION PAGE NO.
I. FINANCIAL INFORMATION
1. Financial Statements
- Condensed Consolidated Balance
Sheet as of March 31, 1999 3
- Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1999
and 1998 5
- Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 1999
and 1998 6
- Notes to Condensed Consolidated Financial
Statements 8
2. Management's Discussion and Analysis
or Plan of Operations 9
II. OTHER INFORMATION
2. Changes in Securities and Use of Proceeds 12
5. Other Information 12
6. Exhibits and Reports on Form 8-K 12
Signatures
2
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 531,640
Trade accounts receivable, net .......................... 5,915,310
Current portion of mortgage and notes receivable ........ 71,802
Inventories of medical supplies ......................... 167,306
Medical equipment held for sale ......................... 92,540
Prepaid expenses and other current assets ............... 779,617
------------
Total current assets .................................. 7,558,215
------------
PROPERTY AND EQUIPMENT:
Mobile cardiac catheterization laboratory
and medical equipment .................................. 1,669,362
Aircraft and related equipment .......................... 19,769,445
Leasehold improvements .................................. 292,210
Furniture and office equipment .......................... 813,794
------------
22,544,811
Less accumulated depreciation and amortization .......... (2,072,325)
------------
Net property and equipment ............................ 20,472,486
------------
OTHER ASSETS:
Mortgage and notes receivable, less current
maturities ............................................ 308,844
Goodwill ................................................ 8,938,630
Investment in equity securities ......................... 2,924,578
Other assets ............................................ 1,606,872
------------
Total other assets .................................... 13,778,924
------------
TOTAL ASSETS .......................................... $ 41,809,625
============
See Notes to Consolidated Financial Statements
3
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit .......................................... $ 2,253,053
Current portion of long-term debt and notes
payable ............................................... 3,354,030
Current portion of capital lease obligations ............ 162,171
Accounts payable ........................................ 3,723,083
Accrued liabilities ..................................... 1,959,762
Convertible subordinated debentures ..................... 75,000
------------
Total current liabilities ............................. 11,527,099
LONG TERM LIABILITIES:
Long-term debt and notes payable - net of
current portion ....................................... 11,824,156
Capital lease obligations, net of current
portion ............................................... 641,047
Convertible subordinated debentures ..................... 3,290,707
Due to related parties .................................. 151,169
------------
Total liabilities .................................. 27,434,178
------------
SHAREHOLDERS' EQUITY:
Preferred shares, authorized 20,000,000 shares:
issued and outstanding:
Series B convertible shares, 27,250 issued
$10 stated value ......................................... 215,913
Common shares, .0025 par value, authorized
100,000,000: issued and outstanding 25,496,369 .......... 63,740
Additional paid in capital ................................. 40,590,517
Accumulated deficit ........................................ (28,169,773)
Net proceeds from settlement of litigations ................ 1,675,050
------------
Total shareholders' equity .............................. 14,375,447
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 41,809,625
============
See Notes to Consolidated Financial Statements
4
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
(Unaudited)
------------------------------
1999 1998
------------ ------------
Revenue .................................... $ 7,910,994 $ 2,297,932
------------ ------------
Expenses:
Cost of revenues ........................ 3,667,584 1,317,709
General and administrative expenses ..... 3,005,246 729,994
Depreciation and amortization ........... 555,630 115,444
Interest expense ........................ 559,271 110,722
Interest - beneficial conversion
feature ............................... 52,920 --
Equity in net income of investee ........ (60,738) (26,359)
------------ ------------
Total expenses .................... 7,779,913 2,247,510
------------ ------------
Income from continuing operations .......... 131,081 50,422
Income from discontinued operations ........ -- 89,716
------------ ------------
Net income ................................. $ 131,081 $ 140,138
============ ============
Earnings per share of common stock:
Basic earnings per share ................
Continuing operations ................... $ .01 $ --
Discontinued operations ................. -- .01
------------ ------------
Net income .............................. $ .01 $ .01
============ ============
Diluted earnings per share .............. .01 .01
============ ============
Weighted average shares outstanding
Basic ................................... 24,906,947 15,981,934
============ ============
Diluted ................................. 25,620,279 17,661,021
============ ============
See Notes to Consolidated Financial Statements
5
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MEDICAL INDUSTRIES OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
(Unaudited)
-------------------------
1999 1998
----------- ---------
Operating activities:
Income from continuing operations ................ $ 131,081 $ 50,422
Income from discontinued operations .............. -- 89,716
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation and amortization ............... 555,630 147,793
Equity loss (gain) on investments ........... (60,739) (26,359)
Interest - Beneficial conversion feature .... 52,920 --
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable ................ (1,059,642) (681,923)
Inventories of medical supplies .......... (41,781) (144)
Prepaid expenses and other current
assets ................................. 87,208 (72,127)
Other assets ............................. 16,090 (275,624)
Accounts payable ......................... (262,671) (93,450)
Accrued liabilities ...................... 527,150 (84,905)
----------- ---------
Net cash (used in) operating activities ....... (54,754) (946,601)
----------- ---------
Investing activities:
Purchase of goodwill ............................. (56,745) --
Payment of notes receivable ...................... 8,499 467,248
Disbursements for property and equipment ......... (246,299) (114,946)
----------- ---------
Net cash (used in) provided by investing
activities .................................. (294,545) 352,302
----------- ---------
Financing activities:
Payments of capital lease obligations ............ (41,715) (52,961)
Proceeds from long-term debt ..................... -- 404,619
Payments of long term debt ....................... (131,852) (120,935)
Proceeds from issuance of debentures ............. 470,000 --
----------- ---------
Net cash provided by financing activities .... 296,433 230,723
----------- ---------
Net (decrease) in cash ........................... (52,866) (363,576)
Cash at the beginning of period .................. 584,506 957,446
----------- ---------
Cash at the end of period ........................ $ 531,640 $ 593,870
=========== =========
6
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Supplemental disclosure of cash flow information:
Interest paid $646,139 $136,942
======== ========
Supplemental disclosure of non-cash investing and financing activities:
Effective March 1, 1999, the Company issued 3,866,666 common shares of the
Company valued at $2,900,000 ($.75 per share) to acquire Air Response, Inc.
In January 1999, certain debenture holders exercised their option to convert
$102,077 of subordinated debentures at $1 per share, which the Company issued
102,077 shares of common stock.
During the quarter ended March 31, 1999, the Company issued 149,800 common
shares in lieu of payment of penalties and interest owed on the subordinated
debentures.
During the quarter ended March 31, 1999, the Company issued 75,000 common shares
valued at $40,000 upon exercise of stock options.
In March 1998, the Company leased a mobile cardiac catheterization laboratory
from Phoenix Leasing. The mobile lab is being recorded as a capitalized lease
payable over 60 months.
7
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MEDICAL INDUSTRIES OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Medical Industries of America, Inc. was incorporated in September 1989, in
the State of Florida and has its principal executive offices at 1903 S. Congress
Ave., Suite 400, Boynton Beach, Florida 33426, telephone number (561) 737-2227.
Unless the context otherwise requires, all references to the "Company" include
Medical Industries of America, Inc. and its wholly owned subsidiaries.
The Company's consolidated financial statements include the activity of
the Company and its wholly-owned subsidiaries. The consolidated financial
statements include from the date of acquisition, Air Response, Inc.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the consolidated financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to state fairly the
consolidated financial position and consolidated results of operations as of and
for the periods indicated. These consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements and
notes thereto for year ended December 31, 1998, included in the Company's Form
10-KSB as filed with the Securities and Exchange Commission.
Earnings Per Common Share
Basic earnings per common share is calculated by dividing earnings by the
weighted average common shares outstanding. Diluted earnings per share have been
computed based on the assumption that all of the convertible preferred stock is
converted into common shares, and that all stock options where the exercise
price is less than the market value have been considered exercised under the
treasury stock method. Under this assumption, the weighted average number of
common shares outstanding has been increased accordingly.
8
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Goodwill
Goodwill was recorded at cost and is amortized using the straight-line
method over twenty-five years.
The Company periodically evaluates the recovery of the carrying amount of
intangibles by 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 amount the
carrying value exceeds its fair value.
Estimates
The preparation of financial statements in conformity with general
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Note 2 - Business Acquired
Effective March 1, 1999, the Company acquired 100% of the outstanding
common stock of Air Response, Inc. ("Air Response") in exchange for $2,900,000
in common stock valued at $.75 per share plus an earn up arrangement payable
over three years. The acquisition has been accounted for using the purchase
method of accounting. The net assets and revenue and expenses of Air Response
have been included in the Company's consolidated financial statements from the
date of acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD-LOOKING STATEMENT
This Quarterly Report on Form 10-QSB contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, changes in the regulation of the
healthcare industry at either the federal and state levels, changes in
reimbursement for services by government or private payors, competitive
pressures in the healthcare industry and the Company's response thereto, the
Company's ability to obtain and retain favorable arrangements with third-party
payors, and general conditions in this economy.
The following discussion of the Company`s results of operations and
financial condition should be read in conjunction with the Company's condensed
consolidated unaudited Financial Statements listed in Part I, Item I and the
Notes thereto appearing elsewhere in this Form 10-QSB,
9
<PAGE>
and the Company's audited Financial Statements listed in Item 7 and the Notes
thereto appearing in the Company's 1998 Annual Report on Form 10-KSB.
COMPARISON OF THE RESULTS OF OPERATION FOR THREE MONTHS ENDED MARCH 31, 1999 AND
MARCH 31, 1998
Total revenues from operations increased to $7,910,994 for the three
months ended March 31, 1999 as compared to $2,297,932 for the three months ended
March 31, 1998, principally as a result of the acquisitions of Ivanhoe Medical
Systems, Inc. (revenue $102,621), Valley Pain Centers, Inc. (revenue $780,230),
Your Good Health Network, Inc. (revenue $1,397,486) and Air Response, Inc.
(revenue $1,843,958). Revenue for 1999, excluding acquisitions, in comparison to
1998 is up due to an increase in utilization of the aircrafts which was
partially offset by a reduction in utilization of the mobile cath labs and other
lab revenue.
Cost of revenues, which included medical supplies, technical salaries and
benefits and other expenses directly associated with the Company's services
increased to $3,667,584 from $1,317,709 for the three months ended March 31,
1999 and 1998, respectively. This increase is primarily due to the acquisitions
of Ivanhoe Medical Systems, Inc. (cost $4,371), Valley Pain Centers, Inc. (cost
$29,602), Your Good Health Network, Inc. (cost $550,826) and Air Response, Inc.
(cost $899,434). Cost Revenue for 1999, excluding acquisitions, in comparison to
1998 increased from the costs associated with the air ambulance company based on
increase in revenue reduced by reduction in mobile cath lab costs because of
reduced utilization.
General and Administrative expenses increased to $3,005,246 for the three
months ended March 31, 1999 compared to $729,994 for the three months ended
March 31, 1998. This increase is primarily due to the acquisitions.
Interest expense increased to $612,191 for the three months ended March
31, 1999 as compared to $110,722 for the three months ended March 31, 1998. This
increase is primarily attributable to interest on the airplane loans assumed as
part of the acquisition of Air Response, Inc. and the issuance of subordinated
debentures and related penalties and discounts.
Net income decreased to $131,081 for the three months ended March 31, 1999
compared to a net income of $140,138 for the three months ended March 31, 1998.
During the quarter ended March 31, 1999, the Company issued $2,000,000 of
12% convertible debentures calling for interest at 12% with a maturity in 2002.
The Company had working capital deficiency of $3,968,884 at March 31, 1999
compared to working capital of $665,379 at March 31, 1998.
Year 2000 Costs
In July 1996, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue 96-14 that costs associated with
modifying computer software for the year 2000 be expended as incurred. The
Company is assessing the extent of the necessary
10
<PAGE>
modification to its computer software but anticipates that it will not have a
material effect on the Company's financial statements.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the first quarter of 1999, the Company issued 3,886,667 shares of
unregistered common stock in connection with the purchase of Air Response, Inc.
In connection therewith, the Company filed a Form 8-K on April 23, 1999.
As of April 1, 1999, the Company issued $2,000,000 of 12% convertible
debentures, calling for semi-annual interest with a maturity date through 2002,
pursuant to a private placement. The holders of the 12% convertible debentures
received options to purchase 2,000,000 shares of the Company's common stock at
an exercise price of $.50.
The debenture are convertible into the Company's common stock at $.50 per
share.
During the first quarter of 1999, the Company issued 75,000 shares of the
Company's common stock upon exercise of stock options valued at $40,000.
On May 3, 1999, the Company sold Valley Pain Centers back to Dr. Klein and
Rogers Kirven, former officer and director, for approximately $300,000 and
1,598,842 shares of the Company's common stock with a market value of $2,957,858
($1.85 a share) resulting in a gain. The Company paid off approximately $520,000
of debts.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) reports on Form 8K
8-K filed on April 23, 1999 describing the acquisition of Air Response,
Inc.
12
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MEDICAL INDUSTRIES OF AMERICA, INC.
(Registrant)
MAY 15, 1999 By: /s/ MICHAEL F. MORRELL
(Date) Michael F. Morrell, Chairman of the Board & Chief
Executive Officer
MAY 15, 1999 By: /s/ PAUL C. PERSHES
(Date) Paul C. Pershes, Director
MAY 15, 1999 By: /s/ LINDA MOORE
(Date) Linda Moore, Senior Vice President
MAY 15, 1999 By: /s/ ARTHUR KOBRIN
(Date) Arthur Kobrin, Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 531,640
<SECURITIES> 0
<RECEIVABLES> 5,915,310
<ALLOWANCES> 0
<INVENTORY> 167,306
<CURRENT-ASSETS> 7,558,215
<PP&E> 2,254,484
<DEPRECIATION> 2,072,325
<TOTAL-ASSETS> 41,809,625
<CURRENT-LIABILITIES> 11,527,099
<BONDS> 0
0
215,913
<COMMON> 63,740
<OTHER-SE> 14,148,714
<TOTAL-LIABILITY-AND-EQUITY> 41,809,625
<SALES> 7,910,994
<TOTAL-REVENUES> 7,910,994
<CGS> 3,667,584
<TOTAL-COSTS> 7,167,722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 612,191
<INCOME-PRETAX> 131,081
<INCOME-TAX> 0
<INCOME-CONTINUING> 131,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,081
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
