-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DrqW+vlXEZyX+wzQ8dMHIvpTY8CcCH6UAfUWP4COAHLjtcD6vjNzpv8T5P4SZS0f nLnEqpCWAbxW/YzdlfZeCA== 0000849145-96-000012.txt : 19960624 0000849145-96-000012.hdr.sgml : 19960624 ACCESSION NUMBER: 0000849145-96-000012 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960621 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDCROSS INC CENTRAL INDEX KEY: 0000849145 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 592291344 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17973 FILM NUMBER: 96584158 BUSINESS ADDRESS: STREET 1: 3227 BENNET ST N CITY: ST PETERSBURG STATE: FL ZIP: 33713 BUSINESS PHONE: 8135211793 MAIL ADDRESS: STREET 1: 3227 BENNET STREET NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33713 10KSB/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A#1 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________________ to ______________ Commission File No. 0-17973. MEDCROSS, INC. (Name of small business issuer in its charter) Florida 59-2291344 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3227 Bennet Street North, St. Petersburg, Florida 33713 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (813) 521-1793 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.007 par value (Title of Class) 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 disclosure of delinquent filers in response to Item 405 of Regulation S-B is not 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. [ ] The issuer's revenue for its most recent fiscal year was $3,122,953. The aggregate market value of Common Stock held by non-affiliates based upon the closing bid price of $3.875 on February 29, 1996, as reported by NASDAQ was approximately $10,240,846. As of February 29, 1996 there were 6,781,983 shares of Medcross, Inc. Common Stock, $.007 par value, outstanding. Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X] Item 7. Financial Statements. See Index to Consolidated Financial Statements on page 30. 17 Item 10. Executive Compensation. Summary Compensation Table. The Company did not have any executive officers who served as such at the end of the last fiscal year that earned more than $100,000 in salary and bonus. The following table sets forth the aggregate cash compensation paid for services rendered to the Company during the last three fiscal years by the Company's Chief Executive Officer.
Long-Term Compensation ----------------------------------------------- Annual Compensation Awards Payouts --------------------------------------- ---------------------- ----------- Other Securities Annual Restricted Underlying All Other Name and Compen- Stock Options/ LTIP Compen- Principal Position Year Salary ($) Bonus ($) sation ($) Awards ($) SARs (#) Payouts ($) sation ($) - ------------------ ---- ---------- --------- ---------- ---------- ---------- ----------- ---------- Henry Y.L. Toh 1995 58,051 0 225 0 11,167 0 N/A President and CEO 1994 54,362 0 815 0 1,167 0 N/A 1993 54,000 0 810 0 81,900 0 N/A 19 1 Mr. Toh began his employment with the Company in April 1992 and was appointed President and CEO in May 1993. 2 Represents Company contributions to 401(k) plan on behalf of Mr. Toh. 3 Mr. Toh had no restricted stock holdings at the end of the last fiscal year.
Option/SAR Grants in Last Fiscal Year (1995). The following table sets forth certain information with respect to the options granted during the last fiscal year to the Company's Chief Executive Officer.
Number of Securities Percent of Total Exercise Underlying Options/SARs Granted to or Base Name Options/SARS Granted (#) Employees in Fiscal Year Price ($/Sh) Expiration Date - ---------------- ------------------------ ------------------------ ------------ --------------- Henry Y.L. Toh 1,167 100% $0.875 06/29/2005 10,000 100% $1.25 10/16/2005 1 Does not reflect options to purchase 160,000 shares of Common Stock granted subsequent to the end of the 1995 fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values. The following table sets forth certain information with respect to options exercised during fiscal 1995 by the Company's Chief Executive Officer and with respect to unexercised options held by such person at the end of fiscal 1995.
Shares Number of Securities Value of Unexercised in Acquired on Value Underlying Unexercised the Money Options/SARs Name Exercise (#) Realized $ Options/SARS at FY-End (#) at FY-End ($) - -------------- ------------ ---------- -------------------------- -------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Henry Y.L. Toh -- -- 36,904 58,497 0 $ 146 1 The calculations of the value of unexercised options are based on the difference between the closing bid price on NASDAQ of the Common Stock on December 31, 1995, and the exercise price of each option, multiplied by the number of shares covered by the option. 2 Subsequent to the 1995 fiscal year end, 24,570 and 57,330 of the Exercisable and Unexercisable Options, respectively, were relinquished, and 150,000 options exercisable at $1.125 through February 7, 2006 were issued to Mr. Toh.
No awards were made under any long-term incentive plans during 1995 or 1994. Director Compensation Directors are compensated $100 for each meeting of the Board of Directors attended. In addition, directors have been automatically granted options under the Company's 1992 Director Plan to purchase 1,167 shares of Common Stock on the last Friday in June each year until adoption of the 1995 Director Stock Option Plan. Pursuant to the 1995 Director Stock Option Plan which was recently approved at the annual meeting of stockholders held in October 1995, directors receive options in accordance with the following formula: (i) on October 17, 1995; (ii) on the first business day of January 1996; and (iii) on the first business day of each January thereafter, each member of the Board of Directors then serving will receive options to purchase 10,000 shares of Common Stock at an exercise price equal to the fair market value of the Common Stock on the date of the grant. The Company's compensation committee may also grant options at its discretion to reward directors for extraordinary service to the Company. Consulting Agreements The Company entered into a consulting agreement for the three month period ended October 23, 1995 with Bijan Taghavi, formerly an officer and director of the Company. Pursuant to such agreement, Mr. Taghavi was engaged to provide such consulting services as requested by the Company in exchange for compensation at the rate of $5,208 per month. Mr. Taghavi's consulting agreement contains certain mutual release, non-competition and confidentiality provisions. The Company entered into a consulting agreement with Timothy R. Barnes, formerly an officer of the Company (the "Barnes Agreement"), which agreement expired February 6, 1996. The Barnes Agreement provided for the issuance to Mr. Barnes of warrants to purchase 36,858 shares of Common Stock exercisable at a purchase price equal to the fair market value of the Common Stock at the date 20 of grant. The Barnes Agreement also contained standard non-competition and confidentiality provisions. The Company also entered into two consulting agreements with Jason H. Pollak, the initial term of one of which expired on January 31, 1996 and the second of such agreements commenced thereafter. The term of the second agreement was for a period of three years, subject to earlier termination by the Company. Pursuant to the terms of the first of such agreements (collectively, the "Pollak Agreements"), Mr. Pollak received 50,000 shares of Common Stock. The second of the Pollak Agreements provided Mr. Pollak with an option to purchase up to 50,000 shares of Common Stock each year at prices of $1.50, $2.50 and $3.50, respectively. The second of the Pollak Agreements was terminated by the Company on March 5, 1996 (upon thirty days' advance notice which renders such termination effective April 4, 1996). The shares of Common Stock subject to the Barnes Agreement and the Pollak Agreements have been included in registration statements on Form S-8 recently filed by the Company with the Commission (Registration Nos. 33-63751, 33-63749 and 333-01525, respectively). The Company entered into a consulting agreement with Windy City, Inc. for the period beginning January 1, 1996 and ending December 31, 1998. Mr. Joel Kanter, a director of the Company is the President and a director of Windy City, Inc. Pursuant to such agreement, Windy City, Inc. was engaged to provide such consulting services as requested by the Company in exchange for compensation at the rate of $6,250 prer quarter. Employment Agreements In February 1996, the Company entered into two-year employment agreements with Henry Toh, President and Chief Executive Officer, Dorothy Michon, Vice President of Operations, and with Stephanie Giallourakis, Controller and Secretary. The Employment Agreements are each for an initial period ending on December 31, 1997 and are automatically renewable for successive one-year periods unless written notice to the contrary is given by the Company not less than 120 days prior to expiration of the term. Pursuant to the terms of the employment agreements, each such officer is required to devote such of his or her time to the business and affairs of the Company as is required to fulfill the duties and responsibilities of his or her office. Mr. Toh is entitled under his employment agreement to receive compensation at the rate of $54,000 per year, Ms. Michon is entitled to compensation at the rate of $63,000 and Ms. Giallourakis is entitled to compensation at the rate of $53,000 per year. Each such officer is entitled to an annual bonus in the discretion of the Board of Directors and may participate in fringe benefit, deferred compensation, stock benefit and option plans of the Company. In the event of termination by the Company other than for "cause" (as defined in the agreement) or by Mr. Toh upon "good reason" (as defined in the agreement) the Company is required to pay Mr. Toh, as liquidated damages or severance pay, monthly termination payments equal to the base salary in effect for a period of six months after such termination and, with respect to Ms. Michon and Ms. Giallourakis, each such officer is entitled to monthly termination payments equal to the base salary in effect for periods of three months after any such termination. Each of the employment agreements contains confidentiality and non-solicitation provisions. I-Link entered into three-year employment agreements on February 21, 1996 with each of Clay Wilkes, an officer and employee, and Alex Radulovic, an employee of I-Link. Under his employment agreement, Mr. Wilkes is employed as Chairman of the Board and Chief Executive Officer of I-Link at a salary of $95,000 per annum, subject to adjustment upon satisfaction of performance criteria. Under his employment agreement, Mr. Radulovic is employed as Executive Vice President of I-Link at a salary of $90,000 per annum, subject to adjustment upon satisfaction of performance criteria. In the event of termination by the Company not involving "Just Cause" (as defined in the agreement) or upon a material breach by the Company which is unremedied for 30 days after written notice, each of Mr. Wilkes and Mr. Radulovic are entitled to receive, as liquidated damages or severance pay, an amount equal to the Monthly Compensation (as defined in the agreement) and, in addition, all options shall vest and all Common Stock of Medcross held in escrow shall be released. Each of the agreements contain non-competition and confidentiality provisions. On April 8, 1996, subject to the approval of I-Link Board of Directors, I-Link entered into a three-year employment agreement with John Edwards. Pursuant to the terms of the employment agreement, Mr. Edwards will be employed as the Chief Executive Officer and a Director of I-Link and will be required to devote substantially all of his working time to the business and affairs of I-Link. Mr. Edwards is entitled under his employment agreement to receive compensation at the rate of $175,000 per year and is entitled to a profitability bonus in the discretion of the I-Link Board of Directors and to participate in fringe benefits of the Company as are generally provided to executive officers. In 21 addition, Mr. Edwards is entitled to receive an option to purchase one million of the shares of Common Stock of Medcross, Inc. at an exercise price of $7.00. Of such options, 83,333 vest and become exercisable on the first calendar day of each quarter for the twelve (12) quarters after April 8, 1996. In the event of termination by I-Link or in the event of a violation of a material provision of the agreement by I-Link which is unremedied for thirty (30) days and after written notice or in the event of a "Change in Control" (as defined in the agreement), Mr. Edwards is entitled to receive, as liquidated damages or severance pay, an amount equal to the Monthly Compensation (as defined in the agreement) for the remaining term of the agreement. The agreement contains non- competition and confidentiality provisions. Committees of the Board of Directors Audit Committee. The Company's audit committee (the "Audit Committee") is responsible for making recommendations to the Board of Directors concerning the selection and engagement of the Company's independent certified public accountants and for reviewing the scope of the annual audit, audit fees, and results of the audit. The Audit Committee also reviews and discusses with management and the Board of Directors such matters as accounting policies and internal accounting controls, and procedures for preparation of financial statements. Dr. Babcock is Chairman of the Audit Committee and Mr. Kanter is a member of such committee. Compensation Committee. The Company's compensation committee (the "Compensation Committee") approves the compensation for executive employees of the Company. Ms. Wong is Chairperson of the Compensation Committee and Mr. Kanter and Dr. Babcock are members of such committee. Executive Committee. The Company's executive committee (the "Executive Committee") is vested with all the powers of the Board of Directors, subject to the limitations set forth in the Florida Business Corporation Act. Ms. Wong is Chairperson of the Executive Committee and Messrs. Toh and Kanter are members of such committee. Executive Stock Option Plan The Company's 1989 Executive Stock Option Plan (the "ESOP"), which recently expired pursuant to its terms, authorized the grant of stock options to key employees of the Company including officers. Options granted under the ESOP were non-qualified stock options exercisable at a price per share not less than the highest bid price per share of the Common Stock as quoted on NASDAQ on the date an option is granted. Options granted under the ESOP are exercisable not less than one year nor more than five years after the grant date. As of February 29, 1996, options for the purchase of 8,505 shares of Common Stock at prices of $2.75 per share were outstanding. In connection with adoption of the 1995 Employee Plan (as hereinafter defined), the Board of Directors recently authorized suspension of future grants of options under the ESOP; however, outstanding options granted under the ESOP will continue to be governed by the terms thereof until exercise or expiration of such options. Director Stock Option Plan The Company's Director Stock Option Plan (the "DSOP") authorizes the grant of stock options to directors of the Company. Options granted under the DSOP are non-qualified stock options exercisable at a price equal to the fair market value per share of Common Stock on the date of any such grant. Options granted under the DSOP are exercisable not less than six months nor more than ten years after the date of grant. As of February 29, 1996, options for the purchase of 24,564 shares of Common Stock at prices ranging from $.875 to $3.875 per share were outstanding. To date, no options have been exercised. In connection with adoption of the 1995 Director Plan (as hereinafter defined), the Board of Directors recently authorized the termination of future grants of options under the DSOP; however, outstanding options granted under the DSOP will continue to be governed by the terms thereof until exercise or expiration of such options. 22 Stock Purchase Plan In accordance with the Employee Qualified Stock Purchase Plan (the "Purchase Plan"), employees may contribute up to ten percent of their base wages toward the purchase of Common Stock. The exercise price of options granted under the Purchase Plan is the lesser of 85% of the market value on the first business day of the payment period (September 1) or the last business day of the payment period (August 31). As of February 29, 1996, the Company had 36,059 shares of Common Stock reserved for issuance on exercise of the purchase rights granted under the Purchase Plan. 1995 Director Stock Option Plan In October 1995, the stockholders of the Company approved adoption of the Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan provides for the issuance of incentive options, non-qualified options and stock appreciation rights (the "1995 Director Plan"). The 1995 Director Plan provides for automatic and discretionary grants of stock options which qualify as incentive stock options (the "Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as options which do not so qualify (the "Non-Qualified Options") to be issued to directors. In addition, stock appreciation rights (the "SARs") may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. The 1995 Director Plan provides for the grant of Incentive Options, Non- Qualified Options and SARs to purchase up to 250,000 shares of Common Stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercised portion. If any Incentive Option, Non- Qualified Option or SAR terminates prior to exercise thereof and during the duration of the 1995 Director Plan, the shares of Common Stock as to which such option or right was not exercised will become available under the 1995 Director Plan for the grant of additional options or rights to any eligible employee. The shares of Common Stock subject to the 1995 Director Plan may be made available from either authorized but unissued shares, treasury shares, or both. The 1995 Director Plan also provides for the grant of Non-Qualified Options on a non-discretionary basis pursuant to the following formula: each member of the Board of Directors then serving shall receive a Non-Qualified Option to purchase 10,000 shares of Common Stock at an exercise price equal to the fair market value per share of the Common Stock on that date. Pursuant to such formula, directors received options to purchase 10,000 shares of Common Stock as of October 17, 1995, and will receive options to purchase 10,000 shares of Common Stock on the first business day of each January beginning in 1996. Each option is immediately exercisable for a period of ten years from the date of grant. The Company has 250,000 shares of Common Stock reserved for issuance under the 1995 Director Plan. As of February 29, 1996, options exercisable to purchase 230,000 shares of Common Stock at prices ranging from $1.00 to $1.25 per share have been granted under the 1995 Director Plan. 1995 Employee Stock Option Plan In October 1995, the stockholders of the Company approved adoption of the Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995 Employee Plan"), which plan provides for the issuance of Incentive Options, Non- Qualified Options and SARs. Directors of the Company are not eligible to participate in the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock options which qualify as Incentive Stock Options under Section 422 of the Code, to be issued to officers who are employees and other employees, as well as Non-Qualified Options to be issued to officers, employees and consultants. In addition, SARs may be granted in conjunction with the grant of Incentive Options and Non- Qualified Options. The 1995 Employee Plan provides for the grant of Incentive Options, Non- Qualified Options and SARs of up to 400,000 shares of Common Stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercised portion. If any Incentive Option, Non-Qualified 23 Option or SAR terminates prior to exercise thereof and during the duration of the 1995 Employee Plan, the shares of Common Stock as to which such option or right was not exercised will become available under the 1995 Employee Plan for the grant of additional options or rights to any eligible employee. The shares of Common Stock subject to the 1995 Employee Plan may be made available from either authorized but unissued shares, treasury shares, or both. The Company has 400,000 shares of Common Stock reserved for issuance under the 1995 Employee Plan. As of February 29, 1996, options to purchase 75,000 shares of Common Stock with exercise prices of $1.125 per share have been granted under the 1995 Employee Plan. 24 Item 13. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as part of this Report (see Exhibit Index on page 50): 2(a) Management Agreement Assignment, effective June 1, 1993 between Florida Medical Enterprises, Inc. and Waters Edge Scanning Associates, Inc. 2(b) Lease Assignment and Asset Purchase Agreement dated as of June 1, 1993 between Waters Edge Scanning Associates, Ltd. and Medcross, Inc. 2(c) Joint Venture Interest Purchase Agreement, effective October 1, 1994 between Medcross, Inc. and Urology Ultrasound, Inc. 2(d) Stock Purchase Agreement, dated February 13, 1996, by and among Medcross, Inc., ILINK, Ltd., and Gnet Enterprises, Inc. 2(e) Escrow Agreement, dated February 21, 1996, by and among Medcross, Inc., ILINK, Ltd., and De Martino, Finkelstein, Rosen & Virga. 3(a) Amendment to the Amended and Restated Articles of Incorporation dated December 18, 1995. 3(b) Composite copy of the Amended and Restated Articles of Incorporation incorporating all amendments through the date of the filing of this Form 10-KSB. 3(c) Bylaws of the Company, as amended. 3(d) Articles of Incorporation of I-Link Worldwide, Inc. 3(e) Bylaws of I-Link Worldwide, Inc. 4(a) Specimen Common Stock Certificate. 4(b) Promissory Note payable to Waters Edge Scanning Associates, Ltd. in the amount of $600,000, dated June 1, 1993. 26 4(c) Promissory Note contingently payable to Waters Edge Scanning Associates, Ltd. in the amount of $365,000, dated June 1, 1993. 4(d) Promissory Note contingently payable to Waters Edge Scanning Associates, Ltd. in the amount of $365,000, dated June 1, 1993. 4(e) Form of Promissory Note payable to limited partners of Medcross Imaging, Ltd. in the aggregate amount of $75,000, dated October 1, 1993. 4(f) Series CS Warrant to Purchase Common Shares of Medcross, Inc. 4(g) Common Stock Purchase Option to Purchase Common Shares of Medcross, Inc. 4(h) Form of 10% Convertible Promissory Note dated February 21, 1996. 4(i) Non-Negotiable 10% Promissory Note payable to Scott Cook in the amount of $100,000, dated October 19, 1995. 4(j) Guaranty by and between Medcross, Inc. and Scott Cook, dated October 19, 1995. 4(k) Security Agreement by and between ILINK, Ltd., Scott Cook, and Medcross, Inc. dated October 19, 1995. 4(l) Common Stock Purchase Option to Purchase Common Shares of Medcross, Inc. 9(a) Shareholder's Agreement dated February 19, 1992 among Four M International, Inc., Walnut Capital Corp., Windy City, Inc., and Canadian Imperial Bank of Commerce Trust Company (Bahamas) Limited. 9(b) First Amendment to Shareholder's Agreement. *10(a) The Company's Director Stock Option Plan. *10(b) The Company's Executive Stock Option Plan. 10(c) MR Service Agreement, dated August 14, 1990, between Medcross Imaging, Ltd. and HealthTrust, Inc. with respect to Edward White Hospital. 10(d) MR Service Agreement, dated August 14, 1990, between Medcross Imaging, Ltd. and HealthTrust, Inc. with respect to South Bay Hospital. 10(e) Stock Purchase Agreement, dated February 9, 1992, between Medcross, Inc., Four M International Limited, Walnut Capital Corp, Windy City, Inc., and Canadian Imperial Bank of Commerce Trust Company. 10(f) First Amendment to Stock Purchase Agreement, dated May 21, 1992, between Medcross, Inc., Four M International, Inc., Walnut Capital Corp., Windy City, Inc., and Canadian Imperial Bank of Commerce Trust Company (Bahamas) Limited, as trustee. 10(g) Financial Consulting Agreement and Common Stock Purchase Warrant dated as of November 3, 1994 between Medcross, Inc. and JW Charles Financial Services, Inc. 10(h) Consulting Agreement, dated as of August 6, 1995, between the Company and Timothy R. Barnes. 10(i) Consulting Agreement, dated September 1, 1995, by and among Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak. 10(j) Amendment to and Restatement of the Amended and Restated Consulting Agreement, dated March 4, 1996, by and among Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak. 10(k) Termination of Amended and Restated Consulting Agreement, dated March 5, 1996, by and among Medcross, Inc., Kalo Acquisitions, LLC, and Jason H. Pollak. 10(l) MR Service Agreement effective October 1, 1995, by and between Medcross Imaging, Ltd. and South Bay Hospital. 10(m) MR Service Agreement effective October 1, 1995, by and between Medcross Imaging, Ltd. and Edward White Hospital. *10(n)Employment Agreement, dated February 4, 1996, between Medcross, Inc. and Henry Y.L. Toh. *10(o)Employment Agreement, dated January 1, 1996, between Medcross, Inc. and Dorothy L. Michon. *10(p)Employment Agreement, dated January 1, 1996, between Medcross, Inc. and Stephanie E. Giallourakis. *10(q)Employment Agreement, dated February 14, 1996, between Medcross, Inc. and Clay Wilkes. *10(r)Employment Agreement, dated February 14, 1996, between Medcross, Inc. and Alex Radulovic. *10(s)The Company's 1995 Director Stock Option and Appreciation Rights Plan. *10(t)The Company's 1995 Employee Stock Option and Appreciation Rights Plan. *10(u)Employment Agreement, dated April 8, 1996, between Medcross, Inc. and John W. Edwards. 11 Statement regarding computation of earnings per common share. Page 186 21 Subsidiaries of the registrant. 23 Consent of Coopers & Lybrand L.L.P. 23(a) Consent of Coopers & Lybrand L.L.P. Page 189 27 Financial Data Schedule Page 190 - -------------- 1 Incorporated by reference to the Company's registration statement on Form S-18 file number 33-27978-A. 2 Incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 1990, file number 0-17973. 3 Incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 1991, file number 0-17973. 27 4 Incorporated by reference to the Company's current report on Form 8-K dated March 30, 1992, file number 0-17973. 5 Incorporated by reference to the Company's current report on Form 8-K dated May 21, 1992, file number 0-17973. 6 Incorporated by reference to the Company's current report on Form 8-K dated June 30, 1993, file number 0-17973. 7 Incorporated by reference to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1993, file number 0-17973. 8 Incorporated by reference to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1993, file number 0-17973. 9 Incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 1993, file number 0-17973. 10 Incorporated by reference to the Company's annual report on Form 10-KSB for the year ended December 31, 1994, file number 0-17973. 11 Incorporated by reference to the Company's registration statement filed on Form S-8, file number 33-63751. 12 Incorporated by reference to the Company's registration statement on Form S-8, file number 33-63749. 13 Incorporated by reference to the Company's registration statement on Form S-8, file number 333-01525. 14 Incorporated by reference to the Company's current report on Form 8-K, dated October 31, 1995, file number 0-17973. 15 Incorporated by reference to the Company's current report on Form 8-K, dated February 23, 1996, file number 0-17973. 16 Previously filed on the Company's annual report on Form 10-KSB for the years ended December 31, 1995, filed on April 15, 1996, file number 0-17973. Indicates a management contract or compensatory plan or arrangement required to be filed herewith.
(b) A report on Form 8-K dated October 31, 1994 was filed by the Company regarding the acquisition of the 75% ownership interest in Urological Ultrasound Services of Tampa Bay, a partnership in which the Company already owned a 25% ownership interest. The Form 8-K was amended in January 1995 to include financial statements of the partnership and proforma financial statements of the Company. A report on Form 8-K dated October 31, 1995 was filed by the Company regarding various contracts entered into by the corporation. No financial statements were included. A report on Form 8-K dated February 23, 1996 was filed by the Company regarding the acquisition of the securities of I-Link Worldwide, Inc., the completion of a private placement of $1,000,000 in aggregate principal amount of convertible promissory notes, and the conversion of Class A Preferred Stock into Common Stock. No financial statements were included. 28 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. Dated: June 20, 1996 MEDCROSS, INC. (Registrant) By: /s/ Henry Y.L. Toh Henry Y.L. Toh President/Director/CEO/Acting CFO 29 MEDCROSS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Accountants 31 Consolidated Balance Sheet 32 Consolidated Statements of Operations 33 Consolidated Statements of Cash Flows 34 Notes to Consolidated Financial Statements 36 30 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Medcross, Inc. St. Petersburg, Florida We have audited the accompanying consolidated balance sheet of Medcross, Inc. and subsidiaries as of December 31, 1995 and the related statements of operations and cash flows for the two years 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 audits. We conducted our audits 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 audits provides 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 Medcross, Inc. and subsidiaries as of December 31, 1995 and the consolidated results of their operations and their cash flows for the two years then ended in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand, LLP Tampa, Florida April 15, 1996 31
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1995 Assets Current assets Cash and cash equivalents $ 79,316 Accounts receivable less allowances of $694,436 921,793 Inventory 829,988 Prepaid expenses 87,253 --------- Total current assets 1,918,350 --------- Property and equipment Office furniture, equipment, leasehold improvements, and vehicles 386,736 Medical equipment and vehicles 2,970,122 --------- 3,356,858 Less accumulated depreciation 1,736,701 --------- Net property and equipment 1,620,157 --------- Investment in unconsolidated subsidiary 6,250 Intangible assets less accumulated amortization of $244,887 535,468 Other assets 66,638 --------- Total assets $ 4,146,863 ========= Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 615,373 Advance deposits received 233,728 Note payable - related party 88,000 Notes payable 400,000 Current portion of long-term debt - relate party 39,230 Current portion of long-term debt 702,447 Current obligations under capital lease 155,145 --------- Total current liabilities 2,233,923 --------- Long-term debt - related party 87,682 Minority interest in consolidated subsidiaries 370,092 Commitments and contingencies - Stockholders' equity Preferred stock 2,075,000 Common stock, $.007 par value, authorized 20,000,000 shares, issued and outstanding 1,803,092 shares 12,622 Additional paid-in capital 3,428,854 Accumulated deficit (4,061,310) --------- Total stockholders' equity 1,455,166 --------- Total liabilities and stockholders' equity $ 4,146,863 =========
The accompanying notes are an integral part of these financial statements. 32
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 1995 1994 ----------- ----------- Net health care service revenue $ 2,785,064 $ 3,268,910 Equipment sales and service 337,889 504,015 --------- --------- Net operating revenue 3,122,953 3,772,925 --------- --------- Cost of goods sold - equipment sales and service 154,481 542,195 Salaries and benefits 1,123,340 1,253,799 Repairs and maintenance 309,255 321,988 Provision for doubtful accounts 365,093 365,690 Depreciation and amortization 465,020 488,963 Other operating expenses 1,199,519 1,331,898 --------- --------- Operating loss ( 493,755) ( 531,581) --------- --------- Interest expense ( 160,423) ( 168,183) Interest income 10,717 29,815 Gain (loss) on sale of property and equipment ( 765) 425 Equity in net income (loss) of unconsolidated subsidiaries 20,500 ( 66,249) Other income 59,377 4,630 --------- --------- Loss before minority interest in net income (loss) of consolidated subsidiaries and income tax benefit ( 564,349) ( 731,143) Minority interest in net income (loss) of consolidated subsidiaries 12,440 ( 52,385) --------- --------- Loss before income tax benefit ( 551,909) ( 783,528) Income tax benefit - ( 68,094) --------- --------- Net loss $( 551,909) $( 715,434) ========= ========= Loss per common and equivalent share after preferred dividends $( .39) $( .55) ========= ========= Weighted average common and equivalent shares outstanding 1,756,540 1,520,960 ========= =========
The accompanying notes are an integral part of these financial statements. 33
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 1995 1994 ----------- ----------- Cash flows from operating activities Net loss $( 551,909) $( 715,434) Adjustments to reconcile net loss to net cash provided (used) by operating activities Depreciation 380,396 403,191 Amortization 84,624 85,745 Warranty liability ( 94,091) 93,280 Warrant expense 16,667 3,333 Professional fees 50,000 - Provision for doubtful accounts 365,093 365,690 Gain (loss) on sale of property and equipment 765 ( 425) Equity in net loss (income) of unconsolidated subsidiaries ( 20,500) 66,249 Distributions from unconsolidated subsidiary - 120,853 Minority interest in net income (loss) of consolidated subsidiaries ( 12,440) 52,385 Provision for deferred income tax benefit - ( 68,094) Decrease (increase) in assets: Accounts receivable ( 161,353) ( 431,078) Inventory 91,926 ( 825,079) Prepaid expenses 41,338 ( 12,358) Organization and loan costs 14,055 ( 47,206) Other assets 5,127 2,146 Increase (decrease) in liabilities: Accounts payable and accrued expenses 201,634 267,739 Other current liabilities ( 91,970) 266,850 --------- --------- Net cash provided (used) by operating activities 319,362 ( 372,213) --------- --------- Cash flows from investing activities Purchase of property and equipment ( 23,222) ( 47,611) Purchase interest in Urological Ultrasound Services of Tampa Bay - ( 168,162) Purchase minority interest in Medcross Imaging, Ltd. - ( 9,000) Proceeds from sale of property and equipment 5,755 425 Investment in unconsolidated subsidiary ( 6,250) ( 3,750) Sale of interest in unconsolidated subsidiary 28,000 - --------- --------- Net cash provided (used) by investing activities 4,283 ( 228,098) --------- --------- - continued -
The accompanying notes are an integral part of these financial statements. 34
MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Year Ended December 31 1995 1994 ----------- ----------- Cash flows from financing activities Net proceeds from notes payable - related parties $ 218,000 $ - Net proceeds (reduction of) from notes payable ( 151,000) 276,000 Reductions of long-term debt - related party ( 3,088) - Reductions of long-term debt ( 367,783) ( 389,143) Reduction of capital lease obligations ( 246,451) ( 223,765) Issuance of common stock 15 8 Additional paid-in capital 1,805 2,974 Minority interest contributions - 260,417 Minority interest distributions ( 54,750) ( 55,517) --------- --------- Net cash used by financing activities ( 603,252) ( 129,026) --------- --------- Effect of foreign currency translation on cash flows ( 2,234) ( 86,263) --------- --------- Decrease in cash and cash equivalents ( 281,941) ( 815,600) Cash and cash equivalents at beginning of year 361,157 1,176,757 --------- --------- Cash and cash equivalents at end of year $ 79,316 $ 361,157 ========= ========= Supplemental cash flow information Interest paid $ 129,859 $ 140,979 ========= ========= Income taxes paid (received) $ - $ - ========= =========
In May 1994, the Company revalued the accounts receivable of Tampa MRI that were purchased in June 1993. Purchased receivables were revalued at $183,273 greater than originally recorded, which resulted in a corresponding decrease in goodwill. In July 1994, a holder of Class B Preferred Stock converted 695 shares into 17,008 shares of common stock. In October 1994, upon dissolution of Urological Ultrasound Services of Tampa Bay, $108,612 in assets and liabilities, excluding cash, were distributed to the Company. In November 1994, a Warrant to purchase 250,000 shares of common stock was issued pursuant to a Financial Consulting Agreement. The Warrant was valued at $20,000, which is included in paid-in capital and is being expensed over the one-year term of the agreement. In February 1995, a holder of Class B Preferred Stock converted 9,305 shares into 227,714 shares of common stock. In September 1995, the Company entered into a consulting agreement whereby 50,000 shares of common stock was issued. The market price of the common stock upon issuance was $62,500 and is being expensed over the five month term of the consulting agreement. In September 1995, one of the noteholders of the $600,000 promissory note demanded payment, due in common stock. A reduction of $5,201 of the debt resulted in an issuance of 1,849 shares of common stock. The accompanying notes are an integral part of these financial statements. 35 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Business Nature of business The Company is in two businesses. Domestically the Company is a provider of diagnostic and clinical services to healthcare facilities and directly to patients both with its own equipment and equipment of other entities under management contracts. In China, the Company sells and services used medical equipment. Note 2 - Accounting policies A summary of significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: Principles of consolidation The consolidated financial statements include the accounts of Medcross, Inc. (the Company) and the following subsidiaries: - Medcross Imaging, Ltd., a limited partnership, provides mobile magnetic resonance imaging services to healthcare facilities. The Company is the sole general partner of the partnership and had a 81.75% ownership interest as of December 31, 1995 and 1994. - Waters Edge Scanning Associates, Inc., a Florida corporation, provides magnetic resonance imaging services. This wholly owned subsidiary acquired the assets of Waters Edge Scanning Associates, Ltd. and its general partner, Florida Medical Enterprises, Inc. on June 1, 1993. - Urological Ultrasound Services of Tampa Bay, Inc., a Florida corporation, provides mobile ultrasound services. This wholly owned subsidiary began operations in October 1994 after completion of an acquisition of the 75% ownership interest not previously owned by the Company. Prior to that time, the Company recorded its share of income or loss from the 25% ownership interest on the equity method. On May 1, 1995, this subsidiary distributed all of its assets net of liabilities to the Company. All of the assets of this subsidiary, except cash, were contributed to Waters Edge Scanning Associates, Inc. - Medcross Asia, Ltd., a Hong Kong corporation, was formed by the Company as a wholly owned subsidiary in 1993. This corporation is seeking investment and equipment trading opportunities in the Far East. - Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), a People's Republic of China (PRC) corporation formed in January 1994, sells and services used computerized tomography (CT) equipment in the Shenyang Province of the PRC. The Company has a 51% ownership interest in SMHME. All significant intercompany transactions are eliminated in consolidation. Use of estimates The preparation of financial statements in conforming with generally accepted accounting principals 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. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 36 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Accounting policies - continued Fair value of financial instruments To meet the reporting requirements of FASB Statement No. 107 ("Disclosure about Fair Value of Financial Instruments"), the Company calculates the fair value of financial instruments and includes this additional information in the notes to the consolidated financial statements when the fair value is different than the book value of those financial instruments. When the fair value is equal to the book value, no additional disclosure is made. The Company uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, the Company uses standard pricing models for various types of financial instruments which takes into account the present value of future cash flows. Cash and cash equivalents Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less. Inventory Inventories consist of used and refurbished computerized tomography scanners held for sale in China. Inventories are valued at the lower of cost or market using the specific identification method. Property and equipment Property and equipment are stated at cost. Depreciation is calculated using the declining balance method over the estimated useful lives of the assets, four to nine years. Expenditures for maintenance and repairs are charged to expense as incurred, and renewals and betterments are capitalized. Gains or losses on disposals are credited or charged to operations. Investment in unconsolidated subsidiaries During 1995, the Company sold its interest in an unconsolidated subsidiary for $28,000, which was a $78,750 investment in a Florida partnership formed in February 1993. This investment was accounted for under the cost method of accounting. The Company had a 7.5% equity and profits interest in this partnership. The partnership's primary business was the sole shareholder of a Cayman Islands corporation which discontinued operations during the second quarter of 1994. As a result, the Company recorded a $71,250 writedown of the value of the investment during 1994. Until October 1, 1994, the Company had an interest in another unconsolidated subsidiary, Urological Ultrasound Services of Tampa Bay (UUSTB). This subsidiary was accounted for under the equity method of accounting, whereby the cost of the investment was adjusted for the allocable share of the undistributed income or losses of the subsidiary. The Company had a 25% equity and profits interest in UUSTB before it purchased the remaining ownership interest. At that time, the partnership was dissolved and a new company was formed (See Note 5). During 1995, the Company invested $6,250 in a joint venture formed in October 1995. The Company has an 18.75% interest in this joint venture and it is accounted for under the cost method of accounting. The joint venture was formed to determine the feasibility of the commercialization of telemedicine. 37 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Accounting policies - continued Intangible assets Organization cost is amortized on the straight-line basis over a period of sixty months. Loan costs are amortized on a straight-line basis over the period of the loans (36 months to 60 months). Syndication and other issuance costs incurred with respect to equity offerings of the Company and sale of limited partnerships interests are deferred and offset against the proceeds of the offerings at closing. Goodwill is amortized on the straight-line basis over a period of twenty to twenty-five years. Revenue recognition The Company recognizes revenue from health care services at the time services are performed net of contractual allowances based on agreements with third party payers. The Company records revenue from equipment sales when installation is completed. Advance deposits received prior to installation are recorded as a current liability. Warranty liability Equipment sales are generally accompanied by a service warranty. Expected future product warranty costs are recorded as an expense and liability when the product is sold. Foreign currency translation The functional currency for the Company's foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement items using a weighted average exchange rate for the period. The gains or losses, net of applicable deferred income taxes, resulting from such translations are included in stockholders' equity. Some transactions of the Company and its subsidiaries are made in currencies different from their own. Gains and losses from these transactions are generally included in income as they occur. Net foreign currency transaction gains or losses are not material for any of the periods presented. The effect of foreign currency translation on cash flows in 1994 is primarily the difference between the capital contribution exchange rate stipulated in the joint venture agreement and the exchange rate at the time of the contribution. Income taxes The Company records deferred taxes in accordance with the Financial Accounting Standards Board (FASB) Statement 109, "Accounting for Income Taxes." The Statement requires recognition of deferred tax assets and liabilities for the temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 38 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Accounting policies - continued Income (loss) per common and equivalent share Income (loss) per common and equivalent share is based on the weighted average number of common shares outstanding and the dilutive effect of common stock equivalents consisting of stock options and convertible preferred stock. Fully diluted earnings per share are not presented because they approximate earnings per common and equivalent share. Note 3 - Major customers and concentrations of credit risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with what it believes to be high credit quality financial institutions and attempts to limit its exposure in any one particular instrument. The Company provided magnetic resonance imaging services to two major customers in 1995 and 1994. The revenue and accounts receivable balances, net of contractual allowances, at year end for each of these customers were as follows:
Revenue Accounts Receivable 1995 1994 1995 1994 -------- -------- ------- ------- Customer A $566,945 $825,751 $87,223 $92,263 Customer B 304,791 395,033 18,200 55,301
Note 4 - Related party transactions The Company had a management agreement with the unconsolidated subsidiary, of which the Company is a general partner. The Company also had a management agreement with the previously unconsolidated subsidiary of which it purchased the 75% interest in October 1994. The Company recognized revenue from these entities in the amount of $3,200 and $111,534 during 1995 and 1994, respectively. There were no accounts receivables from these entities at December 31, 1995. During the first quarter of fiscal 1995, the Company received advances totaling $218,000 from Mortgage Network International. Henry Y.L. Toh, the President and Chief Executive Officer of the Company, has management control over Mortgage Network International ("MNI"). Such advances were previously payable upon demand. Subsequent to the extension of such advances, the Board of Directors approved delivery of a promissory note representing the aggregate amount of such advances, which promissory note matured by its terms on October 1, 1995 and bears interest at one percent over the prime rate of interest established by Southwest Bank of Texas, N.A. Subsequently, the Company and MNI modified the Note such that: (i) a principal payment in the amount of eighty-eight thousand dollars ($88,000) is due and payable on December 31, 1996; (ii) interest thereon is payable monthly at the rate of 10.5%; and (iii) the remaining principal amount of one-hundred thirty thousand dollars ($130,000) with interest thereon at the rate of 10.5% will be paid in thirty-six (36) equal monthly payments of four-thousand, two hundred, and twenty-five dollars and thirty-two cents ($4,225.32). 39 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Acquisition of assets In October 1994, the Company closed on the acquisition of a 75% ownership interest in Urological Ultrasound Services of Tampa Bay (UUSTB) from Urology Ultrasound, Inc. Prior to the acquisition, the Company owned the other 25% ownership interest in UUSTB. The total consideration given for the 75% partnership interest was $168,162. The purchase price was paid in cash at closing. UUSTB was organized on September 9, 1987 and is in the business of providing urological ultrasound services to urologic patients in west central Florida. When the Company acquired the 75% partnership interest in UUSTB from Urology Ultrasound, Inc., the partnership ceased to exist. The Company immediately transferred all assets and liabilities of the partnership, except cash of $115,603 to Urological Ultrasound Services of Tampa Bay, Inc., a wholly owned subsidiary of Medcross, formed for the purpose of this acquisition. The acquisition was accounted for as a purchase. The results of operations of the acquired enterprise is included in the consolidated financial statements beginning October 1, 1994. Prior to the acquisition, the Company recorded its share of income and loss on its 25% ownership interest in UUSTB using the equity method. The following table presents the pro forma financial information of the Company and UUSTB for the year ended December 31, 1994 assuming such transactions had occurred on January 1, 1994:
Income (loss) Net Operating Net Income Per Common Year Ended December 31, 1994 Revenue (Loss) Share ------------- ---------- ------------- Company $ 3,772,925 $(713,421) $(.55) UUSTB 252,347 20,006 === --------- ------- Combined 4,025,272 (693,415) Pro forma adjustments ( 76,034) ( 3,010) --------- ------- Pro forma combined $ 3,949,238 $(696,425) $(.53) ========= ======= ===
Note 6 - Purchase of minority interest In October 1994, the Company acquired an additional 1% ownership interest in Medcross Imaging, Ltd. Prior to the acquisition, the Company had a 80.75% ownership interest. The acquisition increased the Company's ownership interest in Medcross Imaging, Ltd. to 81.75%. The acquisition was made by purchasing a limited partnership unit from a certain limited partner for $9,000. The purchase price was paid in cash. Note 7 - Notes payable Unsecured promissory note, payable to Mortgage Network International, interest payable at 10.5% payable monthly, principal balance due December 31, 1996. $ 88,000 ========= Line of credit, $700,000, payable to First Union National Bank, interest payable at 3/4% above prime rate, (prime rate was 8.5% at December 31, 1995), principal balance due June 30, 1996, collateralized by accounts receivable and general assets of the Company. $ 400,000 =========
The line of credit contains restrictive covenants relating to equity requirements, minimum cash balances, acquisitions, debt to equity ratios, borrowing base requirements, and net cash flow coverage requirements. On December 31, 1995, the Company was in violation of the consolidated equity, net cash flow coverage, past days sales and cash balance covenants. The Company received a waiver from the bank of these loan covenant violations thru June 30, 1996. The company is continuing its attempts to secure new financing to repay the line of credit. 40 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Notes payable - continued The Company has reached an agreement with First Union National Bank pursuant to which the Company has agreed to secure alternative financing to repay amounts outstanding under the line of credit by June 30, 1996. In the event that the Company is unable to secure such financing, the Company will be obligated to repay amounts outstanding under the line of credit in increments of $10,000 per month commencing on July 1, 1996, subject to negotiation of the terms of the balloon payment thereafter which could be due on July 1, 1996. In the event the line of credit is due on July 1, 1996, the Company will be required to secure alternative financing to repay amounts outstanding. Note 8 - Long-term debt
Long-term debt at December 31, 1995 was as follows: Equipment obligation, payable to First Union National Bank, due in monthly installments of $28,929, plus accrued interest at prime rate plus 3/4% per annum, (prime rate was 8.5% at December 31, 1995) until a final payment due February 10, 1996, collateralized by certificate of deposit and certain medical equipment. $ 32,648 Unsecured promissory note in amount of $600,000 inclusive of simple interest through September 30, 1995 at rate of 5.33%, payable on September 30, 1996 in 213,333 shares of Medcross common stock. The holder may demand payment of principal and interest any time after September 30, 1995. After this date, the note bears interest at the rate of 8% per annum payable in cash. 594,799 Unsecured promissory notes, payable to 11 individuals, interest only paid quarterly, maturing September 30, 1996, convertible on demand by holders into 18,750 shares of Medcross common stock after September 30, 1995. 75,000 Unsecured promissory note, payable to Mortgage Network International due in 36 equal monthly installments of principal and interest totalling $4,225.32. The interest rate is 10.5% 126,912 ------- 829,359 Less current portion 741,677 ------- $ 87,682 ======= The fair value of the long-term debt was approximately $400,000 at December 31, 1995. Principal repayments on long term obligations are expected to occur as follows: Years ending December 31, 1996 741,677 1997 43,554 1998 44,128 ------- $829,359 =======
Certain financing agreements contain restrictive covenants relating to equity requirements, guarantor agreements, sales of property, acquisitions and debt to equity ratio. The most restrictive covenant is that Medcross Imaging, Ltd. cannot, without first having obtained a written consent of the lender, make distributions to any of the partners unless its debt coverage ratio is equal to or greater than 1.3 to 1.0 for any twelve consecutive months calculated on a quarterly basis. At December 31, 1995, the Company was in compliance with the covenants. 41 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Leases The Company has a capital lease for its MRI equipment at Tampa MRI which requires monthly payments of $22,886. The lease allows the Company to purchase the equipment for $1 upon termination at July 31, 1996. At December 31, 1995, the Company's property and equipment included $704,202 of medical equipment under capital lease with accumulated amortization of $249,214. The Company leases its corporate office and its China offices in Shenyang and Beijing on a month-to-month basis. The Company leases the facilities where Tampa MRI operates under two separate operating leases. The lease for the medical facility is for five years, commencing June 1, 1993, with a current lease payment of $3,431 per month, plus sales tax. The Company has the option to extend the lease for an additional two-year period. The lease for the business office space is for one year, commencing June 1, 1995, with a current lease payment of $1,363 per month, plus sales tax. The Company has the option to extend the lease for an additional one-year period.
Future minimum lease payments under the leases are as follows: Capital Operating -------- --------- 1996 $160,202 $ 47,987 1997 - 41,172 1998 - 17,155 ------- ------- Total minimum obligations 160,202 $106,314 Less interest 5,057 ======= ------- Present value of net minimum obligations 155,145 =======
Lease expense for 1995 and 1994 was $107,360 and $141,717, respectively. Note 10 - Commitments and contingencies As part of the consideration for the purchase of the assets of Waters Edge Scanning Associates, Ltd. two contingent notes with a net present value of $639,212 were issued. The contingencies are based on the MRI center meeting various levels of cash receipts through September 30, 1995. These contingent notes were not recorded due to the fact that the contingencies were not met. The Company has guaranteed $100,000 of a promissory note issued by I-Link payable to Scott Cook. A Complaint was filed on April 12, 1996, by JW Charles Financial Services, Inc. ("JWC") against the Company in Palm Beach County Florida Circuit Court, JW Charles Financial Services, Inc. v. Medcross, Inc., Case No: CL96-3218. JWC was issued a Common Stock Purchase Warrant ("Warrant") on or about November 3, 1994 by the Company. The Alleged terms of the Warrant granted JWC the right to purchase from the Company 250,000 shares of the Company's Common Stock subject to adjustment. On or about February 12, 1996, JWC made written demand to the Company to invoke its rights to have the common shares underlying the Warrant registered pursuant to the terms of the Warrant. The Complaint alleges that the Company breached the terms of the Warrant by failing to prepare and file with the Securities and Exchange Commission ("SEC"), a registration statement covering the common stock underlying JWC's Warrant. JWC alleges a breach of contract; and requests specific performance, i.e., registering the shares with the SEC, against the Company. JWC also demands damages in the amount of $2,728,478.00 plus interest, reasonable attorneys fees, and forum costs. The Company believes that it has meritorious defenses to the Complaint. Note 11 - Income taxes
The components of the provision (benefit) for income taxes for the years ended December 31, 1995 and 1994 were as follows: 1995 1994 ----------- ----------- Current tax expense $ - $ - Deferred tax expense (benefit) Current - 118,671 Deferred - ( 186,765) --------- --------- $ - $( 68,094) ========= =========
42 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 - Income taxes - continued
The sources of significant timing differences which gave rise to deferred tax assets and liabilities as of December 31, 1995 are as follows: Total Current Non-current ---------- ---------- ----------- Conversion of subsidiaries from accrual to cash for tax purposes $(272,773) $(272,773) $ - Book basis of property and equipment in excess of tax (339,419) - (339,419) ------- ------- ------- Total deferred tax liabilities (612,192) (272,773) (339,419) ------- ------- ------- Tax operating loss carryforward 778,180 231,422 546,758 Allowance for marketable securities 29,034 29,034 - Non-deductible vacation accrual 12,317 12,317 - Tax basis of goodwill and intangible assets in excess of book 107,115 - 107,115 Foreign loss 36,134 - 36,134 Tax capital loss carryforward 34,508 - 34,508 Valuation allowance for capital loss carryforward and deferred tax asset in excess of deferred tax liability (385,096) ( -) (385,096) ------- ------- ------- Total deferred tax assets 612,192 272,773 339,419 ------- ------- ------- Net deferred tax asset (liability) $ - $ - $ - ======= ======= ======= The valuation allowance increased $108,484 in 1995. The difference between the actual tax provision and the amounts obtained by applying the statutory U.S. Federal Income Tax rate to the income before taxes is as follows: 1995 1994 ---------- ---------- Tax benefit at statutory rate $(187,649) $(266,400) Increase (decrease) in taxes resulting from the tax effects of: State income taxes - net ( 30,355) ( 43,094) Non-deductible meals and entertainment 33 7,434 Non-deductible stock warrant amortization 6,583 1,316 Non-taxable foreign currency translation adjustments 2,710 2013 Increase in total valuation allowance 108,484 240,509 Increase of prior year operating loss carryforward - ( 4,436) Expiration of capital loss carryforward 1,224 1596 Allowance for douftul accounts 115,644 - Adjust basis of property and equipment book to tax difference - ( 7,032) Other ( 16,674) - ------- ------- $ - $( 68,094) ======= =======
As of December 31, 1995, the Company had a $1,970,075 net operating loss carry forward and a $87,361 capital loss carryforward. The net operating loss carry forward will expire between the years 2006 and 2009. These amounts are subject to annual limitations pursuant to provisions of the Internal Revenue Code relating to cumulative changes in ownership. The capital loss carryforward will expire between the years 1996 and 1997. A valuation allowance has been recognized to offset that portion of the deferred tax assets whose realization is conditioned upon the realization of future taxable income or capital gains. 43 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 - Stockholders' equity Common stock In August 1994, the Company issued 17,008 shares of common stock upon the conversion of 695 shares of preferred stock. In February 1995, the Company issued 227,714 shares of common stock upon the conversion of 9,305 shares of preferred stock. In November 1995, the Company issued 50,000 shares of common stock to a consultant for consulting services as provided in a consulting agreement. In November 1995, the Company issued 1,849 shares of common stock upon demand pursuant to a promissory note. The Company issued 2,080 shares and 1,136 shares of common stock pursuant to the Employee Stock Purchase Plan in 1995 and 1994, respectively. Preferred stock In 1992, the Board of Directors approved and filed with the state of Florida an Amendment to the Articles of Incorporation designating 200,000 shares of preferred stock as Class A Variable Rate Cumulative Convertible Preferred Stock ("Class A Preferred Stock") and 22,500 shares of preferred stock as Class B Variable Rate Cumulative Convertible Preferred Stock ("Class B Preferred Stock"). The Class A Preferred Stock and Class B Preferred Stock both have a par value of $10 per share and are entitled to receive cumulative dividends at a rate equal to 2% above the 30 day certificate of deposit rate in effect on the first day of each month at the Texas Commerce Bank. The Company has the right to redeem the Class A and Class B Preferred Stock for $10 per share plus the amount of any accrued and unpaid dividends. Shares of Class A and Class B Preferred Stock may be converted into such number of whole shares of common stock as is determined by multiplying the number of shares of Class A Preferred Stock by a fraction, the numerator of which is $10 and the denominator is the conversion price ($.408625). Each share of Class A Preferred Stock will entitle the holder thereof to that number of votes which is equal to the number of shares of common stock into which the Class A Preferred Stock is convertible. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of the Class A Preferred Stock shall be entitled to distribution before any payments shall be made in the respect to the Class B Preferred Stock or common stock in amount equal to the par value per share plus all accrued and unpaid dividends and the holders of Class B Preferred Stock shall be entitled to distribution before any payments shall be made in the respect to common stock in an amount equal to the par value per share plus all accrued and unpaid dividends. On March 1, 1993, the Company and the holders of Class A Preferred Stock signed an agreement to eliminate the redemption provision of the Class A Preferred Stock. An amendment to the Company's Articles of Incorporation to eliminate the redemption provision of the Class A Preferred Stock and increase the number of authorized shares of preferred stock to 500,000 was approved by the shareholders at the annual meeting held on January 24, 1994 and filed with the State of Florida. During 1994, 695 shares of Class B Preferred Stock were converted into common stock. In February 1995, 9,305 shares of Class B Preferred Stock were converted into common stock. In December 1995, the Board of Directors approved and filed with the State of Florida an Amendment to the Articles of Incorporation designating 240,000 shares of preferred stock as Class C 12% Cumulative Convertible Preferred Stock (the "Class C Preferred Stock"). The Class C Preferred Stock has a par value of $10 per share and is entitled 44 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 - Stockholders' equity - continued to receive cumulative dividends equal to 12% per annum of the liquidation preference per share of $20. The Company does not have the right to redeem the Class C Preferred Stock. The issued and outstanding shares of Class C Preferred Stock shall convert to Common Stock on the second anniversary (December 18, 1997) of the filing of the designation with the Secretary of State of Florida (the "Conversion Date"). The shares of Class C Preferred Stock held by each holder thereof shall be converted into such number of whole shares of Common Stock as is determined by multiplying the number of shares of Class C Preferred Stock by a fraction, the numerator of which is 20 and the denominator of which is 70% of the average of the bid and ask prices per share of Common Stock as quoted by NASDAQ for the 20 consecutive trading days prior to the Conversion Date. In the case no transaction price is available, the closing bid price shall be used, or, in the case of no closing transaction price and no closing bid price being available, the fair market value of the Common Stock as determined in good faith by the Company's Board of Directors shall be used. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company, each share of Class C Preferred Stock shall have a liquidation preference of $20 per share. With respect to the payment of dividends and rights to redemption and upon liquidation, the holders of Class C Preferred Stock shall be subordinate to the issued and outstanding shares of Class A Preferred Stock and Class B Preferred Stock of the Company and shall rank senior to the shares of Common Stock of the Company. At December 31, 1995, the Company had 200,000 shares of Class A Preferred Stock, 7,500 shares of Class B Preferred Stock, and no shares of Class C Preferred Stock issued and outstanding. At December 31, 1995, 30,000 of the 500,000 shares of preferred stock authorized remain undesignated and unissued. Accrued and unpaid dividends at December 31, 1995 were $319,623 and $14,981 for Class A Preferred Stock and Class B Preferred Stock, respectively. Executive stock option plan The Company's Executive Stock Option Plan which recently expired, authorized the granting of stock options to key employees of the Company including officers. Options granted under the Plan are non-qualified stock options exercisable at a price not less than the highest bid price per share at which the stock is quoted on the National Association of Securities Dealers, Inc. Automated Quotation System on the date the option is granted. Options are exercisable not less than one year or more than five years after the grant date. As of December 31, 1995, options for the purchase of 74,363 shares of common stock at prices ranging from $1.3125 to $2.875 per share were outstanding. Options for the purchase of 33,763 shares were exercisable within sixty (60) days of year end. No options were exercised in 1994 or in 1995. Director stock option plan The Company's Director Stock Option Plan which recently expired, authorized the granting of stock options to Directors of the Company. Options granted under the Plan are non-qualified stock options exercised for a price equal to the fair market value per share of common stock on the date of any such grant. Options are exercisable not less than six months or more than ten years after the date of grant. As of December 31, 1995, options for the purchase of 74,964 shares of common stock at prices ranging from $0.875 to $3.875 per share were outstanding. Options for the purchase of 35,556 shares were exercisable within 60 days of year end. To date, no options have been exercised. 45 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 - Stockholders' equity - continued Stock purchase plan In accordance with the Employee Qualified Stock Purchase Plan adopted in June 1990, employees may contribute up to 10 percent of their base wages towards the purchase of the Company's common stock. The option price is the lesser of 85% of the market value on the first business day of the Payment Period (September 1) or the last business day of the Payment Period (August 31). As of December 31, 1995, the Company had 36,059 shares of common stock reserved for issuance on exercise of the purchase rights. On August 31, 1995, 2,080 shares of common stock were issued at a price of $0.875 per share. On August 31, 1994, 1,136 shares of common stock were issued at a price of $2.625 per share. 1995 Director Stock Option Plan In October 1995, the stockholders of the Company approved adoption of the Company's 1995 Director Stock Option and Appreciation Rights Plan, which plan provides for the issuance of incentive options, non-qualified options and stock appreciation rights (the "1995 Director Plan"). The 1995 Director Plan provides for automatic and discretionary grants of stock options which qualify as incentive stock options (the "Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as options which do not so qualify (the "Non-Qualified Options") to be issued to directors. In addition, stock appreciation rights (the "SARs") may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. The 1995 Director Plan provides for the grant of Incentive Options, Non- Qualified Options, and SARs to purchase up to 250,000 shares of common stock ( subject to adjustment in the event of stock dividends, stock splits, and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercised portion. If any Incentive Option, Non- Qualified Option or SAR terminates prior to exercise thereof and during the duration of the 1995 Director Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Director Plan for the grant of additional options or rights to any eligible employee. The shares of common stock subject to the 1995 Director Plan may be made available from either authorized but unissued shares, treasury shares, or both. The 1995 Director Plan also provides for the grant of Non-Qualified Options on a discretionary basis pursuant to the following formula: each member of the Board of Directors then serving shall receive a Non-Qualified Option to purchase 10,000 shares of common stock at an exercise price equal to the fair market value per share of the common stock on that date. Pursuant to such formula, directors received options to purchase 10,000 shares of common stock as of October 17, 1995, and will receive options to purchase 10,000 shares of common stock on the first business day of each January beginning in 1996. Each option is immediately exercisable for a period of ten years from the date of grant. The Company has 250,000 shares of common stock reserved for issuance under the 1995 Director Option Plan. As of December 31, 1995, options exercisable to purchase 40,000 shares of common stock at a price of $1.25 per share have been granted under the 1995 Director Plan. As of December 31, 1995, no options have been exercised. 1995 Employee Stock Option Plan In October 1995, the stockholders of the Company approved adoption of the Company's 1995 Employee Stock Option and Appreciation Rights Plan (the "1995 Employee Plan"), which plan provides for the issuance of Incentive Options, Non-Qualified Options, and SARs. 46 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 - Stockholders' equity - continued Directors of the Company are not eligible to participate in the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock options which qualify as Incentive Stock Options under Section 422 of the Code, to be issued to officers who are employees and other employees, as well as Non-Qualified Options to be issued to officers, employees, and consultants. In addition, SARs may be granted in conjunction with the grant of Incentive Options and Non- Qualified Options. The 1995 Employee Plan provides for the grant of Incentive Options, Non- Qualified Options, and SARs of up to 400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercisable portion. If any Incentive Option, Non-Qualified Option or SAR terminates prior to exercise thereof and during the duration of the 1995 Employee Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Employee Plan for the grant of additional options or rights to any eligible employee. The shares of common stock subject to the 1995 Employee Plan may be made available from either authorized but unissued shares, treasury shares, or both. The Company has 400,000 shares of common stock reserved for issuance under the 1995 Employee Plan. As of December 31, 1995, no options to purchase shares of common stock have been granted under the 1995 Employee Plan. Other warrants and options Pursuant to the terms of a Consulting Agreement dated as of October 13, 1992 between the Company and The Equity Group, Inc., the Company issued two Common Stock Purchase Warrants (the "Equity Warrants") each covering 21,429 shares of common stock to The Equity Group as partial consideration for its rendering financial public relations and consulting services to the Company. Both Equity Warrants are exercisable at a price of $3.50 per share and expire on October 14, 1997. Pursuant to the terms of a Financial Consulting Agreement dated as of November 3, 1994 between the Company and JW Charles Financial Services, Inc., the Company issued a Common Stock Purchase Warrant (the "JW Charles Warrant") covering 250,000 shares of common stock to JW Charles Financial Services as partial consideration for its rendering financial consulting services to the Company. The warrant is exercisable at a price of $2.00 per share and expires on November 3, 1999. The JW Charles and Equity Warrants (the "Warrants") contain anti-dilution provisions providing for adjustments in the exercise price. The JW Charles Warrant also contains anti-dilution provisions providing for adjustments in the number of shares covered by the warrant. The holders of the Warrants have no voting, dividend, or other stockholder rights or privileges unless and until the Warrants have been exercised. The holders of the Warrants have been granted "piggy back" registration rights under the Securities Act of 1933 with respect to the Warrants and the underlying shares of common stock. The Company will pay the expense of such registration and of such registration qualifications of the Warrants and underlying shares of common stock under the Securities Act of 1933 of such dates as the holders of the Warrants may determine. Pursuant to a Consulting Agreement dated as of August 6, 1995 between the Company and Timothy R. Barnes, formerly an officer of the Company, the Company issued a Common Stock Purchase Warrant covering 36,858 shares of common stock as consideration for the rendering of consulting services to the Company. The Warrant is exercisable at a price of $1.00 per share and expires on August 5, 1999. 47 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 - Stockholders' equity - continued Pursuant to the issuance of a promissory note by I-Link to Scott Cook, the Company issued a Common Stock Purchase Option covering 100,000 shares of the Company's common stock. The option is exercisable at a price of $1.00 and expires on December 31, 1999. Pursuant to a Consulting Agreement dated as of October 18, 1995 between the Company and Jason H. Pollak and Kalo Acquisitions, LLC, the Company issued an Option to purchase common stock covering 150,000 shares of common stock as consideration for the rendering of consulting services to the Company. The agreement provided Mr. Pollak with an option to purchase 50,000 shares of common stock each year at purchase prices of $1.50,. $2.50, and $3.50. The option expires on January 31, 1999. Note 13 - Geographic segment information
The Company's operations consist of providing diagnostic and clinical outpatient health care services domestically and the sale and service of used medical equipment in the People's Republic of China (PRC). Financial information for the different geographic segments is as follows: Year Ended December 31, 1995 Domestic China Corporate Eliminations Consolidated - ------------------------ ---------- ----------- ----------- -------------- ------------ Revenue $2,486,708 $ 340,233 $ 423,956 $ (127,944) $ 3,122,953 ========= ========== ========== ============ ========== Operating Profit (Loss) $ 196,714 $( 171,083) $( 519,386) $ - $( 493,755) ========= ========== ========== ============ ========== Identifiable Assets $3,048,001 $ 1,098,742 $ 682,277 $ (682,157) $ 4,146,683 ========= ========= ========== ============ ========== Amortization and Depreciation $ 438,498 $ 13,011 $ 13,511 $ - $ 465,020 ========= ========== ========== ============ ========== Capital Expenditures $ 20,801 $ 2,046 $ 375 $ - $ 23,222 ========= ========== ========== ============ ========== Year Ended December 31, 1994 Domestic China Corporate Eliminations Consolidated - ---------------------------- ---------- ----------- ----------- ------------ ------------ Revenue $2,761,458 $ 512,973 $ 630,853 $( 132,359) $ 3,772,925 ========= ========== ========== ========== ========== Operating Profit (Loss) $ 537,338 $( 581,856) $( 487,063) $ - $( 531,581) ========= ========== ========== ========== ========== Identifiable Assets $3,710,698 $ 1,284,824 $ 217,780 $ - $ 5,213,302 ========= ========== ========== ========== ========== Amortization and Depreciation $ 459,663 $ 10,861 $ 18,412 $ - $ 488,936 ========= ========== ========== ========== ========== Capital Expenditures $ 10,257 $ 18,590 $ 2,032 $ - $ 30,879 ========= ========== ========== ========== ==========
The corporate office provides management and operational services for domestic outpatient health care services. The eliminations represent charges for these services to entities included in the consolidation. 48 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 - Subsequent Events On February 23, 1996, the Company closed its acquisition of all of the issued and outstanding common stock of I-Link Worldwide Inc., a Utah corporation ("I-Link") from ILINK, Ltd., a Utah limited partnership in exchange for the issuance of an aggregate of 4,000,000 shares of Common Stock of the Company. The purchase price was determined through arms-length negotiation. The acquisition was accounted for using the purchase method of accounting. Pursuant to the terms of the stock purchase agreement, 2,600,000 shares of the Common Stock issued pursuant to the acquisition of I-Link, Ltd. were placed in escrow to be released as follows: 1. 1,600,000 shares of Common Stock are to be released upon the receipt of proceeds greater than or equal to $4,000,000 from the sale of the Company's securities pursuant to the conduct of one or more private or public offerings prior to December 31, 1996; and 2. 1,000,000 shares of Common Stock are to be released upon the first to occur of the following: (i) the monthly revenue derived from subscribers serviced by ILINK, Ltd. and revenue derived from the sale of related products and/or services equals or exceeds $1,000,000; or (ii) the number of subscribers serviced by ILINK, Ltd. exceeds 100,000 one year from the date of receipt by the Company of gross proceeds equal to $4,000,000 from the sale of its securities pursuant to one or more private or public offerings. I-Link provides Internet access services to individuals and businesses in the United States. I-Link is also the owner of a proprietary technology (patent pending) which enables the transmission of information via facsimile over the Internet. There was no affiliation or relationship between the Company, its affiliates, officers or directors, or associates of such persons and I-Link or ILINK, Ltd. or any of their officers, directors, stockholders, or partners prior to the acquisition. Simultaneous with the closing of its acquisition of I-Link, the Company completed a private placement of $1,000,000 in aggregate principal amount of convertible promissory notes (the "10% Notes"). The 10% Notes are payable upon the earlier of August 31, 1996 (subject to extension) or the Company's receipt of proceeds of at least $4,000,000 from subsequent debt or equity offerings. The 10% Notes bear interest payable semi-annually at the rate of 10% until August 31, 1996 (13% after such date of the term of the 10% Note is extended). Up to $1,250 of each $50,000 in principal amount of note is convertible at any time at the option of the holder, into a maximum of 350,000 shares of Common Stock at the rate of approximately $.0714 per share, subject to certain antidilution adjustments. The 10% Notes may be extended until February 29, 1997 upon payment by the Company of 2.5% of the then outstanding principal balance of the 10% Note. The proceeds of such offering were used to pay outstanding accounts payable and other debts of I-Link. The following presents the pro forma financial information of the Company and I-Link as applicable for the year ended December 31, 1995 assuming such transactions had occurred on January 1, 1995 and for the year ended December 31, 1994 assuming the transactions had occurred on January 1, 1994: 49 MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 - Subsequent Events - continued
Loss Per Common Net Operating Share After Year Ended December 31, 1995 Revenue Net Loss Preferred Dividends ------------- ------------ ------------------- Company $ 3,122,953 $( 551,909) $(.39) I-Link 229,721 (1,446,219) === --------- --------- Combined 3,352,674 (1,998,128) Pro forma adjustments - (3,304,633) --------- --------- Pro forma combined $ 3,352,674 $(5,302,761) $(1.28) ========= ========= ==== Loss Per Common Net Operating Share After Year Ended December 31, 1994 Revenue Net Loss Preferred Dividends ------------- ------------ ------------------- Company $ 3,772,925 $( 715,434) $(.55) I-Link - ( 165,125) === --------- --------- Combined 3,772,925 ( 880,559) Pro forma adjustments - (2,881,170) --------- --------- Pro forma combined $ 3,772,925 $(3,761,729) $(1.33) ========= ========= ==== 1 For the period August 1, 1994 through December 31, 1994.
On February 21, 1996, in connection with the grant of an option by the Kanter Group, 40,000 shares of outstanding Class A Preferred Stock of the Company was converted into 978,891 shares of Common Stock. Options to acquire the 3,915,570 shares of Common Stock issuable upon conversion of the remaining 160,000 shares of Class A Preferred Stock outstanding have been granted by Four M. Dr. R. Huston Babcock, holder of all 7,500 shares of Class B Preferred Stock has also granted an option to purchase the 183,542 shares of Common Stock issuable upon conversion thereof. The Kanter Group sold to certain persons, including affiliates and associated persons of Commonwealth Associates, 978,891 shares of Common Stock issued upon conversion of 40,000 shares of Class A Preferred Stock at a purchase price of $485,000 (equal to $.4955 per share). Four M has granted certain options exercisable commencing August 1, 1996 (subject to the satisfaction of certain conditions) to purchase the 3,915,570 shares of Common Stock issuable upon conversion of 160,000 shares of Class A Preferred Stock. The exercise price is equal to the lesser of 200% of the average of the closing bid and ask price per share of Common Stock for the ten (10) business days preceding August 1, 1996 or $1.79 per share. Commonwealth Associates received the right to purchase 545,285 shares of Common Stock prior to December 31, 1996 and 537,500 shares of Common Stock prior to December 31, 1997. Benchmark Equity Group, Inc. received the right to purchase 545,285 shares of Common Stock prior to December 31, 1996 and 537,500 shares prior to December 1997. Certain members of management of I-Link have the right to purchase 825,000 shares of Common Stock prior to December 31, 1996 and 825,000 shares prior to December 31, 1997. Scott Cook has received the right to purchase 100,000 shares of Common Stock prior to December 31, 1996. Dr. R. Huston Babcock has granted an option, upon substantially the same terms and conditions as Four M, to purchase 183,542 shares of Common Stock issuable upon conversion of 7,500 shares of Class B Preferred Stock to Benchmark Equity Group, Inc. On March 5, 1996, the Consulting Agreement between the Company and Jason H. Pollak and Kalo Acquisitions, LLC was terminated and options to purchase 100,000 shares of the Company's common stock were subsequently terminated. 50 EX-11 2
EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE 1995 1994 ------------ ------------ Earnings per common and common equivalent share Net loss available to common and equivalent shares $( 680,578) $( 829,401) ========= ========= Weighted average common shares outstanding 1,727,443 1,510,568 Adjustments Assumed conversion of Class B Variable Rate Cumulative Convertible Preferred Stock 29,097 10,122 --------- --------- Total common and equivalent shares 1,756,540 1,520,690 ========= ========= Loss per common and equivalent share after preferred dividends $( .39) $( .55) ========= ========= Fully diluted earnings per common and common equivalent share Net loss available to common and equivalent shares $( 680,578) $( 829,401) ========= ========= Weighted average common shares outstanding 1,727,443 1,510,568 Adjustments Assumed conversion of Class B Variable Rate Cumulative Convertible Preferred Stock 29,097 421,380 --------- --------- Total common and equivalent shares 1,756,540 1,520,690 ========= ========= Loss per common and equivalent share after preferred dividends $( .39) $( .55) ========= =========
186 EX-23 3 COOPERS & LYBRAND a professional services firm Consent of Independent Accountants We consent to application of our report dated March 26, 1996, included in the annual report on the Form 10-KSB of Medcross, Inc. and subsidiaries for the year ended December 31, 1995 to the amended consolidated statements of operations for the years ended December 31, 1995 and 1994 amended Note 5 - acquisition of assets, amended Note 8 - Long-term debt, amended Note 10 - Commitments and Contingencies, amended Note 14 - Subsequent events, amended Exhibit 11 of the Statement Regarding Computation of Earning per Common Share for the years ended December 31, 1995 and 1994 and amended Exhibit 27 Financial Data Schedule for the year ended December 31, 1995 which are included in this amendment on Form 10-KSB/A#1. /s/Cooper & Lybrand Tampa Florida June 21, 1996 EX-27 4
5 THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 79,316 0 1,616,229 694,436 829,988 1,918,350 3,356,685 1,736,701 4,146,863 2,233,923 0 0 2,075,000 12,622 (632,456) 4,146,863 3,122,953 3,122,953 154,481 3,616,708 89,829 0 160,423 (551,909) 0 (551,909) 0 0 0 (551,909) (.39) (.39)
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