U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 2001
Commission file number 000-29579
U.S. Medical Group, Inc.
------------------------
(Name of Small Business Issuer in its charter)
Nevada 88-0320389
------ ----------
(State of jurisdiction of incorporation) (IRS Employer I.D. Number)
1405 South Orange Avenue Suite 600, Orlando, FL 32806
-----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number (407) 849-2288
Check whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period as 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 [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock. The Registrant had 13,575,380 shares of its common stock
outstanding as of June 30, 2001.
U.S. Medical Group, Inc
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending June 30, 2001
Table of Contents
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets:
June 30, 2001 and December 31, 2000
Consolidated Statement of Operations:
Three Months and Six Months Ended
June 30, 2001 and 2000
Consolidated Statement of Cash Flows:
Six Months Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements:
June 30, 2001
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
U.S. MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
Unaudited
June 30, 2001 December 31, 2000
------------ ------------
Current assets:
Cash and equivalents $ 258,167 $ 337,050
Accounts receivable 443,468 361,833
Prepaid expenses 67,594 44,409
Prepaid Taxes, net - -
------------ ------------
Total current assets 769,228
743,292
Property and equipment - at cost:
Mobile unit and medical equipment 3,842,426 3,827,196
Furniture and fixtures 90,106 77,383
------------ ------------
3,932,532 3,904,579
Less accumulated depreciation 893,915 728,496
------------ ------------
3,038,617 3,176,083
Other assets:
Patents & Trademarks, net of amortization 31,667 39,168
Financing fees, less amortization of $13,135 and $10,597 on June
30, 2001 and December 31, 2000, respectively 4,622 7,160
------------ ------------
$ 3,844,135 $ 3,965,703
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 124,944 $ 87,145
Current maturities of long-term debt 736,618 641,828
Income tax payable - 156,036
Deferred tax liability 199,002 106,344
------------ ------------
1,060,564 991,353
Long-term debt less current maturities 832,348 1,196,905
Deferred tax liability 330,096 330,096
Stockholders' equity:
Preferred stock, par value, $.001 per share, 20,000,000 authorized
at June 30, 2001 and December 31, 2000; none issued - -
Common stock, par value, $.001 per share; 100,000,000 authorized,
13,575,380 issued at June 30, 2001 and December 31, 2000 13,575 13,575
Additional paid-in-capital 80,925 80,925
Retained earnings 1,587,608 1,371,419
------------ ------------
Treasury Stock (60,981) (18,570)
------------ ------------
1,621,127 1,447,349
------------ ------------
$ 3,844,135 $ 3,965,703
============ ============
See accompanying footnotes to the unaudited financial statements
U.S. MEDICAL GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
Six months ended June 30, Three Months ended June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Patient fees $ 1,743,703 $ 1,712,377 $ 889,863 $ 863,373
Operating expenses:
Selling, general and administrative 1,108,356 791,469 535,436 435,515
Interest expense 72,391 87,439 34,841 47,183
Depreciation expense 172,913 156,453 85,290 79,437
------------ ------------ ------------ ------------
Operating expense 1,353,660 1,035,361 655,567 562,135
Net income before taxes 390,043 677,016 234,296 301,238
Provision for income taxes 173,849 280,900 72,658 138,000
------------ ------------ ------------ ------------
Net income $ 216,194 $ 396,116 $ 161,638 $ 163,238
============ ============ ============ ============
Earnings per common share $ 0.02 $ 0.03 $ 0.01 $ 0.01
(basic and assuming dilution) ============ ============ ============ ============
Weighted average shares outstanding
Basic 13,575,000 13,575,000 13,575,000 13,575,000
Diluted 13,655,000 13,575,000 13,655,000 13,575,000
See accompanying footnotes to the unaudited financial statements
U.S. MEDICAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
For the six months ended June 30,
2001 2000
---------- ----------
Cash flows from operating activities:
Net income from operating activities $ 216,194 $ 396,116
Adjustments to reconcile net income to net cash:
Depreciation and amortization 172,913 158,990
Change in: Receivables (81,635) 234,578
Prepaid expenses and other assets (20,647) (63,732)
Deferred income taxes and other 92,658 44,100
Income tax payable (156,036) 158,800
Accounts payable and accrued expenses 37,801 (24,411)
Stock issued for merger consulting fees - -
---------- ----------
Net cash from operating activities 261,248 904,441
Cash flows used in investing activities:
Capital expenditures (27,953) (132,380)
Deposit on equipment - -
---------- ----------
Net cash used in investing activities (27,953) (132,380)
Cash flows (used in)/provided by financing activities:
Proceeds from bank loans - 250,000
Proceeds from loans from stockholders - 441,739
Repayments of bank loans (269,767) (627,751)
Repayment of loans from stockholders - (204,131)
Purchase of Treasury Stock (42,411) -
Dividend Payments - (441,739)
---------- ----------
Net cash used in financing activities (312,178) (581,882)
Net increase in cash and cash equivalents (78,883) 190,179
Cash and cash equivalents at January 1 337,050 22,763
---------- ----------
Cash and cash equivalents at June 30 $ 258,167 $ 212,942
========== ==========
Supplemental Information:
Interest Paid 55,949 78,140
Income Tax Paid 25,217 78,000
See accompanying footnotes to the unaudited financial statements
U.S. MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB, and therefore, do not
include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated December 31, 2000 financial
statements and footnotes thereto included in the Company's SEC Form 10KSB, as
amended.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary, U.S. Medical Group (Florida), Inc., formerly
American Mobile Surgical Services, Inc. Significant intercompany transactions
have been eliminated in consolidation.
Certain prior period amounts have been reclassified for comparative purposes
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS of FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 AND 2000
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this Report.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
REVENUE
The Company's total revenues were $889,863 for the three month period ended June
30, 2001 compared to $863,373 for the same period ended June 30, 2000, an
increase of $26,490, or 3%. The increase in revenue is primarily attributed as a
result of an increased caseload in Florida. The Company reported net income from
continuing operations for the three month period ended June 30, 2001 of $161,638
compared to $163,238 for the three month period ended June 30, 2000, a decrease
in earnings of $1,600, or 1%. Revenue and net income for the three-month period
ended June 30, 2001 is primarily attributed to the Florida and North Carolina
State Department of Corrections contracts.
The Company has contracts with the Florida and North Carolina State Department
of Corrections. Florida has awarded the Company with a three year contract with
two additional one year options effective August 1, 2001. The North Carolina
State Department of Corrections has exercised the third year option in the
series of four one-year options. The North Carolina one-year option contract
renewal expires June 30, 2002.
COSTS AND EXPENSES
The Company's 16.6% increase in operating expenses from $562,135 for the period
ended June 30, 2000 to $655,567 for the three month period ended June 30, 2001
is due primarily to the addition of certain Company officer salaries, increases
in wages and increased depreciation expense. Having foregone compensation since
the Company's inception in April of 1997 through the period ended December 31,
2000, Chairman and Chief Executive Officer Tom Winters and President and
Director Richard Langley now receive salaried compensation. Selling, general and
administrative expenses increased 23% from $435,515 for the three month period
ended June 30, 2000 to $535,436 for the same period ended June 30, 2001. Costs
directly associated with day-to-day operations such as medical equipment,
supplies, and staff wages for the North Carolina and Florida mobile surgery
units remained constant during the three month period ended June 30, 2001 when
compared to the three months period ended June 30, 2000.
As the Company continues to expand, the Company will incur additional costs for
personnel. In order for the Company to attract and retain quality personnel, the
Company anticipates it will continue to offer competitive salaries and grant
Company stock options to current and future employees.
Depreciation and amortization expense for the three month period ended June 30,
2001 was $85,290, an increase of $5,853, or 7.4%, from the same period in 2000.
The increase is attributable to the addition of new equipment in Florida and
North Carolina. Both of the Company's mobile surgical units were depreciated
over the entire period of three months ended June 30, 2001.
Interest expense for the three-month period ended June 30, 2001 was $34,841, a
decrease of $12,342, or 26.2%, from $47,183 for the same period ended June 30,
2000. The decrease in interest expense is due to the maturation of bank loans
that were needed to finance the construction and purchase of the Florida mobile
surgical unit.
For the three-month period ended June 30, 2001, an income tax provision of
$72,658 was charged to recognize federal, Florida state and North Carolina state
income tax liabilities. For the three-month period ended June 30, 2000, an
income tax provision of $138,000 was charged. The decrease in income tax
provision is attributed to an income tax overpayment of $102,100 for the twelve
month period ended December 31, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
REVENUE
The Company's total revenues were $1,743,703 for the six month period ended June
30, 2001 compared to $1,712,377 for the same period ended June 30, 2000, an
increase of $31,326, or 1.8%. Revenue for the six-month period ended June 30,
2001 is attributed to the Florida and North Carolina State Department of
Corrections contracts.
The Company reported net income from continuing operations for the six month
period ended June 30, 2001 of $216,194 compared to $396,116 for the six month
period ended June 30, 2000, a decrease in earnings of $179,922. Net income for
the six-month period ended June 30, 2001 was affected by the addition of certain
Company officer salaries, increases in wages, promotional expenses, insurance
and increased depreciation expense.
COSTS AND EXPENSES
The Company's 31% increase in operating expenses from $1,035,631 for the period
ended June 30, 2000 to $1,353,660 for the six month period ended June 30, 2001
is due primarily to the addition of certain Company officer salaries, increases
in wages, insurance, promotional expenditures and depreciation expense. Having
foregone compensation since inception through the period ended December 31,
2000, Chairman and Chief Executive Officer Tom Winters and President and
Director Richard Langley now receive salaried compensation. The increase in
promotional expenses is directly attributed to a promotional campaign, which
included nationwide television airtime. Selling, general and administrative
expenses increased 40% from $791,469 for the six month period ended June 30,
2000 to $1,108,356 for the same period ended June 30, 2001. Costs directly
associated with day-to-day operations such as medical equipment, supplies, and
staff wages for the North Carolina and Florida mobile surgery units remained
constant during the six months period ended June 30, 2001 when compared to the
six months period ended June 30, 2000.
As the Company continues to expand, the Company will incur additional costs for
personnel. In order for the Company to attract and retain quality personnel, the
Company anticipates it will continue to offer competitive salaries and grant
Company stock options to current and future employees.
Depreciation and amortization expense for the six month period ended June 30,
2001 was $172,913, an increase of $16,460, or 10.5%, from the same period in
2000. The increase is attributable to the addition of new equipment in Florida
and North Carolina. Both of the Company's mobile surgical units were depreciated
over the entire period of six months ended June 30, 2001.
Interest expense for the six-month period ended June 30, 2001 was $72,391, a
decrease of $15,048, or 17.2%, from $87,439 for the same period ended June 30,
2000. The decrease in interest expense is due to the maturation of bank loans
needed to finance the construction and purchase of the Florida mobile surgical
unit.
For the six-month period ended June 30, 2001, an income tax provision of
$173,849 was charged to recognize federal, Florida state and North Carolina
state income tax liabilities. For the six-month period ended June 30, 2000, an
income tax provision of $280,900 was charged. The decrease in income tax
provision is attributed to an income tax overpayment of $102,100 for the twelve
month period ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, the Company had a working capital deficit of $291,335
compared to a deficit of $248,061 at December 31, 2000, a deficit increase of
$43,275, or 17.4%. The increase in working capital deficit is attributed to a
$25,936 increase in current assets and a current liability increase of $69,211.
The increase in current assets is primarily attributable to an $81,635 increase
in receivables and a $23,185 increase in prepaid expenses. The increase in
current liabilities is primarily attributable to a $94,790 increase in current
maturities of long term debt.
The Company's accounts payable balance as of June 30, 2001 was $124,944, a
$37,799, or 43% increase from the balance as of December 31, 2000. As of June
30, 2001, current maturities of long-term debt increased 14.8% to $736,618 as of
June 30, 2001 from $ 641,828 as of December 31, 2000. The increase in current
maturities of long-term debt is primarily attributable to the maturation of a
loan from shareholders in the amount of $310,042.
The Company generated cash flows from operations of $261,248 for the six-month
period ended June 30, 2001 and $904,441 for the six-month period ended June 30,
2000, a decrease of $643,193, or 71.1%. The $643,193 decrease in cash flow from
operating activities for the six-month period ended June 30, 2001 is primarily
attributable to the decrease in the Company's net income from operations of
$179,922 when compared to the same period ended June 30, 2000, an $81,635
increase in receivables at June 30, 2001, as compared to an $234,578 decrease in
the same period ended June 30, 2000, and a $314,836 change in income tax payable
when compared to the six month period ended June 30, 2000.
Cash flows used in investing activities for the six-month period ended June 30,
2001 consisted primarily of the acquisition of $ 27,953 of surgical and medical
equipment. The equipment was placed in the Company's North Carolina and Florida
facilities.
Cash flows used in financing activities were $312,178 during the six-month
period ended June 30, 2001. The Company repaid $269,767 in bank loans and used
$42,411 for the purchase of Company stock during the six-month period ended June
30, 2001.
While the Company has raised capital though bank loans to meet its current
working capital and facility and equipment financing needs, additional financing
will be required in order to acquire additional surgical facilities. The Company
is seeking debt financing in order to provide for these expansions and for
working capital. There are no assurances the Company will be successful in
raising the funds required.
The Company has borrowed funds from significant shareholders of the Company in
the past to satisfy certain obligations. In addition, Company officers and
significant shareholders guarantee all of the Company's bank debt.
The Company plans to develop new sites for its mobile surgical units. The
Company plans to obtain financing for these units through bank loans. There can
be no assurance that management will be successful in its efforts to obtain the
financing necessary to fund the Company's growth or that contracts for future
sites will be obtained.
The effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are in the southeastern United States and
there are no seasonal aspects that would have a material adverse effect on the
Company's financial condition or results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held on May 14, 2001
for the purpose of (i) electing directors of the Company, (ii) approving the
adoption of the Company's 2000 Stock Incentive Plan, and (iii) ratifying the
appointment of the Company's independent public accounts for the year ending
December 31, 2001. Proxies for the meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934 and there was no
solicitation in opposition.
(a) The following directors were elected by the following vote:
FOR AGAINST WITHHELD
---------- --------- --------
Thomas F. Winters 10,364,087 - 3,210,913
Richard Langley 10,364,087 - 3,210,913
Sandra Thompson 10,364,087 - 3,210,913
(b) The proposal to approve the adoption of the Company's 2000 Stock
Incentive Plan:
FOR AGAINST ABSTAIN
---------- --------- --------
10,348,087 18,195 3,208,758
(c) The proposal to ratify the appointment of the independent public
accountants for the year ending December 31, 2001 was approved by the
following vote:
FOR AGAINST ABSTAIN
---------- --------- --------
10,366,242 - 3,208,758
Item 5. Other Information
At the Board of Directors Meeting on April 16, 2001, Mr. Charlie
Baumann was elected to serve as the Company's Chief Financial Officer
in addition to serving as Director of Business Development.
ITEM 6. Exhibits and reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. MEDICAL GROUP, INC.
Registrant
August 8, 2001 By: /s/ Thomas Winters
-------------- -------------------
Date Thomas Winters
Chairman of the Board and
Chief Executive Officer