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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13009
MEDICAL RESOURCES MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
NEVADA 95-4607643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
932 GRAND CENTRAL AVENUE GLENDALE, CALIFORNIA 91201
(Address of principal executive offices) (Zip Code)
(818) 240-8250
(Registrant's telephone number, including area code)
Check whether the Registrant (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 [ ]
State the number of shares outstanding of each of the Registrant's classes of
common equity, as of the latest practicable date: As of September 10, 1998 there
were 7,385,927 shares outstanding of the Registrant's common stock, $0.001 par
value.
Transitional Small Business Disclosure Format:
Yes [ X ] No [ ]
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets -- July 31, 1998 (unaudited)
and October 31, 1997 3
Consolidated Statements of Income -- Three Months and Nine
Months Ended July 31, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows -- Nine Months
Ended July 31, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS July 31, October 31,
1998 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,133 $ 64,356
Accounts receivable, less allowance of
$86,350 at July 31, 1998 and $72,000 at
October 31, 1997 1,997,820 1,829,695
Inventories 704,626 583,149
Prepaid expenses 217,533 94,378
Income tax receivable 237,737 55,113
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Total current assets 3,194,849 2,626,691
Property and equipment:
Rental equipment 18,152,568 16,216,245
Transportation equipment 819,747 847,492
Office furniture and equipment 329,371 311,657
Leasehold improvements 90,274 86,074
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19,391,960 17,461,468
Less accumulated depreciation 7,661,035 6,670,474
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Net property and equipment 11,730,925 10,790,994
Other assets:
Goodwill, net of accumulated amortization
of $29,386 at July 31, 1998
and $9,178 at October 31, 1997 374,775 394,983
Covenants not to compete, net of
accumulated amortization of $79,486
at July 31, 1998 and $23,111 at
October 31, 1997 77,389 106,889
Customer list, net of accumulated
amortization of $21,464 at July 31, 1998
and $9,722 at October 31, 1997 178,536 190,278
Deposits and other assets 278,179 175,563
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Total other assets 908,879 867,713
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Total assets $ 15,834,653 $ 14,285,398
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,631,733 $ 882,966
Accrued expenses 365,572 564,300
Notes payable 62,341 56,457
Current portion of long-term debt 549,330 527,771
Current portion of obligations under
capital leases 1,631,159 1,495,611
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Total current liabilities 4,240,135 3,527,105
Long-term debt, net of current portion 1,738,648 2,090,695
Obligations under capital leases, net
of current portion 5,354,015 4,728,500
Deferred income taxes 1,245,126 948,496
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares --
7,385,927 at July 31, 1998
and 7,345,927 at October 31, 1997 7,386 7,346
Additional paid-in capital 1,683,326 1,639,366
Retained earnings 1,566,017 1,343,890
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Total shareholders' equity 3,256,729 2,990,602
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Total liabilities and shareholders' equity $ 15,834,653 $ 14,285,398
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $2,706,620 $2,154,622 $8,750,895 $5,586,783
Cost of revenue 911,260 987,836 3,504,857 2,411,689
Depreciation expense 382,430 191,832 1,062,949 666,935
------------ ------------ ------------ ------------
Gross profit 1,412,930 974,954 4,183,089 2,508,159
Selling expenses 515,415 353,773 1,511,038 881,612
General and administrative expenses 507,011 386,398 1,577,324 1,014,126
------------ ------------ ------------ ------------
Operating income 390,504 234,783 1,094,727 612,421
Interest expense 270,364 168,178 724,515 342,111
------------ ------------ ------------ ------------
Income before income taxes 120,140 66,605 370,212 270,310
Provision for income taxes 43,255 27,993 148,085 109,475
------------ ------------ ------------ ------------
Net income $ 76,885 $ 38,612 $ 222,127 $ 160,835
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common share $ 0.010 $ 0.005 $ 0.030 $ 0.024
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares 7,385,927 7,077,615 7,384,012 6,580,330
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 222,127 $ 106,835
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 1,171,047 666,935
Deferred income taxes 296,630 51,453
Loss on sale of assets 57,505 -
Changes in operating assets and liabilities:
Accounts receivable (129,768) (277,348)
Inventories (61,699) (157,962)
Prepaid expenses (123,155) (102,133)
Income tax receivable (182,624) 4,972
Accounts payable 731,597 (41,772)
Accrued expenses (212,500) 63,127
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Net cash provided by operating activities 1,769,160 314,107
INVESTING ACTIVITIES
Purchases of property and equipment (116,791) (8,676)
Net proceeds from sale of assets 15,000 -
Payments for non-compete agreements (26,875) (130,000)
Increase in deposits and other assets (102,616) (122,033)
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Net cash used for investing activities (231,282) (260,709)
FINANCING ACTIVITIES
Issuance of common stock - 324,480
Borrowings on long-term debt 45,042 967,896
Borrowings on notes payable 196,150 -
Principal payments on long-term debt (425,164) (355,946)
Payments on notes payable (192,866) (111,191)
Principal payments on capital lease obligations (1,188,263) (731,567)
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Net cash provided by (used for) financing activities (1,565,101) 93,672
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Net increase (decrease) in cash (27,223) 147,070
Cash and cash equivalents at beginning of period 64,356 12,482
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Cash and cash equivalents at end of period $ 37,133 $ 159,552
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Supplemental information:
Cash paid during the period for:
Interest $ 738,866 $ 331,048
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Taxes $ - $ 40,050
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Capital lease obligations entered into for equipment $1,892,041 $1,336,171
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Common stock issued for acquired companies $ 44,000 $ 802,634
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Common stock issued in exchange for forgiveness of debt $ - $ 253,550
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 1998
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. 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 periods ended July 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended October 31, 1997.
The Company acquired Pulse Medical Products, Inc. (Pulse) on March 31, 1997.
The acquisition was completed through the exchange of 325,000 shares of common
stock for all of the issued and outstanding common stock of Pulse. This
transaction has been accounted for as a purchase. Accordingly, the accompanying
unaudited consolidated financial statements include the results of operations of
Pulse commencing April 1, 1997.
The Company acquired Laser Medical, Inc. (Laser Med) on June 30, 1997. This
acquisition was completed through the exchange of 190,000 shares of common stock
for all of the issued and outstanding common stock of Laser Med. This
transaction has been accounted for as a purchase. Accordingly, the accompanying
unaudited consolidated financial statements include the results of operations of
Laser Med commencing July 1, 1997.
The Company also acquired Med Surg Specialties, Inc. (Med Surg) on June 30,
1997. This acquisition was completed through the exchange of 214,667 shares of
common stock for all of the issued and outstanding common stock of Med Surg.
This transaction has been accounted for as a purchase. Accordingly, the
accompanying unaudited consolidated financial statements include the results of
operations for Med Surg commencing July 1, 1997.
The Company acquired Texas Oxygen and Medical Equipment Co. (Tomec) effective
November 1, 1997. The acquisition was completed through the exchange of 40,000
shares of common stock for all of the issued and outstanding common stock of
Tomec. This transaction has been accounted for as a purchase. Accordingly, the
accompanying unaudited consolidated financial statements include the results of
operations of Tomec commencing November 1, 1997.
2. SHAREHOLDERS' EQUITY
During the nine months ended July 31, 1998, the Company issued 83,500
incentive stock options at an exercise price of $1.13 per share.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained in Management's Discussion and Analysis,
particularly in the final paragraph of "Liquidity and Capital Resources," and
elsewhere in this Report on Form 10-QSB are forward-looking statements. These
statements discuss, among other things, expected growth, future revenues and
future performance. The forward-looking statements are subject to risks and
uncertainties, including the following: (a) changes in levels of competition
from current competitors and potential new competition; (b) loss of a
significant customer; and (c) changes in availability or terms of working
capital financing from vendors and lending institutions. The foregoing should
not be construed as an exhaustive list of all factors that could cause actual
results to differ materially from those expressed in forward-looking statements
made by the Registrant. Actual results may materially differ from anticipated
results described in these statements.
The following discussion and analysis should be read together with the
financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net revenues represented by certain items included in the Statements of
Income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
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1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of revenues . . . . . . . . . . . . 33.7 45.8 40.1 43.2
Depreciation expense . . . . . . . . . . 14.1 8.9 12.1 11.9
------ ------ ------ -----
Gross profit . . . . . . . . . . . . . . 52.3 45.3 47.8 44.9
Selling expenses . . . . . . . . . . . . 19.0 16.4 17.3 15.8
General and administrative expenses. . . 18.7 17.9 18.0 18.1
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Operating income . . . . . . . . . . . . 14.6 11.0 12.5 11.0
Interest expense . . . . . . . . . . . . 10.1 7.8 8.3 6.1
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Income before income taxes . . . . . . . 4.5 3.2 4.2 4.9
Provision for income taxes . . . . . . . 1.6 1.4 1.7 2.0
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Net income . . . . . . . . . . . . . . . 2.9% 1.8% 2.5% 2.9%
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</TABLE>
QUARTER ENDED JULY 31, 1998 COMPARED TO QUARTER ENDED JULY 31, 1997
For the quarter ended July 31, 1998, net revenues were $2,707,000, compared
to net revenues of $2,155,000 during the quarter ended July 31, 1997, an
increase of $552,000, or 25.6%. This increase in net revenues is primarily the
result of (i) a decrease in revenues of Pulse in the amount of $8,000, (ii)
additional revenues in the amount of $113,000 due to the acquisition of Laser
Med, (iii) additional revenues of approximately $60,000 due to the acquisition
of Med Surg, (iv) additional revenues of $84,000 due to the acquisition of
Tomec, and (v) an increase of $303,000 in net revenues of Physiologic Reps, Inc.
(PRI), principally attributable to (a) an increase in medical equipment rental
revenues of $161,000 due to PRI's increased investment in medical rental
equipment at the end of fiscal 1997 and (b) an increase in net revenues for
mobile laser/surgical services of approximately $142,000.
Cost of revenues for the quarter ended July 31, 1998 totaled $911,000, a
decrease of $77,000, or 7.8%, from cost of revenues for the third quarter of the
prior fiscal year. The decrease in cost of revenues is primarily attributable
to (i) a decrease in cost of revenues of Pulse in the amount of $46,000, (ii) an
increase in cost of revenues in the amount of $66,000 as a result of the
acquisition of Laser Med, (iii) an increase in cost of revenues of approximately
$25,000 as a result of the acquisition of Med Surg, (iv) an increase in cost of
revenues of $74,000 as a result of the acquisition of Tomec, all of which were
more than offset by (v) a decrease of $196,000 in cost of revenues of PRI, due
primarily to reductions in personnel and other operating costs during the third
quarter of fiscal 1998.
7
<PAGE>
Depreciation expense for the quarter ended July 31, 1998 was $382,000
compared to $192,000 for the third quarter of fiscal 1997, an increase of
$190,000, or 99.0%. This increase in depreciation expense is mainly
attributable to (i) depreciation expense in the amount of $4,000 related to
the acquisition of Pulse, (ii) depreciation expense in the amount of $21,000 due
to the acquisition of Laser Med, (iii) depreciation expense of $25,000 related
to the acquisition of Med Surg, (iv) depreciation expense of $3,000 pertaining
to the acquisition of Tomec, and (v) an increase in depreciation expense of
$137,000 for PRI.
During the quarter ended July 31, 1998, gross profit was $1,413,000, an
increase of $439,000, or 45.1%, over gross profit for the third quarter of
fiscal 1997. As a percentage of net revenues, gross profit increased from 45.2%
in the third quarter of fiscal 1997 to 52.3% in the quarter ended July 31, 1998.
The increase in the amount of gross profit is principally the result of (i) an
increase in gross profit of $34,000 pertaining to the acquisition of Pulse, (ii)
an increase in gross profit of $26,000 relating to the acquisition of Laser Med,
(iii) an increase in gross profit of $10,000 due to the acquisition of Med Surg,
(iv) an increase in gross profit of $7,000 due to the acquisition of Tomec, and
(v) an increase in the gross profit of PRI in the amount of $362,000, due to the
factors described previously.
Selling expenses for the quarter ended July 31, 1998 were $515,000,
compared to $354,000 for the comparable period of the prior year, an increase of
$161,000, or 45.5%. As a percentage of net revenues, selling expenses increased
from 16.4% in the quarter ended July 31, 1997 to 19.0% in the third quarter of
the current fiscal year. The increase in the amount of selling expense is
primarily the result of (i) additional selling expenses in the amount of
$26,000 due to the acquisition of Pulse, (ii) a decrease in selling expenses of
Laser Med in the amount of $3,000, (iii) additional selling expenses in the
amount of approximately $2,000 due to the acquisition of Med Surg, (iv)
additional selling expenses of $15,000 due to the acquisition of Tomec, and (v)
an increase in selling expenses of PRI in the amount of $121,000 as a result of
the addition of sales personnel and related selling expenses.
General and administrative expenses increased to $507,000 in the quarter
ended July 31, 1998 from $386,000 in the quarter ended July 31, 1997, an
increase of $121,000, or 31.3%. As a percentage of net revenues, such expenses
increased from 17.9% in the third quarter of the prior fiscal year to 18.7% in
the quarter ended July 31, 1998. The increase in the amount of general and
administrative expense is primarily the result of (i) additional general and
administrative expenses in the amount of $12,000 due to the acquisition of
Pulse, (ii) additional general and administrative expenses of $41,000 due to the
acquisition of Laser Med, (iii) additional general and administrative expenses
in the amount of $60,000 due to the acquisition of Tomec, (iv) an increase in
general and administrative expenses of PRI in the amount of $8,000.
Interest expense for the quarter ended July 31, 1998 was $270,000, compared
to $168,000 in the same quarter of the prior fiscal year, an increase of
$102,000, or 60.7%. The increase in interest expense is the result of (i)
additional interest expense in the amount of $16,000 due to the acquisition of
Pulse, (ii) additional interest expense of $3,000 due to the acquisition of
Laser Med, (iii) additional interest expense in the amount of $10,000 due to the
acquisition of Med Surg, (iv) additional interest expense of $1,000 due to the
acquisition of Tomec, and (v) an increase in interest expense of PRI in the
amount of $72,000, principally due to an increase in capital lease obligations
of PRI relating to medical rental equipment acquired.
Income before income taxes was $120,000 for the quarter ended July 31,
1998, compared to $67,000 for the quarter ended July 31, 1997, an increase of
$53,000, or 79.1%. Income before income taxes, as a percentage of revenues,
increased to 2.9% in the quarter ended July 31, 1998 from 1.8% in the quarter
ended July 31, 1997 as a result of all of the aforementioned factors.
8
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NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE MONTHS ENDED JULY 31, 1997
Net revenues for the nine months ended July 31, 1998 were $8,751,000,
compared to $5,587,000 during the first nine months of the prior fiscal year,
an increase of $3,164,000, or 56.6%. The increase in net revenues is
principally the result of (i) additional revenues in the amount of $883,000
due to the acquisition of Pulse, (ii) additional revenues in the amount of
$482,000 due to the acquisition of Laser Med, (iii) additional revenues of
approximately $340,000 due to the acquisition of Med Surg, (iv) additional
revenues of $328,000 due to the acquisition of Tomec, and (v) an increase in
revenues of Physiologic Reps, Inc. (PRI) in the amount of $1,171,000,
primarily as a result of (a) an increase in medical equipment rental revenues
of $735,000 due to PRI's increased investment in medical rental equipment at
the end of fiscal 1997 and (b) an increase in revenues for mobile
laser/surgical services of approximately $396,000.
Cost of revenues for the nine months ended July 31, 1998 was $3,505,000, an
increase of $1,093,000, or 45.3%, over cost of revenues for the comparable
period of the prior fiscal year. The increase in cost of revenues is primarily
attributable to (i) cost of revenues in the amount of $319,000 due to the
acquisition of Pulse, (ii) cost of revenues in the amount of $205,000 due to the
acquisition of Laser Med, (iii) cost of revenues of approximately $170,000 due
to the acquisition of Med Surg, (iv) cost of revenues of $141,000 due to the
acquisition of Tomec, and (v) an increase in cost of revenues of PRI in the
amount of $258,000, due mostly to (a) an increase in costs for mobile
laser/surgical services and (b) higher wages paid to technicians during the
first nine months of fiscal 1998.
Depreciation expense for the nine months ended July 31, 1998 was $1,063,000
compared to $667,000 for the first nine months of the prior fiscal year, an
increase of $396,000, or 59.2%. The increase in depreciation expense is
principally the result of (i) depreciation expense in the amount of $90,000 due
to the acquisition of Pulse, (ii) depreciation expense in the amount of $83,000
due to the acquisition of Laser Med, (iii) depreciation expense of $74,000 due
to the acquisition of Med Surg, and (iv) depreciation expense of $8,000 due to
the acquisition of Tomec. PRI experienced an increase of $256,000 in
depreciation expense in the nine months ended July 31, 1998 due mainly to the
addition of equipment during fiscal year 1998.
Gross profit for the nine months ended July 31, 1998 was $4,183,000, an
increase of $1,675,000, or 66.8%, over gross profit for the comparable period of
the prior fiscal year. As a percentage of net revenues, gross profit increased
from 44.9% in the first nine months of fiscal 1997 to 47.8% in the nine months
ended July 31, 1998. The increase in gross profit is primarily attributable to
(i) an increase in gross profit of $474,000 due to the acquisition of Pulse,
(ii) an increase in gross profit of $194,000 due to the acquisition of Laser
Med, (iii) an increase in gross profit of $96,000 due to the acquisition of Med
Surg, (iv) an increase in gross profit of $179,000 due to the acquisition of
Tomec, and (v) an increase in the gross profit of PRI in the amount of $732,000,
due principally to the increases in medical rental and mobile laser/surgical
services revenues described previously.
Selling expenses for the nine months ended July 31, 1998 were $1,511,000,
compared to $882,000 for the comparable period of the prior year, an increase of
$629,000, or 71.3%. As a percentage of net revenues, selling expenses increased
from 15.8% in the nine months ended July 31, 1997 to 17.3% in the first nine
months of the current fiscal year. The increase in the amount of selling
expense is primarily the result of (i) additional selling expenses in the amount
of $210,000 due to the acquisition of Pulse, (ii) additional selling expenses
of $49,000 due to the acquisition of Laser Med, (iii) additional selling
expenses in the amount of approximately $15,000 due to the acquisition of Med
Surg, (iv) additional selling expenses of $45,000 due to the acquisition of
Tomec, and (v) an increase in selling expenses of PRI in the amount of $310,000
as a result of (a) the addition of sales personnel and (b) an increase in
commissions relating to the overall increase in revenues from medical equipment
rentals and mobile laser/surgical services.
9
<PAGE>
General and administrative expenses increased to $1,577,000 in the nine
months ended July 31, 1998 from $1,014,000 in the nine months ended July 31,
1997, an increase of $563,000, or 55.5%. As a percentage of net revenues, such
expenses decreased slightly from 18.1% in the first nine months of the prior
fiscal year to 18.0% in the nine months ended July 31, 1998. The increase in
the amount of general and administrative expense is primarily the result of (i)
additional general and administrative expenses in the amount of $151,000 due to
the acquisition of Pulse, (ii) additional general and administrative expenses of
$68,000 due to the acquisition of Laser Med, (iii) additional general and
administrative expenses in the amount of $96,000 due to the acquisition of
Tomec, (iv) an increase in general and administrative expenses of PRI in the
amount of $202,000 due primarily to the addition of accounting and
administrative personnel, and (v) a $46,000 increase in general and
administrative expenses of the parent company, MRM, principally due to an
increase in amortization of goodwill and non-compete agreements.
Interest expense for the nine months ended July 31, 1998 was $725,000,
compared to $342,000 in the first nine months of the prior fiscal year, an
increase of $383,000, or 112.0%. The increase in interest expense is the result
of (i) additional interest expense in the amount of $175,000 due to the
acquisition of Pulse, (ii) additional interest expense of $37,000 due to the
acquisition of Laser Med, (iii) additional interest expense in the amount of
$30,000 due to the acquisition of Med Surg, (iv) additional interest expense of
$4,000 due to the acquisition of Tomec, and (v) an increase in interest expense
of PRI in the amount of $137,000, principally attributable to an increase in
capital lease obligations of PRI relating to medical rental equipment acquired
during the first nine months of fiscal year 1998.
Income before income taxes was $370,000 for the nine months ended July 31,
1998, compared to $270,000 for the nine months ended July 31, 1997, an increase
of $100,000, or 37.0%. Income before income taxes, as a percentage of revenues,
decreased to 2.5% in the nine months ended July 31, 1998 from 2.9% in the nine
months ended July 31, 1997 as a result of all of the aforementioned factors.
10
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LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from the funding of its working
capital needs, principally accounts receivable, as well as its capital
expenditure needs. The Company's primary sources for working capital are cash
flow from operations and borrowings under debt facilities.
During the nine months ended July 31, 1998, net cash provided by operating
activities was $1,769,000, which resulted primarily from (i) net income of
$222,000, (ii) depreciation and amortization expense of $1,171,000, (iii) an
increase in long-term deferred income tax liabilities of $297,000, and (iv) a
loss on sale of assets of $58,000, together with a net decrease of approximately
$21,000 in working capital items.
Net cash used for investing activities during the nine months ended July
31, 1998 was $231,000, which was principally attributable to (i) property
additions of $117,000, (ii) payments for non-compete agreements of $27,000 and
(iii) an increase of $102,000 in deposits and other assets, all of which were
offset in part by proceeds from sale of assets of $15,000.
During the nine months ended July 31, 1998, the Company's cash used by
financing activities totaled $1,565,000, consisting of (i) principal payments on
long-term debt of $425,000, (ii) principal payments on notes payable of $193,000
and (iii) principal payments on capital lease obligations of $1,188,000, all of
which were offset in part by $241,000 of borrowings on long-term debt and notes
payable.
COMMITMENTS
The Company had no material commitments for capital expenditures at July
31, 1998. However, although it has no present commitments or agreements to make
such capital expenditures, during the next 12 months the Company expects to make
substantial capital expenditures, in accordance with its historical practice.
The mobile laser/surgical services and medical equipment rental businesses are
capital intensive. The Company believes that funds generated from operations,
together with funds available from credit facilities and capital lease
facilities that the Company expects to obtain during the coming 12-month period,
will be sufficient to finance its working capital and capital expenditure
requirements for the next 12 months.
The Company currently has a term loan with Merrill Lynch. At the present
time, the Company is not in compliance with one of the financial covenants
contained in the loan agreement. However, the Company has obtained a waiver
of this covenant through October 31, 1998. The Company is negotiating with
another lender to obtain new credit facilities, including a working capital
facility. It is the intention of the Company to use some of the proceeds from
these new credit facilities to repay in full term the loan with Merrill Lynch.
Management expects to complete these new credit facilities prior to October
31, 1998. However, although mangement expects to obtain these new credit
facilities, there can be no assurance that such credit facilities will be
obtained or that, if obtained, such facilities will be in place by October 31,
1998. Failure to obtain new credit facilities could have a material
adverse effect on the Company's financial position.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In February, 1998, the Company was served with a lawsuit in which it,
along with various other parties, was named as a defendant in an action filed
on October 29, 1996 in the Superior Court of the State of California for the
County of Los Angeles. The complaint alleges injury to the plaintiff in the
course of a cosmetic laser procedure performed in November, 1995 for which
the plaintiff seeks to hold the Company responsible. The Company intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, the Company does not believe
that the outcome of this litigation will have a material adverse effect on
its consolidated financial condition. Due to the early stage of this
litigation, based on the information available to it, management cannot make
an estimate of loss, if any, or predict whether or not such litigation will
have a material adverse effect on the Company's results of operations in any
particular period.
ITEM 2. CHANGES IN SECURITIES.
COMMON STOCK
As of July 31, 1998, the Company had 7,385,927 shares of common stock
issued and outstanding. The holders of shares of common stock are entitled to
dividends when and as declared by the Board of Directors from funds legally
available therefore, and, upon liquidation are entitled to share, pro rata, in
any distribution to holders of common stock. There are no pre-emptive,
conversion or redemption privileges, nor sinking fund provisions with respect to
the common stock. All of the outstanding shares of common stock are duly
authorized, validly issued, fully paid and non-assessable.
STOCK OPTIONS
STOCK INCENTIVE PLAN
In September 1996, the Company adopted the 1996 Stock Incentive Plan (Plan)
to allow officers and employees and certain non-employees to receive options to
purchase common stock and to receive grants of common stock subject to certain
restrictions. Under the Plan, regular salaried employees, including directors,
who are full time employees, may be granted options exercisable at not less than
100 percent of the fair market value at the date of grant. The exercise price
of any option granted to an optionee who owns stock possessing more than ten
percent of the voting power of all classes of stock of the Company must be 110
percent of the fair market value of the common stock on the date of grant, and
the duration may not exceed five years. Options generally become exercisable at
a rate of one-third percent of the shares subject to option on each of the
first, second and third anniversary dates of the grant. The duration of options
may not exceed ten years. A maximum number of 1,500,000 shares of common stock
may be issued pursuant to the Plan. As of July 31, 1998, there were 893,500
qualified options granted and outstanding.
OTHER STOCK OPTIONS
In conjunction with the August 19, 1996 reorganization between Medical
Resources Management, Inc. (MRM) and Physiologic Reps, Inc. (PRI), in exchange
for options previously granted to purchase shares of PRI, two officers received
81,804 non-qualified options to purchase MRM common stock at an exercise price
of $.50 per share. Additionally, on June 30, 1997, the Company granted
non-qualified stock options to certain officers to purchase an aggregate of
315,000 shares of common stock at an exercise price of $1.50 per share, which
price was at fair market value at the time of grant. On June 30, 1997, the
Company also issued non-qualified stock options to Robert Stuckelman, a
non-employee Director of MRM, to purchase 10,000 shares of common stock at an
exercise price of $1.50 per share. These non-qualified options generally have
the same restrictions, except for vesting provisions, as options granted under
the 1996 Stock Incentive Plan. As of July 31, 1998, there were 406,804
non-qualified options granted and outstanding.
12
<PAGE>
The following table summarizes stock option activity during the nine months
ended July 31, 1998 and the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Nine months ended July 31, 1998 Year ended October 31, 1997
-------------------------------- ------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 1,246,304 $ 1.44 424,804 $ 1.31
Granted 83,500 $ 1.13 874,000 $ 1.50
Exercised - - - -
Forfeited or cancelled (29,500) $ 1.50 (52,500) $ 1.50
-------------------------------- ------------------------------
Outstanding at end of period 1,300,304 $ 1.41 1,246,304 $ 1.44
-------------------------------- ------------------------------
-------------------------------- ------------------------------
Options exercisable at period-end 512,304 $1.34 149,856 $1.14
-------------------------------- ------------------------------
-------------------------------- ------------------------------
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Exhibit Description
None.
(b) REPORTS ON FORM 8-K
A Report on Form 8-K was filed with the Securities and Exchange Commission
on July 2, 1998.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEDICAL RESOURCES MANAGEMENT, INC.
Date September 14, 1998
By /s/ Allen H. Bonnifield
---------------------------------------
Allen H. Bonnifield, President and CEO
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 37,133
<SECURITIES> 0
<RECEIVABLES> 2,084,170
<ALLOWANCES> 86,350
<INVENTORY> 704,626
<CURRENT-ASSETS> 3,194,849
<PP&E> 19,391,960
<DEPRECIATION> 7,661,035
<TOTAL-ASSETS> 15,834,653
<CURRENT-LIABILITIES> 4,240,135
<BONDS> 7,092,663
0
0
<COMMON> 7,386
<OTHER-SE> 3,249,343
<TOTAL-LIABILITY-AND-EQUITY> 15,834,653
<SALES> 8,750,895
<TOTAL-REVENUES> 8,750,895
<CGS> 4,567,806
<TOTAL-COSTS> 4,567,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 724,515
<INCOME-PRETAX> 370,212
<INCOME-TAX> 148,085
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,127
<EPS-PRIMARY> 0.030
<EPS-DILUTED> 0
</TABLE>
