<PAGE>
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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 APRIL 30, 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 June 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
ITEM PAGE NO.
- ---- --------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - April 30, 1998 (unaudited)
and October 31, 1997 3
Consolidated Statements of Income - Three Months and
Six Months Ended April 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows - Six Months
Ended April 30, 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
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS April 30, October 31,
1998 1997
---------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,249 $ 64,356
Accounts receivable, less allowance of $84,000 at April 30, 1998
and $72,000 at October 31, 1997 2,390,187 1,829,695
Inventories 711,098 583,149
Prepaid expenses 139,671 94,378
Income tax receivable 251,668 55,113
------------ ------------
Total current assets 3,518,873 2,626,691
Property and equipment:
Rental equipment 17,881,378 16,216,245
Transportation equipment 867,492 847,492
Office furniture and equipment 321,348 311,657
Leasehold improvements 89,074 86,074
------------ ------------
19,159,292 17,461,468
Less accumulated depreciation 7,316,680 6,670,474
------------ ------------
Net property and equipment 11,842,612 10,790,994
Other assets:
Goodwill, net of accumulated amortization of $22,650 at April 30, 1998
and $9,178 at October 31, 1997 381,511 394,983
Covenants not to compete, net of accumulated amortization of $59,445
at April 30, 1998 and $23,111 at October 31, 1997 90,556 106,889
Customer list, net of accumulated amortization of $17,550
at April 30, 1998 and $9,722 at October 31, 1997
182,450 190,278
Deposits and other assets 221,142 175,563
------------ ------------
Total other assets 875,659 867,713
------------ ------------
Total assets $ 16,237,144 $ 14,285,398
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,511,260 $ 882,966
Accrued expenses 538,842 564,300
Notes payable 233,456 56,457
Current portion of long-term debt 534,330 527,771
Current portion of obligations under capital leases 1,581,102 1,495,611
------------ ------------
Total current liabilities 4,398,990 3,527,105
Long-term debt, net of current portion 1,832,210 2,090,695
Obligations under capital leases, net of current portion 5,626,004 4,728,500
Deferred income taxes 1,200,096 948,496
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 7,385,927 at April 30, 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 1,489,132 1,343,890
------------ ------------
Total shareholders' equity 3,179,844 2,990,602
------------ ------------
Total liabilities and shareholders' equity $ 16,237,144 $ 14,285,398
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 3,179,144 $ 1,894,650 $ 6,044,275 $ 3,432,161
Cost of revenue 1,383,030 788,516 2,593,597 1,423,853
Depreciation expense 344,029 245,254 680,519 475,103
------------ ------------ ------------ ------------
Gross profit 1,452,085 860,880 2,770,159 1,533,205
Selling expenses 518,058 269,936 995,623 527,839
General and administrative expenses 555,490 323,931 1,070,313 627,728
------------ ------------ ------------ ------------
Operating income 378,537 267,013 704,223 377,638
Interest expense 200,557 98,685 454,151 173,933
------------ ------------ ------------ ------------
Income before income taxes 177,980 168,328 250,072 203,705
Provision for income taxes 77,290 73,379 104,830 81,482
------------ ------------ ------------ ------------
Net income $ 100,690 $ 94,949 $ 145,242 $ 122,223
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common share $ 0.014 $ 0.015 $ 0.020 $ 0.019
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares 7,385,927 6,496,307 7,383,054 6,327,566
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended April 30,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 145,242 $ 122,223
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 752,584 488,541
Deferred income taxes 251,600 42,472
Loss on sale of assets 57,505 -
Changes in operating assets and liabilities:
Accounts receivable (522,135) (189,742)
Inventories (68,171) (118,397)
Prepaid expenses (45,293) (34,922)
Income tax receivable (196,555) (14,040)
Accounts payable 611,124 92,034
Accrued expenses (39,230) 110,574
---------- ----------
Net cash provided by operating activities 946,671 498,743
INVESTING ACTIVITIES
Purchases of property and equipment (55,570) (401,782)
Net proceeds from sale of assets 15,000 -
Payments for non-compete agreements (21,250) -
Increase in deposits and other assets (45,579) (101,469)
---------- ----------
Net cash used for investing activities (107,399) (503,251)
FINANCING ACTIVITIES
Issuance of common stock - 324,480
Borrowings on long-term debt - 515,183
Borrowings on notes payable 181,582 -
Principal payments on long-term debt (251,926) (221,802)
Payments on notes payable (56,816) -
Principal payments on capital lease obligations (750,219) (254,127)
---------- ----------
Net cash provided by (used for) financing activities (877,379) 363,734
---------- ----------
Net increase (decrease) in cash (38,107) 359,226
Cash and cash equivalents at beginning of period 64,356 12,482
---------- ----------
Cash and cash equivalents at end of period $ 26,249 $ 371,708
---------- ----------
---------- ----------
Supplemental information:
Cash paid during the period for:
Interest $ 450,168 $ 165,913
---------- ----------
---------- ----------
Taxes $ - $ 40,050
---------- ----------
---------- ----------
Capital lease obligations entered into for equipment $1,675,928 $ 439,591
---------- ----------
---------- ----------
Common stock issued for acquired companies $ 44,000 $ 357,500
---------- ----------
---------- ----------
Common stock issued in exchange for forgiveness of debt $ - $ 9,646
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 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 April 30, 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 six months ended April 30, 1998, the Company issued 83,500
qualified stock options at an exercise price of $1.13 per share.
6
<PAGE>
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 Six Months Ended
April 30, April 30,
-------------------- ---------------------
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................. 43.5 41.6 42.9 41.5
Depreciation expense......................... 10.8 13.0 11.3 13.8
----- ----- ----- -----
Gross profit................................. 45.7 45.4 45.8 44.7
Selling expenses............................. 16.3 14.2 16.5 15.4
General and administrative expenses.......... 17.5 17.1 17.7 18.3
----- ----- ----- -----
Operating income............................. 11.9 14.1 11.6 11.0
Interest expense............................. 6.3 5.2 7.5 5.1
----- ----- ----- -----
Income before income taxes................... 5.6 8.9 4.1 5.9
Provision for income taxes................... 2.4 3.9 1.7 2.3
----- ----- ----- -----
Net income................................... 3.2% 5.0% 2.4% 3.6%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
QUARTER ENDED APRIL 30, 1998 COMPARED TO QUARTER ENDED APRIL 30, 1997
For the quarter ended April 30, 1998, net revenues were $3,179,000,
compared to net revenues of $1,895,000 during the second quarter of the prior
fiscal year, an increase of $1,284,000, or 67.8%. This increase in net
revenues is primarily the result of (i) additional revenues in the amount of
$353,000 due to the acquisition of Pulse, (ii) additional revenues in the
amount of $198,000 due to the acquisition of Laser Med, (iii) additional
revenues of approximately $160,000 due to the acquisition of Med Surg, (iv)
additional revenues of $164,000 due to the acquisition of Tomec, and (v) an
increase of $409,000 in net revenues of Physiologic Reps, Inc. (PRI),
principally attributable to (a) an increase in medical equipment rental
revenues of $254,000 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 $155,000.
Cost of revenues for the quarter ended April 30, 1998 totaled $1,383,000,
an increase of $594,000, or 75.3%, over cost of revenues for the second
quarter of the prior fiscal year. The increase in cost of revenues is
primarily attributable to (i) cost of revenues in the amount of $95,000 as a
result of the acquisition of Pulse, (ii) cost of revenues in the amount of
$70,000 as a result of the acquisition of Laser Med, (iii) cost of revenues
of approximately $75,000 as a result of the acquisition of Med Surg, (iv)
cost of revenues of $80,000 as a result of the acquisition of Tomec, and (v)
an increase of $274,000 in cost of revenues of PRI, due primarily to (a) the
overall increase in PRI revenues, (b) an increase in costs for mobile
laser/surgical services and (c) higher technician wages during the second
quarter of fiscal 1998.
7
<PAGE>
Depreciation expense for the quarter ended April 30, 1998 was $344,000
compared to $245,000 for the second quarter of fiscal 1997, an increase of
$99,000, or 40.4%. This increase in depreciation expense is mainly
attributable to (i) depreciation expense in the amount of $32,000 related
to the acquisition of Pulse, (ii) depreciation expense in the amount of
$31,000 due to the acquisition of Laser Med, (iii) depreciation expense of
$23,000 related to the acquisition of Med Surg, and (iv) depreciation expense
of $4,000 pertaining to the acquisition of Tomec. PRI experienced a
relatively small increase in depreciation expense of $9,000 in the quarter
ended April 30, 1998 in spite of the addition of equipment in the quarter,
due principally to a lengthening of the estimated useful lives of certain
equipment commencing in the latter part of fiscal 1997.
During the quarter ended April 30, 1998, gross profit was $1,452,000, an
increase of $591,000, or 68.6%, over gross profit for the second quarter of
fiscal 1997. As a percentage of net revenues, gross profit increased
slightly from 45.4% in the second quarter of fiscal 1997 to 45.7% in the
quarter ended April 30, 1998. The increase in the amount of gross profit is
principally the result of (i) an increase in gross profit of $226,000
pertaining to the acquisition of Pulse, (ii) an increase in gross profit of
$97,000 relating to the acquisition of Laser Med, (iii) an increase in gross
profit of $62,000 due to the acquisition of Med Surg, (iv) an increase in
gross profit of $80,000 due to the acquisition of Tomec, and (v) an increase
in the gross profit of PRI in the amount of $126,000, due almost entirely to
the increase in medical rental revenues described previously.
Selling expenses for the quarter ended April 30, 1998 were $518,000,
compared to $270,000 for the comparable period of the prior year, an increase
of $248,000, or 91.9%. As a percentage of net revenues, selling expenses
increased from 14.2% in the quarter ended April 30, 1997 to 16.3% in the
first 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 $139,000 due to the acquisition of Pulse, (ii) additional
selling expenses of $28,000 due to the acquisition of Laser Med, (iii)
additional selling expenses in the amount of approximately $8,000 due to the
acquisition of Med Surg, (iv) additional selling expenses of $27,000 due to
the acquisition of Tomec, and (v) an increase in selling expenses of PRI in
the amount of $46,000 as a result of the addition of sales personnel and
related selling expenses.
General and administrative expenses increased to $555,000 in the quarter
ended April 30, 1998 from $324,000 in the quarter ended April 30, 1997, an
increase of $231,000, or 71.3%. As a percentage of net revenues, such
expenses increased slightly from 17.1% in the second quarter of the prior
fiscal year to 17.5% in the quarter ended April 30, 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 $84,000
due to the acquisition of Pulse, (ii) additional general and administrative
expenses of $19,000 due to the acquisition of Laser Med, (iii) additional
general and administrative expenses in the amount of $30,000 due to the
acquisition of Tomec, (iv) an increase in general and administrative expenses
of PRI in the amount of $69,000 due primarily to the addition of
administrative personnel, and (v) a $29,000 increase in general and
administrative expenses of the parent company, MRM, primarily as a result of
an increase in amortization expense relating to goodwill and non-compete
agreements arising from the acquisitions previously mentioned.
Interest expense for the quarter ended April 30, 1998 was $201,000,
compared to $99,000 in the second quarter of the prior fiscal year, an
increase of $102,000, or 103.0%. The increase in interest expense is the
result of (i) additional interest expense in the amount of $61,000 due to
the acquisition of Pulse, (ii) additional interest expense of $12,000 due to
the acquisition of Laser Med, (iii) additional interest expense in the amount
of $4,000 due to the acquisition of Med Surg, (iv) additional interest
expense of $2,000 due to the acquisition of Tomec, and (v) an increase in
interest expense of PRI in the amount of $23,000, principally due to an
increase in capital lease obligations of PRI relating to medical rental
equipment acquired.
Income before income taxes was $178,000 for the quarter ended April 30,
1998, compared to $168,000 for the quarter ended April 30, 1997, an increase
of $10,000, or 6.0%. Income before income taxes, as a percentage of
revenues, decreased to 5.6% in the quarter ended April 30, 1998 from 8.9% in
the quarter ended April 30, 1997 as a result of all of the aforementioned
factors.
8
<PAGE>
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
Net revenues for the six months ended April 30, 1998 were $6,044,000,
compared to $3,432,000 during the first six months of the prior fiscal year,
an increase of $2,612,000, or 76.1%. The increase in net revenues is
principally the result of (i) additional revenues in the amount of $891,000
due to the acquisition of Pulse, (ii) additional revenues in the amount of
$369,000 due to the acquisition of Laser Med, (iii) additional revenues of
approximately $280,000 due to the acquisition of Med Surg, (iv) additional
revenues of $244,000 due to the acquisition of Tomec, and (v) an increase in
revenues of Physiologic Reps, Inc. (PRI) in the amount of $828,000, primarily
as a result of (a) an increase in medical equipment rental revenues of
$574,000 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 $254,000.
Cost of revenues for the six months ended April 30, 1998 was $2,594,000, an
increase of $1,170,000, or 82.2%, 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 $365,000 due
to the acquisition of Pulse, (ii) cost of revenues in the amount of $139,000
due to the acquisition of Laser Med, (iii) cost of revenues of approximately
$145,000 due to the acquisition of Med Surg, (iv) cost of revenues of
$140,000 due to the acquisition of Tomec, and (v) an increase in cost of
revenues of PRI in the amount of $381,000, due mostly to (a) an increase in
costs for mobile laser/surgical services and (b) higher wages paid to
technicians during the first six months of fiscal 1998.
Depreciation expense for the six months ended April 30, 1998 was $680,000
compared to $475,000 for the first half of the prior fiscal year, an increase
of $205,000, or 43.2%. The increase in depreciation expense is principally
the result of (i) depreciation expense in the amount of $86,000 due to the
acquisition of Pulse, (ii) depreciation expense in the amount of $62,000 due
to the acquisition of Laser Med, (iii) depreciation expense of $49,000 due to
the acquisition of Med Surg, and (iv) depreciation expense of $5,000 due to
the acquisition of Tomec. PRI experienced an increase of only $3,000 in
depreciation expense in the six months ended April 30, 1998 in spite of the
addition of equipment during the first half of fiscal 1998, due principally
to a lengthening of the estimated useful lives of certain equipment
commencing in the latter part of fiscal 1997.
Gross profit for the six months ended April 30, 1998 was $2,770,000, an
increase of $1,237,000, or 80.7%, over gross profit for the comparable period
of the prior fiscal year. As a percentage of net revenues, gross profit
increased from 44.7% in the first six months of fiscal 1997 to 45.8% in the
six months ended April 30, 1998. The increase in gross profit is primarily
attributable to (i) an increase in gross profit of $440,000 due to the
acquisition of Pulse, (ii) an increase in gross profit of $168,000 due to the
acquisition of Laser Med, (iii) an increase in gross profit of $86,000 due to
the acquisition of Med Surg, (iv) an increase in gross profit of $99,000 due
to the acquisition of Tomec, and (v) an increase in the gross profit of PRI
in the amount of $444,000, due principally to the increases in medical rental
and mobile laser/surgical services revenues described previously.
Selling expenses for the six months ended April 30, 1998 were $996,000,
compared to $528,000 for the comparable period of the prior year, an increase
of $468,000, or 88.6%. As a percentage of net revenues, selling expenses
increased from 15.4% in the six months ended April 30, 1997 to 16.5% in the
first half 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 $184,000 due to the acquisition of Pulse, (ii) additional selling
expenses of $52,000 due to the acquisition of Laser Med, (iii) additional
selling expenses in the amount of approximately $13,000 due to the
acquisition of Med Surg, (iv) additional selling expenses of $30,000 due to
the acquisition of Tomec, and (v) an increase in selling expenses of PRI in
the amount of $189,000 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 $1,070,000 in the six
months ended April 30, 1998 from $628,000 in the six months ended April 30,
1997, an increase of $442,000, or 70.4%. As a percentage of net revenues,
such expenses decreased from 18.3% in the first half of the prior fiscal year
to 17.7% in the six months ended April 30, 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 $139,000 due
to the acquisition of Pulse, (ii) additional general and administrative
expenses of $27,000 due to the acquisition of Laser Med, (iii) additional
general and administrative expenses in the amount of $36,000 due to the
acquisition of Tomec, (iv) an increase in general and administrative expenses
of PRI in the amount of $181,000 due primarily to the addition of accounting
and administrative personnel, and (v) a $59,000 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 six months ended April 30, 1998 was $454,000,
compared to $174,000 in the first six months of the prior fiscal year, an
increase of $280,000, or 160.9%. The increase in interest expense is the
result of (i) additional interest expense in the amount of $159,000 due to
the acquisition of Pulse, (ii) additional interest expense of $34,000 due to
the acquisition of Laser Med, (iii) additional interest expense in the amount
of $20,000 due to the acquisition of Med Surg, (iv) additional interest
expense of $3,000 due to the acquisition of Tomec, and (v) an increase in
interest expense of PRI in the amount of $64,000, principally attributable to
an increase in capital lease obligations of PRI relating to medical rental
equipment acquired during the first six months of fiscal year 1998.
Income before income taxes was $250,000 for the six months ended April 30,
1998, compared to $204,000 for the six months ended April 30, 1997, an
increase of $46,000, or 23.2%. Income before income taxes, as a percentage
of revenues, decreased to 4.1 % in the six months ended April 30, 1998 from
5.9% in the six months ended April 30, 1997 as a result of all of the
aforementioned factors.
10
<PAGE>
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 six months ended April 30, 1998, net cash provided by operating
activities was $947,000, which resulted primarily from (i) net income of
$145,000, (ii) depreciation and amortization expense of $753,000, (iii) an
increase in long-term deferred income tax liabilities of $252,000, and (iv) a
loss on sale of assets of $58,000, all of which were offset in part by a net
increase of approximately $261,000 in working capital items.
Net cash used for investing activities during the six months ended April
30, 1998 was $107,000, which was principally attributable to (i) property
additions of $55,000, (ii) payments for non-compete agreements of $21,000 and
(iii) an increase of $46,000 in deposits and other assets, all of which were
offset in part by proceeds from sale of assets of $15,000.
During the six months ended April 30, 1998, the Company's cash used by
financing activities totaled $877,000, consisting of (i) principal payments
on long-term debt of $252,000, (ii) principal payments on notes payable of
$57,000 and (iii) principal payments on capital lease obligations of
$750,000, all of which were offset in part by $182,000 of borrowings on notes
payable.
COMMITMENTS
The Company had no material commitments for capital expenditures at April
30, 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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
COMMON STOCK
As of April 30, 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 April 30, 1998, there were 922,000 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 April 30,
1998, there were 406,804 non-qualified options granted and outstanding.
12
<PAGE>
The following table summarizes stock option activity during the six months
ended April 30, 1998 and the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
Six months ended April 30, 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 (1,000) $ 1.50 (52,500) $ 1.50
------------------------------ ---------------------------
Outstanding at end of period 1,328,804 $ 1.43 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
None.
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 June 15, 1998
By /s/ Allen H. Bonnifield
----------------------------------------------------
Allen H. Bonnifield, President and CEO
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 26,249
<SECURITIES> 0
<RECEIVABLES> 2,474,187
<ALLOWANCES> 84,000
<INVENTORY> 711,098
<CURRENT-ASSETS> 3,518,873
<PP&E> 19,159,292
<DEPRECIATION> 7,316,680
<TOTAL-ASSETS> 16,237,144
<CURRENT-LIABILITIES> 4,398,990
<BONDS> 7,458,214
0
0
<COMMON> 7,386
<OTHER-SE> 3,172,458
<TOTAL-LIABILITY-AND-EQUITY> 16,237,144
<SALES> 6,044,275
<TOTAL-REVENUES> 6,044,275
<CGS> 3,274,116
<TOTAL-COSTS> 3,274,116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 454,151
<INCOME-PRETAX> 250,072
<INCOME-TAX> 104,830
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,242
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
