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U. S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
[ ] 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 March 10, 1999 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 - January 31, 1999 (unaudited)
and October 31, 1998 3
Consolidated Statements of Income - Three Months
Ended January 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows - Three Months
Ended January 31, 1999 and 1998 (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 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</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 January 31, October 31,
1999 1998
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(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,682 $ 141,228
Accounts receivable, less allowance of $110,500 at January 31, 1999
and $100,000 at October 31, 1998 2,117,055 1,916,159
Inventories 753,560 775,735
Prepaid expenses 233,407 186,260
Income tax receivable 17,173 20,843
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Total current assets 3,135,877 3,040,225
Property and equipment:
Rental equipment 19,030,185 18,949,720
Transportation equipment 877,027 878,641
Office furniture and equipment 359,974 354,683
Leasehold improvements 96,024 96,024
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20,363,210 20,279,068
Less accumulated depreciation 8,505,326 8,090,817
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Net property and equipment 11,857,884 12,188,251
Other assets:
Intangible assets, net of accumulated amortization of $186,761 at
January 31, 1999 and $157,278 at October 31, 1998 642,399 666,883
Deposits and other assets 384,190 307,332
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Total other assets 1,026,589 974,215
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Total assets $16,020,350 $16,202,691
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,489,716 $ 1,372,956
Accrued expenses 810,986 793,514
Notes payable 70,500 10,500
Current portion of long-term debt 553,468 561,710
Current portion of obligations under capital leases 2,387,795 2,365,218
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Total current liabilities 5,312,465 5,103,898
Long-term debt, net of current portion 1,595,579 1,723,691
Obligations under capital leases, net of current portion 4,513,734 4,975,770
Deferred income taxes 1,274,600 1,194,905
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 7,385,927 at January 31, 1999
and October 31, 1998 7,386 7,386
Additional paid-in capital 1,683,326 1,683,326
Retained earnings 1,633,260 1,513,715
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Total shareholders' equity 3,323,972 3,204,427
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Total liabilities and shareholders' equity $16,020,350 $16,202,691
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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 January 31,
1999 1998
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<S> <C> <C>
Net revenue $2,867,495 $2,865,131
Cost of revenue 1,089,597 1,210,567
Depreciation expense 404,576 336,490
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Gross profit 1,373,322 1,318,074
Selling expenses 459,566 477,565
General and administrative expenses 448,749 514,823
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Operating income 465,007 325,686
Interest expense 265,767 253,594
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Income before income taxes 199,240 72,072
Provision for income taxes 79,695 27,540
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Net income $ 119,545 $ 44,552
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Net income per common share (basic and diluted) $ 0.016 $ 0.006
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Weighted average common shares 7,385,927 7,380,275
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</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>
Three Months Ended January 31,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 119,545 $ 44,552
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of property and equipment 414,509 343,081
Amortization of intangibles 29,484 29,442
Provision for doubtful accounts 10,500 9,000
Deferred income taxes 79,695 27,540
Changes in operating assets and liabilities:
Accounts receivable (211,396) (190,793)
Inventories 22,175 (24,760)
Prepaid expenses (47,147) (50,178)
Income tax receivable 3,670 -
Accounts payable 116,760 408,207
Accrued expenses 17,472 (71,597)
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Net cash provided by operating activities 555,267 524,494
INVESTING ACTIVITIES
Purchases of property and equipment (58,132) (15,607)
Payments for non-compete agreements (5,000) (5,625)
Increase in deposits and other assets (76,858) (30,155)
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Net cash used for investing activities (139,990) (51,387)
FINANCING ACTIVITIES
Borrowings on notes payable 60,000 22,901
Principal payments on long-term debt (136,354) (118,363)
Payments on notes payable - (25,536)
Principal payments on capital lease obligations (465,469) (370,742)
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Net cash used for financing activities (541,823) (491,740)
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Net decrease in cash and cash equivalents (126,546) (18,633)
Cash and cash equivalents at beginning of period 141,228 64,356
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Cash and cash equivalents at end of period $ 14,682 $ 45,723
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Supplemental information:
Cash paid during the period for:
Interest $ 267,859 $ 277,853
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Taxes $ - $ -
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Capital lease obligations entered into for equipment $ 26,010 $ 418,976
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Common stock issued for acquired companies $ - $ 44,000
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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)
January 31, 1999
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 our opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the period ended January 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1999. For further information, refer to the financial statements
and footnotes thereto included in our Annual Report on Form 10-KSB for the year
ended October 31, 1998.
Certain balances from the financial statements for the fiscal year ended
October 31, 1998 have been reclassified to conform to the presentation for
the current fiscal year.
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 us. Although we believe the expectations expressed in such
forward-looking statements are based on reasonable assumptions within the bounds
of our knowledge of our business, a number of factors could cause actual results
to differ materially from those expressed in any forward-looking statements,
whether oral or written, made by us or on our behalf.
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
January 31,
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1999 1998
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<S> <C> <C>
Net revenues...... . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of revenues . . . . . . . . . . . . . . . . . 38.0 42.3
Depreciation expense.. . . . . . . . . . . . . . . 14.1 11.7
------- -------
Gross profit . . . . . . . . . . . . . . . . . . . 47.9 46.0
Selling expenses . . . . . . . . . . . . . . . . . 16.0 16.6
General and administrative expenses. . . . . . . . 15.7 18.0
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Operating income.. . . . . . . . . . . . . . . . . 16.2 11.4
Interest expense.. . . . . . . . . . . . . . . . . 9.3 8.9
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Income before income taxes.. . . . . . . . . . . . 6.9 2.5
Provision for income taxes . . . . . . . . . . . . 2.7 0.9
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Net income . . . . . . . . . . . . . . . . . . . . 4.2% 1.6%
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</TABLE>
QUARTER ENDED JANUARY 31, 1999 COMPARED TO QUARTER ENDED JANUARY 31, 1998
For the quarter ended January 31, 1999, net revenues were $2,868,000,
compared to net revenues of $2,865,000 during the quarter ended January 31,
1998, an increase of $3,000, or 0.1%. The increase in net revenues is
principally the result of an increase in net revenues from laser surgical
services of $118,000, offset by (1) a decrease of $86,000 in medical rental
revenues mostly in Southern California as the result of a milder winter
during the quarter (in general, more people are hospitalized during cold,
wet weather) and (2) a decrease in other revenues of $29,000.
Cost of revenues (excluding depreciation expense) for the quarter ended
January 31, 1999 totaled $1,090,000, a decrease of $121,000 or 10.0%, from
cost of revenues for the first quarter of fiscal year 1998. The decrease in
cost of revenues is primarily attributable to reductions in personnel and
other operating costs since the second quarter of fiscal 1998. Cost of
revenues as a percentage of revenues decreased from 42.3% in the first
quarter of fiscal year 1998 to 38.0% in the first quarter of fiscal year 1999.
7
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Depreciation expense for the quarter ended January 31, 1999 was $405,000
compared to $336,000 during the same quarter of fiscal 1998, an increase of
$69,000, or 20.5%. This increase in depreciation expense is principally the
result of the addition of equipment during fiscal year 1998.
Gross profit during the quarter ended January 31, 1999 was $1,373,000,
compared to gross profit of $1,318,000 during the comparable period of the prior
fiscal year, an increase of $55,000, or 4.2%. As a percentage of net revenues,
gross profit increased from 46.0% during the first quarter of fiscal 1998 to
47.9% during the quarter ended January 31, 1999. The increase in the amount of
gross profit is principally the result of the factors described previously.
For the quarter ended January 31, 1999, selling expenses were $459,000,
compared to selling expenses of $477,000 for the first quarter of fiscal year
1998, a decrease of $18,000, or 3.8%. As a percentage of net revenues, selling
expenses decreased from 16.6% in the quarter ended January 31, 1998 to 16.0% in
the first quarter of the current fiscal year. The decrease in the amount of
selling expense is primarily due to a reduction in sales personnel and related
expenses beginning in the second quarter of fiscal year 1998.
General and administrative ("G&A") expenses decreased to $449,000 in the
quarter ended January 31, 1999 from $515,000 in the quarter ended January 31,
1998, a decline of $66,000, or 12.8%. As a percentage of net revenues, G&A
expenses decreased from 18.0% in the first quarter of fiscal year 1998 to 15.7%
in the first quarter of the current fiscal year. The decrease in the amount of
G&A expense is mainly attributable to reductions in certain general expenses
beginning in the second quarter of fiscal year 1998.
Interest expense for the quarter ended January 31, 1999 was $266,000,
compared to $254,000 in the first quarter of the prior fiscal year, an increase
of $12,000, or 4.7%. The increase in interest expense is the result of an
increase in capital lease obligations to fund the addition of equipment during
fiscal year 1998.
Income before income taxes was $199,000 for the quarter ended January
31, 1999, compared to $72,000 for the quarter ended January 31, 1998, an
increase of $127,000, or 176.4%. Income before income taxes, as a percentage
of revenues, increased to 6.9% in the quarter ended January 31, 1999 from
2.5% in the quarter ended January 31, 1998 as a result of the aforementioned
factors.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise from the funding of our working capital
needs, principally accounts receivable and inventories, as well as our capital
expenditure needs. Our primary sources for working capital have historically
been borrowings under debt facilities, trade payables and the sale of our Common
Stock.
During the three months ended January 31, 1999, net cash provided by
operating activities was $555,000, which resulted primarily from net income of
$119,000 adjusted for (a) depreciation and amortization expense of $444,000, (b)
an increase in long-term deferred income tax liabilities of $80,000, all of
which were offset in part by a net increase of approximately $88,000 in working
capital items.
Net cash used for investing activities during the three months ended
January 31, 1999 was $140,000, which consisted of (a) capital expenditures of
$58,000, (b) the payment of $5,000 for non-compete agreements and (c) an
increase of $77,000 in deposits and other assets.
During the three months ended January 31, 1999, cash used for financing
activities totaled $542,000, consisting of (a) $136,000 in principal payments on
long-term debt and (c) $466,000 in principal payments on capital lease
obligations. Such cash used for financing activities was offset in part by
$60,000 in borrowings of notes payable.
COMMITMENTS
We had no material commitments for capital expenditures at January 31,
1999. However, although we have no present commitments or agreements to make
such capital expenditures, during the next 12 months we expect to make
substantial capital expenditures, in accordance with our historical practice.
The mobile laser/surgical services and medical equipment rental businesses are
capital intensive. We believe that funds generated from operations, together
with funds available from capital lease facilities that we expect to obtain
during the coming 12-month period, will be sufficient to finance our working
capital and capital expenditure requirements for the next 12 months.
We currently have a term loan with Merrill Lynch. At the present time, we
are not in compliance with one of the financial covenants contained in the loan
agreement. However, we have obtained a waiver of this covenant through October
31, 1999. We are negotiating with other financing sources to obtain new credit
facilities, including a working capital facility. It is our intention to use
some of the proceeds from these new credit facilities to repay in full the term
loan with Merrill Lynch. We currently expect to complete these new credit
facilities within the next several months. However, although we expect to
obtain these new credit facilities, we cannot be certain that such credit
facilities will be obtained or that, if obtained, such facilities will be in
place within the anticipated timeframe. Failure to obtain new credit facilities
could have a material adverse effect on our financial position.
9
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YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
of miscalculations, causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on a recent assessment, we expect to complete the upgrade of our
software in the fourth quarter of fiscal year 1999 so that our computer systems
will function properly with respect to dates in the year 2000 and thereafter.
We presently believe that with upgrades the Year 2000 issue will not pose
significant operational problems for our computer systems. However, if such
conversions are not made, or are not completed in a timely manner, the Year 2000
issue could have a material impact on our operations.
We are continuing formal communications with all of our significant
suppliers and large customers to determine the extent to which our interface
systems may be vulnerable to those third parties' failure to remediate their own
Year 2000 issues. However, we cannot guarantee that the systems of other
companies on which our systems rely will be timely converted and would not have
an adverse effect on our systems.
We will utilize both internal and external resources to upgrade and test
our software for Year 2000 modifications. Our total Year 2000 project cost
and estimates to complete include the estimated costs and time associated
with the impact of third party Year 2000 issues based on presently available
information. The total cost of the Year 2000 project has not yet been
estimated, but we anticipate that such costs will not be significant. To
date, we have not incurred any material costs related to the assessment of,
and preliminary efforts on, our Year 2000 project and the development of a
modification plan, purchase of new systems and systems modifications.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES.
None.
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.
11
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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 March 16, 1999
By /s/ Allen H. Bonnifield
------------------------------------------------
Allen H. Bonnifield, President, CEO and CFO
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 14,228
<SECURITIES> 0
<RECEIVABLES> 2,227,555
<ALLOWANCES> 110,500
<INVENTORY> 753,560
<CURRENT-ASSETS> 3,135,877
<PP&E> 20,363,210
<DEPRECIATION> 8,505,326
<TOTAL-ASSETS> 16,020,350
<CURRENT-LIABILITIES> 5,312,465
<BONDS> 6,109,313
0
0
<COMMON> 7,386
<OTHER-SE> 3,316,586
<TOTAL-LIABILITY-AND-EQUITY> 16,020,350
<SALES> 2,867,495
<TOTAL-REVENUES> 2,867,495
<CGS> 1,494,173
<TOTAL-COSTS> 1,494,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265,767
<INCOME-PRETAX> 199,240
<INCOME-TAX> 79,695
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,545
<EPS-PRIMARY> 0.016
<EPS-DILUTED> 0.016
</TABLE>
