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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, 2000
[ ] 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 8, 2000 there were
7,406,927 shares outstanding of the Registrant's common stock, $0.001 par value.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - January 31, 2000 (unaudited)
and October 31, 1999 3
Consolidated Statements of Income - Three Months
Ended January 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows - Three Months
Ended January 31, 2000 and 1999 (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 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</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>
January 31, October 31,
ASSETS 2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 67,318 $ 45,332
Accounts receivable, less allowance of $92,000 at January 31, 2000
and $90,000 at October 31, 1999 1,942,685 1,638,277
Inventories 841,275 820,614
Prepaid expenses 178,216 151,886
--------------- --------------
Total current assets 3,029,494 2,656,109
Property and equipment:
Rental equipment 20,835,426 20,306,387
Transportation equipment 912,650 907,391
Office furniture and equipment 358,275 423,569
Leasehold improvements 94,323 94,323
--------------- --------------
22,200,674 21,731,670
Less accumulated depreciation 10,231,169 9,772,733
--------------- --------------
Net property and equipment 11,969,505 11,958,937
Other assets:
Intangible assets, net of accumulated amortization of $338,426 at
January 31, 2000 and $298,737 at October 31, 1999 557,461 586,949
Deposits and other assets 343,241 338,214
--------------- --------------
Total other assets 910,702 925,163
--------------- --------------
Total assets $15,909,701 $15,540,209
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,053,347 $ 892,591
Accrued expenses 744,100 652,085
Note payable to a bank 1,224,548 1,042,634
Current portion of long-term debt 877,248 737,785
Current portion of obligations under capital leases 2,124,139 2,225,543
--------------- --------------
Total current liabilities 6,023,382 5,550,638
Long-term debt, net of current portion 2,468,874 2,449,617
Obligations under capital leases, net of current portion 2,843,155 3,062,175
Deferred income taxes 1,258,621 1,220,016
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 7,406,927 at January 31, 2000
and October 31, 1999 7,407 7,407
Additional paid-in capital 1,693,805 1,693,805
Retained earnings 1,614,457 1,556,551
--------------- --------------
Total shareholders' equity 3,315,669 3,257,763
--------------- --------------
Total liabilities and shareholders' equity $15,909,701 $15,540,209
=============== ==============
</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,
2000 1999
----------------- ----------------
<S> <C> <C>
Net revenue $3,079,228 $2,867,495
Cost of revenue 1,152,522 1,089,597
Depreciation expense 448,503 404,576
----------------- ----------------
Gross profit 1,478,203 1,373,322
Selling expenses 557,867 459,566
General and administrative expenses 536,048 448,749
----------------- ----------------
Operating income 384,288 465,007
Interest expense 287,777 265,767
----------------- ----------------
Income before income taxes 96,511 199,240
Provision for income taxes 38,605 79,695
----------------- ----------------
Net income $ 57,906 $ 119,545
================= ================
Net income per common share (basic and
diluted) $ 0.008 $ 0.016
================= ================
Weighted average common shares 7,406,927 7,385,927
================= ================
</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,
2000 1999
---------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 57,906 $ 119,545
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of property and equipment 458,436 414,509
Amortization of intangibles 39,689 29,484
Provision for doubtful accounts 21,000 10,500
Deferred income taxes 64,605 79,695
Changes in operating assets and liabilities:
Accounts receivable (325,408) (211,396)
Inventories (20,661) 22,175
Prepaid expenses (26,331) (47,147)
Income tax receivable -- 3,670
Accounts payable 160,459 116,760
Accrued expenses 92,312 17,472
---------------- ------------------
Net cash provided by operating activities 496,007 555,267
INVESTING ACTIVITIES
Purchases of property and equipment (469,004) (58,132)
Payments for non-compete agreements -- (5,000)
Increase in deposits and other assets (25,227) (76,858)
---------------- ------------------
Net cash used in investing activities (494,231) (139,990)
FINANCING ACTIVITIES
Borrowings on bank line of credit 181,914 --
Borrowings on long-term debt 316,942 --
Borrowings on notes payable -- 60,000
Principal payments on long-term debt (158,222) (136,354)
Principal payments on capital lease obligations (320,424) (465,469)
---------------- ------------------
Net cash provided by (used in) financing activities 20,210 (541,823)
---------------- ------------------
Net increase (decrease) in cash and cash equivalents 21,986 (126,546)
Cash and cash equivalents at beginning of period 45,332 141,228
---------------- ------------------
Cash and cash equivalents at end of period $ 67,318 $ 14,682
================ ==================
Supplemental information:
Cash paid during the period for:
Interest $ 271,917 $ 267,859
================ ==================
Taxes $ -- $ --
================ ==================
Capital lease obligations entered into for equipment $ -- $ 26,010
================ ==================
</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, 2000
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, 2000 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2000. 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, 1999.
Certain balances from the financial statements for the fiscal year ended October
31, 1999 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 significant
customers; 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,
---------------------
2000 1999
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<S> <C> <C>
Net revenues...................................................... 100.0% 100.0%
Cost of revenues.................................................. 37.4 38.0
Depreciation expense.............................................. 14.6 14.1
-------- -------
Gross profit...................................................... 48.0 47.9
Selling expenses.................................................. 18.1 16.0
General and administrative expenses............................... 17.4 15.7
-------- -------
Operating income.................................................. 12.5 16.2
Interest expense.................................................. 9.4 9.3
-------- -------
Income before income taxes........................................ 3.1 6.9
Provision for income taxes........................................ 1.2 2.7
-------- -------
Net income........................................................ 1.9% 4.2%
======== =======
</TABLE>
QUARTER ENDED JANUARY 31, 2000 COMPARED TO QUARTER ENDED JANUARY 31, 1999
For the quarter ended January 31, 2000, net revenue was $3,079,000,
compared to net revenue of $2,868,000 during the quarter ended January 31,
1999, an increase of $211,000, or 7.4%. The increase in net revenue is
principally the result of (1) an increase in laser surgical services of
$233,000 and (2) an increase in disposable and equipment sales of $76,000,
both of which increases were offset in part by (3) a decrease in medical
rental revenue of $70,000, mostly as a result of continued mild weather in
the western United States in the first quarter of the fiscal year and (4) a
decrease in other revenue of $28,000.
Cost of revenue (excluding depreciation expense) for the quarter ended
January 31, 2000 was $1,153,000, versus cost of revenue of $1,216,000 for the
first quarter of the prior fiscal year, a decrease of $63,000, or 5.8%, from
cost of revenue for the first quarter of fiscal year 1999. The decrease in
cost of revenue is primarily attributable to the reclassification of certain
employees from operations to sales beginning in the second quarter of fiscal
year 1999. Cost of revenue as a percentage of revenue decreased from 38.0% in
the first quarter of fiscal year 1999 to 37.4% in the first quarter of fiscal
year 2000.
7
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Depreciation expense directly attributable to net revenue for the quarter
ended January 31, 2000 was $449,000 compared to $405,000 during the same quarter
of fiscal 1999, an increase of $44,000, or 10.9%. This increase in depreciation
expense is principally the result of the addition of equipment during fiscal
year 1999.
Gross profit for the quarter ended January 31, 2000 was $1,478,000,
compared to gross profit of $1,373,000 during the comparable period of the
prior fiscal year, an increase of $105,000, or 7.6%. As a percentage of net
revenue, gross profit increased slightly from 47.9% during the first quarter
of fiscal 1999 to 48.0% during the quarter ended January 31, 2000. The
increase in the amount of gross profit is principally the result of the
factors described previously.
For the quarter ended January 31, 2000, selling expenses were $557,000,
compared to selling expenses of $459,000 for the first quarter of fiscal year
1999, an increase of $98,000, or 21.4%. As a percentage of net revenues,
selling expenses increased from 16.6% in the quarter ended January 31, 1999
to 18.4% in the first quarter of the current fiscal year. The increase in
selling expenses is primarily due to higher compensation for sales personnel
and to the reclassification of certain employees from operations to sales.
General and administrative ("G&A") expenses increased to $536,000 in the
quarter ended January 31, 2000 from $449,000 in the quarter ended January 31,
1999, an increase of $87,000, or 19.4%. As a percentage of net revenues, G&A
expenses increased from 15.7% in the first quarter of fiscal year 1999 to
17.4% in the first quarter of the current fiscal year. The increase in the
amount of G&A expense is mainly attributable to an increase in the
compensation of G&A personnel compared to the same quarter during the prior
fiscal year.
Interest expense for the quarter ended January 31, 2000 was $288,000,
compared to $266,000 in the first quarter of the prior fiscal year, an
increase of $22,000, or 8.3%. The increase in interest expense is the result
of an increase in the bank line of credit compared to the same quarter in the
prior fiscal year.
Income before income taxes was $97,000 for the quarter ended January 31,
2000, compared to $199,000 for the quarter ended January 31, 1999, a decrease
of $102,000, or 51.3%. Income before income taxes, as a percentage of
revenues, declined to 3.1% in the quarter ended January 31, 2000 from 6.9% in
the quarter ended January 31, 1999 as a result of the aforementioned factors.
8
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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, leasing arrangement,
trade payables and the sale of our Common Stock.
During the quarter ended January 31, 2000, net cash provided by
operating activities was $496,000, which resulted primarily from net income
of $58,000 adjusted for (a) depreciation and amortization expense of
$498,000, (b) a provision for doubtful accounts of $21,000 and (c) an
increase in long-term deferred income tax liabilities of $39,000, all of
which were offset in part by a net increase of approximately $487,000 in
working capital items.
Net cash used in investing activities during the three months ended
January 31, 2000 was $494,000, which consisted of (a) capital expenditures of
$469,000 and (b) an increase of $25,000 in deposits and other assets.
During the three months ended January 31, 2000, net cash provided by
financing activities totaled $20,000, consisting of (a) $182,000 in borrowings
on notes payable to a bank and (b) $317,000 in borrowings on long-term debt,
both of which were offset in part by (c) $158,000 in principal payments on
long-term debt and (d) $321,000 in principal payments on capital lease
obligations.
The Bank Line of Credit and Bank Term Loan prohibit the payment of cash
dividends and require the Company to maintain certain levels of net worth and to
generate certain ratios of cash flows to debt service. As of October 31, 1999
and January 31, 2000, the Company was not in compliance with certain financial
covenants of the Bank Line of Credit and Bank Term Loan. The lender waived the
covenant violations.
We had no material commitments for capital expenditures at January 31,
2000. 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 debt facilities, as well as possible strategic alternatives
such as additional debt or equity offerings, will be sufficient to finance our
working capital and capital expenditure requirements for the next 12 months.
TRANSITION TO YEAR 2000
We did not experience any interruption to our business as a result of the
transition to January 1, 2000, and we are not aware of any Year 2000 related
problems associated with our internal systems or software, or with the software
and systems of our customers or suppliers. Costs incurred related to the
assessment and modification of our internal systems and software were less than
$15,000.
We expect most material Year 2000 compliance problems to have arisen on or
immediately after January 1, 2000, but cannot assure you that problems will not
emerge throughout the course of the year 2000 or even beyond. We intend to
maintain our efforts relating to internal Year 2000 compliance. However, we do
not anticipate any significant future costs with respect to this issue.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In February, 1998, we were served with a lawsuit in which we, along with
various other parties, were 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 us responsible. We intend to defend ourselves vigorously against
all of the allegations contained in the complaint. We do not believe that the
outcome of this litigation will have a material adverse effect on our
consolidated financial condition. Based on the information available to us at
the present time, we cannot make an estimate of loss, if any, or predict whether
or not such litigation will have a material adverse effect on our results of
operations in any particular period.
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
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
None.
10
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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 14, 2000
By /s/ Richard A. Whitman
--------------------------------------
Richard A. Whitman, President and CEO
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 67,318
<SECURITIES> 0
<RECEIVABLES> 2,034,685
<ALLOWANCES> 92,000
<INVENTORY> 841,275
<CURRENT-ASSETS> 3,029,494
<PP&E> 22,200,674
<DEPRECIATION> 10,231,169
<TOTAL-ASSETS> 15,909,701
<CURRENT-LIABILITIES> 6,023,382
<BONDS> 5,312,029
0
0
<COMMON> 7,407
<OTHER-SE> 3,308,262
<TOTAL-LIABILITY-AND-EQUITY> 15,909,701
<SALES> 3,079,228
<TOTAL-REVENUES> 3,079,228
<CGS> 1,601,025
<TOTAL-COSTS> 1,601,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287,777
<INCOME-PRETAX> 96,511
<INCOME-TAX> 38,605
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,906
<EPS-BASIC> 0.008
<EPS-DILUTED> 0.008
</TABLE>
