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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 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 September 11, 2000 there
were 8,058,823 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>
ITEM PAGE NO.
---- --------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - July 31, 2000 (unaudited)
and October 31, 1999 3
Consolidated Statements of Operations - Three Months and Nine Months
Ended July 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows - Nine Months
Ended July 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 11
Item 2. Changes in Securities 11
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
2
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,299 $ 45,332
Accounts receivable, less allowance of $ 90,000 at
July 31, 2000 and October 31, 1999 1,585,837 1,638,277
Inventories 684,719 820,614
Prepaid expenses 224,940 151,886
--------------- --------------
Total current assets 2,502,795 2,656,109
Property and equipment:
Rental equipment 21,540,969 20,306,387
Transportation equipment 890,746 907,391
Office furniture and equipment 483,909 423,569
Leasehold improvements 94,323 94,323
--------------- --------------
23,009,947 21,731,670
Less accumulated depreciation 10,882,795 9,772,733
--------------- --------------
Net property and equipment 12,127,152 11,958,937
Other assets:
Intangible assets, net of accumulated amortization of $360,068
at July 31, 2000 and $298,737 at October 31, 1999 356,218 586,949
Deposits and other assets 392,223 338,214
--------------- --------------
Total other assets 748,441 925,163
--------------- --------------
Total assets $ 15,378,388 $ 15,540,209
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 998,366 $ 892,591
Accrued expenses 718,870 652,085
Note payable to bank 1,375,724 1,042,634
Current portion of long-term debt 1,400,831 737,785
Current portion of obligations under capital leases 2,292,700 2,225,543
--------------- --------------
Total current liabilities 6,786,491 5,550,638
Long-term debt, net of current portion 2,445,843 2,449,617
Obligations under capital leases, net of current portion 1,971,367 3,062,175
Deferred income taxes 1,220,016 1,220,016
Subordinated debt 200,000 -
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 8,058,823 at July 31, 2000
and 7,406,927 at October 31, 1999 8,059 7,407
Additional paid-in capital 1,818,859 1,693,805
Retained earnings 927,753 1,556,551
--------------- --------------
Total shareholders' equity 2,754,671 3,257,763
--------------- --------------
Total liabilities and shareholders' equity $ 15,378,388 $ 15,540,209
=============== ==============
</TABLE>
SEE ACCOMPANYING NOTES.
3
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MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
2000 1999 2000 1999
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net revenue $ 2,635,786 $ 3,046,736 $ 8,684,934 $ 9,196,357
Cost of revenue 1,141,068 1,090,649 3,767,443 3,427,925
Depreciation expense 448,503 427,151 1,345,509 1,238,303
----------------- ---------------- ---------------- -----------------
Gross profit 1,046,215 1,528,936 3,571,982 4,530,129
Selling expenses 501,316 598,395 1,539,245 1,600,137
General and administrative expenses 510,378 447,251 1,416,143 1,468,815
Restructuring and closure expenses - - 398,395 -
----------------- ---------------- ---------------- -----------------
Operating income 34,521 483,290 218,199 1,461,177
Interest expense 267,149 306,445 846,997 927,572
----------------- ---------------- ---------------- -----------------
Income (loss) before income taxes (232,628) 176,845 (628,798) 533,605
Income tax provision - 70,738 - 213,442
----------------- ---------------- ---------------- -----------------
Net income (loss) $ (232,628) $ 106,107 $ (628,798) $ 320,163
================= ================ ================ =================
Net income (loss) per common share
(basic and diluted) $ (0.03) $ 0.01 $ (0.08) $ 0.04
================= ================ ================ =================
Weighted average common shares 7,387,993 7,406,927 7,400,546 7,392,915
================= ================ ================ =================
</TABLE>
SEE ACCOMPANYING NOTES.
4
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MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
2000 1999
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (628,798) $ 320,163
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization of property and equipment 1,372,906 1,268,102
Amortization of intangibles 110,193 88,451
Provision for doubtful accounts 63,000 43,500
Deferred income taxes - 213,442
Gain on sale of assets (33,189) -
Write-off of customer list 151,139 -
Changes in operating assets and liabilities:
Accounts receivable (10,560) 16,072
Inventories 135,895 (39,585)
Prepaid expenses (73,054) (116,778)
Income tax receivable - 20,843
Accounts payable 105,478 (564,542)
Accrued expenses 67,082 (275,668)
---------------- ---------------
Net cash provided by operating activities 1,260,092 974,000
INVESTING ACTIVITIES
Purchases of property and equipment (1,502,882) (748,582)
Net proceeds from sale of assets 245,691 -
Payments for non-compete agreements - (35,000)
Increase in deposits and other assets (105,110) (186,421)
---------------- ---------------
Net cash used for investing activities (1,362,301) (970,003)
FINANCING ACTIVITIES
Issuance of common stock 125,706 -
Borrowings on subordinated debt 200,000 -
Borrowings on note payable to bank 333,090 1,002,634
Borrowings on notes payable - 60,000
Borrowings on long-term debt 1,247,522 2,633,391
Payments on notes payable - (70,500)
Principal payments on long-term debt (588,250) (1,834,411)
Principal payments on capital lease obligations (1,253,892) (1,865,326)
---------------- ---------------
Net cash provided by (used for) financing activities 64,176 (74,212)
---------------- ---------------
Net decrease in cash and cash equivalents (38,033) (70,215)
Cash and cash equivalents at beginning of period 45,332 141,228
---------------- ---------------
Cash and cash equivalents at end of period $ 7,299 $ 76,193
================ ===============
Supplemental information:
Cash paid during the period for:
Interest $ 795,915 $ 1,066,595
================ ===============
Taxes $ 2,430 $ -
================ ===============
Capital lease obligations entered into for equipment $ 393,225 $ 89,010
================ ===============
Common stock issued as compensation $ - $ 10,500
================ ===============
</TABLE>
SEE ACCOMPANYING NOTES.
5
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MEDICAL RESOURCES MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 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 periods ended July 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.
2. RESTRUCTURING AND CLOSURE EXPENSES
During the quarter ended April 30, 2000, the Company conducted an
intensive review of its corporate staff and each of its operating subsidiaries.
At the conclusion of this review, a decision was made to restructure or
eliminate certain management positions. In addition, the Company decided to
close two of its offices in Boise, Idaho and Mansfield, Texas due to ongoing
operating losses and negative cash flows in these geographic areas.
As a result of these decisions, the Company incurred certain
restructuring and closure expenses that totaled approximately $521,000 during
the quarter ended April 30, 2000. These restructuring and closure costs and
expenses included (a) the write-off of customer lists and certain other non-cash
write-offs, as well as legal fees, travel expense, severance expense, consulting
fees and employee benefit accruals, all of which amounted to $398,395 in the
aggregate and (b) the write-down of certain supplies and consumables inventories
in conjunction with the closures in Idaho and Texas in the amount of $123,000
(included in cost of sales for the quarter ended April 30, 2000).
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 Nine Months Ended
July 31, July 31,
--------------------- ---------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue............................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue......................................... 43.3 35.8 43.4 37.3
Depreciation expense.................................... 17.0 14.0 15.5 13.4
--------- -------- -------- --------
Gross profit............................................ 39.7 50.2 41.1 49.3
Selling expenses........................................ 19.0 19.6 17.7 17.4
General and administrative expenses..................... 19.4 14.7 16.3 16.0
Restructuring and closure expenses...................... - - 4.6 -
--------- -------- -------- --------
Operating income........................................ 1.3 15.9 2.5 15.9
Interest expense........................................ 10.1 10.1 9.8 10.1
--------- -------- -------- --------
Income (loss) before income taxes....................... (8.8) 5.8 (7.2) 5.8
Income tax provision (benefit).......................... - 2.3 - 2.3
--------- -------- -------- --------
Net income (loss)....................................... (8.8)% 3.5% (7.2)% 3.5%
========= ======== ======== ========
</TABLE>
QUARTER ENDED JULY 31, 2000 COMPARED TO QUARTER ENDED JULY 31, 1999
For the quarter ended July 31, 2000, net revenue was $2,636,000,
compared to net revenue of $3,047,000 during the quarter ended July 31, 1999,
a decrease of $411,000, or 13.5%. The decrease in net revenue is principally
the result of (1) a decrease in disposable and equipment sales of $216,000,
(2) a decrease in medical rental revenue of $236,000 and (3) a decrease in
other revenue of $41,000. The decreases in revenue were primarily the result
of the closure of the facilities in Boise, Idaho and Mansfield, Texas during
the second quarter ended April 30, 2000.
Cost of revenue (excluding depreciation expense) for the quarter ended
July 31, 2000 totaled $1,141,000, versus cost of revenue of $1,091,000 in the
second quarter of the prior fiscal year, an increase of $50,000, or 4.6%, from
cost of revenue for the third quarter of fiscal year 1999. The increase in cost
of revenue is primarily attributable to higher cost of equipment sales during
the third quarter of fiscal year 2000. As a percentage of revenue, cost of
revenue increased to 43.3% in the third quarter of fiscal year 2000 from 35.8%
in the comparable quarter of fiscal year 1999.
7
<PAGE>
Depreciation expense directly attributable to net revenue was $448,000
for the quarter ended July 31, 2000 compared to $427,000 during the same quarter
of fiscal 1999, an increase of $21,000, or 5.0%. This increase in depreciation
expense is principally the result of the addition of equipment since the third
quarter of fiscal year 1999.
Gross profit during the quarter ended July 31, 2000 was $1,046,000,
compared to gross profit of $1,529,000 during the comparable period of the prior
fiscal year, a decrease of $483,000, or 31.6%. As a percentage of net revenues,
gross profit fell from 50.2% during the third quarter of fiscal 1999 to 39.7%
during the quarter ended July 31, 2000. The decrease in the amount of gross
profit is principally the result of the factors described previously.
For the quarter ended July 31, 2000, selling expenses totaled $501,000,
compared to selling expenses of $598,000 during the same quarter of fiscal year
1999, a decrease of $97,000, or 16.2%. As a percentage of net revenue, selling
expenses decreased slightly from 19.6% in the quarter ended July 31, 1999 to
19.0% in the second quarter of the current fiscal year. The decrease in selling
expenses is primarily related to the closure of the facilities in Boise, Idaho
and Mansfield, Texas.
General and administrative ("G&A") expenses increased to $510,000 in the
quarter ended July 31, 2000 from $447,000 in the quarter ended July 31, 1999, an
increase of $63,000, or 14.1%. As a percentage of net revenue, G&A expenses
increased from 14.7% in the third quarter of fiscal year 1999 to 19.4% in the
third quarter of the current fiscal year. The increase in the amount of G&A
expense is primarily attributable to higher compensation costs and an increase
in professional fees.
Interest expense for the quarter ended July 31, 2000 was $267,000,
compared to $306,000 in the comparable quarter of the prior fiscal year, a
decrease of $39,000, or 12.8%. The decrease in interest expense is the result of
lower interest expense on capital leases nearing maturity.
The loss before income taxes was $233,000 for the quarter ended July 31,
2000, compared to income before taxes of $177,000 for the quarter ended July 31,
1999, a negative variance of $410,000. The loss before income taxes, as a
percentage of revenue, was 8.8% in the quarter ended July 31, 2000, compared to
income before taxes equal to 5.8% of revenue in the quarter ended July 31, 1999.
This variance occurred as a result of the aforementioned factors.
8
<PAGE>
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
For the nine months ended July 31, 2000, net revenue was $8,685,000
compared to net revenue of $9,196,000 during the nine months ended July 31,
1999, a decrease of $511,000, or 5.6%. The decrease in net revenue is
principally the result of (1) a decrease in disposable and equipment sales of
$369,000, (2) a decrease in medical rental revenue of $340,000 and (3) a
decrease in biomedical revenue of $63,000, all of which were offset in part by
an increase of $259,000 in laser surgical services revenue. The decreases in
revenue were principally the result of the closure of the facilities in Boise,
Idaho and Mansfield, Texas during the quarter ended April 30, 2000.
Cost of revenue (excluding depreciation expense) for the nine months
ended July 31, 2000 totaled $3,767,000, compared to cost of revenue of
$3,428,000 for the comparable nine months of the prior fiscal year, an increase
of $339,000, or 9.9%. The increase in cost of revenue is primarily attributable
to (1) the write-off of inventories in Boise, Idaho and Mansfield, Texas in
connection with the closure of these facilities and (2) higher cost of equipment
sales during the second and third quarters of fiscal year 2000. Cost of revenue
as a percentage of revenues increased from 37.3% in the first nine months of
fiscal year 1999 to 43.4% in the first nine months of fiscal year 2000.
Depreciation expense directly attributable to net revenue for the nine
months ended July 31, 2000 totaled $1,346,000 compared to $1,238,000 during the
comparable period of fiscal 1999, an increase of $108,000, or 8.7%. This
increase in depreciation expense is principally the result of the addition of
equipment since the second quarter of fiscal year 1999.
Gross profit during the nine months ended July 31, 2000 was $3,572,000,
compared to gross profit of $4,530,000 during the comparable period of the prior
fiscal year, a decrease of $958,000, or 21.2%. As a percentage of net revenue,
gross profit decreased from 49.3% during the first nine months of fiscal 1999 to
41.1% during the nine months ended July 31, 2000. The decrease in the amount of
gross profit is principally the result of the factors described previously.
For the nine months ended July 31, 2000, selling expenses were
$1,539,000, compared to selling expenses of $1,600,000 for the first nine months
of fiscal year 1999, a decrease of $61,000, or 3.8%. As a percentage of net
revenue, selling expenses increased slightly from 17.4% in the nine months ended
July 31, 1999 to 17.7% in the nine months ended July 31, 2000. The decrease in
selling expenses is primarily a result of the closure of facilities in Boise,
Idaho and Mansfield, Texas.
General and administrative ("G&A") expenses decreased to $1,416,000 in
the nine months ended July 31, 2000 from $1,469,000 in the nine months ended
July 31, 1999, a decrease of $53,000, or 3.6%. As a percentage of net revenue,
G&A expenses increased slightly from 16.0% in the first nine months of fiscal
year 1999 to 16.3% in the comparable nine months of fiscal year 2000. The
decrease in the amount of G&A expense is primarily attributable to a reduction
of management personnel related to corporate restructuring during the second
quarter of the current fiscal year, offset in part by higher compensation costs
and higher professional fees during the quarter ended July 31, 2000.
Restructuring and closure expenses for the nine months ended July 31,
2000 totaled $398,000. There were no such expenses during the same period of the
prior fiscal year. See Note 2 above for a discussion of these expenses.
Interest expense for the nine months ended July 31, 2000 was $847,000,
compared to $928,000 in the first nine months of the prior fiscal year, a
decrease of $81,000, or 8.7%. The decrease in interest expense is the result of
lower interest expense on capital leases nearing maturity.
The loss before income taxes was $629,000 for the nine months ended July
31, 2000, compared to income before taxes of $534,000 for the nine months ended
July 31, 1999, a negative variance of $1,163,000. The loss before income taxes,
as a percentage of revenue, was 7.2% in the nine months ended July 31, 2000,
compared to income before taxes of 5.8% as a percentage of revenue in the nine
months ended July 31, 1999. This variance occurred as a result of the
aforementioned factors.
9
<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, leasing arrangements, trade payables and
the sale of our Common Stock.
During the nine months ended July 31, 2000, net cash provided by
operating activities was $1,260,000, which resulted primarily from net loss of
$629,000 adjusted for (a) depreciation and amortization expense of $1,483,000,
(b) the write-off of customer lists of $151,000, (c) a provision for doubtful
accounts of $63,000 and (d) a net decrease of approximately $225,000 in working
capital items, all of which were offset in part by a gain on sales of assets of
approximately $33,000.
Net cash used for investing activities during the nine months ended July
31, 2000 was $1,362,000, which consisted of (a) capital expenditures of
$1,503,000 and (b) an increase of $105,000 in deposits and other assets, both of
which were offset in part by proceeds from sale of assets of approximately
$246,000.
During the nine months ended July 31, 2000, net cash provided by
financing activities totaled $64,000, consisting of (a) $126,000 in net proceeds
from the issuance of common stock, (b) $200,000 in borrowings on subordinated
notes payable, (c) $333,000 in borrowings on a note payable to a bank and (d)
$1,247,000 in borrowings on long-term debt, all of which were offset in part by
(d) $588,000 in principal payments on long-term debt and (e) $1,254,000 in
principal payments on capital lease obligations.
The bank term loan and bank line of credit prohibit the payment of cash
dividends and require us to maintain certain levels of net worth, to operate
profitably and to generate certain ratios of cash flows to debt service. As of
July 31, 2000, we were not in compliance with certain financial covenants. In
addition, we had exceeded our borrowing base on the bank line of credit by
approximately $388,000 as of July 31, 2000.
We are working with the bank to address these issues. Among the
potential solutions to the over advance on the bank line of credit is a sale of
common stock through a private placement. We are currently in negotiations with
certain non-related parties to issue common stock in the amount of approximately
$1.5 million. The net proceeds from such a private placement would be used to
pay down the bank line of credit, as well as to address other working capital
requirements.
If this private placement is completed, we will then negotiate new loan
covenants with the bank. However, although we expect to complete this private
placement, we cannot be certain that such a transaction will be completed or
that, if completed, the bank will waive the default of its loan covenants or
amend such covenants. Failure to complete the private placement or to obtain a
waiver or amendment from the bank could have a material adverse impact on our
financial position.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
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
None.
(b) REPORTS ON FORM 8-K
None.
11
<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 October 5, 2000
By /s/ Richard A. Whitman
---------------------------------------
Richard A. Whitman, President and CEO
12
