U.S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from to
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Commission file number 1-9367
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NMR of America, Inc.
--------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 22-2468314
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
430 Mountain Avenue Murray Hill, New Jersey 07974-2732
----------------------------------------------------------
(address of principal executive offices)
(908) 665-9400
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(Issuer's telephone number)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
YES NO
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: September 30, 1995 -
---------------------
6,282,168
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<PAGE>
NMR of America, Inc., and Subsidiaries
PART I. Financial Information
-------------------------------
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
----------------------------------------------------------
PART II. Other Information
---------------------------
Item 6. Exhibits and reports on Form 8-K
--------------------------------
Exhibit 11. Computation of Shares Used For Earnings Per
Share Calculation
2
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets
- ---------------------------
September 30, March 31,
1995 1995
------------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,683,190 $ 3,966,804
Marketable securities 300,186 1,125,643
Short-term investments 914,127 886,609
Due from affiliated physician
associations, net 11,968,839 9,498,268
Other current assets 1,263,752 903,373
----------- -----------
Total current assets 19,130,094 16,380,697
----------- -----------
Land, buildings and equipment 32,899,702 31,360,133
Less, accumulated depreciation
and amortization 16,980,294 19,580,504
----------- -----------
15,919,408 11,779,629
Cost in excess of net assets
acquired 10,116,485 4,497,974
Deferred income taxes 424,788 1,099,000
Other assets 1,743,832 1,571,547
----------- -----------
Total assets $ 47,334,607 $ 35,328,847
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets
- ---------------------------
September 30, March 31,
1995 1995
------------- -----------
(unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and
accrued expenses $ 4,375,563 $ 3,098,931
Current installments on capital
lease obligations 667,461 286,263
Current installments on notes and
mortgage payable 3,935,086 2,769,098
----------- -----------
Total current liabilities 8,978,110 6,154,292
Convertible subordinated debt, net 2,077,585 2,056,417
Obligations under capital leases,
less current installments 1,468,495 481,518
Notes and mortgage payable,
less current installments 12,750,479 10,451,119
Minority interest in limited
partnerships 2,222,016 2,155,665
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value;
authorized 30,000,000 shares,
6,632,815 and 5,416,967 shares
issued and outstanding at September 30,
and March 31, 1995, respectively 66,328 54,169
Additional paid-in capital 16,751,665 11,570,401
Retained earnings 4,447,163 3,854,255
Unrealized gains 186 14,208
Less, 350,647 and 364,958 common
shares in Treasury at September 30,
and March 31, 1995 respectively ( 1,427,420) ( 1,463,197)
----------- -----------
Total shareholders' equity 19,837,922 14,029,836
----------- -----------
Total liabilities and shareholders'
equity $ 47,334,607 $ 35,328,847
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Operations (unaudited)
- -------------------------------------
Six months ended September 30,
------------------------------
1995 1994
----------- -----------
Revenue, net $10,060,738 $ 8,735,708
----------- -----------
Costs and expenses:
Payroll and related costs 2,957,458 2,260,961
Depreciation and amortization 1,354,394 1,449,454
Medical supplies and other
operating costs 3,689,925 2,750,079
Gain on disposition of center assets ( 62,443)
Other general and administrative 281,981 272,869
----------- -----------
8,221,315 6,733,363
----------- -----------
Operating income 1,839,423 2,002,345
Interest expense 742,346 536,938
Other income, net 30,110 52,675
----------- -----------
Income before minority
interest and income taxes 1,127,187 1,518,082
Minority interest in income of
limited partnerships 198,779 273,915
----------- -----------
Income before income taxes 928,408 1,244,167
Provision for income taxes:
Current 53,116 121,000
Deferred 282,384
----------- -----------
Net income $ 592,908 $ 1,123,167
=========== ===========
Per share data:
Primary:
Primary net income per share $ .11 $ .23
=========== ===========
Fully diluted:
Fully diluted net income per share $ .11 $ .23
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Operations (unaudited)
- -------------------------------------
Quarter ended September 30,
---------------------------
1995 1994
---------- ----------
Revenue, net $5,289,445 $4,298,552
---------- ----------
Costs and expenses:
Payroll and related costs 1,517,721 1,118,425
Depreciation and amortization 700,980 732,180
Medical supplies and other
operating costs 1,861,755 1,391,826
Other general and administrative 140,825 136,257
---------- ----------
4,221,281 3,378,688
---------- ----------
Operating income 1,068,164 919,864
Interest expense 369,757 274,930
Other income, net 10,478 30,416
---------- ----------
Income before minority
interest and income taxes 708,885 675,350
Minority interest in income of
limited partnerships 116,249 120,705
---------- ----------
Income before income taxes 592,636 554,645
Provision for income taxes:
Current 35,116 53,000
Deferred 202,384
---------- ----------
Net income $ 355,136 $ 501,645
========== ===========
Per share data:
Primary:
Primary net income per share $ .07 $ .10
========== ===========
Fully diluted:
Fully diluted net income per share $ .07 $ .10
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
- -------------------------------------
Six months ended September 30,
------------------------------
1995 1994
----------- ----------
Cash flows from operating activities:
Net income $ 592,908 $1,123,166
---------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,354,394 1,449,454
Minority interest in income of
limited partnerships 198,779 273,915
Deferred income taxes 282,384
Equity in loss from
unconsolidated partnership 49,605 37,290
Gain on short-term investments ( 2,574)
Gain on disposition of center
assets ( 62,443)
Contractor reimbursement ( 175,000) ( 102,820)
Changes in assets and liabilities:
Increase in due from
affiliated physician
associations, net ( 882,905) ( 615,177)
Decrease (increase) in other
current assets 79,713 ( 109,616)
Increase in
other assets ( 276,002) ( 10,456)
(Increase) decrease in accounts
payable and accrued expenses 57,897 ( 473,044)
---------- ----------
Total adjustments 626,422 446,972
---------- ----------
Net cash provided by
operating activities 1,219,330 1,570,138
---------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
- -------------------------------------
Six months ended September 30,
------------------------------
1995 1994
----------- -----------
Cash flows from investing activities:
Purchases of equipment and
leasehold improvements ( 884,057) ( 445,356)
Purchases of short-term investments ( 504,000)
Purchases of marketable securities ( 300,000)
Purchases of limited partnership
interests ( 40,000)
Proceeds from sale of marketable
securities 1,130,000
Proceeds from sale of short-term
investments 503,394 205,000
Acquisition of Morgan Medical
Holdings, Inc., net of cash
acquired 411,905
Advance to unconsolidated partnership ( 48,000)
Other ( 17,437) ( 7,200)
---------- ----------
Net cash provided by (used in)
investing activities 291,805 ( 287,556)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 850,146 197,625
Repayments of debt, including capital
lease obligations ( 1,563,273) ( 1,118,741)
Proceeds from exercise of stock
options 47,006
Distributions to limited partners ( 128,628) ( 44,962)
----------- -----------
Net cash used in
financing activities ( 794,749) ( 966,078)
----------- -----------
Net increase in cash
and cash equivalents 716,386 316,504
Cash and cash equivalents
at April 1, 3,966,804 3,718,978
----------- -----------
Cash and cash equivalents
at September 30, $ 4,683,190 $ 4,035,482
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
- -------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 26,140 $ 52,707
=========== ===========
Interest $ 711,559 $ 517,433
=========== ===========
Supplemental schedule of noncash activities:
Capital lease obligation incurred for
use of equipment $ 91,500 $ ---
=========== ==========
Stock issued in connection with
acquisition of Morgan Medical
Holdings, Inc. $ 5,082,359 $ ---
=========== ==========
Notes payable obligations assumed
in connection with acquisition
of Morgan Medical Holdings, Inc. $ 3,984,258 $ ---
=========== ==========
Capital lease obligations assumed
in connection with acquisition
of Morgan Medical Holdings, Inc. $ 1,470,892 $ ---
=========== ==========
Unrealized gains on marketable
securities available-for-sale $ 186 $ ---
=========== ==========
Contribution to 401(k) plan $ 15,022 $ ---
=========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
- -------------------------------------------
Condensed Consolidated Financial Statements
- -------------------------------------------
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations since the Company believes that the disclosures contained
herein are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements, and notes thereto included
in the Company's latest Annual Report on Form 10-KSB. In the opinion
of the Company, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the
Company as of September 30, 1995, as well as the results of operations
and cash flows for the six and three months ended September 30, 1995
and 1994 have been included. The results of operations for such
interim periods are not necessarily indicative of the results for the
full year.
Due from affiliated physician associations
- ------------------------------------------
The Company has entered into agreements with physicians engaging in
business as professional associations ("Physicians") pursuant to which
the Company maintains and operates imaging systems in offices operated
by the Physicians. The agreements have terms of up to six years and
are renewable at the option of the Company. The Physicians'
principal, Dr. David L. Bloom, is a director of the Company. Under
the agreements, Physicians has agreed to be obligated to contract for
radiological services at the centers and to sublease each facility.
The Company is obligated to make necessary leasehold improvements,
provide furniture and fixtures and perform certain administrative
functions relating to the provision of technical aspects of the
centers operations for which Physicians pay a quarterly fee composed
of a fixed sum based on the cost of the respective imaging system
installed, including related financing costs, a charge per invoice
processed and a charge based upon system usage for each Company-
installed imaging system in operation. These fees, net of a
contractual allowance based upon Physicians ability to pay after
Physicians have fulfilled their obligations under facility subleases
and radiological service contracts as set forth above, constitute the
Company's revenue, net for developed sites.
For consolidated centers which the Company has acquired, subsidiaries
of the Company have entered into agreements with unaffiliated
10
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
professional corporations to provide radiological services under Dr.
Bloom's administration. Accordingly, revenue, net for acquired
centers consists of patient billings adjusted for contractual
reductions which have been negotiated with various third-party payers.
Fees paid to radiologists at these centers are reflected as a
component of medical supplies and other operating expense in the
accompanying statements of operations.
Certain revenues are subject to audit and retroactive adjustment by
third-party payers. The Company is aware of no pending audits or
proposed adjustments and no provisions for estimated retroactive
adjustments have been provided.
Short-term investments
- ----------------------
Short-term investments at September 30, 1995 are stated at cost plus
accrued interest and consist of certificates of deposit having
original maturities of greater than three months but not in excess of
one year.
Marketable securities
- ---------------------
Marketable securities classified as available-for-sale, held-to-
maturity and trading are as follows:
Gross Fair
unrealized market
Cost gains value
---------- ---------- ----------
September 30, 1995
Available-For-Sale:
U.S. Government obligations $ 300,000 $ 186 $ 300,186
========== ========== ==========
March 31, 1995
Available-For-Sale:
U.S. Government obligations $1,111,435 $ 14,208 $1,125,643
========== ========== ==========
There were no investments in debt or equity securities classified as
trading or held-to-maturity at September 30, and March 31, 1995
Due from related parties
- ------------------------
As of September 30, 1995, the Company has notes receivable from two
former officers of Morgan Medical Holdings, Inc. in amounts of
$359,414 and $39,948, excluding accrued interest thereon, which are
included as a component of other current assets and other assets in
11
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
the Company's September 30, 1995 balance sheet. The notes bear
interest at prime and are payable in eight equal semi-annual principal
installments, plus interest, commencing on March 15, 1996. The notes
are collateralized by a pledge of the Company's common stock which is
owned by the individuals, one of whom now serves as a member of the
Company's Board of Directors and the other as an employee of the
Company.
Shareholders' equity
- --------------------
On October 25, 1995, the Board of Directors authorized a common stock
repurchase program whereby the Company will purchase up to $1,000,000
of its outstanding common stock from time to time in the open market.
The shares will be held as treasury shares for reissuance upon the
exercise of employee stock options, warrants and other convertible
securities. The timing of purchases and the number of shares
purchased will depend upon prevailing market prices and other market
conditions. As of November 9, 1995 the Company had purchased 43,150
of its outstanding shares under the repurchase program.
On April 9, 1986, the Company's Board of Directors adopted the 1986
Incentive Stock Option and Non-Statutory Option Plan (the "Plan") for
employees of the Company. Under the Plan, as amended, up to 1,000,000
shares of the common stock of the Company may be issued upon the
exercise of options to be granted during the ten-year term of the
Plan. Options with respect to 385,934 shares were outstanding at
September 30, 1995 at an exercise price ranging from $2.25 to $6.38
per share for the terms of between five and ten years. As of
September 30, 1995, options with respect to 143,475 shares were
exercisable. During the six months ended September 30, 1995, 12,375
options were exercised.
Commitments and contingencies
- -----------------------------
The Company's charges for MRI services at its four imaging centers
which are located in the State of Florida exceed those allowable under
Florida's Patient Self-Referral Act of 1992 ("the Act"). The
enforcement of the Act could have a material effect on the Company's
financial statements. However, the constitutionality of the Act is
being challenged in the courts and no enforcement action under the Act
has been taken against the Company. Although the Company believes
that no adverse consequences will result from any action taken under
the Act, the Company cannot ascertain the effect of the ultimate
resolution of this matter on the financial statements.
12
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
The Company is from time to time involved in litigation incidental to
the conduct of its business. Management and its counsel believe that
such pending litigation will not have a material adverse effect on the
Company's results of operations or financial condition.
Imaging center matters
- -----------------------
The Company's Austin, Texas center operates pursuant to a limited
partnership agreement (the "Austin Partnership") which expires on
January 31, 1996. The Company also receives a management fee based
upon five percent of the center's cash collections. No assurances can
be given that the Austin Partnership will be operated beyond its
current expiration date, that the Company will continue to manage the
center or that the terms of any new or extended management contract
will be substantially similar to the Company's existing management
contract.
During the first quarter of fiscal 1996 the Company temporarily ceased
operations at its Union, New Jersey facility in order to replace the
center's existing magnetic resonance imaging equipment, which was
installed in 1984. The new system was installed during June 1995 and
became operational in early July 1995. The project was completed for
an aggregate cost of approximately $850,000, which includes the cost
of related leasehold improvements and diagnostic imaging equipment.
During the quarter ended September 30, 1995, the Company obtained
financing for the equipment and related leasehold improvements in the
form of a five year note payable which bears interest at a rate of
10%, requires monthly payments of $18,082, including interest, and is
collateralized by the related imaging equipment.
Acquisitions
- ------------
On March 13, 1995, the Company announced that its Board of Directors
had approved an agreement, subject to certain conditions, providing
for the acquisition of Morgan Medical Holdings, Inc. ("Morgan"). A
definitive acquisition agreement was executed on April 11, 1995. The
transaction was approved by the shareholders of Morgan and the Company
on September 14, 1995 and became effective on September 15, 1995.
Morgan provides diagnostic imaging equipment, facilities and
management services to physicians through four outpatient centers
located in the Florida cities of Cape Coral, Naples, Sarasota and
Titusville. Pursuant to the terms of the acquisition, Morgan
shareholders received 1,195,848 shares of the Company's common stock
in the transaction. Under the terms of the merger agreement, the
Company exercises control over the voting rights of Morgan's largest
shareholder for a period of three years. The Company accounted for
13
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
the transaction as a purchase and, accordingly, the acquired assets
and liabilities were recorded at their fair values at the date of
acquisition. In conjunction with the transaction, the Company
recorded $5,704,603 of costs in excess of fair value which is being
amortized over twenty years on a straight line basis.
The Company's consolidated financial statements for the six months
ended September 30, 1995, include the results of operations of Morgan
commencing September 15, 1995, the effective date of acquisition. The
following summarizes the unaudited proforma results of operations for
the six months ended September 30, 1995, assuming the acquisition had
occurred April 1, 1995 (in thousands, except per share data):
Revenue, net $ 12,759
Operating income $ 2,537
Income before income taxes $ 1,378
Net income $ 881
Fully diluted net income per share $ .14
14
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
- ---------------------
Three and six months ended September 30, 1995 compared to three and
- -------------------------------------------------------------------
six months ended September 30, 1994.
- ------------------------------------
Reference is made to Note 2 of the Company's consolidated financial
statements for a definition of revenue, net.
For the three and six months ended September 30, 1995, revenue, net
was $5,289,445 and $10,060,738 versus $4,298,552 and $8,735,708 for
the three and six months ended September 30, 1994 or a $990,893
(23.1%) and $1,325,030 (15.2%) increase, respectively. The increase
in revenue, net resulted primarily from the purchases of Libertyville
Imaging Center ("Libertyville") and Golf MRI and Diagnostic Imaging
Center ("Golf/DIC") which were effective January 1, 1995 and the
acquisition of Morgan Medical Holdings, Inc. ("Morgan") on September
15, 1995. These centers generated revenue, net totaling $1,069,095
and $1,930,840 for the three and six months ended September 30, 1995,
respectively. Same center revenue, net decreased by $78,200 or 1.8%
from $4,298,550 to $4,220,350 during the quarter ended September 30,
1995 and $605,809 from $8,735,707 to $8,129,898 during the six months
ended September 30, 1995. The reduction in revenue, net during the
six months ended September 30, 1995 was primarily due to the temporary
shut-down of the Company's Union, New Jersey center for the entire
first fiscal quarter and as a result of increased aggregate same
center scan volume offset by additional discounted business. Due to
the equipment replacement, the Company believes that the Union center
could generate revenue, net which is comparable to, or in excess of,
historical volume during the remainder of fiscal 1996 and beyond. It
is anticipated that the Company's revenue, net and operating expenses
will increase in comparison to historical levels during the remainder
of fiscal 1996 and beyond due to the acquisition of Morgan which was
consolidated with the operations of the Company for only 15 days
during the quarter ended September 30, 1995. Patient volume and
reimbursement sources both significantly impact the Company's revenue,
net. Patient medical costs are paid by managed care organizations,
such as HMO's, Blue Cross/Blue Shield, Medicare and Medicaid, and
private pay organizations, such as commercial insurance carriers. By
virtue of contractual allowances obtained by certain of these
reimbursement sources under contracts entered into with the Company,
shifts in the mix of patients and their related reimbursement sources
will impact revenue, net in the period in which they occur.
Payroll and related costs for the three and six months ended September
30, 1995 were $1,517,721 and $2,957,458 versus $1,118,425 and
$2,260,961 for the three and six months ended September 30, 1994, or
an increase of $399,296 (35.7%) and $696,497 (30.8%), respectively.
15
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
This increase is primarily due to the acquisitions of Libertyville and
Golf/DIC which incurred payroll and related costs totaling
approximately $176,176 and $327,586 during the three and six month
periods ending September 30, 1995. In addition, the Company's
clinical payroll and related costs increased due to continued
increases in the aggregate number of procedures being performed in its
centers and administrative personnel costs have increased due to the
hiring of certain managed care and marketing personnel in response to
increased competition for managed care and other business. The
Company has also experienced an increase in the cost of providing
health benefits to its employees.
Depreciation and amortization expense decreased by $31,200 (4.3%) and
$95,060 (6.6%) from $732,180 and $1,449,454 for the three and six
months ended September 30, 1994 to $700,980 and $1,354,394 for the
three and six months ended September 30, 1995. This decrease was
primarily attributable to an approximately $150,000 per quarter
decrease in aggregate same center depreciation expense on the
Company's more mature centers, which includes a $40,000 decrease in
quarterly depreciation due to the write-down of the Elgin, Illinois
center's fixed assets during the fourth quarter of fiscal 1995. This
decrease was offset by the acquisitions of Libertyville and Golf/DIC,
and Morgan which resulted in goodwill amortization and equipment
depreciation aggregating $121,106 and $212,024 for the three and six
months ended September 30, 1995.
Medical supplies and other operating costs include the cost of
equipment and premises maintenance, medical supplies, radiology fees
for acquired centers, other center expenses, and patient billing fees.
Medical supplies and other operating costs increased by $469,929
(33.8%) and $939,846 (34.2%) from $1,391,826 and $2,750,079 for the
three and six months ended September 30, 1994 to $1,861,755 and
$3,689,925 for the three and six months ended September 30, 1995,
respectively. This increase results, primarily, from the inclusion of
Libertyville and Golf/DIC centers which generated medical supplies and
other operating expenses totaling $371,007 and $760,549 during the
three and six months ended September 30, 1995. In addition, medical
supplies and operating expenses increased $69,594 for the three and
six months ended September 30, 1995 due to the inclusion of operating
rent paid for the equipment at the Seabrook Radiological Center, which
began accruing in July 1995. Physician fees at our Oak Lawn Center
increased $39,691 and $63,070 for the three and six months ended
September 30, 1995 over the prior year comparable periods due to
increased volume. The foregoing factors contributing to the increase
in medical supplies and operating expenses were offset by decreases in
the cost of patient billing services ($32,000) and medical supplies at
16
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
the Company's other centers. Various cost containment measures
previously enacted by the Company are intended to reduce the cost of
certain operating expenses, as a percentage of revenue, net during
fiscal 1996 and beyond.
The Company realized a $62,443 non-cash gain on the sale of the
magnetic resonance imaging equipment formerly in use at its Union, New
Jersey facility with a book value of $64,557 at the time of
disposition. In return for the sale of the old equipment, the Company
received $27,000 of cash consideration and a $100,000 credit towards
the purchase price of the new equipment which was acquired for the
Union center during the quarter ended June 30, 1995.
Other general and administrative expenses for the three and six months
ended September 30, 1995, were $140,825 and $281,981 versus $136,257
and $272,869 for the three and six months ended September 30, 1994, or
an increase of $4,568 (3.4%) and $9,112 (3.3%), respectively. The
increase during the three and six months ended September 30, 1995
results primarily from increased advertising and promotional expenses
relating to marketing efforts at the Company's centers.
Interest expense for the three and six months ended September 30, 1995
were $369,757 and $742,346 versus $274,930 and $536,938 for the
comparable prior periods, or an increase of $94,827 (34.5%) and
$205,408 (38.3%), respectively. This increase results, primarily,
from interest expense associated with the acquisition and assumption
of debt obligations relating to the Libertyville, Golf/DIC and Morgan
acquisitions, which generated interest expense totaling approximately
$82,905 and $140,814 for the three and six months ended September 30,
1995. In addition, aggregate same center interest expense increased
due to the financing of new equipment in the Company's Union, New
Jersey and Seabrook, Maryland centers, additional hardware and
software upgrades and from increases in prevailing interest rates,
which impact the Company's variable rate debt obligations. These
increases were offset by decreases in interest expense relating to
scheduled reductions in outstanding principal balances.
Other income and expense, net decreased by $19,938 and $22,565 for the
three and six months ended September 30, 1995 from $30,416 and $52,675
for the three and six months ended September 30, 1994 to $10,478 and
$30,110 for the three and six months ended September 30, 1995,
respectively. The decrease for the three and six months ended
September, 1995, results primarily from a $4,831 and $12,305 increase
in the Company's equity interest in the losses of the Austin, Texas
limited partnership.
17
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
Minority interest in income of limited partnerships decreased by
$4,456 (3.7%) and $75,136 (27.4%) from $120,705 and $273,915 for the
three and six months ended September 30, 1994 to $116,249 and $198,779
for the three and six months ended September 30, 1995. The decrease
is primarily due to a $24,690 and $120,549 reduction in aggregate same
center minority interest due to a reduction in pre-minority interest
income on such centers offset by a $30,233 and $55,412 increase in
minority interest in income of the Golf/DIC limited partnerships,
which were acquired effective January 1, 1995.
The Company's current provision for income taxes of $35,116 and
$53,116 for the three and six months ended September 30, 1995,
consists of current state income and franchise taxes. The Company's
current federal tax provision for the fiscal periods of 1996 were
offset through the utilization of net operating loss carryforwards
available from prior years. The Company has recorded a deferred tax
provision of $202,384 and $282,384 for the three and six months ended
September 30, 1995, to reflect the reduction in the Company's net
deferred tax assets during such periods. The Company's aggregate
provision for income taxes increased by $184,500 and $214,500 from
$53,000 and $121,000 for the three and six months ended September 30,
1994 to $237,500 and $335,500 for the three and six months ended
September 30, 1995. Substantially all of the increase relates to an
increase in the Company's deferred income tax provision which is due
to the Company's recognition of a net deferred income tax asset during
fiscal 1995.
For the reasons described above, the Company's net income for the
three and six months ended September 30, 1995 decreased by $146,509
and $530,259 to $355,136 and $592,908 from $501,645 and $1,123,167 for
the comparable prior fiscal periods.
Federal legislation was enacted during the second quarter of fiscal
1994, which prohibits, effective January 1, 1995, the referral of
Medicare or Medicaid patients to outpatient diagnostic imaging centers
by physicians possessing a financial interest in such centers. In
addition, certain states in which the Company operates have proposed
or enacted similar legislation. As a result of this legislation, the
Company purchased limited partnership interests in certain of the
Company's imaging centers which were owned by physicians and other
non-physician limited partners. Although, to date, the Company does
not believe it has experienced any significant changes in its referral
patterns resulting from such acquisitions, the Company is unable to
predict the long-term effect of the foregoing legislation or the
impact of the Company's purchases of limited partner interests on
referrals to the Company's centers. The loss of referrals from former
18
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
limited partners who refer Medicare, Medicaid or other patients to the
Company's centers would have a material adverse impact on the
Company's future net revenues, results of operations and liquidity.
Inflation
- ---------
Inflation and changing prices have generally impacted the Company only
in the salary and benefit areas and have not been material to the
Company's operations. In the event of increased inflation, management
believes that the Company may not be able to raise the prices for its
services by an amount sufficient to offset the cost of inflation.
Management believes the Company is well positioned to counter the
impact of inflation on its operating margins given its mix of mature
centers with upgraded equipment, as well as newer facilities which
offer the increased efficiency and the high volume capacity of state
of the art diagnostic imaging equipment.
Liquidity
- ---------
The Company had net income of $592,908 for the fiscal period ended
September 30, 1995 versus net income of $1,123,167 for the comparable
prior fiscal period. At September 30, 1995, the Company's working
capital totaled $10,151,984 which includes cash and cash equivalents
totaling $4,683,190, marketable securities totaling $300,186 and
short-term investments totaling $914,127. The Company generated
$1,219,330 and $1,570,138 in net cash flow from operating activities
during the fiscal periods ended September 30, 1995 and 1994,
respectively, or a decrease of $350,808 (22.3%). Cash provided by
operating activities during the fiscal period ended September 30, 1995
resulted from operating cash flows of $2,240,627 offset by a
$1,021,297 net increase in the Company's current assets and
liabilities. The decrease in operating cash flows and cash provided
by operating activities results primarily from the decrease in the
Company's net income during the first six months of fiscal 1996.
Investing activities provided $291,805 in cash during fiscal 1996.
The Company purchased $884,057 of equipment and leasehold improvements
primarily for the Union, New Jersey and Seabrook, Maryland imaging
centers. The Company intends to continue to evaluate hardware and
software upgrades for imaging equipment and expects to acquire such
upgrades where deemed advisable. The Company's net proceeds from
sales and purchases of short-term investments and marketable
securities totaled $829,394 during the period ended September 30,
1995. The Company invests substantially all of its excess cash
balances in government securities, certificates of deposit and other
fixed income instruments with maturities of up to one year. Such
19
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
maturities are scheduled to coincide with the Company's anticipated
capital needs. The Company acquisition of Morgan Medical Holdings,
Inc. resulted in a $411,905 increase in available cash based upon
Morgan's balance sheet as of the date of acquisition. In addition,
the Company advanced $48,000 to its unconsolidated Austin, Texas
limited partnership to fund working capital requirements.
Financing activities used net cash totaling $794,749 which is
comprised of $1,563,273 utilized for the repayment of debt and capital
lease obligations and $128,628 of limited partnership distributions,
offset by $850,146 in proceeds from borrowings during the fiscal
quarter ended September 30, 1995.
At September 30, 1995, the Company had $2,135,956 in obligations under
capital leases compared to $767,781 at March 31, 1995. These
obligations relate primarily to the financing of imaging equipment at
the Philadelphia, Pennsylvania, OPEN MRI of Chicago and Sarasota,
Florida diagnostic centers. Repayments under capital leases totaling
$194,217 were made during the period ended September 30, 1995.
During the fiscal year ended March 31, 1993, on the basis of declining
amounts of cash generated by operating activities, the Company adopted
a policy of reducing operating expenses and enhancing cash management.
Management reduced the size of the Company's staff and reorganized
administrative and imaging center personnel. Management intends to
continue to implement cost reductions throughout fiscal 1996 wherever
possible. Management of the Company believes that various medical
cost containment measures being implemented by Federal and state
governments and third party payers can be expected to place pressure
on both the amounts charged for MRI and other diagnostic imaging
procedures and the number of patient referrals from physicians.
Management expects that these efforts will put downward pressure on
the Company's revenue, net and cash generated by operating activities.
Management is seeking to offset these pressures by controlling the
costs and expenses described above, by increased marketing efforts and
steps taken to enhance the Company's professional medical
representation in the communities where its centers are located.
To date, the Company has been able to obtain financing for its
diagnostic imaging equipment through equipment vendors, equipment
financing companies and banks and the Company expects to be able to
obtain additional financing, as required, in the future. However,
there can be no assurance that such financing will be available from
such lending sources or any other party on terms that will be
favorable to the Company.
20
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
Capital Resources
- -----------------
The Company believes that the existing cash and cash equivalents,
short-term investments and cash generated from operating activities
will be sufficient to meet the needs of its current operations, any
acquisitions of additional limited partnership interests in the
Company's centers, anticipated capital expenditures, scheduled debt
repayments and limited partner distributions.
Management of the Company believes that there are and will continue to
be opportunities to acquire additional diagnostic imaging centers, as
well as companies which own multiple imaging centers. The Company is
not a party to any agreements or letters of intent relating to the
acquisition of additional centers at September 30, 1995.
Management reviews proposals to acquire additional centers and
evaluates these opportunities on the basis of the price at which it
believes the centers can be acquired, relevant demographic
characteristics, competitive centers, physician referral patterns,
location and other factors. Management intends to pursue the
acquisition of additional centers if its analysis of these factors
indicates the Company would receive a favorable return from investing
in these centers. Any centers that are acquired can be expected to
involve the payment of the purchase price in either cash, notes or
shares of common stock or a combination thereof. No assurances can be
given that additional centers will be acquired or as to the terms
thereof. In the event that the Company engages in the acquisition of
additional centers, it may be required to raise additional long-term
capital through the issuance of debt or equity securities. No
assurance can be given that such capital will be available on terms
acceptable to the Company. The unavailability of capital for this
purpose would adversely affect the Company's ability to acquire
additional centers.
21
<PAGE>
NMR of America, Inc., and Subsidiaries
Part II. Other Information
----------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
Exhibit 11. Computation of Shares Used For Earnings Per
Share Calculation
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for
which this report is filed.
22
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Six months ended September 30,
------------------------------
1995 1994
----------- ----------
Primary earnings per share information:
Net income per consolidated
statements of operations $ 592,908 $1,123,167
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes
---------- ----------
Net income used to compute primary
earnings per share $ 592,908 $1,123,167
========== ==========
Weighted average number of
outstanding shares 5,155,966 4,887,820
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 201,733 80,051
---------- ----------
Weighted average number of shares
used to compute primary earnings
per share 5,357,699 4,967,871
========== ==========
Primary earnings per share:
- ---------------------------
Primary net income per share $ .11 $ .23
========== ==========
23
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Six months ended September 30,
------------------------------
1995 1994
----------- ----------
Fully diluted earnings per share information:
Income per consolidated statements
of operations $ 592,908 $1,123,167
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes 104,782 112,328
---------- ----------
Net income used to compute fully
diluted earnings per share $ 697,690 $1,235,495
========== ==========
Weighted average number of
outstanding shares 5,155,966 4,887,820
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 201,733 84,579
Incremental shares issuable on
conversion of convertible
subordinated debentures 481,556 506,444
---------- ----------
Weighted average number of shares
used to compute fully diluted
earnings per share 5,839,255 5,478,843
========== ==========
Fully diluted earnings per share:
- ---------------------------------
Fully diluted net income per share $ .12 $ .23
========== ==========
24
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Quarter ended September 30,
---------------------------
1995 1994
---------- ---------
Primary earnings per share information:
Income per consolidated statements
of operations $ 355,136 $ 501,645
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes
---------- ----------
Net income used to compute primary
earnings per share $ 355,136 $ 501,645
========== ==========
Weighted average number of
outstanding shares 5,258,434 4,889,754
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 187,942 94,480
---------- ----------
Weighted average number of shares
used to compute primary earnings
per share 5,446,376 4,984,234
========== ==========
Primary earnings per share:
- ---------------------------
Primary net income per share $ .07 $ .10
========== ==========
25
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Quarter ended September 30,
----------------------------
1995 1994
----------- --------
Fully diluted earnings per share information:
Income per consolidated statements
of operations $ 355,136 $ 501,645
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes 52,391 56,164
---------- ----------
Net income used to compute fully
diluted earnings per share $ 407,527 $ 557,809
========== ==========
Weighted average number of
outstanding shares 5,258,434 4,889,754
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 187,942 94,480
Incremental shares issuable on
conversion of convertible
subordinated debentures 481,556 506,444
---------- ----------
Weighted average number of shares
used to compute fully diluted
earnings per share 5,927,932 5,490,678
========== ==========
Fully diluted earnings per share:
- ---------------------------------
Fully diluted net income per share $ .07 $ .10
========== ==========
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NMR of America, Inc.
By /s/ Joseph G. Dasti
-------------------------
Joseph G. Dasti
President
(Chief Executive Officer)
By /s/ John P. O'Malley III
-------------------------
John P. O'Malley III
Executive Vice President-Finance
(Chief Financial Officer)
Date: November 14, 1995
27
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 4,683,190
<SECURITIES> 300,186
<RECEIVABLES> 11,968,839
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<BONDS> 18,821,521
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0
0
<OTHER-SE> 19,771,594
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