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 December 31, 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
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(address of principal executive offices)
(908) 665-9400
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(Issuer's telephone number)
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(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: December 31, 1995 - 6,225,908
------------------------------
<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
- ---------------------------
December 31, March 31,
1995 1995
------------ ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,250,417 $ 3,966,804
Marketable securities 300,000 1,125,643
Short-term investments 2,161,000 886,609
Due from affiliated physician
associations, net 13,253,269 9,498,268
Other current assets 1,451,922 903,373
----------- -----------
Total current assets 19,416,608 16,380,697
----------- -----------
Land, buildings and equipment 32,192,004 31,360,133
Less, accumulated depreciation
and amortization 17,631,400 19,580,504
----------- -----------
14,560,604 11,779,629
Cost in excess of net assets
acquired 10,598,200 4,497,974
Deferred income taxes 78,806 1,099,000
Other assets 1,465,822 1,571,547
----------- -----------
Total assets $46,120,040 $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
- ---------------------------
December 31, March 31,
1995 1995
------------ ----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 4,330,211 $ 3,098,931
Current installments on capital
lease obligations 611,119 286,263
Current installments on notes and
mortgage payable 3,933,481 2,769,098
------------ ------------
Total current liabilities 8,874,811 6,154,292
Convertible subordinated debt, net 1,973,168 2,056,417
Obligations under capital leases,
less current installments 1,269,059 481,518
Notes and mortgage payable,
less current installments 11,541,398 10,451,119
Minority interest in limited
partnerships 2,271,002 2,155,665
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value;
authorized 30,000,000 shares,
6,658,369 and 5,416,967 shares
issued and outstanding at December 31,
and March 31, 1995, respectively 66,583 54,169
Additional paid-in capital 16,866,409 11,570,401
Retained earnings 5,001,187 3,854,255
Unrealized gains 186 14,208
Less, 432,461 and 364,958 common
shares in Treasury at December 31,
and March 31, 1995 respectively (1,743,763) (1,463,197)
------------ ------------
Total shareholders' equity 20,190,602 14,029,836
Total liabilities and shareholders'
equity $ 46,120,040 $ 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)
- -------------------------------------
Nine months ended December 31,
------------------------------
1995 1994
----------- -----------
Revenue, net $16,814,350 $13,112,088
----------- -----------
Costs and expenses:
Payroll and related costs 4,691,388 3,438,313
Depreciation and amortization 2,201,321 2,209,562
Medical supplies and other
operating costs 6,286,376 4,165,729
Gain on disposition of center assets ( 62,443)
Other general and administrative 480,122 431,296
----------- -----------
13,596,764 10,244,900
Operating income 3,217,586 2,867,188
Interest expense 1,214,325 834,233
Other income, net 119,874 7,930
----------- -----------
Income before minority
interest and income taxes 2,123,135 2,040,885
Minority interest in income of
limited partnerships 334,721 375,034
----------- -----------
Income before income taxes 1,788,414 1,665,851
Provision for income taxes:
Current 13,116 161,000
Deferred 628,366
----------- -----------
Net income $ 1,146,932 $ 1,504,851
=========== ===========
Per share data:
Primary:
Primary net income per share $ .20 $ .30
=========== ===========
Fully diluted:
Fully diluted net income per share $ .20 $ .30
=========== ===========
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 December 31,
--------------------------
1995 1994
----------- -----------
Revenue, net $ 6,753,612 $ 4,376,380
----------- -----------
Costs and expenses:
Payroll and related costs 1,733,930 1,177,352
Depreciation and amortization 846,927 760,108
Medical supplies and other
operating costs 2,596,451 1,415,650
Other general and administrative 198,141 158,427
----------- -----------
5,375,449 3,511,537
Operating income 1,378,163 864,843
Interest expense 471,979 297,295
Other income (expense), net 89,764 ( 44,745)
----------- ----------
Income before minority
interest and income taxes 995,948 522,803
Minority interest in income of
limited partnerships 135,942 101,119
----------- -----------
Income before income taxes 860,006 421,684
Provision for (benefit from) income taxes:
Current ( 40,000) 40,000
Deferred 345,982
----------- -----------
Net income $ 554,024 $ 381,684
=========== ===========
Per share data:
Primary:
Primary net income per share $ .09 $ .08
=========== ===========
Fully diluted:
Fully diluted net income per share $ .09 $ .08
=========== ===========
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)
- -------------------------------------
Nine months ended December 31,
------------------------------
1995 1994
----------- ----------
Cash flows from operating activities:
Net income $1,146,932 $1,504,851
---------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,201,321 2,209,562
Minority interest in income of
limited partnerships 334,721 375,034
Deferred income taxes 628,366
Equity in loss from
unconsolidated partnership 49,605 58,627
Gain on short-term investments ( 9,240)
Gain on disposition of center
assets ( 62,443)
Contractor reimbursement ( 175,000) ( 91,620)
Loss on sale of equipment 12,084
Changes in assets and liabilities:
Increase in due from
affiliated physician
associations, net ( 2,167,335) ( 891,166)
Decrease (increase) in other
current assets 38,463 ( 21,950)
Increase in
other assets ( 325,676) ( 13,376)
Increase (decrease) in accounts
payable and accrued expenses 242,545 ( 430,869)
---------- ----------
Total adjustments 764,567 1,197,086
---------- ----------
Net cash provided by
operating activities 1,911,499 2,701,937
---------- ----------
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)
- -------------------------------------
Nine months ended December 31,
------------------------------
1995 1994
----------- ----------
Cash flows from investing activities:
Purchases of equipment and
leasehold improvements ( 892,548) ( 1,207,908)
Purchases of short-term investments ( 2,277,000) ( 1,005,226)
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 1,025,546 616,270
Acquisition of Morgan Medical
Holdings, Inc., net of cash
acquired 411,905
Advance to unconsolidated partnership ( 48,000)
Other ( 11,793) ( 8,475)
---------- ----------
Net cash used in
investing activities ( 961,890) ( 1,645,339)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowing 850,146 3,845,836
Repayments of debt, including capital
lease obligations ( 3,029,737) ( 4,076,955)
Proceeds from exercise of stock
options 47,006
Purchases of treasury stock ( 316,344)
Distributions to limited partners ( 217,067) ( 93,906)
---------- ----------
Net cash used in
financing activities ( 2,665,996) ( 325,025)
---------- ----------
Net (decrease) increase in cash
and cash equivalents ( 1,716,387) 731,573
Cash and cash equivalents
at April 1, 3,966,804 3,718,978
---------- ----------
Cash and cash equivalents
at December 31, $2,250,417 $4,450,551
========== ==========
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 $ 29,537 $ 88,913
=========== ===========
Interest $ 1,125,085 $ 745,233
=========== ===========
Supplemental schedule of noncash activities:
Capital lease obligation incurred for
use of equipment $ 91,500 $ 42,984
=========== ===========
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 $ 25,481 $ ---
=========== ===========
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 December 31, 1995, as
well as the results of operations and cash flows for the nine and three months
ended December 31, 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 December 31, 1995 and 1994 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
---------- ---------- ----------
December 31, 1995
Available-For-Sale:
U.S. Government obligations $ 299,814 $ 186 $ 300,000
========== ========== ==========
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 December 31, and March 31, 1995
Due from related parties
- ------------------------
As of December 31, 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 December 31, 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
is 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 February 9, 1996 the Company had expended $353,007 to
purchase 99,650 shares of its outstanding common stock 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 384,809 shares were
outstanding at December 31, 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 December 31,
1995, options with respect to 166,325 shares were exercisable. During the nine
months ended December 31, 1995, 12,375 options were exercised.
During the quarter ended December 31, 1995, an aggregate of 100,000 purchase
warrants with exercise prices ranging from $4.00 to $5.00 per share expired
unexercised.
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 owns a 38% minority interest in an Austin, Texas center which
operates pursuant to a limited partnership agreement (the "Austin Partnership")
which expired on January 31, 1996. The Company accounts for its investment in
the Austin Partnership using the equity method and the book value of its
investment totaled $146,920 as of December 31, 1995. During the quarter ended
December 31, 1995, the center ceased operations and the partnership is currently
liquidating its assets. Based upon the anticipated liquidation values of the
partnership's assets and liabilities at this time, the Company does not believe
that it will incur a significant gain or loss on the carrying value of the
investment.
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
13
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- ------------------------------------------
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 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 $6,419,603 of costs in excess of fair value which is being
amortized over twenty years on a straight line basis.
Effective January 1, 1996 the Company completed its acquisition of substantially
all of the operating assets of Central Diversey MRI Center, Inc. ("Central
Diversey") which operates a magnetic resonance imaging center located in
Chicago, Illinois. As consideration for the acquisition, NMR paid $80,000 in
cash at closing to the selling shareholders and issued 10,000 unregistered
shares of NMR common stock which are subject to a two-year holding period
restriction. In conjunction with the transaction, NMR acquired substantially all
of Central Diversey's operating assets, which consist primarily of magnetic
resonance imaging ("MRI") equipment, related leasehold improvements, office
equipment and deposits on the MRI related equipment aggregating $120,000 which
are pledged as collateral therefor. In addition, NMR assumed certain trade
accounts payable of Central Diversey aggregating $90,000 and MRI related
equipment debt, subject to existing collateral and security, totaling
approximately $595,000 of outstanding principal as of January 1, 1996.
The acquisition has been accounted for as a purchase and, accordingly,
the acquired assets and liabilities will be recorded at the fair value at the
date of acquisition. The Company currently estimates that the excess cost over
fair value of the assets it will record will be approximately $400,000.
14
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- ------------------------------------------
The Company's consolidated financial statements for the nine months ended
December 31, 1995, do not include the results of operations of Central Diversey
and include the results of operations of Morgan from the September 15, 1995
effective date of the acquisition. The following summarizes the unaudited
proforma results of operations for the nine months ended December 31, 1995,
assuming the acquisitions had occurred on April 1, 1995 (in thousands, except
per share data):
NMR
including
NMR Morgan and
including Central
Morgan Diversey
--------- ---------
Revenue, net $ 19,513 $ 20,314
Operating income $ 3,915 $ 4,229
Income before income taxes $ 2,238 $ 2,507
Net income $ 1,435 $ 1,596
Fully diluted net income per share $ .22 $ .25
15
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
- ---------------------
Three and nine months ended December 31, 1995 compared to three and nine months
- -------------------------------------------------------------------------------
ended December 31, 1994.
- ------------------------
Reference is made to Note 2 of the Company's consolidated financial statements
for a definition of revenue, net.
For the three and nine months ended December 31, 1995, revenue, net was $
6,753,612 and $16,814,350 versus $4,376,380 and $13,112,088 for the three and
nine months ended December 31, 1994 or a $2,377,232 (54.3%) and $3,702,262
(28.2%) 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") which was
effective September 15, 1995. These centers generated revenue, net totaling
$2,470,529 and $4,401,369 for the three and nine months ended December 31, 1995,
respectively. Same center revenue, net decreased by $93,298 or 2.1% from
$4,376,381 to $4,283,083 during the quarter ended December 31, 1995 and $699,107
from $13,112,088 to $12,412,981 during the nine months ended December 31, 1995.
The reduction in revenue, net during the nine months ended December 31, 1995 was
primarily due to increased aggregate same center scan volume offset by
additional discounted business. 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.
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 nine months ended December 31, 1995
were $1,733,930 and $4,691,388 versus $1,177,352 and $3,438,313 for the three
and nine months ended December 31, 1994, or an increase of $556,578 (47.3%) and
$1,253,075 (36.4%), respectively.
16
<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, Golf/DIC and
Morgan which incurred payroll and related costs totaling approximately $351,426
and $679,012 during the three and nine month periods ending December 31, 1995.
In addition, the Company's same center clinical payroll and related costs
increased due to 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 increased by $86,819 (11.4%) from $760,108
for the three months ended December 31, 1994 to $846,927 for the three months
ended December 31, 1995. This increase was primarily attributable to the
acquisitions of Libertyville and Golf/DIC, and Morgan which resulted in goodwill
amortization and equipment depreciation aggregating $275,786 for the three
months ended December 31, 1995. This increase was offset by an approximate
$188,968 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. Depreciation and amortization expense decreased
by $8,241 (0.4%) from $2,209,562 for the nine months ended December 31, 1994 to
$2,201,321 for the nine months ended December 31, 1995. This decrease was
primarily attributable to an approximate $496,000 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
$487,810 for the nine months ended December 31, 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 $1,180,801 (83.4%) and $2,120,647 (50.9%) from
$1,415,650 and $4,165,729 for the three and nine months ended December 31, 1994
to $2,596,451 and $6,286,376 for the three and nine months ended December 31,
1995, respectively. This increase results, primarily, from the inclusion of
Libertyville, Golf/DIC and Morgan centers which generated medical supplies and
other operating expenses totaling $1,145,483 and $1,906,032 during the three and
nine months ended December 31, 1995.
17
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
In addition, medical supplies and operating expenses increased $57,577 and
$127,171 for the three and nine months ended December 31, 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 $20,920 and $83,990 for the three and nine months ended December 31,
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
($11,593 and $43,688) and medical supplies at 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 nine months ended
December 31, 1995, were $198,141 and $480,122 versus $158,427 and $431,296 for
the three and nine months ended December 31, 1994, or an increase of $39,714
(25.1%) and $48,826 (11.3%), respectively. The increase during the three and
nine months ended December 31, 1995 results primarily from increased advertising
and promotional expenses relating to marketing efforts at the Company's centers.
Interest expense for the three and nine months ended December 31, 1995 were
$471,979 and $1,214,325 versus $297,295 and $834,233 for the comparable prior
periods, or an increase of $174,684 (58.8%) and $380,092 (45.6%), 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 $179,849 and $320,663 for the three and nine months ended December
31, 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.
18
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
Other income and expense, net increased by $134,509 and $111,944 for the three
and nine months ended December 31, 1995 from ($44,745) and $7,930 for the three
and nine months ended December 31, 1994 to $89,764 and $119,874 for the three
and nine months ended December 31, 1995, respectively. The increase for the
three and nine months ended December 31, 1995, results primarily from an
increase in interest income on invested cash balances and the absence of certain
non-recurring charges relating to severance and a lease termination which were
recorded during the quarter ended December 31, 1994.
Minority interest in income of limited partnerships increased by $34,823 (34.4%)
from $101,119 the three months ended December 31, 1994 to $135,942 for the three
months ended December 31, 1995. The increase is primarily due to a $21,890
increase in aggregate same center minority interest due to an increase in
pre-minority interest profitability of such centers during the quarter. Minority
interest in income of limited partnerships decreased by $40,313 (10.8%) from
$375,034 for the nine months ended December 31, 1994 to $334,721 for the nine
months ended December 31, 1995. The decrease is primarily due to a $108,659
reduction in aggregate same center minority interest due to a reduction in
pre-minority interest income on such centers offset by a $68,346 increase in
minority interest in income of the Golf/DIC limited partnerships, which were
acquired effective January 1, 1995.
The Company's current benefit from income taxes of ($40,000) for the three
months ended December 31, 1995 results from the provision of $20,000 for current
taxes payable based upon current year earnings offset by the reversal of a
$60,000 overaccrual of income taxes in fiscal 1995 which will be refunded to the
Company during the fourth quarter of fiscal 1996. The Company's provision of
$13,116 for the nine months ended December 31, 1995 consists of current state
income and franchise taxes. The Company has recorded a deferred tax provision of
$345,982 and $628,366 for the three and nine months ended December 31, 1995, to
reflect the reduction in the Company's net deferred tax asset during such
periods. The Company's aggregate provision for income taxes increased by
$265,982 and $480,482 from $40,000 and $161,000 for the three and nine months
ended December 31, 1994 to $305,982 and $641,482 for the three and nine months
ended December 31, 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 months
ended December 31, 1995 increased by $172,340 to $554,024 from $381,684 and the
Company's net income for the nine months ended December 31, 1995 decreased by
$420,362 to $1,146,932 from $1,504,851, for the comparable prior fiscal periods.
19
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
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 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 $1,146,932 for the fiscal period ended December
31, 1995 versus net income of $1,504,851 for the comparable prior fiscal period.
At December 31, 1995, the Company's working capital totaled $10,541,797 which
includes cash and cash equivalents totaling $2,250,417, marketable securities
totaling $300,000 and short-term investments totaling $2,161,000. The Company
generated $1,911,499 and $2,701,937 in net cash flow from operating activities
during the fiscal periods ended December 31, 1995 and 1994, respectively, or a
decrease of $790,438 (29.3%). Cash provided by operating activities during the
fiscal period ended December 31, 1995 resulted from operating cash flows of
$4,123,502 offset by a $2,212,003 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 nine months of fiscal 1996 and the conversion of
substantially all of the Company's third party
20
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
billing and collection services to a new vendor during the quarter ended
December 31, 1995, resulting in a temporary reduction in cash flow at converted
centers. It is anticipated that such cash flows will return to normal levels
during the fourth quarter of fiscal 1996.
Investing activities provided $961,890 in cash during fiscal 1996. The Company
purchased $892,548 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 expended
$421,454, net of sales of short-term investments and marketable securities for
the purchase of short-term securities during the period ended December 31, 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 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. It is anticipated that this advance will be
refunded, including accrued interest thereon, during the fourth quarter of
fiscal 1996.
Financing activities used net cash totaling $2,665,996 which is comprised of
$3,029,737 utilized for the repayment of debt and capital lease obligations,
$217,067 of limited partnership distributions and $316,344 utilized to for the
purchase of treasury stock, offset by $850,146 in proceeds from borrowing during
the fiscal period ended December 31, 1995.
At December 31, 1995, the Company had $1,880,178 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 $376,744 were made during the period
ended December 31, 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
21
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation
(continued)
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.
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 February 13, 1996.
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.
22
<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.
23
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Nine months ended December 31,
------------------------------
1995 1994
----------- ----------
Primary earnings per share information:
Net income per consolidated
statements of operations $1,146,932 $1,504,851
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 $1,146,932 $1,504,851
========== ==========
Weighted average number of
outstanding shares 5,542,215 4,890,791
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 167,733 114,753
---------- ----------
Weighted average number of shares
used to compute primary earnings
per share 5,709,948 5,005,544
========== ==========
Primary earnings per share:
- ---------------------------
Primary net income per share $ .20 $ .30
========== ==========
24
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Nine months ended December 31,
------------------------------
1995 1994
----------- ----------
Fully diluted earnings per share information:
Income per consolidated statements
of operations $1,146,932 $1,504,851
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes 116,471 167,412
---------- ----------
Net income used to compute fully
diluted earnings per share $1,263,403 $1,672,673
========== ==========
Weighted average number of
outstanding shares 5,542,215 4,890,791
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 167,733 137,331
Incremental shares issuable on
conversion of convertible
subordinated debentures 456,000 494,444
---------- ----------
Weighted average number of shares
used to compute fully diluted
earnings per share 6,165,948 5,522,566
========== ==========
Fully diluted earnings per share:
- ---------------------------------
Fully diluted net income per share $ .20 $ .30
========== ==========
25
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Quarter ended December 31,
--------------------------
1995 1994
---------- ---------
Primary earnings per share information:
Income per consolidated statements
of operations $ 554,024 $ 381,684
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 $ 554,024 $ 381,684
========== ==========
Weighted average number of
outstanding shares 6,278,123 4,896,699
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 106,083 184,530
---------- ----------
Weighted average number of shares
used to compute primary earnings
per share 6,384,206 5,081,229
========== ==========
Primary earnings per share:
- ---------------------------
Primary net income per share $ .09 $ .08
========== ==========
26
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share
Calculation.
Quarter ended December 31,
--------------------------
1995 1994
----------- --------
Fully diluted earnings per share information:
Income per consolidated statements
of operations $ 554,024 $ 381,684
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 $ 606,415 $ 437,848
========== ==========
Weighted average number of
outstanding shares 6,278,123 4,896,699
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 106,083 184,530
Incremental shares issuable on
conversion of convertible
subordinated debentures 456,000 494,444
---------- ----------
Weighted average number of shares
used to compute fully diluted
earnings per share 6,840,206 5,575,673
========== ==========
Fully diluted earnings per share:
Fully diluted net income per share $ .09 $ .08
========== ==========
27
<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: February 14, 1996
28
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<ARTICLE> 5
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 2,250,417
<SECURITIES> 300,000
<RECEIVABLES> 2,161,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,416,608
<PP&E> 32,192,004
<DEPRECIATION> 17,631,400
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0
0
<COMMON> 66,583
<OTHER-SE> 20,124,019
<TOTAL-LIABILITY-AND-EQUITY> 46,120,040
<SALES> 0
<TOTAL-REVENUES> 16,814,350
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<INTEREST-EXPENSE> 1,214,325
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<INCOME-TAX> 641,482
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