SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 0-20440
MEDICAL RESOURCES, INC.
-----------------------------------------------------
(Exact Name of registrant as specified in its charter)
DELAWARE 13-3584552
---------------------- ---------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
155 STATE STREET HACKENSACK, N.J. 07601
- -------------------------------------- -------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (201) 488-6230
TITLE OF EACH CLASS
--------------------------------------
Common Stock (Par value $.01 per share)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 14, 1996
----------------------- --------------------------------
Common stock, par value 17,046,323
$.01 per share
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<PAGE>
MEDICAL RESOURCES, INC.
------------------------------------------------------------------------------
INDEX
-----
PART I FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1 Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets at September 30,
1996 and December 31, 1995 ........................... 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1996
and 1995 ............................................. 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 ....... 5
Notes to Consolidated Financial Statements ........... 6
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 13
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<PAGE>
MEDICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, December 31,
1996 1995
------------ -----------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 6,541,218 $ 3,934,677
Accounts receivable, net 35,294,077 13,837,637
Other receivables 1,541,115 477,062
Prepaid expenses 3,347,132 1,074,459
Deferred tax assets, net 2,227,661 1,871,397
------------ -----------
Total current assets 48,951,203 21,195,232
Medical diagnostic and office equipment, net 25,486,046 11,530,159
Goodwill, net 57,685,400 9,122,663
Other assets 3,299,193 1,497,207
Deferred tax assets, net 1,274,530 533,301
Value of venture contracts 188,257 257,261
------------ -----------
Total assets $136,884,629 $44,135,823
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 7,126,453 $ 957,884
Current portion of obligations under capital leases 5,255,837 3,244,652
Line of credit 4,058,753 --
Accounts payable and accrued expenses 14,641,735 4,602,926
Other current liabilities 1,342,734 1,405,875
Income taxes payable 1,352,742 245,899
------------ -----------
Total current liabilities 33,778,254 10,457,236
Notes payable 13,650,323 6,707,650
Obligations under capital leases 9,266,103 6,707,650
Convertible debentures 8,921,693 4,350,000
Other long-term liabilities 2,646,486 1,205,627
------------ -----------
Total liabilities 68,262,859 27,169,487
------------ -----------
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 13,716,801 issued and 13,451,801
outstanding at September 30, 1996 and 7,697,500
issued and 7,442,500 outstanding at
December 31, 1995 137,169 76,975
Common stock to be issued; 600,000 shares of
common stock 1,721,250 1,721,250
Additional paid-in capital 67,889,319 20,834,922
Retained earnings/(deficit) 292,790 (4,298,678)
Less 265,000 and 255,000 common shares in treasury,
at cost at September 30, 1996 and December 31, 1995 (1,418,758) (1,368,133)
------------ -----------
Total stockholders' equity 68,621,770 16,966,336
------------ -----------
Total liabilities and stockholders' equity $136,884,629 $44,135,823
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MEDICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net service revenues $24,773,606 $13,430,077 $61,550,103 $38,297,656
----------- ----------- ----------- -----------
Operating costs, excluding interest,
depreciation and amortization 15,723,468 8,164,328 39,209,467 23,672,335
Provision for uncollectible accounts receivable 1,319,803 956,583 3,081,638 2,637,873
Corporate general and administrative 1,798,785 1,025,933 5,231,759 3,092,440
Depreciation and amortization 2,004,321 1,174,560 4,744,997 3,338,251
----------- ----------- ----------- -----------
Operating income 3,927,229 2,108,673 9,282,242 5,556,757
Interest expense 794,550 452,392 2,082,133 1,292,388
----------- ----------- ----------- -----------
Income from continuing operations before priority
interest and income taxes 3,132,679 1,656,281 7,200,109 4,264,369
Maturity interest 134,641 (6,788) 198,923 58,022
----------- ----------- ----------- -----------
Income from continuing operations before
income taxes 2,998,038 1,663,069 7,001,186 4,206,347
Income taxes 1,152,295 503,964 2,251,315 1,245,358
----------- ----------- ----------- -----------
Income from continuing operations 1,845,743 1,159,105 4,749,871 2,960,989
Loss from operations of discontinued business,
net of tax -- (1,415,901) -- (2,452,644)
----------- ----------- ----------- -----------
Net income (loss) $ 1,845,743 $ (256,796) $ 4,749,871 $ 508,345
=========== =========== =========== ===========
Per Share Data
Primary
Income from continuing operations $ 0.16 $ 0.14 $ 0.49 $ 0.39
----------- ----------- ----------- -----------
Discontinued operations -- (0.17) -- (0.32)
Net income (loss) per share $ 0.16 $ (0.03) $ 0.49 $ 0.07
=========== =========== =========== ===========
Fully diluted:
Income from continuing operations $ 0.15 $ 0.12 $ 0.47 $ 0.36
Discontinued operations $ -- $ (0.15) $ -- $ (0.30)
----------- ----------- ----------- -----------
Net income (loss) per share $ 0.15 $ (0.03) $ 0.47 $ 0.06
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MEDICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------------
1996 1995
----------- -----------
(Restated)
Cash flows from operating activities
<S> <C> <C>
Net income $ 4,749,871 $ 508,345
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of medical diagnostic and office equipment (3,933) --
Depreciation and amortization 4,744,977 3,338,261
Provision for uncollective accounts receivable 3,081,638 2,637,873
Minority interest in losses of joint venture and limited
partnerships, net of distributions 40,523 263,001
Changes in operating assets and liabilities:
Accounts receivable (9,125,463) (3,838,037)
Other receivables (1,064,053) (667,743)
Prepaid expenses (1,194,525) (587,362)
Other assets (588,148) (91,338)
Deferred tax asset 140,183 (720,000)
Accounts payable and accrued expenses 2,192,113 786,040
Other current liabilities (500,871) 598,417
Income losses payable 1,106,843 195,408
Other long-term liabilities (753,826) (436,933)
----------- -----------
Total adjustments (1,924,522) 1,467,577
----------- -----------
Net cash provided by operating activities 2,825,349 1,975,922
----------- -----------
Cash flows from investing activities
Proceeds from sale of short-term investments -- 599,736
Proceeds from sale of equipment 12,600 --
Change in net assets of discontinued business -- 332,842
Purchase of PCC, Inc. -- (1,459,695)
Purchase of NurseCare Plus (1,263,992) --
Purchase of MRI-CT, Inc. (463,138) --
Purchase of Centereach Resources, Inc. (3,100,000) --
Purchase of Americare Imaging Centers, Inc. (1,500,000) --
Purchase of Access Imaging Centers, Inc. (1,300,000) --
Purchase of WeCare--Allied Health Care, Inc. (1,049,618) --
Purchase of NMR of America, Inc. net of cash acquired 2,188,879 --
Purchase of medical diagnostic and office equipment (1,034,904) (651,065)
----------- -----------
Net cash used in investing activities (7,510,16) (1,178,182)
----------- -----------
Cash flows form financing activities
Stock issuance cost (262,325) --
Principal payments under capital lease obligations (3,524,675) (2,088,385)
Principal payments on notes payable (1,341,499) (1,141,828)
Proceeds from borrowings 1,229,096 478,275
Proceeds from convertible debentures 6,532,965 4,002,500
Purchase of treasury stock (50,625) (1,368,133)
Net borrowings on line of credit 4,058,753 --
Proceeds from exercises of options 649,667 --
----------- -----------
Net cash provided by financing activities 7,291,357 (117,571)
----------- -----------
Net increase in cash and cash equivalents 2,606,541 680,169
Cash and cash equivalents at beginning of period 3,934,677 3,941,120
----------- -----------
Cash and cash equivalents at end of period $ 6,541,218 $ 4,621,289
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
MEDICAL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- GENERAL:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the interim periods are
not necessarily indicative of the results that may be expected for an entire
year. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in Medical Resources, Inc.'s (the Company) Annual Report for the year
ended December 31, 1995.
The Company has entered into agreements for certain of its imaging centers
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. 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
services contracts as set forth above, constitute the Company's revenues, net
for developed sites for these certain centers.
For certain other imaging centers, subsidiaries of the Company have entered
into agreements with unaffiliated professional corporations to provide
radiological services under Dr. Bloom's administration. Accordingly, revenue
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 operating costs in the accompanying
statements.
The unaudited consolidated financial information for the periods ended
September 30, 1995 have been restated for the merger with Maternity Resources,
Inc. on February 24, 1995 that, as more fully described in the Company's Form
10-K for the year ended December 31, 1995, was accounted for as a transfer
between entities under common control.
In the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," ("FAS 121")
which requires impairment losses to be recorded on long-
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<PAGE>
lived assets used in operation when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. No adjustments were required pursuant to the
adoption of FAS 121 by the Company.
On January 9, 1996, the Company consummated the acquisition (the
"Acquisition") of the business assets of MRI-CT, Inc., a New York corporation
based in New York, New York (the "Seller") comprised primarily of four
diagnostic imaging centers located at (i) 197 Third Avenue, New York, New York,
(ii) 6511 Ft. Hamilton Parkway, Brooklyn, New York, (iii) 1401 Ocean Avenue,
Brooklyn, New York and (iv) 1612 St. Peters Avenue, Bronx, New York. The
Acquisition was consummated pursuant to an Asset Purchase Agreement (the
"Agreement") dated as of December 21, 1995 by and among the Company and the
Seller. Pursuant to the Agreement, a wholly owned subsidiary of the Company
acquired substantially all of business assets of the Seller for a combination of
$700,000 cash, 194,113 shares of common stock and a $375,000 note payable at
prime due January 9, 2001. In accordance with its acquisition plans, the Company
closed the Ft. Hamilton facility shortly after acquisition.
On April 19, 1996, the Company entered into an asset purchase agreement
with Americare Imaging Centers, Inc. and MRI Associates of Tarpon Springs, Inc.
("Americare"). Pursuant to the acquisition, the Company acquired certain of the
assets and liabilities of Americare for $1,500,000 cash and 228,571 shares of
the Company's common stock.
On April 30, 1996, the Company entered into an asset purchase agreement
with Access Imaging Center, Inc. ("Access"). Pursuant to the acquisition, the
Company acquired certain of the assets and liabilities of Access for $1,300,000
cash and 192,063 shares of the Company's common stock.
On July 8, 1996, the Company acquired a diagnostic imaging center located
in Centereach, New York. Pursuant to the acquisition, the Company acquired
certain of the assets for approximately $3,100,000 in cash.
On August 30, 1996, the Company consummated the acquisition of NMR of
America, Inc. ("NMR"). NMR is engaged directly and through limited partnerships
in the operation of 18 imaging centers. Pursuant to the acquisition agreement,
NMR was merged into a wholly owned subsidiary of the Company and each issued and
outstanding share of NMR common stock was converted into 0.6875 shares of the
Company's common stock resulting in the issuance of 4,456,000 shares of the
Company's common stock valued at $39,346,000. The transaction was accounted for
as a purchase transaction where the value of the shares issued was allocated to
the net assets acquired based upon their respective fair values. The operating
results of NMR are consolidated with the Company for periods following the
acquisition.
The above acquisitions are collectively referred to as the "1996 Imaging
Acquisitions."
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<PAGE>
On January 12, 1996, the Company consummated the acquisition (the
"NurseCare Acquisition") of the common stock of NurseCare Plus, Inc. (the
"Corporation") a California corporation based in San Diego, California, which
provides supplemental healthcare staffing services for clients including
hospitals, clinics and home health agencies in Southern California. The
NurseCare Acquisition was consummated pursuant to a Stock Purchase Agreement
(the "NurseCare Agreement") dated as of January 11, 1996 by and among StarMed
Staffing, Inc., the Company's wholly owned subsidiary ("StarMed") and LouAnn
Berg ("Berg"). Pursuant to the NurseCare Agreement, StarMed acquired from Berg
all of the common stock of the Corporation for $2,500,000, payable in $1,250,000
cash and a prime plus one percent note payable for $1,250,000 due January 12,
1999.
On June 28, 1996, the Company entered into an asset purchase agreement with
We Care -- Allied Health Care, Inc. Pursuant to the agreement, the Company
acquired certain of the assets for $1,035,000 cash and a $510,000 note payable
at prime plus 1% due July 1998.
Each of the above acquisitions were accounted for under the purchase method
of accounting. The operations of these acquisitions are included in these
unaudited consolidated financial statements from the date of purchase. The
following consolidated pro forma data reflects the acquisitions as if they
occurred on January 1, 1995:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Total revenues ............... $29,616,000 $25,803,000 $84,961,000 $73,582,000
Income from
continuing operations ...... $ 2,239,000 $ 2,111,000 $ 7,041,000 $ 5,411,000
Net income ................... $ 2,239,000 $ 695,000 $ 7,041,000 $ 2,958,000
Net income per
common share -- primary .... $.16 $.05 $.42 $.22
Net income per
common share -- fully
diluted .................... $.14 $.05 $.40 $.22
</TABLE>
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<PAGE>
Certain items in the 1995 unaudited consolidated financial statements have been
reclassified to conform to the 1996 presentation.
NOTE 2 -- SUPPLEMENTARY CASH FLOW INFORMATION:
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1995
------------- -------------
Interest paid .................... $1,656,000 $1,180,000
Income taxes paid ................ 1,387,000 1,510,000
Noncash investing and
financing activities:
Capital lease obligations
assumed in connection
with acquisition of
centers ....................... 5,802,000 --
Notes payable obligation
assumed in connection
with acquisition of
centers ....................... 15,482,000 --
Notes payable obligation
incurred in connection
with acquisition of
centers ....................... 2,135,000 --
Capital lease obligations
incurred for use of
equipment ..................... 2,192,000 1,549,000
NOTE 3 -- COMMITMENT AND CONTINGENCIES:
Litigation
In September 1992, an individual brought an action in the Supreme Court of
the State of New York, County of Bronx, against a number of physicians, a
hospital and North Bronx Resources, Inc., a wholly-owned subsidiary of the
Company ("North Bronx"), for damages in an unspecified amount resulting from an
alleged failure to diagnose a brain tumor at the time imaging services were
performed for the plaintiff. The complaint alleges that North Bronx was
negligent in its rendering of medical care and treatment to the plaintiff. In
December 1992, North Bronx answered, denying the substantive allegations of the
complaint, raising an affirmative defense that the plaintiff's action does not
state a claim against North Bronx for which relief can be granted, and cross
claimed against the other defendants in the action. The parties are engaged in
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<PAGE>
discovery. Pursuant to the terms of a management agreement with North Bronx, one
of the other defendants in the action, the interpreting physician, who is
responsible for the medical aspect of the center's operation, is required to and
does carry malpractice insurance. Management believes that it will ultimately
prevail in this matter and has made no provision other than for the costs of
defense.
Government Regulation
The health care industry is highly regulated at the federal, state and
local levels. Current discussions within the Federal government regarding
national health care reform are emphasizing containment of health care costs as
well as expansion of the number of eligible parties. The implementation of this
reform could have a material effect on the consolidated financial results of the
Company by limiting reimbursement levels, requiring the Company to obtain
certificates of need in order to expand, limiting the types of contracts which
may be entered into with physicians who refer patients, increasing the
limitations on referrals by physicians to facilities in which they have an
investment or a compensation arrangement and other means.
NOTE 4 -- CONVERTIBLE SUBORDINATED DEBENTURES
On May 30, 1995 the Company issued $4,350,000 of 11% Convertible
Subordinated Debentures due 2000 (the "Debentures"). The Debentures are
convertible into common stock of the Company at any time by the holder at a
conversion price of $4.00 per share. The Debentures automatically convert to
common stock at $4.00 per share when, after June 1, 1997, the market price of
the stock exceeds $6.00 per share for any 15 consecutive day period. Interest is
payable on May 31 and November 30 in each year. Related debt issuance costs of
$248,000 are included as a deferred charge in other assets and are being
amortized over five years. During the nine month period ended September 30, 1996
$2,430,000 of the Debentures were converted into 607,500 shares of the Company's
common stock.
On February 7, 1996, the Company issued at par $6,533,000 10.5% Convertible
Subordinated debentures due 2001 (the "1996 Debentures"). The 1996 Debentures
are convertible into common stock of the Company at a conversion price of $6.00
per share. The debt issuance costs are being amortized over five years. Interest
is payable on February 1 and August 1 in each year. As of September 30, 1996,
$1,313,000 of the 1996 Debentures were converted into 218,833 shares of the
Company's common stock.
Under the terms of the merger agreement with NMR, the Company assumed the
obligations of NMR under $4,000,000 of 8% Convertible Subordinated Debenture due
2001 including payment of principal and interest. The debentures are redeemable
at a declining premium after July 1988, contain a mandatory sinking fund
provision calculated to retire 90% of the debentures before maturity at a rate
of 10% per year commencing in July 1992 and are convertible into the Company's
common stock at any time prior to maturity at $6.55 per share. As of September
30, 1996, $2,119,000 of the debentures have been converted into the Company's
common stock. Under the provision of the indenture, the Company has not been
required to meet its sinking fund requirement as a result of the cumulative
debenture conversion and does not expect to make a sinking fund payment until
July 1997.
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<PAGE>
NOTE 5 -- LINE OF CREDIT
In May 1996, the Company obtained two lines of credit from a third party
financing corporation. The lines of credit are comprised of an $8 million
revolving line of credit and a $7 million capital lease line of credit both of
which have two year terms. The revolving line of credit bears interest at prime
plus 1.5% and the capital lease line bears interest at the 30 day T-bill rate
plus 398 points. As of September 30, 1996, $3,454,000 million of the revolving
line of credit was used. The capital lease line was unused at September 30,
1996.
The Company has a $2 million secured line of credit from a bank which bears
interest at 1% over the bank's prime rate. At September 30, 1996, $605,000 was
outstanding under the line. On November 1, 1996, the Company repaid the entire
outstanding balance of the line of credit and terminated the line of credit
agreement.
In October 1996, the Company entered into a line of credit agreement with a
lender for an amount up to $4,000,000. Borrowings under the line of credit will
bear interest at rate of 1.5% over the lenders prime rate and will be
collateralized by certain of the Company's receivables.
NOTE 6 -- EARNINGS PER SHARE
The computation of both primary and fully diluted earnings per share is
based on the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents include in
the money stock options and warrants and 600,000 shares to be issued over a
period of 24 months in accordance with the Fort Myers Center's Asset Purchase
Agreement. The convertible subordinated debentures described in Note 4 did not
meet the test for treatment as a common stock equivalent. The inclusion of
additional shares for the fully diluted computation based upon the conversion of
the convertible subordinated debentures prior to the second quarter of 1996 were
not materially dilutive. The convertible subordinated debentures had a dilutive
effect on earnings per share beginning in the second quarter of 1996. The number
of weighted average shares used in the computation of earnings per share were as
follows:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Primary .............. 11,267,000 8,202,000 9,646,000 7,624,000
Fully
diluted ............ 12,693,000 9,289,000 10,864,000 8,749,000
</TABLE>
NOTE 7 -- SUBSEQUENT EVENTS
On October 25, 1996, the Company completed a public offering of 3,680,000
shares (the "Offering") of its common stock at $7.50 per share. The Offering
resulted in cash proceeds to the Company of $25,944,000, net of underwriting
discounts and commissions. Approximately $5,050,000 of the proceeds of the
offering were used to repay outstanding balances under the
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Company's lines of credit. The remaining proceeds will be used to fund future
acquisitions and for general working capital purposes.
NOTE 8 -- SEGMENT INFORMATION
The Following table shows net revenues, operating income, depreciation and
amortization and capital expenditures by industry segment periods ended
September 30, 1996:
<TABLE>
<CAPTION>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenue:
Imaging ........................ $41,342,000 $26,340,000 $17,074,000 $ 9,403,000
Staffing ....................... 20,208,000 11,958,000 7,700,000 4,028,000
----------- ----------- ------------ -----------
61,550,000 38,298,000 24,774,000 13,431,000
Operating income:
Imaging ........................ $8,849,000 $5,265,000 $3,738,000 $2,129,000
Staffing ....................... 433,000 292,000 189,000 (21,000)
----------- ----------- ------------ -----------
9,282,000 5,557,000 3,927,000 2,108,000
Depreciation and amortization:
Imaging ........................ $4,408,000 $3,114,000 $1,876,000 $1,094,000
Staffing ....................... 337,000 224,000 129,000 81,000
----------- ----------- ------------ -----------
4,745,000 3,338,000 2,005,000 1,175,000
Capital expenditures:
Imaging ........................ $982,000 $607,000 $189,000 $244,000
Staffing ....................... 53,000 44,000 20,000 20,000
----------- ----------- ------------ -----------
1,035,000 651,000 209,000 264,000
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the unaudited Consolidated Financial Statements appearing in
Item 1.
The Company's net service revenues for the three months ended September 30,
1996 and 1995 were $24,774,000 and $13,430,000, respectively, representing an
increase of $11,344,000 or 84% in 1996. The increase in the three months ended
September 30, 1996 is due primarily to additional revenues at the 1996 Imaging
Acquisitions of $5,536,000 and an increase in staffing revenues of $3,118,000
which is due to the opening of 11 `per diem' sites in the last 12 months and the
acquisitions of WeCare and NurseCare Plus. Net service revenue for the nine
months ended September 30, 1996 and 1995 were $61,550,000 and $38,298,000,
respectively, representing an increase of $23,252,000 or 61% in 1996. The
increase in the nine months ended September 30, 1996 is due primarily to (i)
$4,075,000 of incremental revenue generated at the two centers acquired during
May and June of 1995, which were included for the entire nine month period in
1996, (ii) additional revenues at the 1996 Imaging Acquisitions of $8,832,000
and (iii) an increase in staffing revenues of $7,994,000 which is due to the
opening of 11 `per diem' sites in the last 12 months and the acquisitions of
WeCare and NurseCare Plus.
Operating costs for the three months ended September 30, 1996 and 1995 were
$15,723,000 and $8,164,000, respectively, representing an increase of $7,559,000
or 93% in 1996. The increase in the operating costs for the three months ended
September 30, 1996 is due primarily to additional costs at the 1996 Imaging
Acquisitions of $3,175,000 and an increase in staffing operating costs of
$2,743,000 which is due to the opening of 11 `per diem' sites and the
acquisition of WeCare and NurseCare Plus. Operating costs for the nine months
ended September 30, 1996 and 1995 were $39,209,000 and $23,672,000,
respectively, an increase of $15,537,000 or 66% in 1996. The increase in the
nine months ended September 30, 1996 is due to (i) $1,645,000 of incremental
operating expenses incurred at the two centers acquired during May and June of
1995, which were included for the entire nine month period in 1996, (ii)
additional operating costs at the 1996 Imaging Acquisitions of $5,716,000 and
(iii) an increase in staffing revenues of $5,504,000 which is due to the opening
of 11 `per diem' sites in the last 12 months and the acquisitions of WeCare and
NurseCare Plus.
Provision for uncollectible accounts receivable for the three months ended
September 30, 1996 and 1995 was $1,320,000 and $957,000, respectively,
representing an increase of $363,000 or 38% in 1996. The increase in the
provision for uncollectible accounts receivable for the three months ended
September 30, 1996 relates primarilt to the increased provision from the 1996
Imaging Acquisitions of $409,000. The provision for uncollectible accounts
receivable for the nine months ended September 30, 1996 and 1995 was $3,082,000
and $2,638,000, respectively, an increase of $444,000 or 17% in 1996. The
increase in the provision for uncollectible accounts receivable for the nine
months ended September 30, 1996 reflects the increased provision from the 1996
Imaging Acquisitions of $620,000. Additionally, the provision for uncollectible
accounts receivable as a percentage of net service revenues has decreased to
5.1% for the nine
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<PAGE>
months ended September 30, 1996 from 6.8% for the same period in 1995 due to
additional charges in the first quarter of 1995 to increase the reserve for bad
debt for certain accounts receivable payer classes.
Corporate general and administrative expenses for the three months ended
September 30, 1996 and 1995 were $1,799,000 and $1,026,000, respectively,
representing an increase of $773,000, or 75% in 1996. Corporate general and
administrative expenses for the nine months ended September 30, 1996 and 1995
were $5,232,000 and $3,092,000, respectively, representing an increase of
$2,140,000, or 69% in 1996. The increase is due primarily to additional overhead
incurred to support the prior year acquisitions and the 1996 Imaging
Acquisitions, NurseCare Plus, We Care and the opening of 11 'per diem' staffing
offices in the prior 12 months.
Depreciation and amortization for the three months ended September 30, 1996
and 1995 was $2,004,000 and $1,175,000, respectively, representing an increase
of $829,000 or 71% in 1996. Depreciation and amortization for the nine months
ended September 30, 1996 and 1995 was $4,745,000 and $3,338,000, respectively,
representing an increase of $1,407,000 or 42% in 1996. The increase in
depreciation and amortization was due primarily to depreciation and amortization
in connection with the 1996 Imaging Acquisitions of $411,000 and $697,000 for
the three and nine months ended September 30, 1996, respectively, and additions
to medical diagnostic and office equipment and the goodwill that was a result of
the 1996 Imaging Acquisitions and the purchases of WeCare and NurseCare Plus.
As a result of the foregoing, operating income for the three months ended
September 30, 1996 and 1995 was $3,927,000 and $2,109,000, respectively,
representing an increase of $1,818,000 in 1996 or 86%. Operating income for the
nine months ended September 30, 1996 and 1995 was $9,282,000 and $5,557,000,
respectively, an increase of $3,725,000 or 67% in 1996.
Interest expense for the three months ended September 30, 1996 and 1995 was
$795,000 and $452,000, respectively, representing an increase of $343,000 or 76%
in 1996. Interest expense for the nine months ended September 30, 1996 and 1995
was $2,082,000 and $1,292,000, respectively, representing an increase of
$790,000 or 61% in 1996. The increase in interest expense for the three and nine
months ended September 30, 1996 was due primarily to the interest on the
convertible subordinated debentures (see note 4), interest on amounts
outstanding under the Company's lines of credit and on obligations incurred and
assumed in the 1996 Imaging acquisitions of $216,000 and $362,000 for the three
and nine months ended September 30, 1996, respectively, partially offset by
decreased interest expense on the capital leases on the Company's existing
diagnostic centers.
The provision for income taxes for the three months ended September 30,
1996 and 1995 was $1,152,000 and $504,000, respectively, representing an
effective tax rate of 38% and 30%. The provision for income taxes for the nine
months ended September 30, 1996 and 1995 was $2,251,000 and $1,245,000,
respectively, representing an effective tax rate of 32% and 30%. The corporate
tax rate of approximately 39% was reduced by the reversal of the reserve of the
deferred tax asset and certain other tax related liabilities during the three
and nine months ended
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<PAGE>
September 30, 1996 and 1995, respectively. The deferred tax asset was eliminated
during the second quarter of 1996.
The loss from operations from discontinued business of ($1,416,000) for the
three months ended September 30, 1995 and the loss from operations from
discontinued business of ($2,453,000) for the nine months ended September 30,
1995 represent the loss from operations of Maternity Resources, Inc.
("Maternity"). Maternity was disposed of by the Company in November 1995.
As a result of the foregoing, net income/(loss) for the three months ended
September 30, 1996 and 1995 was $1,846,000 and ($257,000) respectively,
representing an increase of $2,103,000 in 1996. Net income for the nine months
ended September 30, 1996 and 1995 was $4,750,000 and $508,000, respectively,
representing an increase of $4,242,000 or 835% in 1996.
Liquidity and Capital Resources
The Company's cash balances at September 30, 1996 and December 31, 1995
were $6,541,000 and $3,935,000, respectively, representing an increase of
$2,606,000 or 66%, through the first nine months of 1996. The Company's working
capital position at September 30, 1996 was $15,173,000 as compared to a December
31, 1995 balance of $10,738,000, representing an increase of $4,435,000 or 41%
in the nine months ended September 30, 1996. The increase in working capital
resulted primarily from the proceeds from the issuance of the convertible
subordinated debentures (see note 4) and the merger with NMR offset by the
increase in the Company's accounts receivable and changes in the Company's other
working capital accounts.
Required capital expenditures and planned operating expenses are
anticipated to be financed by a combination of operating cash flow, funds
available through working capital and third party credit facilities. On February
7, 1996 the Company raised $6,533,000 through a private placement of 10.5%
Convertible Subordinated Debentures due 2001 (see note 4). In addition, on
October 25, 1996, the Company raised $25,944,000 from a public offering of its
common stock (see note 7). Funds available from this debenture issuance and
public offering together with cash flow generated by operations and existing
cash, should provide sufficient operating funds and capital funds for at least
the next twelve months. There may be circumstances, however, such as an
acquisition or other opportunity, that could accelerate the Company's use of
cash. If this occurs, the Company may incur, from time to time, additional
indebtedness and attempt to issue, in public or private transactions, equity and
debt securities.
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<PAGE>
MEDICAL RESOURCES, INC.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K:
- ----------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
On August 30, 1996, the Company filed a Current Report on Form 8K
reporting, under Item 5 thereof that the Company had consummated a merger with
NMR. NMR is engaged directly and through limited partnerships in the operation
of 18 imaging centers. Pursuant to the acquisition agreement, NMR was merged
into a wholly owned subsidiary of the Company and each issued and outstanding
share of NMR common stock was converted into 0.6875 shares of the Company's
common stock resulting in the issuance of 4,456,000 shares of the Company's
common stock valued at $39,346,000.
On September 27, 1996, the Company filed a Current Report on Form 8-K/A
reporting, under 7 thereof, the financial statements required to be filed in
connection with the acquisition of NMR which was completed on August 30, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MEDICAL RESOURCES, INC.
Dated: November 14, 1996 /s/ William D. Farrell
----------------------
William D. Farrell
(President and Chief Operating Officer)
/s/ John P. O'Malley III
------------------------
John P. O'Malley III
(Senior Vice President -- Finance and
Chief Financial Officer)
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<TABLE>
<CAPTION>
MEDICAL RESOURCES, INC.
Exhibit 11. Computation of Shares Used for Earnings Per Share Calculation.
Nine Months Ended September 30,
-----------------------------------
1996 1995
----------- ----------
Primary earnings per share information:
<S> <C> <C>
Net income per consolidated statements of operations $ 4,749,871 $ 508,345
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 $ 4,749,871 $ 508,345
=========== ==========
Weighted average number of outstanding shares 9,429,052 7,550,200
Add: Incremental shares issueable on conversion
of outstanding warrants, convertible debentures
and exercise of stock options 216,714 73,800
----------- ----------
Weighted average number of shares outstanding 9,645,766 7,624,000
=========== ==========
Primary earnings per share $ .49 $ .07
=========== ==========
Fully diluted earnings per share information:
Net income per consolidated statement of operations $ 4,749,871 $ 508,345
Add: Interest savings from proceeds of conversion of
outstanding warrants and exercise of stock options,
net of minority interest and income taxes 311,000 59,465
----------- ----------
Net income used to compute fully diluted earnings per share $ 5,060,871 $ 567,810
=========== ==========
Weighted average number of shares outstanding 9,429,052 7,550,200
Add: Incremental shares issuable on conversion of
outstanding warrants, convertible debentures
and exercise of stock options 1,434,800 1,198,800
----------- ----------
Weighted average number of shares outstanding 10,863,852 8,749,000
=========== ==========
Fully diluted earnings per share $ .47 $ .06
=========== ==========
</TABLE>
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<PAGE>
<TABLE>
MEDICAL RESOURCES, INC.
Exhibit 11. Computation of Shares Used for Earnings Per Share Calculation.
Quarter Ended September 30,
----------------------------------
1996 1995
----------- -----------
Primary earnings (loss) per share information:
<S> <C> <C>
Net income (loss) per consolidated statements of operations $ 1,845,743 ($ 256,798)
Add: Interest savings from proceeds of conversion of
outstanding warrants and exercise of stock options,
net of minority interest and income taxes
----------- -----------
Net income (loss) used to compute primary earnings per share $ 1,845,743 ($ 256,798)
=========== ===========
Weighted average number of outstanding shares 10,919,915 7,998,200
Add: Incremental shares issuable on conversion of
outstanding warrants, convertible debentures
and exercise of stock options 347,383 203,800
----------- -----------
Weighted average number of shares outstanding 11,267,298 8,202,000
=========== ===========
Primary earnings (loss) per share $ .16 ($ .03)
=========== ===========
Fully diluted earnings (loss) per share information:
Net income (loss) per consolidated statement of operations $ 1,845,743 ($ 256,798)
Add: Interest savings from proceeds of conversion of
outstanding warrants and exercise of stock options,
net of minority interest and income taxes 114,545 21,611
----------- -----------
Net income (loss) used to compute fully diluted earnings
per share $ 1,960,288 ($ 235,187)
=========== ===========
Weighted average number of shares outstanding 10,919,915 7,998,200
Add: Incremental shares issuable on conversion of
outstanding warrants, convertible debentures
and exercise of stock options 1,773,175 1,290,800
----------- -----------
Weighted average number of shares outstanding 12,693,090 9,289,000
=========== ===========
Fully diluted earnings (loss) per share $ .15 ($ .03)
=========== ===========
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,541
<SECURITIES> 0
<RECEIVABLES> 35,294
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,951
<PP&E> 25,486
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,885
<CURRENT-LIABILITIES> 33,778
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> 68,485
<TOTAL-LIABILITY-AND-EQUITY> 136,885
<SALES> 0
<TOTAL-REVENUES> 61,550
<CGS> 0
<TOTAL-COSTS> 39,209
<OTHER-EXPENSES> 13,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,082
<INCOME-PRETAX> 7,001
<INCOME-TAX> 2,251
<INCOME-CONTINUING> 4,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,750
<EPS-PRIMARY> .49
<EPS-DILUTED> .47
</TABLE>
