<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended Commission File No.
January 27, 1995 0-13608
MMI MEDICAL, INC.
(Exact name of registrant as specified in its charter)
California 95-3619990
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1611 Pomona Road, Corona, California 91720
(Address of principal executive offices) (Zip Code)
(909) 736-4570
(Registrant's telephone number including area code)
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
----- -----
Shares of Registrant's common stock, $.01 par value,
outstanding at March 8, 1995 - 5,059,395
The Exhibit Index appears on page 20
<PAGE>
MMI MEDICAL, INC.
FORM 10-Q
January 27, 1995
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 7
Notes to the Condensed Consolidated Financial Statements 9
Pro Forma Financial Information 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Exhibit Index 20
Exhibit 11.1 - Statement of Computation of Per Share Earnings 21
2
<PAGE>
MMI MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
January 27, 1995 April 29,1994
---------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 410 $ 1,316
Receivables 7,693 3,041
Inventory 10,075 5,547
Net assets of discontinued operation 1,662 1,683
Prepaid expenses 1,025 712
-------- --------
Total current assets 20,865 12,299
Equipment 34,978 29,745
Less accumulated depreciation (27,802) (23,711)
-------- --------
Equipment, net 7,176 6,034
Deferred income taxes 904 62
Other assets 4,497 2,353
-------- --------
$ 33,442 $ 20,748
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,978 $ 1,159
Accrued liabilities 3,453 2,477
Deferred revenues 1,851 1,712
Current portion of long-term debt 350 --
-------- --------
Total current liabilities 8,632 5,348
Long-term debt 4,332 --
Shareholders' equity
Common stock, $.01 par value
10,000,000 shares authorized
5,051,895 shares issued and
outstanding at January 27, 1995
(2,951,495 at April 29, 1994) 52 30
Paid-in capital 18,024 11,172
Retained earnings 2,402 4,198
-------- --------
Total shareholders' equity 20,478 15,400
-------- --------
$ 33,442 $ 20,748
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
MMI MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 27, 1995 January 28, 1994
---------------- ----------------
<S> <C> <C>
Revenues
Service $ 10,592 $ 6,903
Sale of equipment -- 866
-------- --------
Total revenues 10,592 7,769
Costs and expenses
Cost of service 8,118 4,717
Cost of equipment sales -- 650
Depreciation 578 451
Selling and administrative 1,607 1,163
Interest expense (income) 115 (8)
-------- --------
Total costs and expenses 10,418 6,973
Income from continuing
operations before taxes 174 796
Provision for income taxes 69 319
-------- --------
Income from continuing operations 105 477
Income (loss) from discontinued operations, net
of income tax expense (benefit) of $10 and
$(38) in fiscal 1995 and 1994, respectively. 16 (56)
-------- --------
Net income $ 121 $ 421
-------- --------
-------- --------
Earnings per share:
Income from continuing operations $ 0.02 $ 0.16
Loss from discontinued operations -- (0.02)
-------- --------
Net income $ 0.02 $ 0.14
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
MMI MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
January 27, 1995 January 28, 1994
----------------- ----------------
<S> <C> <C>
Revenues
Service $ 27,390 $ 21,619
Sale of equipment 1,171 1,544
-------- --------
Total revenues 28,561 23,163
Costs and expenses
Cost of service 22,268 15,466
Cost of equipment sales 989 976
Depreciation 1,646 1,331
Selling and administrative 4,859 3,620
Interest expense (income) 116 (24)
-------- --------
Total costs and expenses 29,878 21,369
Income (loss) from continuing operations
before taxes and cumulative effect of
accounting change (1,317) 1,794
Provision (benefit) for income taxes (527) 718
-------- --------
Income (loss) from continuing operations
before cumulative effect of
accounting change (790) 1,076
Loss from discontinued operations,
net of income tax (benefit) of
$(103) and $(28) in fiscal 1995
and 1994, respectively. (237) (42)
-------- --------
Income (loss) before cumulative
effect of accounting change (1,027) 1,034
Cumulative effect of change
in accounting for income taxes -- 505
-------- --------
Net income (loss) $ (1,027) $ 1,539
-------- --------
-------- --------
(continued on next page)
5
<PAGE>
Earnings per share:
Income (loss) from continuing operations
before cumulative effect of
accounting change $ (0.18) $ 0.35
Loss from discontinued operations (0.06) (0.01)
------ ------
Income (loss) before cumulative
effect of accounting change (0.24) 0.34
Cumulative effect of accounting
change for income taxes -- 0.17
------ ------
Net income (loss) $ (0.24) $ 0.51
------ ------
------ ------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
MMI MEDICAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
January 27, January 28
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Continuing Operations:
Income (loss) before cumulative
effect of accounting change $ (790) $ 1,076
Adjustments to reconcile income (loss)
to net cash flows from operations:
Depreciation and amortization 1,646 1,331
Deferred income taxes (8) 9
Changes in assets and liabilities:
Receivables (2,918) 69
Inventory 425 (611)
Prepaid expenses (211) (418)
Accounts payable 681 12
Accrued liabilities (1,395) (696)
Deferred revenues 30 156
-------- --------
Net cash provided (used) by
continuing operations (2,540) 928
Discontinued Operations:
Net loss (237) (42)
Adjustments to reconcile net income
to net cash used in operation activities:
Depreciation and amortization 83 54
Net change in net assets of
discontinued operations (8) (309)
-------- --------
Net cash used by discontinued operations (162) (297)
-------- --------
Net cash provided (used) by
operating activities (2,702) 631
Cash flows from investing activities
Acquisition of business operations (296) --
Net book value of equipment sold 223 268
Purchase of equipment (254) (705)
-------- --------
Net cash used in investing activities (327) (437)
(continued on next page)
7
<PAGE>
Cash flows from financing activities
Borrowings from line of credit 4,005 --
Principal payments of long-term debt (1,333) --
Exercise of stock options 218 128
Payment of dividends (767) (353)
-------- --------
Net cash provided by (used in)
financing activities 2,123 (225)
-------- --------
Decrease in cash (906) (31)
Cash at beginning of period 1,316 1,064
-------- --------
Cash at end of period $ 410 $ 1,033
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
MMI MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 27, 1995
(Unaudited)
1. General
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the three and nine months ended January 27, 1995 and January 28,
1994, pursuant to the rules and regulations of the Securities and Exchange
Commission, and include the accounts of the Company and its consolidated
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Any and all adjustments made are of a normal and recurring nature in
accordance with Rule 10-01(b)(8). 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, although the Company believes that the disclosures in
such financial statements are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with Company's annual report on Form 10-K dated July 29, 1994, filed with the
Securities and Exchange Commission. The results of operations for the three and
nine months ended January 27, 1995 and January 28, 1994, are not necessarily
indicative of the results for the full year.
2. Acquisition of MEDIQ Equipment and Maintenance Services, Inc.
On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment
and Maintenance Services, Inc. ("MEMS"), a wholly owned subsidiary of MEDIQ
Incorporated, as a result of the merger of MMI Acquisition Subsidiary, Inc., a
wholly owned subsidiary of the Company incorporated to effect the Acquisition,
with and into MEMS which became a wholly owned subsidiary of the Company. The
transaction provided for the conversion of all shares of MEMS common stock into
the right to receive 2,030,000 shares of MMI Medical, Inc. common stock and a
warrant to purchase 325,000 shares thereof at an exercise price of $6.25 per
share. An additional 20,000 shares of MMI Medical, Inc. common stock was issued
to MEDIQ in connection with a noncompetition agreement which became effective as
of the closing of the reorganization and merger. The transaction was accounted
for as a purchase and is reflected in the consolidated financial statements of
the Company. The estimated aggregate purchase price was $7,689,000.
9
<PAGE>
MMI MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 27, 1995
(Unaudited)
3. Income Taxes
The provisions for taxes for the three and nine months ended January 27, 1995
and January 28, 1994, are based on the estimated annual tax rates for fiscal
1995 and 1994, respectively, and include the benefit of various tax credits.
The components of the provisions for taxes based on income for the three and
nine months ended January 27, 1995 and January 28, 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
January 27, January 28, January 27, January 28,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Current:
Federal $ (11) $ 187 $ (196) $ 460
State. (10) 78 (197) 194
Deferred:
Federal 70 16 (240) 36
State 20 0 106 0
------ ------ ------ ------
$ 69 $ 281 $ (527) $ 690
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
4. Net Income Per Share
Net income per share is based on the weighted average number of
common and common share equivalents during each period, as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
<S> <C> <C>
January 27, 1995 5,057,727 4,339,802
January 28, 1994 3,046,875 3,055,334
</TABLE>
5. Bank Line of Credit
The Company has a $5,000,000 line of credit with a bank, $4,005,000 of which
was utilized at the end of the third quarter of fiscal 1995. The Company did
not meet certain financial covenants required by such agreement at the end of
the third quarter, however, the bank waived the Company's non-compliance with
such covenants through the end of the third quarter of the current fiscal year.
10
<PAGE>
MMI MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 27, 1995
(Unaudited)
6. Discontinued Operations
On October 24, 1994 the Company's Board of Directors adopted a formal plan to
dispose of the Company's Advanced Imaging Technologies, Inc. subsidiary
("AIT"). AIT distributes X-ray film and other radiological supplies and
equipment, accessory systems used with CT scanners and other diagnostic imaging
and general X-ray instruments, and provides maintenance services for general
X-ray instruments in Kansas and portions of Missouri and Oklahoma. The Company
is actively seeking a buyer and expects the sale to be completed prior to the
end of the current fiscal year. The accompanying financial statements have
been prepared as if the Company will sell the assets and liabilities of AIT.
The financial statements present the Company as separate from AIT for all
periods presented and have been prepared to reflect AIT as a discontinued
operation. The Company anticipates the sale of AIT at or above the recorded net
asset values shown below. The following summarizes the net assets of AIT (in
thousands of dollars) which have been reflected as current assets in the
accompanying Balance Sheets:
<TABLE>
<CAPTION>
January 27, 1995 April 29, 1994
---------------- ----------------
<S> <C> <C>
Current assets $ 1,967 $ 2,198
Current liabilities (435) (682)
Equipment (net) 130 167
------ ------
Total net assets $ 1,662 $ 1,683
------ ------
------ ------
</TABLE>
7. Supplemental Cash Flow Disclosure
Interest of $144,000 and $185,000 was paid in the three and nine month periods
ended January 27, 1995 respectively. No interest was paid in the three and nine
month periods ended January 28, 1994. No income taxes were paid during in the
three and nine month periods ended January 27, 1995. Income taxes of $134,500
and $314,200 were paid in the three and nine month periods ended January 28,
1994 respectively.
11
<PAGE>
Pro Forma Financial Information
The following Pro Forma Consolidated Statements of Operations for the nine
months ended January 27, 1995 and January 28, 1994 give effect to the
acquisition (the "Acquisition") of MEDIQ Equipment and Maintenance Services,
Inc. ("MEMS") by the Company, as if such transaction had occurred as of April
29, 1994 and April 30, 1993 respectively. The Acquisition has been accounted
for pursuant to the purchase method of accounting.
The Pro Forma Consolidated Statements of Operations for the nine months ended
January 27, 1995 and January 28, 1994 are unaudited, but in the opinion of the
Company include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of operations for the periods
presented. The adjustments shown in the Pro Forma consolidated Statement of
Operations are based upon an estimated purchase price of $7,689,000 which is
subject to future revision pursuant to the terms of the acquisition agreement.
The historical data of the Company included in the Pro Forma Consolidated
Statements of Operations is as of the periods presented. The historical data of
MEMS included in Pro Forma Consolidated Statements of Operations for the nine
months ended January 27, 1995 are for the three months ended August 2, 1994
(thereafter, the operations and accounts of MEMS were integrated with those of
the Company). The historical data of MEMS included in Pro Forma Consolidated
Statements of Operations for the nine months ended January 28, 1994 are for the
nine months ended January 31, 1994.
The Pro Forma Consolidated Statements of Operations present the Company as
separate from AIT for all periods presented and have been prepared to reflect
AIT as a discontinued operation (see Note 6 to Notes to Condensed Consolidated
Financial Statements).
The Pro Forma Consolidated Statements of Operations for the nine months ended
January 27, 1995 and January 28, 1994 are not necessarily indicative of the
results of operations that actually would have taken place had the Acquisition
been consummated as of the date indicated, or that may be achieved in the
future, and should be read in conjunction with the notes in such statements.
12
<PAGE>
MMI MEDICAL, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended January 27, 1995
Pro Forma Consolidated
MMI MEMS (1) Adjustments (2) Total
----- ----- --------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 28,561 $ 4,576 $ -- $ 33,137
Costs and expenses
Costs of operations 23,257 4,018 (582) (2) 26,693
Depreciation and amortization 1,646 360 (60) (3) 1,946
Selling and administrative 4,859 500 (166) (4) 5,193
Interest expense (income), net 116 54 -- 170
------ ------ ------ ------
Total costs and expenses 29,878 4,932 (808) 34,002
------ ------ ------ ------
Loss before taxes (1,317) (356) 808 (865)
Benefit for income taxes (527) (127) 308 (5) (346)
------ ------ ------ ------
Loss from continuing
operations $ (790)$ (229) $ 500 $ (519)
------ ------ ------ ------
------ ------ ------ ------
Net loss per share $ (0.18) N/A $ (0.10)
<FN>
Notes:
(1) Historical data of MEMS for the three months ended August 2, 1994.
(2) All adjustments have been prorated for the nine month period.
(3) Reflects the elimination of certain duplicate positions, resulting in a
reduction in cost of operations of approximately $482,000 in salaries and
benefits for the period. Amortization of the spare parts inventory over a seven
year period, consistent with that of MMI, is expected to result in reduced
amortization expenses of $402,000 annually.
(4) As a result of purchase accounting adjustments, depreciation and
amortization expense will change. Depreciating the new basis over a five year
period will result in a reduction to such expense of $385,000 annually.
Amortization of the additional goodwill and covenant not to compete will result
in increased amortization expense of $145,000 annually.
(5) Reflects the elimination of certain duplicate positions, resulting in a
reduction in selling and administrative expense of approximately $166,000 in
salaries and benefits for the period.
(6) Consolidated provision for income taxes is calculated at 40%.
</TABLE>
13
<PAGE>
MMI MEDICAL, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended January 28, 1994
Pro Forma Consolidated
MMI MEMS Adjustments (1) Total
----- ----- --------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 23,163 $ 13,595 $ -- $ 36,758
Costs and expenses
Costs of operations 16,442 11,152 (1,521) (2) 26,073
Depreciation and amortization 1,331 1,069 (180) (3) 2,220
Selling and administrative 3,620 1,807 (360) (4) 5,067
Interest expense (income), net (24) 188 -- 164
------ ------ ------ ------
Total costs and expenses 21,369 14,216 (2,061) 33,524
------ ------ ------ ------
Loss before taxes 1,794 (621) 2,061 3,234
Income tax expense 718 (211) 786 (5) 1,293
------ ------ ------ ------
Income/loss from continuing
operations $ 1,076 (410) $ 1,275 $ 1,941
------ ------ ------ ------
------ ------ ------ ------
Net loss per share $ 0.35 N/A $ 0.38
<FN>
Notes:
(1) All adjustments have been prorated for the nine month period.
(2) Reflects the elimination of certain duplicate positions, resulting in a
reduction in cost of operations of approximately $1,220,000 in salaries and
benefits for the period. Amortization of the spare parts inventory over a seven
year period, consistent with that of MMI, is expected to result in reduced
amortization expenses of $402,000 annually.
(3) As a result of purchase accounting adjustments, depreciation and
amortization expense will change. Depreciating the new basis over a five year
period will result in a reduction to such expense of $385,000 annually.
Amortization of the additional goodwill and covenant not to compete will result
in increased amortization expense of $145,000 annually.
(4) Reflects the elimination of certain duplicate positions, resulting in a
reduction in selling and administrative expense of approximately $360,000 in
salaries and benefits for the period.
(5) Consolidated provision for income taxes is calculated at 40%.
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment
and Maintenance Services, Inc. ("MEMS") and, as a result, MEMS became a wholly
owned subsidiary of the Company. The Acquisition was accounted for as a
purchase and the financial statements contained herein reflect the operating
results of MEMS from the date of the closing of the Acquisition. The operations
of MEMS were integrated with those of the Company's R Squared Scan Systems, Inc.
subsidiary ("R Squared") during the second quarter and the combined service
organization was named InnoServ Technologies, Inc. ("InnoServ").
On October 24, 1994 the Company's Board of Directors adopted a formal plan to
dispose of the Company's Advanced Imaging Technologies, Inc. subsidiary
("AIT"). The financial statements contained herein (I) have been prepared as if
the Company will sell the assets and liabilities of AIT, (ii) present the
Company as separate from AIT for all periods presented and (iii) have been
prepared so as to reflect AIT as a discontinued operation. The following
discussion relates solely to the results from continuing operations.
Results of Operations
Third Quarter Fiscal 1995 Compared to Third Quarter Fiscal 1994
Consolidated revenues increased approximately $2,800,000 to $10,592,000 from
$7,769,000 primarily as a result of the Acquisition offset by a decreased
revenues at the Company's diagnostic imaging operation. Revenues at the
Company's InnoServ subsidiary increased approximately $3,100,000 primarily as a
result of the Acquisition. InnoServ added additional multi-vendor asset
management service and Magnetic Resonance Imaging ("MRI") maintenance agreements
during the third quarter of the current fiscal year but continued to experience
a net decline in the number of Computed Tomography ("CT") maintenance agreements
in effect primarily as a result of older equipment being upgraded (with
attendant warranty service coverage) or removed from service. The Company
expects this trend of upgrades and removals of older CT equipment to continue
for the foreseeable future. The sales of parts, labor and x-ray tubes was up
slightly in the current quarter over the same period in FY 1994 primarily as a
result of the Acquisition but this increase was moderated as a result of the
continuing decline in CT maintenance agreements in effect.
InnoServ had no equipment sales in the third quarter compared with $866,000 of
such sales in the third quarter of fiscal 1994. The timing of the sale of
equipment is often dependent upon the ability of the buyer to accept delivery of
the equipment. While InnoServ entered into agreements for the sale of equipment
during the current third quarter, the inability of buyers to accept delivery and
installation of such equipment resulted in no recordable revenues. The Company
anticipates that sales of equipment at InnoServ in the fourth quarter of fiscal
1995 will include both anticipated sales for such quarter as well as those
commitments received in the third quarter.
15
<PAGE>
Revenues at the Company's diagnostic imaging operation decreased approximately
$350,000 over the same period in the prior year as a result of a decrease in the
number of units in the fleet and lower utilization of equipment.
Income from continuing operations before taxes fell $622,000 from $796,000 in
the third quarter of fiscal 1994 to $174,000 in the third quarter of fiscal 1995
primarily resulting from a decline in the profitability at the diagnostic
imaging operation. While InnoServ returned to profitability during the third
quarter, it experienced lower operating margins as a result of lower pricing for
CT maintenance agreements and the lack of operating profits from equipment sales
Net interest expense increased $123,000 in the third quarter of fiscal 1995
from income of $8,000 in the prior year to an expense of $115,000 in the current
year as a result of borrowings from the Company's line of credit and long-term
debt assumed in the Acquisition. The effective tax rate remained at 40% and the
provision for income taxes decreased $250,000 from an expense of $319,000 in the
third quarter of fiscal 1994 to $69,000 in fiscal 1995 as a result of lower
operating profits.
Nine Months Fiscal 1995 Compared to Nine Months Fiscal 1994
Consolidated revenues increased approximately $5,400,000 to $28,561,000 from
$23,163,000 primarily as a result of additional CT, MRI and multi-vendor asset
management maintenance service revenues associated with the Acquisition. While
InnoServ experienced an overall increase in revenues of approximately $6,300,000
as a result of the Acquisition, during the first nine months of fiscal 1995,
losses in the number of CT maintenance agreements continued to exceed additions
as a result of older equipment currently covered under maintenance agreements
being upgraded or removed from service. The Company expects this trend of
upgrades and removals of older CT equipment to continue for the foreseeable
future. Concurrent with the continuing net loss of CT maintenance agreements
was an increase in revenues resulting from the addition of new MRI maintenance
agreements and multi-vendor asset management service agreements. Revenues from
the sale of equipment at InnoServ for the first nine months of fiscal 1995
declined as a result of no such sales being recorded in the current third
quarter. Revenues at the Company's diagnostic imaging operation decreased
approximately $860,000 over the same period in the prior year, as a result of
decreased utilization of both CT and Cardiac Catheterization laboratories and
fewer units in the CT fleet.
Income from continuing operations before taxes fell approximately $3,100,000
from income of $1,794,000 in the first nine months of fiscal 1994 to a loss of
$1,317,000 during the first nine months of fiscal 1995 primarily resulting from
operating losses at InnoServ and the Company's diagnostic imaging operation.
InnoServ experienced an operating loss in the first two quarters of the
current fiscal year as a result of expenses associated with the Acquisition and
integration of the R Squared and MEMS operations. Included in such costs was a
charge of approximately $360,000 in the first quarter of the current fiscal year
for severance expenses associated with the elimination of certain of the
Company's personnel in duplicate administrative, operational and sales functions
in conjunction with the Acquisition and the resignation of the Company's Chief
Financial Officer. The integration of R Squared and MEMS to form InnoServ was
substantially completed during the second quarter of the current fiscal year and
InnoServ returned to profitability during the current third quarter.
16
<PAGE>
Operating income at the diagnostic imaging operation decreased by
approximately $1,300,000 over the same nine month period in the prior year
primarily resulting from the reduction in revenues as well as increased
maintenance costs on a per-unit basis.
Net interest expense increased $140,000 to an expense of $116,000 in the first
nine months of fiscal 1995 from income of $24,000 in the first nine months of
prior year as a result of borrowings from the Company's line of credit and long-
term debt assumed in the Acquisition. The effective tax rate remained at 40%
and the provision for income taxes decreased $1,245,000 from an expense of
$718,000 in the first nine months of fiscal 1994 to a benefit of $527,000 in the
first nine months of fiscal 1995 as a result of the loss incurred.
Liquidity and Capital Resources
At January 27, 1995 the Company had net working capital of $12,233,000, an
increase of $5,282,000 from April 29, 1994 primarily as a result of the
Acquisition and borrowings under the Company's line of credit. The Company has
a $5,000,000 line of credit with a bank, $4,005,000 of which was utilized at the
end of the third quarter of fiscal 1995. The Company did not meet certain
financial covenants required by such agreement at the end of the third quarter.
The bank waived the Company's non-compliance with such covenants.
Borrowings from the Company's line of credit were used during the second
quarter of the current fiscal year to extinguish certain long term debt incurred
in the Acquisition and fund operating losses in that quarter. During the third
quarter, the Company utilized borrowings from its line of credit primarily to
finance an increase in accounts receivable resulting from delays in invoicing
associated with certain computer conversion problems relating to the
Acquisition. Such problems were substantially corrected by the end of the third
quarter and the Company expects to experience increased cash collections
commencing in the fourth quarter. As a result of the foregoing, the Company's
Board of Directors is expected to review the Company's current dividend policy.
The Company believes that internally generated funds and its existing credit
facility will provide sufficient capital resources to finance operations, fund
planned capital expenditures, make interest payments on outstanding borrowings
and fund dividends as declared.
17
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Report on Form 8-K.
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: March 10, 1995
MMI MEDICAL, INC.
(Registrant)
By: /s/ Alan D. Margulis
--------------------------
Alan D. Margulis
President and Chief Executive Officer
By: /s/ James P. Butler
--------------------------
James P. Butler
Vice President, Finance and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit PAGE
<C> <S>
11.1 Computation of Per Share Earnings 21
</TABLE>
20
<PAGE>
Exhibit 11.1 - Computation of Per Share Earnings (1)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
January 27, January 28, January 27, January 28,
1995 (2) 1994 (3) 1995 (2) 1994 (3)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
Average Shares Outstanding 5,058 2,951 4,340 2,941
Net effect of dilutive stock
options, based upon the
treasury stock method using
average market price -- 95 -- 114
------ ------ ------ ------
Total 5,058 3,046 4,340 3,055
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) $ 121 $ 421 $ (1,027) $ 1,539
------ ------ ------ ------
------ ------ ------ ------
Per share amount $ 0.02 $ 0.14 $ (0.24) $ 0.51
------ ------ ------ ------
------ ------ ------ ------
Fully Diluted
Average Shares Outstanding 5,058 2,951 4,340 2,941
Net effect of dilutive stock
options, based upon the
treasury stock method using
average market price -- 95 -- 114
------ ------ ------ ------
Total 5,058 3,046 4,340 3,055
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) $ 121 $ 421 $ (1,027) $ 1,539
------ ------ ------ ------
------ ------ ------ ------
Per share amount $ 0.02 $ 0.14 $ (0.24) $ 0.51
------ ------ ------ ------
------ ------ ------ ------
<FN>
Notes:
(1) Amounts in thousands, except per share data
(2) Amounts shown include 2,050,000 shares issued in connection the acquisition
of MEDIQ Equipment & Maintenance Services, Inc. on August 3, 1994.
(3) All average shares outstanding and stock option amounts for the three and
nine months ended January 28, 1994 have been restated to reflect a 10% stock
dividend declared March 4, 1993 and distributed April 5, 1993.
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE PERIOD ENDING JANUARY 27, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000746072
<NAME> MNI MEDICAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> APR-30-1994
<PERIOD-END> JAN-27-1995
<CASH> 410
<SECURITIES> 0
<RECEIVABLES> 11,691
<ALLOWANCES> (1,651)
<INVENTORY> 10,075
<CURRENT-ASSETS> 20,865
<PP&E> 34,978
<DEPRECIATION> (27,802)
<TOTAL-ASSETS> 33,442
<CURRENT-LIABILITIES> 8,632
<BONDS> 0
<COMMON> 52
0
0
<OTHER-SE> 20,426
<TOTAL-LIABILITY-AND-EQUITY> 33,442
<SALES> 4,615
<TOTAL-REVENUES> 28,561
<CGS> 2,537
<TOTAL-COSTS> 24,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 309
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> (1,317)
<INCOME-TAX> (527)
<INCOME-CONTINUING> (790)
<DISCONTINUED> (237)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,027)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
