<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[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,
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ___________ to
__________
Commission File Number 0-12787
MEDICAL IMAGING CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
California 95-3643045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9444 Farnham St., Suite 100
San Diego, California 92123
(Address of principal executive offices) (Zip Code)
(619) 560-0110
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
2,695,251 shares of Common Stock as of November 11, 1996.
Page 1 of 13
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share information)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (includes restricted cash of $451 in
1996 and $422 in 1995) $ 5,224 $ 10,732
Trade and notes receivable, net of allowance for doubtful accounts
of $4,053 in 1996 and $4,503 in 1995 7,473 7,711
Prepaid expenses and other current assets 775 725
-------- --------
Total current assets 13,472 19,168
Equipment and leasehold improvements, net of accumulated
depreciation and amortization of $18,927 in 1996 and
$25,168 in 1995 12,460 16,274
Equipment held for sale, net of accumulated depreciation
of $1,548 in 1996 and $4,863 in 1995 200 800
Investment in and advances to unconsolidated entities, net of reserves
of $1,845 in 1996 and $1,788 in 1995 1,494 1,489
Intangible assets, net of accumulated amortization of
$1,845 in 1996 and $1,645 in 1995 710 1,087
Other assets 790 830
-------- --------
$ 29,126 $39,648
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion long-term debt and capital lease obligations $ 5,123 $ 11,161
Current portion convertible subordinated debt 2,600 2,800
Accounts payable 969 1,107
Accrued compensation 510 697
Other accrued liabilities 1,950 3,066
-------- --------
Total current liabilities 11,152 18,831
Long-term debt and capital lease obligations 7,253 11,182
Minority interest in consolidated partnerships 1,090 1,222
Convertible subordinated debt 2,800 5,400
Commitments
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized; Series B
preferred shares, no par value, 300,000 shares
authorized, no shares issued or outstanding -- --
Common stock, no par value, 30,000,000 shares authorized;
2,695,251 and 2,479,460 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 55,996 54,691
Accumulated deficit (49,165) (51,678)
-------- --------
Total shareholders' equity 6,831 3,013
-------- --------
29,126 $ 39,648
======== ========
</TABLE>
See accompanying notes.
Page 2 of 13
<PAGE> 3
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands except per share information) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Medical services $ 8,752 $ 10,031 $ 26,818 $ 33,804
Equipment and medical suite sales 10 1,006 393 3,278
-------- -------- -------- --------
Total revenues 8,762 11,037 27,211 37,082
COSTS AND EXPENSES:
Costs of medical services 4,990 5,814 15,533 20,306
Costs of equipment and medical suite sales -- 1,006 99 2,779
Marketing, general and administrative 1,035 790 2,508 2,259
Provision for doubtful accounts 160 200 432 688
Depreciation and amortization of equipment
and leasehold improvements 1,231 2,185 4,461 7,316
Amortization of intangibles 102 119 305 364
Equity in net income of unconsolidated entities (194) (223) (614) (578)
Gain on disposal of equipment -- -- (382) --
Gain on sale of assets -- (3,460) -- (3,460)
Interest expense 393 1,145 1,411 2,939
Interest income (57) (121) (267) (381)
Special charge -- -- 1,325 --
-------- -------- -------- --------
Total costs and expenses 7,660 7,455 24,811 32,232
-------- -------- -------- --------
Income before minority interest and extraordinary gain 1,102 3,582 2,400 4,850
Minority interest in net (income) loss of
consolidated partnerships (37) 39 (73) 246
-------- -------- -------- --------
Income before income taxes and extraordinary gain 1,065 3,621 2,327 5,096
Income tax provision 18 -- 63 --
-------- -------- -------- --------
Income before extraordinary gain 1,047 3,621 2,264 5,096
Extraordinary gain, net of tax -- -- 382 --
-------- -------- -------- --------
Net income $ 1,047 $ 3,621 $ 2,646 $ 5,096
======== ======== ======== ========
PRIMARY EARNINGS PER SHARE:
Income before extraordinary gain $ 0.36 $ 1.37 $ 0.80 $ 1.94
======== ======== ======== ========
Extraordinary gain $ --- $ --- $ 0.13 $ ---
======== ======== ======== ========
Net income $ 0.36 $ 1.37 $ 0.93 $ 1.94
======== ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:
Net income $ 0.35 $ 1.18 $ 0.91 $ 1.72
======== ======== ======== ========
SHARES USED IN PER SHARE AMOUNTS:
Primary 2,870 2,646 2,842 2,625
======== ======== ======== ========
Fully diluted 3,244 3,193 3,298 3,254
======== ======== ======== ========
</TABLE>
See accompanying notes.
Page 3 of 13
<PAGE> 4
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(in thousands) 1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,646 $ 5,096
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,766 7,680
Amortization of deferred financing costs 54 79
Provision for doubtful accounts 432 688
Equity in net income of unconsolidated partnerships (240) ---
Minority interest in net income (loss) of consolidated partnerships 73 (246)
Net value of equipment sold 158 4,093
Extraordinary gain from debt forgiveness (517) --
Gain on disposal of equipment (382) --
Change in assets and liabilities:
(Increase) decrease in trade receivables (194) 1,222
(Increase) decrease in prepaid expenses and other current assets (50) 675
Decrease in accounts payable and other accrued liabilities (1,254) (132)
Decrease in accrued compensation (187) (964)
-------- --------
Net cash provided by operating activities 5,305 18,191
INVESTING ACTIVITIES:
Capital expenditures (324) (640)
Decrease in investment in and advances to unconsolidated entities, net 235 255
Cost of acquisitions (205) (60)
Other, net 40 (3)
-------- --------
Net cash used in investing activities (254) (448)
FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations (10,619) (15,785)
Distribution to minority interests -- (151)
Redemption of Shareholder Rights (133) --
Other, net 193 189
-------- --------
Net cash used in financing activities (10,559) (15,747)
-------- --------
Net (decrease) increase in cash and cash equivalents (5,508) 1,996
Cash and cash equivalents at beginning of period 10,732 8,524
-------- --------
Cash and cash equivalents at end of period $ 5,224 $ 10,520
======== ========
SUPPLEMENTAL CASH FLOW DATA:
Interest paid $ 1,304 $ 2,764
======== ========
Income taxes paid $ 230 $ 161
======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease and long-term debt obligations $ 252 $ 1,112
======== ========
Retirement of debt and termination of capital lease obligations $ 2,400 $ 771
======== ========
Net value of equipment and intangible
assets disposed $ 389 $ ---
======== ========
</TABLE>
See accompanying notes.
Page 4 of 13
<PAGE> 5
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares
Issued and Outstanding Accumulated
(in thousands except share information) Shares Amount Deficit
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 2,479,460 $ 54,691 $ (51,678)
Proceeds from issuance of common stock
purchase warrants 160,000 912 --
Fair value assigned to warrants issued in
connection with debt forgiveness -- 200 --
Stock options exercised 55,791 193 --
Redemption of Shareholder Rights -- -- (133)
Net income -- -- 2,646
-----------------------------------------
Balance at September 30, 1996 2,695,251 $ 55,996 $ (49,165)
=========================================
</TABLE>
See accompanying notes.
Page 5 of 13
<PAGE> 6
MEDICAL IMAGING CENTERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements included herein have been prepared by Medical
Imaging Centers of America, Inc. ("MICA" or the "Company"), without audit,
according 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, although the Company believes the disclosures that are made are
adequate to make the information presented not misleading. Further, in the
opinion of the Company, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position and results of
operations of the Company as of and for the periods indicated, have been
included.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and the notes thereto for the year ended December
31, 1995, which are included in the Company's Form 10-K. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for the full fiscal year ending December
31, 1996.
2. Steel Settlement Agreement. On January 2, 1996, Steel Partners II, L.P.
("Steel"), which as of March 19, 1996 owned 19.8% of the Company's outstanding
common stock, filed proxy materials with the Securities and Exchange Commission
to replace the current Board of Directors with its own representatives. As
requested by Steel, the Company held a special meeting of shareholders on
February 26, 1996. On March 19, 1996, the Company and Steel entered into an
Agreement of Compromise and Settlement (the "Settlement Agreement"). The
Settlement Agreement called for the dismissal of all pending litigation and
provided for mutual releases. The Settlement Agreement also provided that the
February 26, 1996 Special Meeting of Shareholders would be adjourned without any
final report from the Inspector of Elections, leaving the current Board of
Directors in place.
Pursuant to the Settlement Agreement, the Company initiated a process to sell or
merge the Company (the "Auction Process"). The current members of the Company's
Board of Directors agreed that if the process did not result in an announcement
of a sale or merger transaction by June 19, 1996, a definitive agreement for a
sale or merger transaction by July 19, 1996, and the consummation of a sale or
merger transaction by November 19, 1996, they would resign from their positions
and be replaced by designees of Steel. In addition, the Settlement Agreement
also required the Company to redeem all outstanding Rights issued pursuant to
the Company's shareholder rights plan and prohibited the Company from enacting a
new shareholder rights plan without the prior written consent of Steel. During
the Auction Process, Steel agreed that it would not acquire beneficial ownership
of any of the Company's securities. Total expenditures for the proxy
solicitation, including the fees and expenses of the Company's attorneys,
financial advisors, public relations firm and proxy solicitors, excluding
salaries and wages of its officers and employees and including the amounts
reimbursed to Steel, totaled $1,325,000, and a charge was recorded to operations
in the first quarter of 1996.
On July 17, 1996, Steel agreed to an amendment of the Settlement Agreement
extending the date a definitive agreement for a sale or merger transaction was
required to be entered into from prior to July 19, 1996 to prior to August 2,
1996.
Merger Agreement. On August 1, 1996, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with U.S. Diagnostic Labs, Inc., a
Delaware corporation ("USDL"), and its wholly owned subsidiary MICA Acquiring
Corporation, a California corporation ("Merger Sub"). Pursuant to the Merger
Agreement, Merger Sub will be merged with and into MICA whereupon the separate
existence of Merger Sub will cease and MICA will become a wholly owned
subsidiary of USDL (the "Merger"). Pursuant to the Merger, each outstanding
share of MICA's common stock, no par value ("MICA Common Stock"), would be
converted into a right to receive $11.75 in cash (the "Merger Consideration").
Each option to purchase MICA Common Stock (each a "MICA Option") would be
canceled and each holder of a MICA Option would be entitled to a cash payment
equal to the product of the total number of shares subject to the MICA Option
and the excess of $11.75 over the exercise price per share of the MICA Common
Stock subject to the MICA Option. USDL currently does not beneficially own,
directly or indirectly, any of MICA's voting securities apart from any
beneficial ownership interest it may have as a result of entering into the
Merger Agreement. Following the Merger, MICA's Board of Directors will be filled
with USDL's designees.
Page 6 of 13
<PAGE> 7
The Board of Directors has received a written opinion dated as of August 1, 1996
from Batchelder & Partners, Inc. ("Batchelder"), its financial advisor, stating
that the Merger Consideration is fair to the MICA shareholders from a financial
point of view. The amount paid to Batchelder for its written opinion was
$200,000 and such a charge was recorded in the third quarter of 1996 as a
marketing, general and administrative expense.
The Merger is subject to the approval of the shareholders of MICA, certain
regulatory approvals and filings, including expiration of the waiting period
under the Hart-Scott-Rodino Improvements Act of 1976, as amended, and other
customary conditions. If the Merger is not consummated either because (i) USDL
terminates the Merger Agreement by reason of the Company's material breach of
the Merger Agreement and failure to cure such breach within ten (10) days'
notice from USDL, or (ii) the Board of Directors of MICA withdraws, modifies or
changes its approval of the Merger Agreement or the Merger in any manner adverse
to USDL or Merger Sub, or determines in good faith with the advice of outside
legal counsel that, in the exercise of its fiduciary obligations, termination of
the Merger Agreement is required by reason of an agreement with a third party
with respect to a business combination or similar transaction, MICA is obligated
to pay USDL a fee of 3% of the total Merger Consideration. If the Merger is not
consummated because USDL terminates the Merger Agreement because of MICA's
material breach of any representations or warranties in the Merger Agreement
(with such breach not cured either prior to the closing of the Merger or within
thirty (30) days after written notice from USDL), MICA is obligated to pay USDL
reasonable out-of-pocket expenses and fees up to $200,000. The Merger Agreement
can be terminated by either party if the Merger is not consummated by November
19, 1996. A copy of the Merger Agreement has been filed on Form 8-K by the
Company on August 9, 1996. A detailed description of the terms of the Merger is
set forth in the proxy materials filed with the SEC on September 25, 1996.
On September 25, 1996, the Company filed proxy materials with the Securities and
Exchange Commission to approve the Merger at a special meeting of shareholders
to be held on November 6, 1996. The shareholders of the Company approved the
Merger on November 6, 1996 with an affirmative vote of 82% of the outstanding
shares of the Company's common stock.
Raytel Litigation. On September 18, 1996, Raytel Imaging Mid-Atlantic, Inc.
("Raytel") commenced litigation in the California Superior Court for the County
of San Diego (the "Court") against MICA, MICA FLO I, Inc., a wholly-owned
subsidiary of MICA ("MICA FLO") and USDL. Raytel's complaint alleges, among
other matters, that MICA and MICA FLO breached a joint venture agreement dated
December 31, 1986 among (i) Raytel's predecessor, Medical Imaging Partners,
L.P., a Delaware limited partnership ("MIP"), (ii) MICA and (iii) Orlando
Diagnostic Center, Inc., a Florida corporation, an unrelated third party (the
"Joint Venture Agreement"). The Joint Venture Agreement was entered into for
purposes of owning and operating a diagnostic medical imaging center in Orlando,
Florida. Pursuant to the Joint Venture Agreement, the parties formed a
California limited partnership called Orlando Diagnostic Center, L.P. ("ODC").
The complaint also asserts claims against MICA, MICA FLO and USDL for
intentional interference with economic relations and conspiracy to interfere
with economic relations. The complaint seeks unspecified compensatory damages,
punitive damages in an amount of at least $5,000,000, declaratory relief, and
injunctive relief enjoining MICA and USDL from consummating the Merger and
requiring MICA either to sell its interest in ODC to Raytel for its fair market
value or to purchase Raytel's interest in ODC, at Raytel's election. On October
9, 1996, Raytel filed a motion for a preliminary injunction seeking to enjoin
the Merger.
On November 7, 1996, Raytel's request for an order enjoining MICA and USDL from
completing the Merger until after Raytel's contractual dispute with MICA is
resolved was denied by the Court. In connection with the ruling the Court
ordered that both MICA and Raytel maintain the status quo regarding ODC, which
was the subject of the parties' contractual dispute. The Court ordered the
appointment of a receiver to manage the affairs of ODC until the matter is
finally resolved.
3. Primary and fully diluted net income per share is computed on the basis of
weighted average number of common shares outstanding and includes common stock
equivalents when their effect is dilutive. All per share data has been restated
for all periods presented to give effect to a one-for-five reverse stock split
for shareholders of record on October 16, 1995.
4. Income tax provisions of $18,000 and $63,000 were recorded for the three and
nine months ended September 30, 1996, respectively, primarily reflecting
alternative minimum and state taxes due.
5. Certain 1995 amounts have been reclassified to conform with the September 30,
1996 presentation.
Page 7 of 13
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
BUSINESS The Company is a California corporation organized in July 1981 which
provides outpatient services and medical equipment rentals to physicians,
managed care providers and hospitals. These services include magnetic resonance
imaging ("MRI"), computed tomography ("CT"), nuclear medicine and ultrasound.
The Company's operations include diagnostic medical centers ("DMCs"), diagnostic
equipment rentals, fee-for-service agreements (fixed and mobile), and
management, marketing and related support services.
OPERATING TRENDS
Medical services revenues declined during the nine months ended September 30,
1996 primarily due to the Company's termination of unprofitable fee-for-service
contracts and sales of assets used in the fee-for-service business. As such, the
Company believes that revenues from its fee-for-service business, which
accounted for 41% of medical services revenues reported in the nine months ended
September 30, 1995 and 29% of medical services revenues reported in the nine
months ended September 30, 1996, will continue to decline. In view of the
historical unprofitability and uncertainty regarding its fee-for-service
business, the Company's strategy is to sell equipment used in its
fee-for-service business as related hospital contracts expire.
Revenues earned by the Company's DMCs in the nine months ended September 30,
1996 were negatively affected by declining reimbursement which is the direct
result of cost containment efforts at the state and federal level as well as
efforts by insurer and payor groups to reduce healthcare costs. MICA expects the
decline in reimbursement trends to continue in the future. The Company's
strategy is to offset the decline in reimbursement by securing managed care
contracts and developing strategic alliances with hospitals and other healthcare
providers to increase the utilization of its diagnostic imaging services. By
positioning itself to take greater advantage of managed care contracts, thereby
increasing the utilization of its services, management believes that it can
maintain its DMC revenues. Although there can be no assurances, the Company
believes that declining reimbursement trends can be offset with increased
utilization so that such trends will not have a significant negative impact on
the Company's operating results or its liquidity in the future. Management
believes that its cash on hand and cashflow from future operations will be
sufficient to meet the Company's obligations as they come due.
Although the Company cannot accurately anticipate the effect of inflation on its
operations, it does not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on its net sales or results of
operations.
RESULTS OF OPERATIONS
REVENUES FROM MEDICAL SERVICES Revenues from its DMCs for the third quarter
declined $300,000 from $6.5 million in 1995 to $6.2 million in 1996. Revenues
for the nine months ended September 30 declined $700,000 from $19.8 million in
1995 to $19.1 million in 1996. The decline was primarily due to declining trends
in reimbursement. Revenues from its fee-for-service business for the third
quarter declined $1 million from $3.5 million in 1995 to $2.5 million in 1996.
Revenues for the nine months ended September 30 declined $6.3 million from $14
million in 1995 to $7.7 million in 1996. The decline was primarily due to the
Company's sale of underperforming assets and termination of certain unprofitable
leases and contracts used in its fee-for-service business. The Company's sale of
its Chicago-based Ultrasound and Nuclear Medicine Division (the "Division") in
July of 1995 accounted for $413,000 of the decline for the third quarter and
$3.1 million for the nine months ended September 30. In addition to declining
trends in reimbursement noted above, a number of factors exist that could have
an impact on the Company's future revenues, including declining prices and an
oversupply in the diagnostic equipment market and competition in the healthcare
industry.
REVENUES FROM EQUIPMENT AND MEDICAL SUITE SALES Revenues from equipment and
medical suite sales
for the third quarter decreased from $1 million in 1995 to $10,000 in 1996.
Revenues from equipment and medical suite sales for the nine months ended
September 30 decreased from $3.3 million in 1995 to $393,000 in 1996. The
decrease in sales is due to the quantity and type of equipment and medical
suites sold and will vary accordingly. The Company intends to sell equipment and
its remaining inventory of medical suites in the future, but such sales are
subject to market conditions and there can be no assurances that such sales will
or will not occur.
Page 8 of 13
<PAGE> 9
COSTS OF MEDICAL SERVICES Costs of medical services from its DMCs for the third
quarter decreased from $4 million (40% of medical services revenues) in 1995 to
$3.8 million (43% of medical services revenues) in 1996. Costs of medical
services for the nine months ended September 30 decreased from $12.6 million
(37% of medical services revenues) in 1995 to $11.7 million (44% of medical
services revenues) in 1996. The decrease was primarily due to the renegotiation
of certain DMC lease obligations. Costs of medical services from its
fee-for-service business for the third quarter decreased from $1.8 million (18%
of medical services revenues) in 1995 to $1.2 million (14% of medical services
revenues) in 1996. Costs of medical services for the nine months ended September
30 decreased from $7.7 million (23% of medical services revenues) in 1995 to
$3.8 million (14% of medical services revenues) in 1996. The decrease was
primarily due to the Company's sale of Division assets in July 1995 which
accounted for $331,000 of the decrease in costs for the third quarter and $2.1
million for the nine months ended September 30, termination of unprofitable
leases, sales of fee-for-service equipment, and various actions taken by the
Company to reduce spending.
COSTS OF EQUIPMENT AND MEDICAL SUITE SALES Costs of equipment and medical suite
sales for the third quarter decreased from $1 million in 1995 to $1,000 in 1996.
Costs of equipment and medical suite sales for the nine months ended September
30 decreased from $2.8 million in 1995 to $100,000 in 1996. The difference in
costs is directly related to the quantity and type of equipment and medical
suites sold and will vary accordingly.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES Marketing, general and
administrative expenses for the third quarter increased from $790,000 (8% of
medical services revenues) in 1995 to $1 million (12% of medical services
revenues) in 1996. The increase primarily relates to fees and expenses of the
Company's attorneys and financial advisors related to its Merger Agreement (see
Note 2).
PROVISION FOR DOUBTFUL ACCOUNTS Provision for doubtful accounts for the third
quarter decreased from $200,000 (2% of medical services revenues) in 1995 to
$160,000 (2% of medical services revenues) in 1996. Provision for doubtful
accounts for the nine months ended September 30 decreased from $688,000 (2% of
medical services revenues) in 1995 to $432,000 (2% of medical services revenues)
in 1996. The provision for doubtful accounts is based upon management's
evaluation of the collectability of accounts receivable and varies accordingly.
DEPRECIATION AND AMORTIZATION Depreciation and amortization of equipment and
leasehold improvements for the third quarter decreased from $2.3 million in 1995
to $1.3 million in 1996. Depreciation and amortization for the nine months ended
September 30 decreased from $7.7 million in 1995 to $4.8 million in 1996. This
decrease is primarily due to the sale of underperforming assets and termination
of certain unprofitable leases used in the fee-for-service business and the
Company's sale of Division assets in July of 1995 which accounted for $67,000 of
the decline for the third quarter and $522,000 for the nine months ended
September 30.
GAIN ON DISPOSAL OF EQUIPMENT During the second quarter of 1996, the Company
assigned its obligation under certain capital equipment lease debt to its
hospital customer. A gain from the disposal of equipment of $382,000 was
recorded during the second quarter related to this transaction.
INTEREST EXPENSE Interest expense for the third quarter decreased from $1.1
million in 1995 to $393,000 in 1996. Interest expense for the nine months ended
September 30 decreased from $2.9 million in 1995 to $1.4 million in 1996. This
decrease primarily resulted from the sale of underperforming assets and
termination of certain unprofitable leases used in the fee-for-service business
and a $450,000 charge to interest expense for the buyback in the third quarter
of 1995 of a warrant to purchase 300,000 shares of the Company's common stock.
In addition, interest expense decreased $126,000 in the nine months ended
September 30, 1996 as compared to the same period in 1995 due to the declining
balance outstanding of its convertible subordinated debt.
SPECIAL CHARGE Total expenditures of $1,325,000 related to the Settlement
Agreement and related proxy solicitation, including the fees and expenses of the
Company's attorneys, financial advisors, public relations firm and proxy
solicitors, excluding salaries and wages of its officers and employees and
including the $425,000 reimbursed to Steel, were recorded as a Special Charge to
operations in the first quarter of 1996 (see Note 2).
Page 9 of 13
<PAGE> 10
MINORITY INTEREST IN NET INCOME/LOSS OF CONSOLIDATED PARTNERSHIPS The minority
interest in consolidated partnerships increased from a net loss of $39,000 in
the third quarter of 1995 to net income of $37,000 in the third quarter of 1996.
The minority interest in consolidated partnerships for the nine months ended
September 30 increased from a net loss of $246,000 in 1995 to net income of
$73,000 in 1996. This increase is primarily due to improved performance of
certain of its DMCs with minority ownership.
EXTRAORDINARY GAIN On January 16, 1996 the Company entered into an agreement
with a creditor to pay off a promissory note. The Company paid $1,425,000 in
cash and applied $912,000 in proceeds received from the exercise of a warrant to
purchase 160,000 shares of MICA's Common Stock as payment in full to retire the
note. In connection with this transaction the Company issued an additional
warrant to purchase 60,000 shares of the Company's Common Stock at an exercise
price of $8.50 per share which expires on December 31, 1998. At the date of
grant, the Company allocated $200,000 to the cost of the warrant which was
determined to be its fair value. The Company recorded an extraordinary gain of
$382,000, net of tax, from the settlement of this obligation in the first
quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's cash and cash equivalents totaled $5.2
million which is a decrease of $5.5 million since December 31, 1995. This
decrease primarily reflects principal payments of $10.6 million offset by net
cash provided by operations of $5.3 million. Included in the Company's principal
payments for the nine months ended September 30, 1996 is a $2.8 million
mandatory redemption payment on its subordinated convertible debentures, $1.4
million paid to retire a promissory note (see Management's Discussion and
Analysis of Financial Condition and Results of Operations - Extraordinary Gain)
and $1.1 million in payments towards a negotiated settlement of equipment lease
debt.
The Company had working capital of $2.3 million at September 30, 1996.
The Company's ability to meet its current obligations is dependent on its
ability to maintain revenues from existing contracts while reducing related
costs. In addition, a number of factors exist that could have an impact on the
Company's future revenues. Such factors in some cases have affected the
Company's results, and in the future could cause the Company's actual results
for the fourth quarter of 1996, and beyond, to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. These factors are discussed under the caption "Risk Factors and Certain
Cautionary Statements" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and include, among others, the following: (i) declining
prices and an oversupply in the diagnostic equipment market; (ii) changes in
healthcare legislation which has limited reimbursement and prohibited referrals
from physician investors; (iii) healthcare initiatives which could reduce
reimbursement to the Company; and (iv) competition in the healthcare industry.
Page 10 of 13
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 18, 1996, Raytel Imaging Mid-Atlantic, Inc. ("Raytel")
commenced litigation in the California Superior Court for the County of San
Diego (the "Court") against MICA, MICA FLO I, Inc., a wholly-owned subsidiary of
MICA ("MICA FLO") and USDL. Raytel's complaint alleges, among other matters,
that MICA and MICA FLO breached a joint venture agreement dated December 31,
1986 among (i) Raytel's predecessor, Medical Imaging Partners, L.P., a Delaware
limited partnership ("MIP"), (ii) MICA and (iii) Orlando Diagnostic Center,
Inc., a Florida corporation, an unrelated third party (the "Joint Venture
Agreement"). The Joint Venture Agreement was entered into for purposes of owning
and operating a diagnostic medical imaging center in Orlando, Florida. Pursuant
to the Joint Venture Agreement, the parties formed a California limited
partnership called Orlando Diagnostic Center, L.P. The complaint also asserts
claims against MICA, MICA FLO and USDL for intentional interference with
economic relations and conspiracy to interfere with economic relations.
The complaint alleges, among other things, that (i) if any proposal
exists under which MICA is to be merged or consolidated with any entity
unaffiliated with MICA, the Joint Venture Agreement gives Raytel (as MIP's
successor) the right either to purchase MICA's interest in ODC or to require
MICA to purchase Raytel's interest in ODC (the "Buyout Rights"), and (ii) the
Merger triggers the Buyout Rights. The complaint claims that MICA and MICA FLO
have breached the Joint Venture Agreement by refusing to honor Raytel's claimed
Buyout Rights under the Joint Venture Agreement, and that USDL has caused MICA
and MICA FLO to breach the Joint Venture Agreement by entering into the Merger
Agreement.
The complaint seeks unspecified compensatory damages, punitive damages
in an amount of at least $5,000,000, declaratory relief, and injunctive relief
enjoining MICA and USDL from consummating the Merger and requiring MICA either
to sell its interest in ODC to Raytel for its fair market value or to purchase
Raytel's interest in ODC, at Raytel's election. On October 9, 1996, Raytel filed
a motion for a preliminary injunction seeking to enjoin the Merger.
On November 7, 1996, Raytel's request for an order enjoining MICA and
USDL from completing the Merger until after Raytel's contractual dispute with
MICA is resolved was denied by the Court. In connection with the ruling the
Court ordered that both MICA and Raytel maintain the status quo regarding ODC,
which was the subject of the parties' contractual dispute. The Court ordered the
appointment of a receiver to manage the affairs of ODC until the matter is
finally resolved.
MICA is also a party to certain other litigation arising in the normal
course of its business. MICA does not believe the results of such litigation,
even if determined adversely to MICA, would have a material effect on its
consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 11.1 - Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule
(b) Reports:
A Form 8-K was filed on August 9, 1996 reporting under Item 5
(Other Events) and Item 6 (Exhibits) the Agreement and Plan of Merger, dated as
of August 1, 1996, among U.S. Diagnostic Labs, Inc., a Delaware corporation,
MICA Acquiring Corporation, a California corporation, and Medical Imaging
Centers of America, Inc., a California corporation. No financial statements were
filed with the report.
Page 11 of 13
<PAGE> 12
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.
MEDICAL IMAGING CENTERS OF AMERICA, INC.
Date: November 12, 1996 /s/ Robert S. Muehlberg
--------------------------------------
Robert S. Muehlberg
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: November 12, 1996 /s/ Denise L. Sunseri
--------------------------------------
Denise L. Sunseri
Vice President, Chief Financial
Officer and Secretary
Page 12 of 13
<PAGE> 1
MEDICAL IMAGING CENTERS OF AMERICA, INC. Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands except per share information) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income for computation of primary earnings per share $1,047 $3,621 $2,646 $5,096
Fully diluted:
Adjustment for interest and amortization for the conversion of debentures 99 141 353 505
------ ------ ------ ------
Net income for computation of fully diluted earnings per share $1,146 $3,762 $2,999 $5,601
====== ====== ====== ======
Average shares:
Common shares 2,695 2,463 2,667 2,442
Stock option and warrant equivalent shares (A) 175 183 175 183
------ ------ ------ ------
Average shares for computation of primary earnings per share 2,870 2,646 2,842 2,625
Fully diluted:
Stock option and warrant equivalent shares - difference from primary (A) 14 -- 14 --
Average shares for the conversion of debentures 360 547 442 629
------ ------ ------ ------
Average shares for computation of fully diluted earnings per share 3,244 3,193 3,298 3,254
====== ====== ====== ======
Net income per share:
Primary $ 0.36 $ 1.37 $ 0.93 $ 1.94
====== ====== ====== ======
Fully diluted $ 0.35 $ 1.18 $ 0.91 $ 1.72
====== ====== ====== ======
</TABLE>
(A) The treasury stock method was used to calculate the common stock equivalent
number of shares from options and warrants.
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,224
<SECURITIES> 0
<RECEIVABLES> 11,526
<ALLOWANCES> 4,053
<INVENTORY> 0
<CURRENT-ASSETS> 13,472
<PP&E> 33,135
<DEPRECIATION> 20,475
<TOTAL-ASSETS> 29,126
<CURRENT-LIABILITIES> 11,152
<BONDS> 10,053
0
0
<COMMON> 55,996
<OTHER-SE> (49,165)
<TOTAL-LIABILITY-AND-EQUITY> 29,126
<SALES> 393
<TOTAL-REVENUES> 27,211
<CGS> 99
<TOTAL-COSTS> 15,632
<OTHER-EXPENSES> 4,766
<LOSS-PROVISION> 432
<INTEREST-EXPENSE> 1,411
<INCOME-PRETAX> 2,327
<INCOME-TAX> 63
<INCOME-CONTINUING> 2,264
<DISCONTINUED> 0
<EXTRAORDINARY> 382
<CHANGES> 0
<NET-INCOME> 2,646
<EPS-PRIMARY> $0.93
<EPS-DILUTED> $0.91
</TABLE>
