UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended: March 31, 1996 Commission File Number: 33-37418
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DIAGNOSTIC IMAGING SERVICES, INC.
(Exact name of registrant as specified in charter)
Delaware 33-0443404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1516 Cotner Avenue
Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 479-0399
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and 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 No X
Number of shares outstanding of the issuer's common stock as of June 12, 1997
was 11,310,110.
Transitional Small Business Disclosure Format. Yes No X
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996.
(UNAUDITED)
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Assets:
Current Assets:
Cash $ 5,698
Accounts Receivable - Net 6,320,439
Other Current Assets 234,358
Net Assets Held for Divestiture 233,926
-----------
Total Current Assets 6,794,421
Property, Plant and Equipment - Net 21,551,328
-----------
Other Assets:
Accounts Receivable - Net 908,132
Goodwill - Net 7,609,864
Other Intangibles - Net 1,900,528
Other Assets 146,191
-----------
Total Other Assets 10,564,715
Total Assets $38,910,464
See Notes to Consolidated Financial Statements.
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996.
(UNAUDITED)
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Liabilities and Shareholders' Deficit:
Current Liabilities:
Cash Overdraft $ 1,092,442
Accounts Payable 1,617,288
Accrued Expenses 4,768,418
Accrued Professional Fees 1,359,970
Due to Related Parties 220,497
Notes Payable and Capital Leases 11,985,934
-----------
Total Current Liabilities 21,044,549
Long-Term Liabilities:
Notes Payable and Capital Leases 16,701,720
Due to Related Party 1,000,000
Accrued Professional Fees 195,403
-----------
Total Long-Term Liabilities 17,897,123
Minority Interest --
Commitments and Contingencies --
Shareholders' Deficit:
Preferred Stock - Series F, $.01 Par Value, 5,000,000
Shares Authorized, 2,482,000 Shares Issued and Outstanding,
Stated Liquidation Preference of $2,482,000 24,820
Preferred Stock - Series G, $.01 Par Value, 5,000,000 Shares
Authorized, 2,000,000 Shares Issued and Outstanding, Stated
Liquidation Preference of $2,000,000 20,000
Common Stock - $.01 Par Value, 20,000,000 Shares Authorized;
11,463,956 Shares Issued; and 11,310,110 Shares Outstanding 114,639
Additional Paid-in Capital - Common Stock 4,251,059
Additional Paid-in Capital - Preferred Stock - Series F 226,409
Additional Paid-in Capital - Preferred Stock - Series G 182,441
Stock Purchase Warrants 1,175,317
Deferred Compensation (808,157)
Subscriptions Receivable (10,994)
Accumulated Deficit (5,205,204)
Treasury Stock - 153,846 Shares of Common Stock - At Cost (1,538)
-----------
Total Shareholders' Deficit (31,208)
Total Liabilities and Shareholders' Deficit $38,910,464
See Notes to Consolidated Financial Statements.
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2
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three months ended
March 31,
1 9 9 6 1 9 9 5
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Revenue:
Net Patient Service Revenue $5,904,255 $ 6,826,756
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Expenses:
Cost of Services 4,756,619 4,565,045
General and Administrative 1,136,245 210,930
Depreciation and Amortization 1,031,818 942,572
(Gain) Loss on Sale or Divestiture (177,214) --
---------- -----------
Total Expenses 6,747,468 5,718,547
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Operating (Loss) Income (843,213) 1,108,209
Interest Expense (968,150) (867,058)
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(Loss) Income Before Income Taxes and Minority Interest
in (Income) Loss of Subsidiaries (1,811,363) 241,151
Income Tax Provision -- --
Minority Interest in (Income) Loss of Subsidiaries 64,208 (23,900)
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Net (Loss) Income $(1,747,155) $ 217,251
=========== ===========
Net (Loss) Income Per Share $ (.20) $ .02
========== ===========
Weighted Common Shares Outstanding 8,745,783 7,572,314
========== ===========
See Notes to Consolidated Financial Statements.
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3
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three months ended
March 31,
1 9 9 6 1 9 9 5
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Net Cash - Operating Activities $ (308,752) $ 689,986
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Investing Activities:
Purchase of Property, Plant and Equipment (13,816) (431,104)
Acquisitions of Operating Entities -- (670,000)
Payments for Intangible Assets -- (165,286)
Payments for Deposits and Other Assets (31,300) (357,795)
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Net Cash - Investing Activities (45,116) (1,624,185)
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Financing Activities:
Cash Overdraft 1,092,442 --
Proceeds from Borrowings on Notes Payable -- 3,370,139
Principal Payments on Notes and Leases (4,834,366) (3,655,845)
Proceeds from the Issuance of Common Stock 3,000,000 1,134,905
Loans from Related Parties 1,100,000 85,000
Payments to Related Parties (16,503) --
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Net Cash - Financing Activities 341,573 934,199
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Net Decrease in Cash (12,295) --
Cash - Beginning of Periods 17,993 --
---------- -----------
Cash - End of Periods $ 5,698 $ --
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 994,923 $ 536,000
See Notes to Consolidated Financial Statements.
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4
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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(1) Summary of Significant Accounting Policies
Significant accounting policies of Diagnostic Imaging Services, Inc. and
affiliates are set forth in the Company's Form 10-KSB for the year ended
December 31, 1995 as filed with the Securities and Exchange Commission.
(2) Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
and the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X and ,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles for complete financial
statements; however, in the opinion of the management of the Company, all
adjustments consisting of normal recurring adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods ended March 31, 1996 and 1995 have been made. The results of
operations for any interim period are not necessarily indicative of the results
for the full year. These interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1995.
(3) Intangible Assets
The Company's goodwill of $8,449,716 as of March 31, 1996 is shown net of
accumulated amortization of $839,852. Amortization expense for the three months
ended March 31, 1996 was approximately $106,000.
Other Intangible Assets consist primarily of covenants not to compete,
capitalized loan fees and organization costs. The Company's covenants not to
compete of $2,005,196 as of March 31, 1996 are shown net of accumulated
amortization of $952,213. Amortization expense for the three months ended March
31, 1996 was approximately $105,045. Organization Costs and Capitalized Loan
Fees of $1,046,316 are shown net of accumulated amortization of $198,771.
Amortization expense for the three months ended March 31, 1996 was approximately
$39,000.
(4) Due to Related Parties
In March 1996, Primedex Health Systems, Inc. ("PHS") loaned $1,000,000 to DIS
pursuant to a revolving loan agreement. The loan bears interest at the prime
rate, as quoted by Bank of America, plus four percent. Principal payments are to
commence October 1996 at the rate of $50,000 per month plus interest. All unpaid
amounts are due on March 22, 2001. As of March 31, 1996, no interest has been
accrued.
DIS entered into an agreement with PHS, whereby PHS will provide management
services to DIS for a monthly fee of $45,000. During March 1996, the Company was
charged a $100,000 management fee. This increased fee was agreed upon by
management for the initial two month set-up period with subsequent period fees
reducing to the contracted rate of $45,000 per month. Additionally, DIS and PHS
entered into a second agreement which is being phased in on a center by center
basis which provides for PHS to supply transcription services, patient
scheduling, and billing and collection services. DIS will pay an amount equal to
10% of its collections for each covered center. The agreements expire April 1,
2001 with an option to renew for an additional year.
As of December 31, 1995, the Company owed an officer of the Company
approximately $137,000 for prior net loans made by him to the Company. During
the three months ended March 31, 1996, the Company repaid approximately $16,000
of these loans.
5
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), Sheet #2
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(5) Acquisitions and Divestitures
On March 1, 1996, the assets and related liabilities of Mission Bay Mobile MRI
Facility L.P. ("MBM") were assumed by Mobile Technology, Inc. The transfer
resulted in a gain of approximately $296,000.
At March 31, 1996, the net assets held for divestiture included the assets and
related liabilities of Montclair Mobile and the nuclear medicine business at
North County (see Form 10-K for the fiscal year ended October 31, 1995).
Beginning in January 1996, the Company rented its PPS "Montclair" mobile MRI
unit to a hospital with the expectation of eventually selling the unit to the
hospital. At year-end, the Company accrued losses for the sale of Montclair
Mobile MRI of $172,273 consisting of a loss on the sale of assets of $134,639
and a loss from 1995 operations of $35,634. On April 30, 1996, the hospital
terminated its rental agreement and the Company reclaimed the unit and is
seeking alternate buyers, resulting in an additional loss of $118,579 being
taken in the quarter ending March 31, 1996. In the meantime, the unit was
temporarily moved to Scripps Chula Vista as a replacement for a rental unit
previously used at that site.
(6) Sale of Stock and Securities
On March 25, 1996, PHS purchased 2,747,493 shares of the Company's common stock
from the Company with a 5-year warrant to acquire an additional 1,521,739 shares
of the Company's common stock at $1.60 per share for $3,000,000 and the
establishment of a five year $1,000,000 revolving loan with DIS. In addition,
PHS purchased 730,768 shares of common stock from DVI Financial Services, Inc.
for $1,000,000. The combined ownership of 3,478,261 shares makes PHS the single
largest stockholder in DIS with approximately 31% of the outstanding shares
(excluding shares on exercise of the warrant).
PHS is a publicly traded, New York corporation organized in 1985 and principally
engaged in the health care services industry through its wholly-owned
subsidiaries, Radnet Management, Inc. and Future Diagnostics, Inc.. Radnet owns
and operates 17 medical imaging centers and is a joint venture partner in two
other imaging centers. Future Diagnostics, Inc. arranges for the provision of
imaging services throughout California via a network of more than 180 contracted
imaging centers, which, in turn provide quality diagnostic imaging services to
insurance companies, health plans and other payors. Additionally, FDI provides a
broad array of healthcare management services to its contracted centers and to
others including utilization review, physician credentialing and financial
information systems services.
(7) Litigation
The Company is not a party to any previously unreported material legal
proceedings at this time.
. . . . . . .
6
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Background
Diagnostic Imaging Services, Inc. ("DIS" or the "Company") was incorporated in
California as an S- Corporation on June 27, 1986. In 1992, the Company's
consolidated operations consisted of non-invasive diagnostic imaging services,
primarily with the use of ultrasound technology ("Ultrasound Division"). During
1992 and 1993, DIS established one mobile MRI business and was the general
partner of four limited partnerships that provided diagnostic imaging services:
San Gabriel Valley Magnetic Resonance Imaging Center ("SGV"), Tarzana Regional
Medical Center Magnetic Resonance Imaging Center ("Tarzana"), Inland Community
Magnetic Resonance Imaging Center ("Inland") and Temecula Valley Imaging Center
("Temecula"). DIS also provided management services for these entities.
In June 1993, DIS became the general partner and 70% owner of Mission Bay Mobile
MRI Facility, L.P. ("MBM"). In March 1996, MBM's assets and liabilities were
assumed by an unaffiliated third party; the transfer resulted in a gain of
approximately $296,000. In December 1993, Norman Hames, President and Chief
Financial Officer of DIS, assigned his shares in a privately held company,
Diagnostic Imaging Services, Inc. ("Diagnostic") to a newly established
corporation, DIS Imaging, Inc., of which he was the sole shareholder. In January
1994, DIS Imaging, Inc. purchased the shares held by the then majority
shareholder of Diagnostic and all of his interests in certain partnerships which
Diagnostic managed.
During the months of January and February 1994, DIS purchased the remaining
limited partnership units of Tarzana, SGV and Inland. Additionally, in February
1994, DIS purchased the assets of two freestanding multi-modality imaging
centers: Thousand Oaks Medical Diagnostic Imaging ("MDI") and Parkside Radiology
("Parkside"). In April 1994, DIS opened Valley Regional Oncology Center, Ltd.,
L.P. ("VROC"), a cancer care therapy center located in Temecula, California. DIS
is the general partner and 75% owner of VROC. On September 2, 1994, DIS merged
its operations with IPS Health Care, Inc. pursuant to an Agreement and Plan of
Reorganization and an Agreement for the Exchange of Stock and Assets (see
Company's Form 10-K for the year ended December 31, 1994). The Company's name
was then changed to Diagnostic Imaging Services, Inc.. On September 22, 1994,
DIS purchased the assets of North County MRI and North County Mediscan ("North
County" collectively).
In January 1995, DIS assumed ownership of West Los Angeles MRI ("WLA"). In the
first quarter of 1995, Inland was relocated from Montclair to Chino, California
("Chino"). During this time, the center was closed for approximately two months.
In February 1995, DIS purchased the outstanding limited partnership units of
Santa Monica Imaging Center ("SMIC") and became its general partner. In August
1995, DIS purchased the assets of an X-Ray, mammography, and basic ultrasound
center in Murietta, California ("Murietta").
On March 25, 1996, DIS issued 2,747,493 shares of its common stock (with a
five-year warrant to purchase an additional 1,521,739 shares of common stock at
$1.60 per share) to Primedex Health Systems, Inc. ("PHS") for $3,000,000 and the
establishment of a five-year revolving $1,000,000 line of credit for DIS. PHS is
a publicly-traded New York corporation organized in 1985 and is principally
engaged in the healthcare services industry in California. DIS also entered into
two five-year management service agreements with PHS. The first agreement
relates to DIS's overall corporate operations and provides that PHS will provide
for all office maintenance for the DIS facilities, administer its personnel
program, bookkeeping and payroll services as well as certain of its accounting
services. In addition, PHS provides advice to DIS with regard to its
accreditation program and negotiates on behalf of DIS for equipment, supplies,
service and insurance. DIS agreed to pay $45,000 per month for these services.
Additionally, DIS entered into a second agreement which will be phased in on a
center by center basis which provides for PHS to supply transcription services,
patient scheduling, billing and collection services. All costs of equipment and
training are the responsibility of PHS. DIS will pay PHS an amount equal to 10%
of its collections from each covered center for such services.
7
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Discussion of Operations for the Quarter Ended March 31, 1996 vs. March 31, 1995
The following discussion relates to the continuing activities of Diagnostic
Imaging Services, Inc..
Results of Operations
For the three months ended March 31, 1996, the Company had a loss from
operations of $843,213. For the three months ended March 31, 1995, the Company
had operating income of $1,108,209. Net revenue was $5,904,255 and $6,826,756
for the three months ended March 31, 1996 and 1995, respectively. The decrease
in net revenue was primarily attributable to the sale of MBM, the downsizing of
the nuclear medicine business at North County and increased contractual
adjustments on accounts receivable.
Total expenses were $6,747,468 and $5,718,547 for the three months ended March
31, 1996 and 1995, respectively. The primary increase was in general and
administrative expenses which increased from $210,930 to $1,136,245 for the
three months ended March 31, 1995 and 1996, respectively. In the first quarter
of 1996, corporate salaries increased approximately $140,000, medical supplies
increased approximately $215,000 with the loss of rebates and purchase credits,
outside services increased approximately $190,000 for legal and accounting fees,
business property taxes and licenses increased approximately $118,000 and the
Company wrote-off an employment contract for approximately $120,000.
For the three months ended March 31, 1996 and 1995, interest expense was
$968,150 and $867,058, respectively. Interest expense was primarily attributable
to equipment financing and lines of credit charges.
For the three months ended March 31, 1996 and 1995, the Company had a net loss
of $1,747,155 and net income of $217,251, respectively.
Liquidity and Capital Resources
Cash decreased for the three months ended March 31, 1996 and 1995 by $12,295 and
$-0-, respectively.
Cash utilized for investing activities for the three months ended March 31, 1996
and 1995 was $45,116 and $1,624,185 respectively. On February 27, 1995, the
Company acquired substantially all of the partnership interests of Santa Monica
Imaging center for $670,000 in cash plus the assumption of certain liabilities.
In addition, the Company purchased property and equipment and other assets of
approximately $138,000 and $955,000 for the three months ended March 31, 1996
and 1995, respectively.
Cash generated from financing activities for the three months ended March 31,
1996 and 1995 was $341,573 and $934,199, respectively. For the three months
ended March 31, 1996, $4,834,366 was made in debt and lease payments, $1,100,000
was borrowed from related parties, $3,000,000 in proceeds were received from the
sale of common stock to PHS, and the Company had a cash overdraft of
approximately $1,090,000. For the three months ended March 31, 1995, $3,655,845
was made in debt and lease payments, $3,370,139 was advanced from borrowings on
notes payable and $1,134,905 in proceeds were received from the sale of common
stock.
At March 31, 1996, the Company had a net working capital deficit of $14,250,128,
a decrease of $4,358,845 from December 31, 1995. A key reason for the decrease
was the reclassification of the Company's lines of credit as current
liabilities. Approximately $4,500,000 and $8,000,000 was outstanding under the
Company's lines of credit at March 31, 1996 and December 31, 1995, respectively.
In March 1996, DIS reduced its outstanding lines by $3,000,000 with the proceeds
from the sale of common stock to PHS.
8
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Liquidity and Capital Resources (Continued)
In June 1994, the Company entered into a $2,500,000 revolving term note ("A")
agreement with a financial institution, which, at the time, was also a
shareholder of the Company, to replace a previous line of credit agreement dated
January 1994. Revolving term note "A" is collateralized by all eligible accounts
receivable as defined in the agreement. In August 1994, the maximum level of
borrowings was increased to $3,500,000 and in June 1995, increased to
$4,000,000. During 1995 the amount outstanding has, from time to time, exceeded
maximum borrowings available under the agreement. In September 1995, the company
entered into a second $4,000,000 revolving term note ("B") agreement with the
same financial institution. Revolving note "B" is collateralized by
substantially all of the Company's assets.
Under revolving note "A", due June 1997, the Company may borrow approximately
60% of the eligible accounts receivable, to a maximum of $4,000,000. Borrowing
under this line are repayable with interest at an annual rate of the prime rate
plus 6%, payable monthly. At March 31, 1996, $4,000,000 was outstanding under
this line. The revolving term note "B" matures in September 1997 and bears
interest at the prime rate plus 8% for borrowings under this agreement up to
$2,000,000 and plus 10% for any borrowings exceeding $2,000,000 payable monthly.
At March 31, 1996, $523,894 was outstanding under this line. Effective April 1,
1997, the Company's interest rates on its lines of credit were reduced to the
prime rate plus 3-1/2% concurrent with the investment from PHS.
The Company's future payments for debt and equipment under capital leases for
the next five years, assuming lines of credit are paid and not renewed, will be
approximately $14,900,000, $5,790,000, $6,800,000, $4,200,000 and $2,150,000,
respectively. The March 31, 1996 lines of credit balances were approximately
$4,520,000. Interest expense (assuming lines of credit are paid in full) for the
Company for the next five years, included in the above payments, will be
approximately $2,910,000, $1,600,000, $1,100,000, $570,000 and $242,000,
respectively.
9
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DIAGNOSTIC IMAGING SERVICES, INC. AND AFFILIATES
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SIGNATURES
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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.
Diagnostic Imaging Services, Inc. and Affiliates
(Registrant)
august 18, 1997 By: /s/ Norman Hames
------------------
Norman Hames, President, Principal
Executive Officer and Director
10
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations filed
as part of the quarterly report on Form 10-Q and is qualified in its entirety
by reference to such quarterly report on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,698
<SECURITIES> 0
<RECEIVABLES> 6,320,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,794,421
<PP&E> 21,551,328
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,910,464
<CURRENT-LIABILITIES> 21,044,549
<BONDS> 0
0
44,820
<COMMON> 114,639
<OTHER-SE> (128,251)
<TOTAL-LIABILITY-AND-EQUITY> 38,910,464
<SALES> 5,904,255
<TOTAL-REVENUES> 5,904,255
<CGS> 4,756,619
<TOTAL-COSTS> 1,990,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 968,250
<INCOME-PRETAX> 1,747,155
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,747,155
<DISCONTINUED> 64,208
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,747,155
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
