<PAGE>
UNITED STATES
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 March 31, 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 0-23140
MAXUM HEALTH CORP.
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(Exact name of registrant as specified in its charter)
Delaware 75-2287276
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14850 Quorum Drive, Suite 400, Dallas, Texas 75240
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(Address of principal executive offices) (Zip Code)
(214) 716-6200
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(Registrant's telephone number including area code)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
2,273,555 shares of Common Stock as of May 14, 1996
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INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995.............................. 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1996 and 1995............. 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1996 and 1995............. 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 10
SIGNATURES.............................................................. 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
MAXUM HEALTH CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,753 $ 1,870
Trade accounts receivable, less allowances of $3,893 and
$3,283, respectively 6,707 6,916
Lease and other receivables 509 490
Other current assets 2,524 1,704
-------- --------
Total current assets 11,493 10,980
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $11,318 and $10,278, respectively 11,853 12,386
INVESTMENTS IN PARTNERSHIPS 390 442
OTHER ASSETS 855 1,071
INTANGIBLE ASSETS 4,077 4,047
-------- --------
TOTAL $ 28,668 $ 28,926
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
- - -------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and other accrued expenses $ 5,180 $ 5,519
Current portion of long-term liabilities 5,981 6,143
Accrued equipment related costs 1,856 1,546
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Total current liabilities 13,017 13,208
LONG-TERM LIABILITIES 20,364 19,723
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock: 10,000,000 shares of $.01 par value
authorized; 3,005,055 shares issued 30 30
Common stock warrant for 700,000 shares 7 7
Additional paid-in capital 19,693 19,693
Accumulated deficit (24,178) (23,470)
Treasury stock at cost, 731,500 shares (265) (265)
-------- --------
Total stockholders' (deficiency) equity (4,713) (4,005)
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TOTAL $ 28,668 $ 28,926
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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MAXUM HEALTH CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except shares and per share data)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
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<S> <C> <C>
REVENUES:
Contract services $ 9,816 $ 9,080
Patient services 2,977 2,364
Other 283 263
---------- ----------
Total revenues 13,076 11,707
COSTS OF OPERATIONS:
Cost of services 7,475 6,864
Provision for bad debts 211 349
Equipment leases 3,515 3,414
Depreciation 1,053 611
---------- ----------
Total costs of operations 12,254 11,238
---------- ----------
GROSS PROFIT 822 469
CORPORATE OVERHEAD 1,042 914
---------- ----------
LOSS FROM COMPANY OPERATIONS (220) (445)
EQUITY IN EARNINGS OF UNCONSOLIDATED
PARTNERSHIPS 80 63
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OPERATING LOSS (140) (382)
INTEREST EXPENSE, Net 568 256
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NET LOSS $ (708) $ (638)
========== ==========
NET LOSS PER COMMON SHARE $ (0.31) $ (0.29)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,273,555 2,221,915
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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MAXUM HEALTH CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (708) $ (638)
Noncash items in net loss:
Total depreciation and amortization 1,279 699
Loss (gain) on sale of assets (30) 1
Operating expenses financed by issuance of debt 1,015 -
Cash provided (used) by changes in operating working capital:
Receivables 208 515
Other current assets (623) (123)
Accounts payable and other accrued expenses (240) (783)
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Net cash provided (used) by operating activities 901 (329)
INVESTING ACTIVITIES:
Additions to property and equipment (466) (94)
Proceeds from the sale of assets 199 240
Partnerships' distributions under equity
in their earnings and minority interest 52 (78)
Other 12 (165)
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Net cash used by investing activities (203) (97)
FINANCING ACTIVITIES:
Payments on debt and capital lease obligations (1,050) (2,470)
Proceeds from issuance of debt 235 -
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Net cash used by financing activities (815) (2,470)
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DECREASE IN CASH AND CASH EQUIVALENTS (117) (2,896)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,870 6,950
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End of period $ 1,753 $ 4,054
======= =======
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 416 $ 275
Additions to property and equipment under capital leases $ 83 $ 3,786
Insurance premiums financed $ 196 $ 246
</TABLE>
See notes to condensed consolidated financial statements.
5
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MAXUM HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- - --------------------------------------------------------------------------------
1. Interim Financial Statements
The condensed consolidated financial statements of Maxum Health Corp. (the
Company or Maxum) included herein have been prepared in accordance with
generally accepted accounting principles for interim financial statements
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the statements for the unaudited interim periods include all
adjustments necessary for fair presentation of results for the period and
all such adjustments are of a normal recurring nature. The results of
operations for the three months ended March 31, 1996, are not necessarily
indicative of the results to be achieved for the full year.
The Company has continued to operate while experiencing negative cash flow
by completing transactions involving the financing of certain lease and
other operating expenses with its primary creditor, and the disposal of
certain assets and partnership interests. In its current financial
condition, the Company does not have the resources to support its existing
debt service and lease requirements and the obligation to settle pending
securities litigation.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The factors noted above may
indicate that the Company will be unable to continue as a going concern for
a reasonable period of time unless certain financial accommodation
transactions with the Company's primary creditor are closed and the
Company's stockholders approve the pending Merger (see Note 2). The
financial statements do not include any adjustments relating the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities should the Company be unable to continue
as a going concern.
These financial statements should be read in conjunction with the audited
annual financial statements and the notes thereto included in the Company's
Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
2. Pending Merger
Maxum is a provider of diagnostic imaging and related management services
through its imaging network in the Central and Eastern United Sates. The
Company delivers its services through a network of Mobile MRI Facilities,
Fixed MRI Facilities and Imaging Centers.
On February 27, 1996, Maxum announced that its Board of Directors has
agreed to merge (the Merger) with American Health Services Corp. (AHSC) to
form a new medical imaging management company called InSight Health
Services Corp. (IHSC). AHSC provides diagnostic imaging and treatment
services including MRI, gamma knife technology and other diagnostic
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equipment to hospitals, physicians and managed care organizations, through
the management and operation of hospital-based centers.
A prerequisite to the consummation of the Merger is a restructuring with
General Electric Company, acting through GE Medical Systems (GE Medical),
the primary creditor of each of Maxum and AHSC, and its affiliate General
Electric Capital Corporation, which would result in the reduction of
certain debt and operating lease obligations and cancellation of certain
stock warrants of Maxum and AHSC in exchange for, among other things, the
issuance to GE Medical, immediately prior to the consummation of the
Merger, of Maxum Series B Preferred Stock and AHSC Series C Preferred
Stock. At the effective time of the Merger, such preferred stock
contemplated to be issued to GE Medical will be converted into the right to
receive such number of shares of IHSC Series A Preferred Stock as will be
convertible into IHSC Common Stock representing approximately 48% of IHSC
Common Stock outstanding at the effective time of the Merger (after giving
effect to such conversion). Under an amended equipment maintenance service
agreement, GE Medical will also be entitled to receive certain supplemental
service fee payments based on future income of IHSC.
Management believes that the Company will be able to meet its long-term
debt, operating lease and other ongoing obligations through the second
quarter of 1996. Without the consummation of the financial accommodations
contemplated to be provided by GE Medical sometime in the second quarter of
1996, the Company may be unable to meet its financial obligations and will
require further modifications to its debt and lease repayment schedules.
Such financial accommodations will be provided by GE Medical once
stockholder approval of the proposed Merger is obtained.
The Merger is subject to certain conditions, including approval by both the
Company's and AHSC's stockholders and the closing of the financial
accommodation transactions with GE Medical. The stockholders' meetings are
expected to be held in the second quarter of 1996, with the consummation of
the Merger to occur promptly thereafter.
In the event that the Merger does not occur by reason of AHSC's or the
Company's breach of its obligations under the merger agreement or the
failure of its stockholders to approve the Merger, such party who breaches
or fails to obtain stockholder approval shall reimburse the other for its
legal costs incurred in connection with the Merger. In connection with the
Merger, the Company has incurred approximately $0.9 million of legal and
professional fees which are included in other current assets at March 31,
1996.
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3. Maxum's Unconsolidated Partnerships
Following is summarized unaudited income statement data pertaining to the
Company's unconsolidated partnerships (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1996 1995
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<S> <C> <C>
Revenues $1,212 $1,047
Expenses 1,012 990
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Net Income $ 200 $ 147
====== ======
</TABLE>
4. Per Share Data
Net loss per common share is computed by dividing net loss applicable to
common stock by the weighted average number of common shares outstanding
during the respective period. Common shares issuable upon exercise of
common stock options and warrants are not included as common stock
equivalents for the three months ended March 31, 1996 and March 31, 1995,
since they are antidilutive (decrease the net loss per share).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In 1994, the Company completed a restructure of its operations and financial
obligations. Restructure activities were primarily focused on lowering equipment
financing and other overhead costs, and identifying opportunities for achieving
operational efficiencies (Maxum Prior Restructure). For an increased
understanding of the following discussion and analysis and "Financial Condition,
Liquidity and Capital Resources" refer to Part II. Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Form 10-K for the year ended December 31, 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The favorable results of the Maxum Prior Restructure have been diminished
by continued deterioration in the industry. Maxum has continued to operate
while experiencing negative cash flow by completing transactions involving the
financing of certain operating expenses by GE Medical, and the disposal of
certain assets and partnership interests. Under its current capital structure,
Maxum expects that operating losses and negative cash flow will continue in
1996. Maxum believes that it will be able to meet its long-term debt, operating
lease and other ongoing obligations through June 30, 1996; however, Maxum
believes that its ability to operate as a going concern beyond June 30, 1996, is
dependent upon the closing of the financial accommodations with GE and the
consummation of the Merger.
Maxum operates in a capital intensive, high fixed cost industry that
requires significant amounts of working capital to fund operations, particularly
the initial start-up and development expenses of new
8
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operations. Revenues and cash flow have been adversely affected by an increased
collection cycle, increased competitive pressures and major restructurings
within the health care industry. This adverse effect on revenues and cash flow
is expected to continue, especially in the mobile MRI business.
Net cash provided (used) by operating activities for the three months ended
March 31, 1996, was $0.9 million, compared with $(0.3) million for the same
period in the prior year. The net $0.9 million provided by operating activities
in 1996 included $1.0 million of operating costs that were financed through the
issuance of long-term debt. During the three months ended March 31, 1995, there
were no similar transactions. Net cash used by investing activities of $0.2
million for the three months ended March 31, 1996, includes $0.5 million of
additions to property and equipment and $0.2 million of proceeds from the sales
of fixed assets. Net cash used by investing activities of $0.1 million for the
three months ended March 31, 1995, includes $0.2 million of proceeds from the
sales of fixed assets. Net cash used by financing activities for the three
months ended March 31, 1996, includes payments on debt and capital lease
obligations of $1.0 million offset by proceeds from the issuance of debt of $0.2
million. Net cash used by financing activities of $2.5 million for the three
months ended March 31, 1995, includes a $1.3 million balloon payment in January
1995 to the Company's primary creditor.
RESULTS OF OPERATIONS
The following tables set forth selected financial data as a percentage of
total revenues for the corresponding periods (amounts in whole percentages):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
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<S> <C> <C>
Total revenues 100 100
Gross profit 6 4
Operating loss (1) (3)
Net loss (5) (5)
</TABLE>
REVENUES: Revenues increased $1.4 million during the three months ended
March 31, 1996, compared with the same period in 1995. The increase in revenues
is due primarily to an increase of $0.7 million in contract services revenue and
an increase of $0.6 million in patient services revenue. The increase in
contract services relates primarily to an increase in fee-for-service revenues
related to the acquisition of approximately 30 customer contracts in April 1995.
The increase in patient services revenue is due primarily to the acquisition
completed in October 1995.
COSTS OF OPERATIONS: Costs of operations increased $1.0. million, or 2%,
for the three months ended March 31, 1996, compared with the same period in
1995. The increase (decrease) in costs of operations for the three months ended
March 31, 1996, compared with the same period in 1995, is comprised of the
following (in millions):
<TABLE>
<CAPTION>
<S> <C>
Cost of services $ 0.6
Provision for bad debts (0.1)
Equipment leases 0.1
Depreciation 0.4
-----
Net increase $ 1.0
=====
</TABLE>
9
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Cost of services for the three months ended March 31, 1996, increased $0.6
million, compared with the prior year due primarily to (i) incremental costs
associated with the Company's aforementioned acquisitions, and (ii) incremental
costs associated with the increase in procedure volumes at one of the Company's
imaging centers. These increases were partially offset by a $0.3 million
sales/use tax refund.
Depreciation increased $0.4 million due primarily to the addition of
several new capital leases during the latter part of 1995 and leasehold
improvements at several of the Company's Fixed MRI Facilities.
CORPORATE OVERHEAD: Corporate overhead increased $0.1 million, or 14%,
during the three months ended March 31, 1996, compared with the same period in
1995. This increase is due primarily to an increase in the amortization of
intangibles related to the acquisitions completed during 1995, partially offset
by a decrease in legal and consulting fees.
NET LOSS PER COMMON SHARE: The net loss per common share increased to
$0.31 for the three months ended March 31, 1996, as compared with $0.29 per
share during the same period in 1995. This increase is the net effect of an 11%
increase in the net loss for the three months ended March 31, 1996, partially
offset by an approximate 2% increase in the weighted average common shares
outstanding.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
In May and June 1993, the Company was named a defendant in two lawsuits filed
on behalf of a purported class of present and former stockholders in the U.S.
District Court for the Southern District of New York (the Court). Also named a
defendants were the underwriting firms that led the Company's initial public
offering in September, 1991, a former stockholder and senior creditor of the
Company, and certain or former members of the Company's Board of Directors
and/or executives. These two actions have been consolidated into one action.
On February 22, 1994, the plaintiffs filed a second consolidated amended
complaint, which superseded the previously filed complaints. The plaintiffs,
who seek to represent a purported class of plaintiffs which acquired the
Company's common stock, have alleged that misstatements and omissions were made
by the Company and the other defendants in connection with the Company's initial
public offering and in subsequent public disclosures from September 19, 1991
until March 1, 1993 when the Company announced that it would write down assets
and establish reserves related to the restructuring of its mobile MRI business.
The plaintiff's seek monetary damages under various provisions of the federal
securities laws and state law in an unspecified amount, as well as other relief.
In March 1994, the Company and all other defendants moved to dismiss the second
amended complaint for, among other things, failure to state a claim. On
November 18, 1994, the Court granted the motions to dismiss and gave plaintiffs
permission to file a third amended complaint.
On January 6, 1995, plaintiffs served their third consolidated amended
complaint. At approximately the same time, plaintiffs agreed to dismiss without
prejudice their claims against the two underwriter defendants. On June 2, 1995,
Maxum and the other defendants moved to dismiss the third amended complaint for
failure to state a claim and failure to plead fraud with particularity. At the
conclusion of a hearing on October 20, 1995, the Court reserved decision on the
motions to dismiss the complaint.
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Although the parties have substantially completed their production of documents
as a part of pretrial discovery in the action, no depositions have been taken.
On February 23, 1996, while the motions to dismiss were still under
consideration by the Court, the defendants, plaintiffs and other interested
parties (acting through their respective counsel) entered into a Stipulation of
Settlement pursuant to which, subject to certain conditions, the foregoing
action will be settled and all claims dismissed on the merits. In anticipation
of this settlement, the Company recorded a charge of $1.5 million in the fourth
quarter of 1995. As a part of the pending Merger discussed in Note 2, the
Company has arranged to borrow approximately $1.9 million to finance the
litigation settlement. This borrowing will be payable over a five year period
beginning in late 1996.
On April 8, 1996, the Court entered an order that, among other things, approved
the proposed settlement on a preliminary basis, set May 27, 1996 as the deadline
for interested persons to object to the settlement and to opt-out of the
settlement, and scheduled a hearing on June 21, 1996 to determine, among other
things, whether to grant final approval to the settlement.
The Stipulation of Settlement will become effective when all the following
conditions have been satisfied or waived: (a) the Company having available to
it financing for its contribution to the settlement, (b) entry of a Final
Judgment of Dismissal by the Court, and (c) entry of a Final Judgment of
Dismissal becoming final.
In connection with the pending Merger, the Stock Acquisition Agreement provides
that GE Medical shall have no obligations thereunder (or under related
documents, including the Restructuring Agreement) unless a final judgment of
dismissal has been entered with respect to the aforementioned stockholders
litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none
(b) Reports on Form 8-K
(1) The Company filed a current report on Form 8-K dated
February 26, 1996 regarding (i) the settlement of securities
litigation and (ii) the Agreement and Plan of Merger with
American Health Services Corp.
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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.
MAXUM HEALTH CORP.
Registrant
DATE: May 14, 1996 /s/ GLENN P. CATO
-------------------------------------
Glenn P. Cato
President, Chief Executive Officer,
Chief Financial Officer and
Secretary
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,753
<SECURITIES> 0
<RECEIVABLES> 11,109
<ALLOWANCES> 3,893
<INVENTORY> 0
<CURRENT-ASSETS> 2,524
<PP&E> 23,171
<DEPRECIATION> 11,318
<TOTAL-ASSETS> 28,668
<CURRENT-LIABILITIES> 13,017
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> (4,750)
<TOTAL-LIABILITY-AND-EQUITY> 28,668
<SALES> 0
<TOTAL-REVENUES> 13,076
<CGS> 0
<TOTAL-COSTS> 12,043
<OTHER-EXPENSES> 962
<LOSS-PROVISION> 211
<INTEREST-EXPENSE> 568
<INCOME-PRETAX> (708)
<INCOME-TAX> 0
<INCOME-CONTINUING> (708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (708)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
