<PAGE>
FORM 10-Q/A
(Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 No.: 0-19897
SMT HEALTH SERVICES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1672183
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10521 PERRY HIGHWAY, WEXFORD, PENNSYLVANIA 15090
(Address of principal executive offices)
412-933-3300
(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:
At June 11, 1996, 3,087,225 shares of Common Stock, $0.01 par value of the
registrant were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SMT Health Services Inc. and Subsidiaries
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS:
Cash and cash equivalents - non-restricted $ 1,863,207 $ 2,341,519
Cash and cash equivalents - restricted (Note 4) 1,270,000 1,600,000
Accounts receivable - no allowance for doubtful
accounts 1,401,026 1,059,567
Accounts receivable, other, net of allowance for doubtful
accounts of $20,000 at December 31, 1995 -- 74,455
Notes receivable - current portion 48,843 47,760
Receivable from the sale of leases secured by equipment
- current portion 353,806 342,789
Other current assets 218,589 175,506
----------- -----------
Total current assets 5,155,471 5,641,596
----------- ----------
PROPERTY AND EQUIPMENT:
Equipment 196,534 174,556
Furniture and fixtures 60,874 59,712
Vehicles 125,103 125,103
Leasehold improvements 29,245 27,915
Leased medical equipment 24,892,383 22,167,551
----------- -----------
Total property and equipment 25,304,139 22,554,837
Less accumulated depreciation and amortization (6,474,301) (6,613,759)
----------- -----------
Property and equipment, net 18,829,838 15,941,078
----------- -----------
OTHER ASSETS:
Notes receivable - noncurrent 39,616 52,240
Receivable from the sale of leases secured by equipment
- noncurrent 785,899 878,590
Contract and license acquisition costs, net of
accumulated amortization of $816,000 and
$788,000, respectively 694,304 109,260
Deposits and other assets 402,745 506,041
Deferred income taxes, net of valuation allowance
of $40,000 and $103,000, respectively 49,000 219,000
----------- -----------
Total other assets 1,971,564 1,765,131
----------- -----------
TOTAL ASSETS $25,956,873 $23,347,805
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Balance Sheets (unaudited) (continued)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 317,552 $ 270,277
Accrued wages and related taxes 8,248 57,823
Current portion of long-term debt and capital
lease obligations 4,859,527 4,380,930
Other current liabilities 578,800 527,217
----------- -----------
Total current liabilities 5,764,127 5,236,247
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS -
less current portion 14,333,612 12,709,905
----------- -----------
Total liabilities 20,097,739 17,946,152
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; authorized
10,000,000 shares; issued and outstanding
2,654,400 26,544 26,544
Cumulative Convertible Preferred Stock; $0.01 par value;
authorized 994,600 shares; no shares issued and
outstanding -- --
Additional paid-in capital 6,636,070 6,636,070
Accumulated deficit (803,480) (1,260,961)
----------- -----------
Total Stockholders' equity 5,859,134 5,401,653
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,956,873 $23,347,805
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
REVENUES:
Service revenue $4,128,035 $3,644,765
Interest income 53,166 18,810
---------- ----------
Total revenues 4,181,201 3,663,575
---------- ----------
COSTS AND EXPENSES:
Operating expenses - third parties 1,365,973 1,288,235
Operating expenses - lease expenses - related parties -- 78,400
Depreciation and amortization 989,174 936,510
Selling, general and administrative 682,266 564,559
Interest - third parties 457,307 351,634
Interest - related parties -- 86,538
---------- ----------
Total costs and expenses 3,494,720 3,305,876
---------- ----------
Income before income taxes and minority interests 686,481 357,699
Minority interests in earnings of subsidiaries (Note 7) -- 27,091
---------- ----------
Income before income taxes 686,481 330,608
Income taxes 229,000 89,000
---------- ----------
Net income from continuing operations 457,481 241,608
---------- ----------
Discontinued operations:
Loss on disposal of discontinued operations, net of tax
benefit of $102,000 in 1995 -- (198,000)
Extraordinary item, debt forgiveness, net of income tax
expense of $102,000 -- 198,000
---------- ----------
-- --
---------- ----------
Net Income $ 457,481 $ 241,608
========== ==========
Earnings per Common Share:
Continuing Operations $ .14 $ .10
Discontinued Operations -- --
---------- ----------
Earnings Per Common Share $ .14 $ .10
========== ==========
Weighted Average Shares outstanding 2,654,400 2,528,400
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 457,481 $ 241,608
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 989,174 936,510
Minority interests in subsidiaries -- 27,091
Negative amortization on capital lease obligations -- 5,521
Deferred income taxes 170,000 62,000
Other -- 10,467
Changes in assets and liabilities of continuing
operations:
Accounts and notes receivable (255,463) (346,450)
Other current assets (43,083) (30,405)
Accounts payable and other 98,858 97,825
Accrued wages and related taxes (49,575) 47,370
---------- ----------
NET CASH PROVIDED BY CONTINUING OPERATING
ACTIVITIES 1,367,392 1,051,537
---------- ----------
NET CASH USED IN DISCONTINUED OPERATING ACTIVITIES -- (27,051)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,367,392 $1,024,486
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (634,603) (83,198)
Construction of leasehold improvements (1,330) (4,078)
Payment for purchase of acquired entity (642,840) --
Net cash restricted for equipment financing purposes 330,000 (1,131,500)
Other 107,978 (24,393)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (840,795) (1,243,169)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under loan agreements and capital leases:
Continuing operations (1,004,909) (929,259)
Discontinued operations -- (13,716)
Other -- (4,527)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (1,004,909) (947,502)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (478,312) (1,166,185)
CASH AND CASH EQUIVALENTS - (unrestricted)
Beginning of period 2,341,519 1,848,504
---------- ----------
CASH AND CASH EQUIVALENTS - (unrestricted)
End of period $1,863,207 $ 682,319
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - BASIS OF PRESENTATION
SMT Health Services Inc. and its wholly owned subsidiaries (the "Company") are
engaged primarily in providing medical diagnostic imaging services to
hospitals, physicians and patients. The Company, through its subsidiaries,
operates fourteen mobile Magnetic Resonance Imaging (MRI) Units ("MRI Units")
in Pennsylvania, West Virginia, North Carolina, Virginia, Kentucky and Ohio.
The Company's Common Stock and Warrants currently trade on the National
Association of Securities Dealers, Inc. Automated Quotations Systems (NASDAQ)
National Market System under the symbols "SHED" and "SHEDW", respectively.
The unaudited consolidated financial statements as of and for the three month
periods ended March 31, 1996 and 1995 include the accounts of the Company and
its majority and wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements included herein have been
prepared by management, in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures which are normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted in accordance with SEC informational requirements.
The financial statements reflect normal recurring accounting adjustments
which, in the opinion of management, are necessary for a fair presentation of
the financial position and results of operations for the interim period. The
results of operations for the three month period ended March 31, 1996 are not
necessarily indicative of the results for the entire current fiscal year
ending December 31, 1996. The consolidated financial statements included
herein should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended December 31, 1995 which is on file at the Securities and Exchange
Commission.
Certain amounts in the March 31, 1995 Statements of Operations and Cash Flows
have been reclassified to conform with the March 31, 1996 presentation.
NOTE 2 - NET EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
The net earnings per common and common share equivalent are calculated using
the weighted average common and common share equivalents outstanding during
the year, except where anti-dilutive. Common share equivalents include shares
issuable upon the exercise of stock options, rights and warrants less the
number of shares assumed purchased with the proceeds available from the
assumed exercise of the options, rights and warrants.
-6-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
MARCH 31, 1996
NOTE 2 - NET EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT (continued)
The Treasury Stock Method of reflecting use of proceeds from options and
warrants may not adequately reflect potential dilution if options and warrants
to acquire a substantial number of Common Shares (greater than 20% of the
number of Common Shares outstanding for the period for which the computation
is being made) are outstanding. In such instances, the Modified Treasury
Stock Method must be utilized.
The Company's options and warrants to acquire Common Shares exceed 20% and
accordingly, the Treasury Stock Method has been modified in determining the
dilutive effect of the options and warrants on earnings per share data.
Fully diluted earnings per common share are anti-dilutive and, accordingly,
are not presented.
NOTE 3 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The Company is engaged primarily in providing mobile MRI services to small-to-
medium-sized hospitals in Pennsylvania, West Virginia, North Carolina,
Virginia, Kentucky and Ohio.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain Significant Estimates: The Company operates mobile MRI units which
are capital intensive and subject to changes in technology. The Company
primarily leases such equipment over a 48 to 60 month period and depreciates
the equipment over the respective lease period to an estimated residual value
which typically approximates 20% of the original cost of the equipment. The
useful lives and residual values estimated by management are considered
significant estimates. During 1994 and 1995, the Company upgraded its fleet
of mobile MRI units to newer state-of-the-art technology. Management does not
currently anticipate significant technological advances which could
significantly affect its estimates.
-7-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
MARCH 31, 1996
NOTE 3 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)
The Company is not dependent on any one customer or geographic region as a
source of its revenues. However, the Company utilizes the services of Hospital
Shares Services to process approximately 35% of its billings and collections.
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Capital lease and loan obligations $19,193,139 $17,090,835
Less current portion 4,859,527 4,380,930
----------- -----------
$14,333,612 $12,709,905
=========== ===========
</TABLE>
The total cost and accumulated amortization of property securing capital lease
and loan obligations at March 31, 1996 were approximately $24,895,000 and
$6,247,000, respectively. Interest rates under the capital leases and loan
obligations range from 8.5% to 13.5%.
In February and March 1995, the Company refinanced four Mobile Units to more
favorable lease terms and completed the Company's current lease refinance
program.
The long-term debt and capital lease obligations balance includes approximately
$1.1 million of capital lease obligations due to third parties related to the
equipment at the Auburn Regional Center for Cancer Care and Airport Regional
Imaging Center, which the Company had treated as discontinued operations and
sold in October 1994 and June 1995, respectively. Accordingly, the Company has
recorded an offsetting receivable for the lease receivables due from the
purchaser of the centers. Such lease receivables are secured by the equipment
and accounts receivable of the centers.
In November 1992, the Company issued a letter-of-credit in the amount of
$198,500 pursuant to a lease transaction related to the Airport Regional Imaging
Center. In exchange for restructuring the terms of the debt of this Center, the
Company increased the outstanding letter-of-credit to an aggregate $400,000.
In November 1994, the Company issued a letter-of-credit in the amount of
$270,000 related to the purchase and financing of a new Mobile Unit. Such
letter-of-credit expires at various times beginning in 1997.
-8-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
MARCH 31, 1996
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Continued)
In relation to the refinancing of the Mobile Units in February and March 1995,
the Company issued two letters-of-credit in the aggregate amount of $930,000.
In February 1996, the lessor holding one of the letters-of-credit totaling
$330,000 allowed the letter-of-credit to expire. The remaining letter-of-credit
is reviewable annually with no definitive termination.
The Company must maintain a cash balance on deposit with the bank which issued
the letters-of-credit equal to the outstanding letters-of-credit.
In February 1995, the Company purchased an eighteen-month-old Siemens 1.0 Tesla
Impact Mobile Unit for approximately $1.2 million. The Company financed the
purchase of this unit under a 48 month dollar-out lease requiring monthly
payments of approximately $31,000.
In June 1995, the Company upgraded one of its .5 Tesla General Electric Signas
to a 1.0 Tesla Signa for approximately $1.9 million. The Company financed the
purchase of this unit with a 60 month dollar-out capital lease requiring monthly
payments of approximately $41,000.
In September 1995, the Company purchased a new unit for approximately $1.9
million. The Company financed the purchase of this new unit with a 60 month
loan requiring monthly payments of approximately $40,000.
The Company upgraded one of its .5 Tesla Signas to a 1.0 Tesla Horizon unit.
The new unit was financed at a net total cost of approximately $2.0 million and
was delivered in late February 1996. The Company financed the purchase of this
new unit with a 60 month dollar-out lease requiring monthly payments of
approximately $44,000.
The Company contracted with several new hospital clients and purchased a new
Siemens 1.0 Tesla Impact unit which began service in mid-February 1996. The
cost of this new unit approximated $1.9 million. The Company financed the
purchase of this new unit with a 60 month loan requiring monthly payments of
approximately $35,000.
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109. Deferred income taxes are provided to account for
temporary differences between financial statement accounting and income tax
reporting and relate principally to differences in reporting for diagnostic
medical equipment, depreciation, accrued expenses and net operating loss
carryforwards.
-9-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
MARCH 31, 1996
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
The total amount of interest payments during the three months ended March 31,
1996 and 1995 were approximately $471,000 and $427,000, respectively. In
addition, income tax payments for the three month period ended March 31, 1996
and 1995 were approximately $56,000 and $18,000, respectively.
NOTE 7 - SALE OF PARTNERSHIP INTERESTS
On June 30, 1995, in conjunction with the sale of the Airport Center which had
been treated as a discontinued operation, the Company sold its majority
ownership and general partner rights in four cardiac care partnerships for a
total sale price of $300,000 comprised of $200,000 in cash and a $100,000,
thirty-month note. The Company recognized a pre-tax gain on this sale of
$48,219. The partnerships, which constituted approximately seven percent of the
Company's revenues, had total assets of approximately $1.4 million, comprised
primarily of diagnostic equipment and accounts receivable, and total liabilities
of approximately $1.2 million comprised primarily of capital lease obligations
associated with the diagnostic equipment.
NOTE 8 - LITIGATION
The Company has been named as a defendant, along with the hospital which
contracts for the Company's MRI services, in a claim filed by a woman who
alleges to have incurred partial paralysis as a result of being mishandled
during an MRI procedure. The claim has been filed for $6.0 million in damages.
The claim is in the early discovery stages. The Company does not believe that
it has been negligent in any manner and intends to vigorously defend the claim.
The Company has approximately $2.0 million of insurance related to this matter.
Management does not believe the outcome of this matter will result in a material
adverse effect on its operations or financial condition.
NOTE 9 - ACQUISITION
On March 21, 1996, the Company purchased certain assets of a mobile provider
which operated mobile units in the state of North Carolina (the "Seller"). The
purchase price approximated $600,000 in cash [net of negotiated trade-in value
of approximately $500,000 (which approximated the purchase price of the units
acquired) for two of the Seller's mobile MRI units] in exchange for MRI Programs
including Certificate of Need licenses or exemptions and certain customer
service contracts. The Company traded-in and upgraded one of the purchased
units to newer technology in April 1996 and intends to trade-in and upgrade the
second unit during the second quarter of 1996. The transaction increased the
Company's mobile MRI fleet to 14 units.
NOTE 10 - SUBSEQUENT EVENT
During May and June 1996, stock options covering 432,825 shares of Common Stock
were exercised pursuant to the Company's 1991 Employee Stock Option Plan and
1991 Director Stock Option Plan. The Company received approximately $864,000 as
a result of such stock option exercises.
-10-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The discussion that follows should be read in conjunction with the accompanying
unaudited Consolidated Financial Statements and Notes thereto of SMT Health
Services Inc. and Subsidiaries.
Results of Operations
The following table sets forth for the periods indicated the percentages which
the items in the Statement of Operations bear to revenues and the dollar
increase (decrease) of such items as compared to the corresponding period in the
prior year.
<TABLE>
<CAPTION>
Increase
(Decrease)
Percentage of Revenue Prior Year
--------------------------------------
Three Three
Months Ended Months Ended
--------------------------------------
<S> <C> <C> <C>
3/31/96 3/31/95 3/31/96
========================================================================================
Revenues 100% 100% $518,000
- - ----------------------------------------------------------------------------------------
Cost & Expenses:
- - ----------------------------------------------------------------------------------------
Operating 33% 37% (1,000)
- - ----------------------------------------------------------------------------------------
Depreciation & Amortization 24% 26% 53,000
- - ----------------------------------------------------------------------------------------
S, G & A 16% 15% 118,000
- - ----------------------------------------------------------------------------------------
Interest 11% 12% 19,000
- - ----------------------------------------------------------------------------------------
Total Costs and Expenses 84% 90% 189,000
- - ----------------------------------------------------------------------------------------
Income Before Taxes and Minority Interests 16% 10% 329,000
- - ----------------------------------------------------------------------------------------
Minority Interests -- 1% (27,000)
- - ----------------------------------------------------------------------------------------
Income Before Taxes 16% 9% 356,000
- - ----------------------------------------------------------------------------------------
Income Taxes 5% 2% 140,000
- - ----------------------------------------------------------------------------------------
Net Income 11% 7% $216,000
- - ----------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
Three Months Ended March 31, 1996
Compared To The Three Months Ended March 31, 1995
Revenues for the first quarter of 1996 increased $518,000, or 14%, to
$4,181,000 compared to $3,663,000 for the first quarter of 1995. Excluding
revenues of $268,000 for the first quarter of 1995 related to the Company's
cardiac partnerships, which were sold on June 30, 1995, mobile MRI revenues
increased approximately 23%. This increase in revenue was primarily attributed
to increased utilization of the Company's mobile MRI units, as well as the fact
that the Company purchased new units in September 1995 and February 1996.
Revenues of units in operation for both comparable periods increased 6% during
the first quarter of 1996 compared to the first quarter of 1995 primarily as a
result of increased utilization.
Operating expenses decreased $1,000 to $1,366,000 during the first quarter of
1996 compared to $1,367,000 during the first quarter of 1995. Operating
expenses of units in operation for both comparable periods decreased
approximately 6% during the first quarter of 1996 compared to the same quarter
of 1995.
Depreciation and amortization expense increased $53,000, or 6%, in the first
quarter of 1996 to $989,000 from $936,000 during the first quarter of 1995.
This increase was primarily due to depreciation expense associated with the
Company's new units purchased in September 1995 and February 1996.
Selling, general and administrative costs in the first quarter of 1996
increased $118,000 to $682,000, or 16% of revenues, compared to $564,000, or 15%
of revenues during the first quarter of 1995. The increase is primarily due to
a $50,000 prepayment of a consulting fee related to the termination of a
consulting arrangement and increased compensation costs related to the Company's
management bonus plan.
Interest expense for the first quarter of 1996 increased $19,000 to $457,000
compared to $438,000 for the first quarter of 1995 primarily as a result of the
two new units purchased in September 1995 and February 1996.
The Company reported net income of $457,000, or $.14 per share, during the
first quarter of 1996 versus $242,000, or $.10 per share, during the first
quarter of 1995. Income tax expense for the first quarter of 1996 was $229,000
as compared to income tax expense of $89,000 for the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1996, the Company experienced a net
increase of $1,367,000 in cash from operations as compared to a net increase of
$1,052,000 during the three months ended March 31, 1995. This increase is
primarily due to increased income.
-12-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company used cash in investing activities during the three months ended
March 31, 1996 of $841,000, primarily related to the purchase of various medical
equipment as well as the purchase of a mobile MRI company in March 1996 (see
Note 9 of the Company's unaudited consolidated financial statements included in
Item 1, which information is incorporated herein by reference) partially offset
by a reduction in the amount of restricted cash related to equipment financing.
The Company used cash in financing activities during the first quarter of 1996
of approximately $1,005,000 primarily related to principal payments under loan
agreements and capital leases. The Company incurred a net decrease in cash and
cash equivalents of approximately $478,000 in the first quarter of 1996 and
maintained an unrestricted cash balance at March 31, 1996 of approximately
$1,863,000. The Company also maintained a restricted cash balance of $1,270,000
at March 31, 1996.
The Company's trade accounts receivable balance increased by $341,000 to
$1,401,000 at March 31, 1996 primarily due to higher service revenues in March
1996. In the experience of the Company, average accounts receivable collections
typically do not exceed 40 days, as there are no billings which relate to the
Company's core mobile MRI business subject to traditional third-party payors,
and the accounts receivable balance turned over approximately three times during
the three months ended March 31, 1996. Approximately 35% of the Company's
billings and collections are processed through Hospital Shared Services ("HSS"),
a representative of certain hospitals. As a fee for these services, HSS retains
approximately 2.5% of gross billings to these hospitals.
At March 31, 1996, the Company had a working capital deficit of $609,000.
However, $4,860,000 of the $5,764,000 of current liabilities relate to the
current portion of capital leases and long-term debt which will be due over the
next twelve months, as opposed to current assets of $5,155,000 which are highly
liquid and turn over frequently. The Company has been able to meet all past
debt service obligations, currently is able to meet all such obligations, and
anticipates it will continue to meet such obligations. As in the past,
management anticipates that such obligations will be funded by the revenues
generated by the Mobile Units and equipment.
To date, the Company has financed its equipment acquisitions and working
capital requirements with loans and leases, from internal cash flow and capital
contributions. As of March 31, 1996, the Company was a party to leases and
loans covering all of its mobile MRI units. The aggregate outstanding principal
balance of all such leases and loans was approximately $19,193,000 at March 31,
1996. The amount of such leases and other debt obligations due during the next
twelve months is approximately $4,860,000.
-13-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
On June 30, 1995, the Company sold its majority ownership and general partner
rights in four cardiac care partnerships for a total sale price of $300,000
comprised of $200,000 in cash and a $100,000 thirty-month note. The Company
recognized a pre-tax gain on this sale of $48,219. The partnerships, which
constituted approximately seven percent of the Company's revenues, had total
assets of approximately $1.4 million, comprised primarily of diagnostic
equipment and accounts receivable, and total liabilities of approximately $1.2
million comprised primarily of capital lease obligations associated with the
diagnostic equipment.
In February 1995, the Company purchased an eighteen-month-old Siemens 1.0 Tesla
Impact Mobile Unit for approximately $1.2 million. The Company financed the
purchase of this unit under a 48 month dollar-out lease requiring monthly
payments of approximately $31,000.
In June 1995, the Company upgraded one of its .5 Tesla General Electric Signas
to a 1.0 Tesla Signa for approximately $1.9 million. The Company financed the
purchase of this unit with a 60 month dollar-out capital lease requiring monthly
payments of approximately $41,000.
In September 1995, the Company purchased a new unit for approximately $1.9
million. The Company financed the purchase of this new unit with a 60 month
loan requiring monthly payments of approximately $40,000.
The Company upgraded one of its .5 Tesla Signas to a 1.0 Tesla Horizon unit.
The new unit was financed at a net total cost of approximately $2.0 million and
was delivered in late February 1996. The Company financed the purchase of this
new unit with a 60 month dollar-out lease requiring monthly payments of
approximately $44,000.
The Company contracted with several new hospital clients and purchased a new
Siemens 1.0 Tesla Impact unit which began service in mid-February 1996. The
cost of this new unit approximated $1.9 million. The Company financed the
purchase of this new unit with a 60 month loan requiring monthly payments of
approximately $35,000.
Prior to July 1, 1995, the Company subleased certain truck cabs from Shared
Mobile Enterprises ("SME"), which, in turn, leased such truck cabs from an
independent third-party leasing company. Effective July 1, 1995, SME released
the Company from its obligations under ten long-term subleases in exchange for
the issuance to SME of 120,000 unregistered Common Shares valued at $3 per
share, the weighted average closing price for the stock for the prior thirty
trading days. The Company received an opinion from an independent financial
advisor that the transaction was fair to the Company and its shareholders. At
the same time, with the concurrence of the third-party leasing company, the
Company assumed SME's obligations under its original lease and modified that
lease by (i) extending the lease term by one additional
-14-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
year and (ii) adding one additional truck cab to the schedule of leased
property with a corresponding increase in base rental payments. The $360,000
value of the shares represents the present value of the excess of the sublease
payments over the original lease payments. The Company has capitalized the
$360,000 and is amortizing this prepaid rent over a period which approximates
the lease term. SME was one hundred percent beneficially owned by certain
officers/directors and a former director/consultant of the Company who own
approximately 24% of the Company's outstanding Common Shares.
The Company has outstanding a letter-of-credit totaling $400,000 related to
equipment financing at a freestanding diagnostic imaging center which it sold in
June 1995 and on which it remains obligated (see Note 4 of the Company's
unaudited consolidated financial statements included in Item 1, which
information is incorporated herein by reference).
In November 1994, the Company issued a letter-of-credit in the amount of
$270,000 related to the purchase and financing of a new Mobile Unit. The
letter-of-credit is scheduled to be reduced at various times beginning in 1997.
In relation to the refinancing of the four Mobile Units in February and March
1995, the Company issued two letters-of-credit in the aggregate amount of
$930,000. In February 1996, the lessor holding one of the letters-of-credit
totaling $330,000 allowed the letter-of-credit to expire. The remaining letter-
of-credit is reviewable annually with no definitive termination.
On March 21, 1996, the Company purchased certain assets of a mobile provider
which operated mobile units in the state of North Carolina (the "Seller"). The
purchase price approximated $600,000 in cash [net of negotiated trade-in value
of approximately $500,000 (which approximated the purchase price of the units
acquired) for two of the Seller's mobile MRI units] in exchange for MRI Programs
including Certificate of Need licenses or exemptions and certain customer
service contracts. The Company traded-in and upgraded one of the purchased
units to newer technology in April 1996 and intends to trade-in and upgrade the
second unit during the second quarter of 1996. The transaction increased the
Company's mobile MRI fleet to 14 units.
The Company has been named as a defendant, along with the hospital which
contracts for the Company's MRI services, in a claim filed by a woman who
alleges to have incurred partial paralysis as a result of being mishandled
during an MRI procedure. The claim has been filed for $6.0 million in damages.
The claim is in the early discovery stages. The Company does not believe that
it has been negligent in any manner and intends to vigorously defend the claim.
The Company has approximately $2.0 million of insurance related to this matter.
Management does not believe the outcome of this matter will result in a material
adverse effect on its operations or financial condition.
During May and June 1996, stock options covering 432,825 shares of Common Stock
were exercised pursuant to the Company's 1991 Employee Stock Option Plan and the
1991 Director Stock Option Plan. The Company received approximately $864,000 as
a result of such stock option exercises. The Company has or intends to use
these proceeds for downpayments on new MRI units and general working capital
needs.
-15-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company from time to time is presented with and investigates possible
transactions related to the acquisition and commencement of operations of
additional Mobile Units and the Company expects to continue such investigations
and, to the extent that terms favorable to the Company can be negotiated, to
consummate such transactions.
-16-
<PAGE>
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.01 Earnings Per Share Computation.........Previously filed herewith.
27.01 Financial Data Schedule................Filed herewith.
99.01 Press release dated April 2, 1996......Previously filed herewith.
99.02 Press release dated April 23, 1996.....Previously filed herewith.
(b) Report on Form 8-K.
The Company has not filed any reports on Form 8-K during the quarter
ended March 31, 1996.
-17-
<PAGE>
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
understanding thereunto duly authorized.
SMT Health Services Inc.
(Registrant)
Date: June 14, 1996 By: /s/ David A. Zynn
--------------------------------
David A. Zynn
Chief Financial Officer, Treasurer
and Principal Accounting Officer
-18-
<PAGE>
EXHIBIT INDEX
Exhibit No. Reference
- - ---------- ---------
11.01 Earnings Per Share Computation.................Previously filed herewith.
27.01 Financial Data Schedule........................Filed herewith.
99.01 Press release dated April 2, 1996..............Previously filed herewith.
99.02 Press release dated April 23, 1996.............Previously filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1996 10Q AMENDMENT NO.1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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<SECURITIES> 0
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