SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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For the quarterly period Commission file number
ended March 31, 1996 0-19941
MedQuist Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2531298
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
Five Greentree Centre, Suite 311, Marlton, NJ 08053
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(Address of principal executive offices) (Zip Code)
(609) 596-8877
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(Registrant's telephone number, including area code)
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(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 preceeding 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 registrant's
classes of common stock, as of the latest practicable date: 2,455,700 shares
of common stock, no par value, as of April 24, 1996.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Due to a reclassification, the Company's balance sheets at December 31,
1995 and March 31, 1996 are hereby amended to delete the line-item titled
"Common Stock to be issued to related parties, 861 shares" and to revise the
line items titled "Subordinated payable to related parties" and "Total
shareholders' equity" and to make related changes to notes 2 and 5. There are no
other changes to the Company's consolidated financial statements or to the notes
thereto contained in the Company's Form 10-Q. Set forth below are the Company's
Consolidated financial statements and the notes thereto as so modified:
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MEQUIST INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
March 31, December 31,
1996 1995
(Unaudited)
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Assets
Current assets:
Cash and cash equivalents $ 1,181 $ 1,812
Accounts receivable, net of allowance
of $257 and $257 11,636 9,769
Prepaid expenses and other current assets 1,717 1,720
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Total current assets 14,534 13,301
Property and equipment:
Property and equipment 10,585 9,587
Less accumulated depreciation (3,449) (2,862)
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Net property and equipment 7,136 6,725
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Other long term assets 250 643
Intangible assets -- net 37,162 37,426
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$59,082 $58,095
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Liabilities and shareholders' equity
Current liabilities:
Current portion of long term debt $ 3,337 $ 2,246
Accounts payable 2,120 1,646
Accrued payroll 666 1,092
Accrued expenses 2,307 3,391
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Total current liabilities 8,430 8,375
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Long-term debt 16,054 15,956
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Subordinated payable to related parties 22,276 21,887
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Other long-term liabilities 691 848
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Deferred income taxes 609 609
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Shareholders' equity:
Class A preferred stock, no par value,
650 shares authorized, none issued -- --
Class B preferred stock, no par value,
400 shares authorized, none issued -- --
Common stock, no par value,
20,000 shares authorized,
2,455 and 2,446 issued and
outstanding 4,695 4,639
Retained earnings 6,327 5,781
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Total shareholders' equity 11,022 10,420
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$59,082 $58,095
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See Accompanying Notes to Consolidated Financial Statements.
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MEDQUIST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Amounts in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
1996 1995
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Revenues $13,978 $10,426
Costs and expenses:
Cost of revenues 10,435 7,676
Selling, general and administrative 888 1,599
Depreciation 587 280
Amortization of intangible assets 278 109
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Total operating expenses 12,188 9,664
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Operating income 1,790 762
Interest expense 865 959
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Income (loss) from continuing operations
before income taxes 925 (197)
Income tax provision (benefit) 379 (82)
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Income from continuing operations $ 546 $ (115)
Discontinued operations, net of income taxes 441
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Net income $ 546 $ 326
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Income Per Share:
Income (loss) from Continuing Operations $ 0.14 $ 0.00
Discontinued Operations 0.00 0.13
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Net income per share $ 0.14 $ 0.13
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Shares used in computing net earnings
per share (Note 3) 4,363 3,130
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MEDQUIST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
THREE MONTHS ENDED
MARCH 31,
1996 1995
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Operating activities:
Net earnings $ 546 $ 326
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation and amortization 875 743
Amortization of debt discount 422 33
Deferred income taxes -- 61
Changes in assets and liabilities:
Accounts receivable, net (1,867) (792)
Prepaid expenses and other current assets 3 (36)
Other assets 393 (12)
Accounts payable 474 (247)
Accrued payroll (426) 10
Accrued expenses (1,084) (137)
Other long term liabilities (157) 339
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Net cash used in operating activities (821) 288
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Investing activities:
Purchases of equipment and leasehold
improvements, net (817) (424)
Other assets (24) (108)
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Net cash (used in) provided by
investing activities (841) (532)
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Financing activities:
Net borrowings on revolving line of credit 2,308 150
Repayments of long-term debt (1,259) (519)
Repayments of obligations under capital leases (74) (61)
Net proceeds from issuance of common stock 56 72
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Net cash used in financing activities 1,031 (358)
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Net decrease in cash and cash equivalents (631) (602)
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Cash and cash equivalents, beginning of period 1,812 807
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Cash and cash equivalents, end of period $1,181 $ 205
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Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest $ 409 $ 839
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Income taxes $ 800 $ 30
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New capital lease arrangements $ 181 $ 329
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See Accompanying Notes to Consolidated Financial Statements.
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MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Three Month Period Ended March 31, 1996
(Unaudited)
Note 1. Basis of Presentation
The information set forth in these statements is unaudited and may be
subject to normal year-end adjustments. The information reflects all
adjustments, consisting only of normal recurring adjustments, that, in the
opinion of management, are necessary to present a fair statement of operations
of MedQuist Inc. (the "Company"), and its consolidated subsidiaries for the
periods indicated. Results of operations for the interim period ended March 31,
1996 are not necessarily indicative of the results of operations for the full
year.
Certain information in footnote disclosures normally included in financial
statements have been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission.
In addition, certain reclassifications have been made to the 1994 financial
statements to conform with current year presentations.
Note 2. Acquisition
Effective May 1, 1994, the Company purchased substantially all of the
assets of Transcriptions, Ltd. and affiliates ("Transcriptions") as well as
assuming certain liabilities, as defined, for $16,930 in cash, including
acquisition costs of $322, plus the payment of Transcriptions interest bearing
debt of $5,816, plus a deferred purchase price based on future operating
results. Effective December 29, 1995, the Company fixed the deferred purchase
price by agreeing to pay the former owners of Transcriptions $18,375 in cash and
861 shares of Common Stock (valued at $4,550 for financial reporting purposes)
on August 31, 1996. The $18,375 of cash consideration has been discounted and
presented as a subordinated payable of $17,337 at December 31, 1995 and the
shares to be issued have been presented as a subordinated payable at
December 31, 1995. Upon fixing the deferred purchase price, the total
purchase price for the Transcriptions acquisition was $44,633. The acquisition
has been accounted for using the purchase method with the purchase price
allocated to the fair value of the acquired assets and liabilities.
In August 1995, the Company entered into a merger agreement with Brawn
Transcriptions, Inc. The agreement provided for net cash consideration of $7 and
23 shares of the Company's Common Stock valued at $185. In November 1995, the
Company entered into an agreement to purchase substantially all of the assets
and certain liabilities of Transcriptions, Ltd. of Michigan, a former
franchisee, for a $827, 9% Subordinated Promissory Note which was due in March
1996. The results of operations of these two acquisitions are included in the
accompanying consolidated statement of operations since the dates of the
acquisition. The purchase price allocation for these acquisitions has not been
finalized as of December 31, 1995. Pro forma information is not presented as
these acquisitions are not material to the Company.
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Note 3. Earnigs Per Share
The Company's total outstanding common stock options and warrants exceed
20% of the total outstanding common stock. Therefore, the income per share
computations are modified, as required under Accounting Principles Board Opinion
No. 15, to assume all outstanding common stock options and warrants were
exercised and the related proceeds were used to repurchase up to 20% of the
total outstanding common stock. Any remaining proceeds are assumed to be used to
reduce borrowings, thereby reducing interest expense, net of tax. Because
interest has not been allocated to discontinued operations, the reduction of
interest expense only impacts income per share from continuing operations.
Note 4. New Accounting Pronouncements
In March 1995, the Financial Accounting standatds Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Asssets to be Disposed Of" (SFAS No. 121).
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill. The Company is required
to adopt SFAS No. 121 effective January 1, 1996. The adoption of SFAS No. 121
did not have any effect on the Company's financial condition or results of
operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. This statement
also applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The Company is required to adopt
SFAS No. 123 effective January 1, 1996. The Company has elected to adopt the
disclosure requirement of this statement.
Note 5. Subordinated Payable to Related Parties
Effective December 29, 1995, the Company and the former owners of
Transcriptions who include the Company's current Chief Executive Officer and
Chief Operating Officer, amended the Transcriptions purchase agreement to fix
the amount of the deferred purchase price (see Note 2). The amendment provides
for the Company to pay $18,375 in cash and issue 861 shares of Common Stock
(valued at $4,550 for financial reporting purposes) on August 31, 1996. The cash
portion of the defered purchase price was discounted using an 8.75% rate and is
included in subordinated payable at December 31, 1995.
The amendment requires the Company to use commercially reasonable efforts
to raise $18,375 by means of a public offering or through borrowings from the
Company's senior lenders. If the Company is unsuccessful raising sufficient
funds by August 31, 1996, the Company is required to deliver by December 31,
1996, any cash it is able to raise by the methods described above, and a
subordinated promissory note for the balance plus any accrued interest. Any such
subordinated promissory note will bear interest at the alternative base rate, as
defined in the Credit Agreement, plus 2.5% and as long as the Company is not in
default under the Credit Agreement, the Company may pay regular quarterly
interest payments on any such subordinated note.
If the subordinated promissory note is issued for a portion of the $18,375,
the Company is then required to use its best efforts to repay such note through
the sale of equity or subordinated debt, at terms
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that are satisfactory to the Company's senior lenders. If repayment still does
not occur, the entire balance and any accrued interest thereon is due 30 days
after all obligations under the Credit Agreement are paid in full.
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SIGNATURE
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.
MedQuist Inc.
Registrant
Date: May 22, 1996
By: /s/ Robert F. Graham
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Robert F. Graham
Chief Financial Officer
