<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
[ ] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to ____
Commission File Number 0-21758
-----------------------------------------------
DIAGNOSTIC HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2960048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2777 Stemmons Freeway, Suite 1525, Dallas, Texas 75207
(Address of principal executive offices, including zip code)
(214)634-0403
(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
----- -----
Applicable only to issuers involved in bankruptcy proceedings
During the past 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
----- -----
As of September 30, 1996, there were 8,297,332 issued and 8,064,073 shares
outstanding of Registrant's common stock, $.001 per value.
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB
INDEX
PART I. Financial Information PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet - September 30, 1996 2-3
Consolidated Statements of Operations
Nine months ended September 30, 1995 and 1996 4
Consolidated Statements of Operations
Three months ended September 30, 1995 and 1996 5
Consolidated Statements of Stockholders' Equity
September 30, 1996 6
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1996 7
Consolidated Statements of Cash Flows
Three months ended September 30, 1995 and 1996 8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis or
Plan of Operation 13-16
PART II. Other Information 17
Signatures 18
Item 6. Exhibits and Reports on Form 8-K 19
Exhibit 1 - Statement re: computation of per share earnings 20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
September 30, 1996
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash and cash equivalents $ 6,583,276
Short term investments 5,000,000
Trade receivables, net 3,988,436
Contract receivables - current 696,737
Deferred federal income taxes 55,023
Prepaid expenses and other 1,527,298
-----------
Total Current Assets 17,850,770
-----------
PROPERTY & EQUIPMENT:
Property and equipment, at cost 13,500,467
Less accumulated depreciation and amortization (4,603,778)
-----------
Total Property & Equipment 8,896,689
-----------
OTHER ASSETS:
Deposits and other assets 1,193,357
Contract receivables - long-term 3,712,045
Goodwill 5,975,893
Noncompete agreements 1,507,473
Less: Accumulated amortization (1,240,799)
-----------
Total Other Assets 11,147,969
-----------
TOTAL ASSETS $37,895,428
===========
</TABLE>
2
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
<S> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 1,056,281
Current lease obligations 1,390,027
Current portion of long-term debt 296,164
Notes payable 620,000
Federal income tax payable 833,555
-----------
Total Current Liabilities 4,196,027
Long-term lease obligations 2,074,585
Long-term debt 2,252,386
Deferred federal income taxes 205,961
Other liabilities 852,624
-----------
TOTAL LIABILITIES 9,581,583
-----------
Stockholders' Equity:
Common stock, $.001 par value, authorized
15,000,000 shares; issued 8,297,332
shares and outstanding 8,064,073 shares 8,297
Additional paid-in capital 26,694,459
Retained earnings 1,828,496
Foreign currency translation adjustments (6,256)
Stockholder receivable (103,500)
Treasury stock (at cost) (107,651)
-----------
TOTAL STOCKHOLDERS' EQUITY 28,313,845
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 37,895,428
============
</TABLE>
3
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Revenues:
Gross revenues $16,747,158 $12,253,045
----------- -----------
Expenses:
General & administrative 925,005 718,819
Salaries & employee benefits 8,264,697 6,616,449
Legal & professional 86,594 204,753
Rent & utilities 267,995 218,675
Taxes & insurance 301,887 347,641
Technical operating expenses 2,315,352 1,593,853
Provision (credit) for doubtful
accounts (1,458) 86,798
Depreciation and amortization 1,639,442 1,118,613
----------- -----------
Total operating expenses 13,799,514 10,905,601
----------- -----------
Income from operations 2,947,644 1,347,444
----------- -----------
Other income (expense):
Other income 246,111 36,933
Interest expense (663,785) (274,979)
----------- -----------
Total other income (expense) (417,674) (238,046)
----------- -----------
INCOME BEFORE INCOME TAXES 2,529,970 1,109,398
Provision for Federal Income Taxes 809,590 138,339
----------- -----------
NET INCOME $ 1,720,380 $ 971,059
=========== ===========
Earnings per share:
Primary $ 0.24 $ 0.18
=========== ===========
Fully diluted $ 0.22 $ 0.18
=========== ===========
Weighted average common shares - primary 7,165,006 5,317,971
=========== ===========
Weighted average common shares -
fully diluted 7,777,781 5,472,478
=========== ===========
</TABLE>
4
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Revenues:
Gross revenues $ 6,173,571 $ 4,602,102
----------- -----------
Expenses:
General & administrative 331,697 263,959
Salaries & employee benefits 2,894,355 2,426,813
Legal & professional 34,959 50,261
Rent & utilities 109,089 84,294
Taxes & insurance 121,919 111,077
Technical operating expenses 885,509 543,011
Provision for doubtful accounts 1,610 31,986
Depreciation and amortization 656,615 439,765
----------- -----------
Total operating expenses 5,035,753 3,951,166
----------- -----------
Income from operations 1,137,818 650,936
----------- -----------
Other income (expense):
Other income 84,840 6,625
Interest expense (142,926) (136,571)
----------- -----------
Total other income (expense) (58,086) (129,946)
----------- -----------
INCOME BEFORE INCOME TAXES 1,079,732 520,990
Provision for Federal Income Taxes 350,314 138,339
----------- -----------
NET INCOME $ 729,418 $ 382,651
=========== ===========
Earnings per share :
Primary $ 0.08 $ 0.07
=========== ===========
Fully diluted $ 0.08 $ 0.07
=========== ===========
Weighted average common shares -
primary 9,072,468 5,348,520
=========== ===========
Weighted average common shares -
fully diluted 9,591,654 5,503,027
=========== ===========
</TABLE>
5
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Additional Foreign Stock
Common Paid-in Retained Currency Subscription Stockholder Treasury
Stock Capital Earnings Translation Receivable Receivable Stock Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $5,206 $ 9,018,442 $ 108,118 ($6,171) ($8,250) ($103,500) ($107,651) $ 8,906,194
Net income 1,720,378 1,720,378
Stock issued - secondary offering 2,955 17,501,725 17,504,680
Foreign currency translation (85) (85)
Shares issued in connection
with the following acquisitions:
NPE/PEDI 86 425,915 426,001
CCI 23 (429,897) (429,874)
Stock options exercised 1 1,468 1,469
Proceeds from stock subscription
receivable 8,250 8,250
Stock issued in payment of debt 26 176,806 176,832
-------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $8,297 $26,694,459 $1,828,496 ($6,256) $ 0 ($103,500) ($107,651) $28,313,845
=================================================================================================
</TABLE>
6
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash Flows from Operations:
Net income $ 1,720,378 $ 971,059
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and amortization 1,639,442 1,118,613
Foreign currency translation (85) (2,459)
(Increase) in trade receivable (920,137) (1,030,594)
(Increase) in contracts receivable (2,516,293) (1,023,504)
(Increase) in prepaid and other assets (859,518) (548,847)
Increase (decrease) in accounts payable
and accrued liabilities (484,650) 828,715
Increase in income taxes payable 809,590 158,381
Increase (decrease) in other liabilities 566,606 (174,011)
----------- -----------
Net Cash Provided by (USED IN) Operations (44,667) 297,353
----------- -----------
Cash Flows FROM Investing Activities:
(Increase) in cash investments (5,000,000) 1,450,100
Cash payments for the purchase of property (659,926) (250,296)
Acquisition of businesses net of cash
acquired (28,141) (248,556)
(Increase) in deposits and other assets (989,753) (133,081)
----------- -----------
Net Cash Provided by (USED IN) Investing
Activities (6,677,820) 818,167
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 17,703,946 1,874
Proceeds from stock subscription receivable 8,250 --
Proceeds from issuance of bridge loans 2,000,000 --
Net borrowings on line of credit (80,000) 646,748
Principal payments on long-term debt (6,101,898) (972,996)
Principal payments on capital lease
obligations (929,714) (464,524)
----------- -----------
Net Cash Provided by (Used IN) Financing
activities 12,600,584 (788,898)
----------- -----------
Net increase (decrease) in cash 5,878,097 326,622
Cash balance, beginning of period 705,179 278,319
----------- -----------
Cash balance, end of period $ 6,583,276 $ 604,941
=========== ===========
</TABLE>
7
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operations:
Net income $ 729,416 $ 382,651
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and amortization 656,616 522,819
Foreign currency translation 11 (982)
(Increase) decrease in trade receivable (311,018) (681,015)
(Increase) in contracts receivable (1,176,134) (336,284)
(Increase) in prepaid and other assets (296,866) (105,593)
Increase (decrease) in accounts payable
and accrued liabilities (159,481) 443,697
Increase in income taxes payable 350,314 158,381
Increase (decrease) in other liabilities 281,003 (22,477)
----------- ---------
Net Cash Provided by (USED IN) Operations 73,861 361,197
----------- ---------
Cash Flows FROM Investing Activities:
Cash payments for the purchase of property (322,267) (11,293)
Decrease in cash investments -- 150,000
Acquisition of businesses net of cash
acquired 86,434 (80,815)
(Increase) in deposits and other assets (734,789) (316,300)
----------- ---------
Net Cash Provided by (USED IN) Investing
Activities (970,622) (258,408)
----------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 2,274,614 937
Net borrowings on line of credit 620,000 175,000
Principal payments on long-term debt (76,969) (255,337)
Principal payments on capital lease
obligations (465,190) (269,479)
----------- ---------
Net Cash Provided by (Used IN) Financing
Activities 2,352,455 (348,879)
----------- ---------
Net increase (decrease) in cash 1,455,694 (246,090)
Cash balance, beginning of period 5,127,582 851,031
----------- ---------
Cash balance, end of period $ 6,583,276 $ 604,941
=========== =========
</TABLE>
8
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
NOTE 1. GENERAL
The unaudited consolidated financial statements included herein for Diagnostic
Health Services, Inc. and subsidiaries ("DHS" or the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and include all adjustments which are, in the opinion of management,
necessary for a fair presentation. Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Certain 1995 balances have been
reclassified to conform to the 1996 presentation. These financial statements
include the accounts of the Company and its subsidiaries, which are set forth in
the following table.
[ORGANIZATION CHART APPEARS HERE]
In addition to the above, DHSMS has one inactive wholly-owned subsidiary,
HomeCare International, Inc.
The Company is a leading outsource provider of medical services to hospitals,
physicians' offices and other healthcare facilities primarily in the Midwest and
South Central United States. The Company provides radiology and cardiology
diagnostic services and equipment, as well as departmental management services
to healthcare facilities on an in-house and shared basis. The Company also
provides skilled allied healthcare personnel on a temporary basis to perform a
variety of functions in hospitals, long-term care facilities, physicians'
offices, clinics and home healthcare settings.
NOTE 2. SECONDARY OFFERING
On June 12, 1996, the Company completed a public offering (the "Secondary
Offering") of 3,000,000 shares of common stock at an offering price to the
public of $6.75 per share. Of the shares sold, 2,555,000 were sold by the
Company, and 445,000 shares were sold by selling stockholders. Net proceeds to
the Company, after incurred expenses, were approximately $14,980,000.
On July 5, 1996, the investment banking firm of Rodman & Renshaw, Inc., as
representative of the several underwriters in the Secondary Offering, exercised
their over-allotment option to purchase from DHS an additional 400,000 shares of
common stock. The additional net proceeds to DHS were $2,524,500.
DHS realized total net proceeds from the Secondary Offering of approximately
$17,504,500. The proceeds have been and will be used for acquisitions, capital
expenditures, working capital and retirement of outstanding debt.
9
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
NOTE 3. ACQUISITIONS
On March 9, 1995, effective as of January 1, 1995, DHSMS (through a new wholly-
owned subsidiary, HDI Acquisition Corp.) acquired the businesses of three San
Antonio, Texas-based companies which are in similar lines of business as the
Company. The acquisitions of Sector-Echos Inc. ("SEI"), Cardio-Graphic
Consultants, Inc. ("CGCI") and Heart Diagnostic Institutes, Inc. ("HDII") were
made for a combination of $352,000 in cash and 84,211 shares of DHS common
stock. The Company acquired net assets of approximately $659,000 including
goodwill of approximately $399,000 in connection with the acquisitions. The
Company plans to merge the acquired businesses into another wholly-owned
subsidiary of DHSMS during 1996.
On July 31, 1995, the Company, through DHSMS' wholly-owned subsidiary,
Specialized Imaging Services Inc. ("SIS"), purchased substantially all of the
operating assets (exclusive of cash and accounts receivable) of the mobile
ultrasound and nuclear imaging division of MICA Imaging, Inc. The purchase
included approximately $5,034,000 of various assets including goodwill of
approximately $2,528,000. The purchase price was approximately $3,746,000 in
cash, and SIS assumed liabilities of approximately $1,288,000.
Simultaneous with the closing of the MICA acquisition, the Company and its
subsidiaries entered into a loan agreement with Texas Commerce Bank National
Association, providing for an acquisition loan in the principal amount of
$3,750,000, a term loan in the principal amount of $1,000,000, and a revolving
credit facility of up to $1,000,000 (or, if less, 75% of the Company's and its
subsidiaries' eligible accounts receivable from time to time). In connection
with the ADI acquisition described in Note 4 below, the Company obtained an
additional $600,000 term loan under the loan agreement. All of these loans
(other than $2,000,000 of term loans, which is under a hedge contract) were
repaid in June 1996 out of the net proceeds of the Secondary Offering.
In January 1996, Mobile Diagnostic Systems, Inc. ("MDS", a wholly-owned
subsidiary of DHSMS) acquired all of the outstanding capital stock of two
affiliated Dallas, Texas-based businesses, Neonatal Pediatric Echocardiography,
Inc. ("NPE") and Pediatric Echocardiagraphic Diagnostic Imaging, Inc. ("PEDI"),
in exchange for an aggregate of 85,200 shares of DHS common stock. The Company
acquired net assets of approximately $426,000 including goodwill of
approximately $248,000 in connection with the acquisitions.
On June 28, 1996, MDS acquired all of the outstanding capital stock of Cardiac
Concepts, Inc. ("CCI"). The purchase price consisted of 22,785 shares of the
Company's common stock, in consideration of which the Company received net
liabilities valued at approximately $430,000. On the date of the acquisition,
the Company also issued 26,861 shares of common stock in payment of
approximately $177,000 of the debt and liabilities of CCI. The acquisition of
CCI has been accounted for under the purchase method of accounting with the
purchase price being allocated to assets and liabilities based upon their fair
market value at the date of acquisition. No goodwill was recognized with this
transaction.
10
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
NOTE 4. POOLING OF INTERESTS
On December 7, 1995, the Company issued 240,000 shares of its common stock in
exchange for all of the outstanding common stock of an S corporation, Advanced
Diagnostic Imaging, Inc. ("ADI"). The transaction has been accounted for as a
pooling of interests and, accordingly, the Company's consolidated financial
statements have been restated to include the accounts and operations of ADI for
all periods presented prior to the consummation of the transactions.
ADI was a Subchapter S corporation for income tax purposes and, therefore, did
not pay federal income taxes. ADI will be included in the Company's federal
income tax return effective November 30, 1995. Deferred income taxes related to
acquired net temporary differences were not material.
As a result of the pooling of interests with ADI, the Company's previously
reported gross revenues and net income for the three months ended September 30,
1995 of $4,288,158 and $336,561, respectively, have been restated to reflect
ADI's adjusted gross revenues and adjusted net income of $313,994 and $46,090,
respectively.
As a result of the pooling of interests with ADI, the Company's previously
reported gross revenues and net income for the nine months ended September 30,
1995 of $11,271,567 and $853,377, respectively, have been restated to reflect
ADI's adjusted gross revenues and adjusted net income of $981,478 and $117,682,
respectively.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for the nine months ended September 30, 1996 for interest was
approximately $664,000.
The Company acquired assets in exchange for the issuance of common stock and the
assumption of various liabilities in connection with the acquired businesses.
Cash and noncash investing and financing activities related to the acquisitions
consisted of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Assets acquired $ 862,436 $ 990,998
Liabilities assumed (273,676) (901,333)
Common stock issued (200,001) 3,873
--------- ---------
Total cash paid 388,759 93,538
Fees and expenses (36,759) (73,031)
Less cash acquired (73,778) (7,034)
--------- ---------
Net cash paid $ 278,222 $ 13,473
========= =========
</TABLE>
The Company also recognized assets and obligations under noncompete agreements
of approximately $184,000 for the nine months ended September 30, 1996.
Property and equipment acquired under capital leases for the nine months ended
September 30, 1996 was approximately $2,392,000.
11
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
NOTE 6. SUBSEQUENT EVENTS
In November 1996, the Company consummated the acquisitions of Dysrythmic Data,
Inc. ("DDI") and the Advanced Clinical Technology, Inc. ultrasound division
("ACT") of Horizon/CMS Healthcare Corporation. The consideration paid for DDI
consisted of 39,521 shares of common stock of the Company. The consideration
paid for ACT consisted of approximately $12,630,000 in cash and $4,500,00 in
the form of 642,857 shares of convertible redeemable Series A Preferred Stock of
the Company. The Company will file a current report on form 8-K with respect to
the ACT acquisition, within the time period prescribed by the applicable rules
of the Securities and Exchange Commission.
12
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
RESULTS OF OPERATIONS
The following table sets forth operating data of the Company as a percentage of
net sales for the periods indicated:
Three Months Ended September 30, 1996 Compared with Three Months Ended September
30, 1995
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues 100.0 100.0% 100.0% 100.0%
Operating expenses 81.6 85.9 82.4 89.0
----- ----- ----- -----
Income from operations 18.4 14.1 17.6 11.0
Interest expense 2.3 3.0 4.0 2.2
Other expense (income) (1.4) (0.1) (1.5) (0.3)
---- ----- ----- -----
Income before provision
for income taxes 19.3 11.3 15.1 9.1
Income tax expense 5.7 3.0 4.8 1.1
----- ----- ----- -----
Net income 13.6 8.3% 10.3% 7.9%
</TABLE>
Note: Numbers may not add due to rounding.
Three Months Ended September 30, 1996 Comared with Three Months Ended September
30, 1995
Gross revenues increased by 34.2% to approximately $6,174,000 for the three
months ended September 30, 1996 from approximately $4,602,000 for the three
months ended September 30, 1995. This increase was due primarily to
approximately $1,265,000 derived from acquired businesses and approximately
$306,000 from an approximate 32.3% increase in revenues from existing and new
customers exclusive of revenues attributable to acquired businesses.
Operating expenses increased by 27.5% to approximately $5,036,000 for the three
months ended September 30, 1996 from approximately $3,951,000 for the three
months ended September 30, 1995, due to the Company's expanded operations. As a
percentage of gross revenues, total operating expenses decreased to 81.6% from
85.9%. This reduction is attributable primarily to efficient utilization of
personnel and resources resulting from the Company's integration of acquired
businesses. The Company has also experienced an increase in the number of in-
house contracts for the provision of radiology and cardiology services. These
contracts typically generate higher profit margins than the other services
provided by the Company.
Income from operations increased by 74.8% to approximately $1,138,000 for the
three months ended September 30, 1996 from approximately $651,000 for the three
months ended September 30, 1995. As a percentage of gross revenues, income from
operations increased to 18.4% for the three months ended September 30, 1996 from
14.1% in the comparable prior year period. Interest expense increased by 4.7% to
approximately $143,000 for the three months ended September 30, 1996 from
approximately
13
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
$137,000 for the three months ended September 30, 1995. This
increase was attributable primarily to additional loan and lease liabilities
assumed in connection with acquisitions in the third and fourth quarters of
1995.
Other income is primarily gain realized upon disposition of equipment at the end
of its lease term, and interest earned on liquid investments.
Net income increased by 90.6% to approximately $729,000 for the three months
ended September 30, 1996 from approximately $383,000 for the comparable prior
year period. This increase is due primarily to increased revenues and continued
consolidation resulting in efficient utilization of personnel and equipment.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Gross revenues increased by 36.7% to approximately $16,747,000 for the nine
months ended September 30, 1996 from approximately $12,253,000 for the nine
months ended September 30, 1995. This increase was due primarily to
approximately $2,921,000 derived from acquired businesses and approximately
$1,573,000 from an approximate 21.7% increase in revenues from existing and new
customers exclusive of revenues attributable to acquired businesses.
Operating expenses increased by 26.5% to approximately $13,800,000 for the nine
months ended September 30, 1996 from approximately $10,906,000 for the nine
months ended September 30, 1995, due to the Company's expanded operations. As a
percentage of gross revenues, total operating expenses decreased to 82.4% from
89.0%. This reduction is attributable primarily to efficient utilization of
personnel and resources resulting from the Company's integration of acquired
businesses. The Company has also experienced an increase in the number of in-
house contracts for the provision of radiology and cardiology services. These
contracts typically generate higher profit margins than the other services
provided by the Company.
Income from operations increased by 118.8% to approximately $2,948,000 for the
nine months ended September 30, 1996 from approximately $1,347,000 for the nine
months ended September 30, 1995. As a percentage of gross revenues, income from
operations increased to 17.6% for the nine months ended September 30, 1996 from
11.0% for the nine months ended September 30, 1995.
Interest expense increased by 141.4% to approximately $664,000 for the nine
months ended September 30, 1996 from approximately $275,000 for the nine months
ended September 30, 1995, which was attributable primarily to additional loan
and lease liabilities assumed in connection with acquisitions in the third and
fourth quarters of 1995.
Other income is primarily gain realized upon disposition of equipment at the end
of its lease term, and interest earned on liquid investments.
The Company's federal income tax net operating loss carryforwards were fully
during 1996, and the Company recorded a provision for federal income taxes of
approximately $810,000 for the nine months ended September 30, 1996.
14
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Net income increased by 77.2% to approximately $1,720,000 for the nine months
ended September 30, 1996 from approximately $971,000 for the nine months ended
September 30, 1995. This increase is due primarily to increased revenues and
continued consolidation resulting in efficient utilization of personnel and
equipment.
LIQUIDITY AND CAPITAL RESOURCES
On June 12, 1996, the Company completed a public offering (the "Secondary
Offering") of 3,000,000 shares of common stock at an offering price to the
public of $6.75 per share. Of the shares sold, 2,555,000 were sold by the
Company, and 445,000 shares were sold by selling stockholders. Net proceeds to
the Company, after incurred expenses, were approximately $14,980,000.
On July 5, 1996, the investment banking firm of Rodman & Renshaw, Inc., as
representative of the several underwriters in the Secondary Offering, exercised
their over-allotment option to purchase from DHS an additional 400,000 shares of
common stock. The additional net proceeds to DHS were $2,524,500.
DHS realized total net proceeds from the Secondary Offering of approximately
$17,504,500. The net proceeds have been and will be used for acquisitions,
capital expenditures, working capital and retirement of outstanding debt,
including approximately $4,827,000 which has been utilized to retire all but
$2,000,000 of the indebtedness previously outstanding under the Company's senior
credit facilities with Texas Commerce Bank National Association (the "Bank"),
and $1,000,000 utilized to retire subordinated promissory notes issued in a
private placement in April 1996.
On July 24, 1996, the Company entered into an amended and increased credit
facility (the "Credit Facility") with the Bank which permits borrowings of up to
$20 million, including up to $17.5 million for acquisitions (the "Acquisition
Facility") and up to $2.5 million for working capital (the "Working Capital
Facility"). The Acquisition Facility will terminate on September 30, 2001 and
the Working Capital Facility will terminate on September 30, 1998. Borrowings
under the Credit Facility are secured by substantially all of the assets of the
Company (including the capital stock of the Company's subsidiaries) and bear
interest at one of two variable rates selected by the Company based upon (i) the
reserve adjusted LIBOR rate plus a margin ranging from 1.75% to 2.5%, or (ii)
the greater of the Bank's prime rate or the federal funds rate plus 0.50%, plus
a margin ranging from 0.25% to 1.00%. The Credit Facility requires ongoing
compliance with certain financial covenants, including a maximum ratio of funded
debt to adjusted earnings. As of November 13, 1996, the outstanding principal
borrowings under the Credit Facility were in the amount of $2,620,000, all of
which were carried forward from the Company's prior credit facility with the
Bank, and are deemed to be outstanding under the Acquisition Facility.
Based on the Company's operating plan, management believes that available
resources and funds generated from operations will be sufficient to meet the
Company's operating requirements and to fund proposed expansion of the Company's
business, through the close of the Company's fiscal year ending December 31,
1997.
15
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
EFFECTS OF INFLATION
Inflation is not a material factor affecting the Company's business. General
operating expenses such as salaries and employee benefits are, however, subject
to normal inflationary pressures.
SEASONALITY
The Company's results of operations, have, in some years, varied significantly
from quarter to quarter, for reasons particular to each quarter. For instance,
hospital admissions and doctor visits (and, therefore, the Company's imaging
revenues) are typically lower during holiday periods, and at other times when
physicians traditionally take their own vacations. Conversely, revenues from
the Company's allied healthcare services business have generally increased in
holiday periods, due to increased demand for temporary personnel when regular
staff is away.
16
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Part II
OTHER INFORMATION
Items 1-5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits to this report:
Exhibit 11: Computation re: Computation of Earnings Per Share
(b) There were no reports on Form 8-K filed during the quarter for which this
report is filed.
17
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
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.
DIAGNOSTIC HEALTH SERVICES, INC.
/s/ MAX W. BATZER
- ---------------------------------------------------
Max W. Batzer
Chairman, Chief Executive Officer and Director
/s/ BRAD A. HUMMEL
- ---------------------------------------------------
Brad A. Hummel
President, Chief Operating Officer,
Principal Financial Officer, Principal
Accounting Officer and Director
/s/ BO W. LYCKE
- ---------------------------------------------------
Bo W. Lycke
Director
Date: November 13, 1996
18
<PAGE>
EXHIBIT 1
---------
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Earnings Per Share
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Total Issued Primary Fully Diluted
Date # Shares Wtd. Avg. Wtd. Avg.
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued January 1, 1996 1/1/96 5,206,361 5,206,361
Treasury shares 1/1/96 (233,259) (233,259)
NPE / PEDI acquisition 1/1/96 85,200 85,200
Secondary offering 6/12/96 2,555,000 1,025,730
Options exercised 6/27/96 125 43
Options exercised 6/27/96 1,000 347
CCI acquisition 6/28/96 22,785 7,817
CCI debt conversion 6/28/96 26,861 9,215
Secondary offering over-allotment 7/5/96 400,000 127,007
- ---------------------------------------------------------------------------------------------------------------------
Shares outstanding 9/30/96 8,064,073 6,228,461 6,228,461
Common Stock Equivalents (See Schedule) 936,545 1,429,554
---------- ----------
Primary weighted average shares 7,165,006 7,658,015
==========
Fully diluted:
Alpha contingent 24,118
Cardio/HDI contingent 22,222
Reliascan contingent ($1.9375/share) 25,806
Medmark contingent ($1.75/share) 47,620
-------
119,766 119,766
------- ----------
Fully diluted weighted average shares 7,777,781
==========
September 30, 1996 Net Income $1,720,380 $1,720,380
========== ==========
Earnings Per Share $ 0.2401 $ 0.2212
========== ==========
<CAPTION>
Schedule of Common Stock Equivalents
------------------------------------
Closing price at end of period 8.3750 Primary Fully D.
Average share price during period 6.4270 Primary Fully D. Net Net
Exercise Assumed Treas. Shs. Treas. Shs. Add'l Add'l
Stock options & warrants: Number Price Proceeds Acquired Acquired Shares Shares
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Public warrants 1,375,000 6.2500 8,593,750 1,337,136 1,026,119 37,864 348,881
Shares included in Underwriter's Warrants 156,646 5.5300 866,252 134,784 103,433 21,862 53,213
Warrants included in Underwriter's Warrants 156,646 7.5000 0 0 0 0 0
Private Option (Grossman) 49,693 2.2100 109,822 17,088 13,113 32,605 36,580
ISO's Round #1 75,216 2.2100 166,227 25,864 19,848 49,352 55,368
Non-Qual. Round #1 304,935 2.2100 673,906 104,856 80,466 200,079 224,469
Kirker Non-Qual. #1 3,000 2.6250 7,875 1,225 940 1,775 2,060
Pena Non-Qual. #2 2,000 2.6250 5,250 817 627 1,183 1,373
Nosnik #1 Non-Qual. 16,000 1.8400 29,440 4,581 3,515 11,419 12,485
ISO's Round #2 32,000 0.9375 30,000 4,668 3,582 27,332 28,418
Non-Qual. Round #2 173,000 0.9375 162,188 25,235 19,366 147,765 153,634
Warrants (MDI Purchase) 75,000 3.0000 225,000 35,009 26,866 39,991 48,134
Warrants (Post-MDI) 22,000 3.0000 66,000 10,269 7,881 11,731 14,119
Non-Qual. Round #3 200,000 1.6875 337,500 52,513 40,299 147,487 159,701
ISO's Round #3 60,750 1.9375 117,703 18,314 14,054 42,436 46,696
Non-Qual. Round #4 133,000 1.9375 257,688 40,095 30,769 92,905 102,231
Non-Qual Round #5 30,875 4.2500 131,219 20,417 15,668 10,458 15,207
Non-Qual Round #6 130,000 4.2500 552,500 85,966 65,970 44,034 64,030
Nosnik #2 Non-Qual. 60,000 5.2500 315,000 49,012 37,612 10,988 22,388
Non-Qual Round #7 7,000 5.3750 37,625 5,854 4,493 1,146 2,507
Non-Qual Round #8 50,000 6.2500 312,500 48,623 37,313 1,377 12,687
Bridge Warrants 100,000 6.2500 625,000 97,246 74,627 2,754 25,373
- ---------------------------------------------------------------------------------------------------------------------
Total Common Stock Equivalents 3,212,761 936,545 1,429,554
=====================================================================================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
QUARTERLY PERIOD ENDING SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 6,583,176
<SECURITIES> 0 5,000,000
<RECEIVABLES> 0 4,089,649
<ALLOWANCES> 0 101,213
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 17,850,770
<PP&E> 0 13,500,467
<DEPRECIATION> 0 4,603,778
<TOTAL-ASSETS> 0 37,895,428
<CURRENT-LIABILITIES> 0 4,196,027
<BONDS> 0 0
0 8,297
0 0
<COMMON> 0 0
<OTHER-SE> 0 28,305,548
<TOTAL-LIABILITY-AND-EQUITY> 0 37,895,428
<SALES> 6,173,571 16,747,158
<TOTAL-REVENUES> 6,173,571 16,747,158
<CGS> 0 0
<TOTAL-COSTS> 5,034,143 13,800,972
<OTHER-EXPENSES> (84,840) (246,111)
<LOSS-PROVISION> 1,610 (1,458)
<INTEREST-EXPENSE> 142,926 663,785
<INCOME-PRETAX> 1,079,732 2,529,970
<INCOME-TAX> 350,314 809,590
<INCOME-CONTINUING> 729,418 1,720,380
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 729,418 1,720,380
<EPS-PRIMARY> .08 .24
<EPS-DILUTED> .08 .22
</TABLE>
