<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 June 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 June 30, 1996, there were 7,897,332 issued and 7,664,073 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 - June 30, 1996 2-3
Consolidated Statements of Operations
Six months ended June 30, 1995 and 1996 4
Consolidated Statements of Operations
Three months ended June 30, 1995 and 1996 5
Consolidated Statements of Stockholders' Equity
June 30, 1996 6
Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1996 7
Consolidated Statements of Cash Flows
Three months ended June 30, 1995 and 1996 8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis or
Plan of Operation 12-15
PART II. Other Information 16
Signatures 17
Item 6. Exhibits and Reports on Form 8-K 18
Exhibit 1 - Statement re: computation of per share earnings 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
June 30, 1996
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash and cash equivalents $10,127,582
Short term investments --
Accounts receivable:
Trade, net of allowance for doubtful
accounts 3,583,630
Accrued interest and other 255,350
Stockholders 37,348
Employees 126,944
Contract receivables - current 681,228
Deferred federal income taxes 55,023
Prepaid expenses and other 810,790
-----------
Total Current Assets 15,677,895
-----------
PROPERTY & EQUIPMENT:
Office furniture & equipment 837,901
Machinery & service equipment 12,051,786
Leasehold improvements 52,712
Less: Accumulated depreciation and amortization (4,293,846)
-----------
Total Property & Equipment 8,648,553
-----------
OTHER ASSETS:
Deposits and other 559,591
Deferred offering/acquisition 120,301
Contract receivables - long-term 2,551,420
Goodwill 5,952,511
Noncompete agreements 1,511,779
Less: Accumulated amortization (1,080,565)
-----------
Total Other Assets 9,615,037
-----------
TOTAL ASSETS $33,941,485
===========
</TABLE>
2
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
<S> <C>
Current Liabilities:
Accounts payable $ 794,178
Accrued liabilities 416,030
Current lease obligations 1,405,105
Current portion of long-term debt 317,538
Federal income tax payable 483,241
-----------
Total Current Liabilities 3,416,092
Long-term lease obligations 2,064,357
Long-term debt 2,307,981
Accrued contract expenses 606,165
Deferred rent 11,151
Deferred federal income taxes 205,961
-----------
TOTAL LIABILITIES 8,611,707
-----------
Stockholders' Equity:
Common stock, $.001 par value, authorized
15,000,000 shares; issued 7,897,332
shares and outstanding 7,664,073 shares 7,897
Additional paid-in capital 24,441,210
Retained earnings 1,099,080
Foreign currency translation adjustments (6,267)
Stock subscription receivable (991)
Stockholder receivable (103,500)
Treasury stock (at cost) (107,651)
-----------
TOTAL STOCKHOLDERS' EQUITY 25,329,778
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $33,941,485
===========
</TABLE>
3
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Revenues:
Gross revenues $7,650,943 $10,573,587
---------- -----------
Expenses:
General & administrative 454,860 593,308
Salaries & employee benefits 4,189,636 5,370,342
Legal & professional 154,492 51,635
Rent & utilities 134,381 158,906
Taxes & insurance 236,564 179,967
Technical operating expenses 1,050,842 1,429,844
Provision (credit) for doubtful accounts 54,812 (3,068)
Depreciation and amortization 678,848 982,827
---------- -----------
Total operating expenses 6,954,435 8,763,761
---------- -----------
Income from operations 696,508 1,809,826
---------- -----------
Other income (expense):
Other income 30,308 161,271
Interest expense (138,408) (520,859)
---------- -----------
Total other income (expense) (108,100) (359,588)
---------- -----------
INCOME BEFORE INCOME TAXES 588,408 1,450,238
Provision for Federal Income Taxes -- 459,276
---------- -----------
NET INCOME $ 588,408 $ 990,962
========== ===========
Earnings per share :
Primary $ 0.12 $ 0.16
========== ===========
Fully diluted $ 0.11 $ 0.15
========== ===========
Weighted average common shares - primary 5,073,695 6,197,175
========== ===========
Weighted average common shares - fully diluted 5,218,681 6,480,446
========== ===========
</TABLE>
4
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenues:
Gross revenues $3,975,487 $5,352,106
---------- ----------
Expenses:
General & administrative 254,942 275,705
Salaries & employee benefits 2,169,835 2,736,861
Legal & professional 103,765 17,848
Rent & utilities 62,511 82,258
Taxes & insurance 127,220 101,759
Technical operating expenses 503,521 659,322
Provision for doubtful accounts 33,944 2,651
Depreciation and amortization 335,150 481,355
---------- ----------
Total operating expenses 3,590,888 4,357,759
---------- ----------
Income from operations 384,599 994,347
---------- ----------
Other income (expense):
Other income 17,970 81,919
Interest expense (71,370) (301,404)
---------- ----------
Total other income (expense) (53,400) (219,485)
---------- ----------
INCOME BEFORE INCOME TAXES 331,199 774,862
Provision for Federal Income Taxes -- 242,735
---------- ----------
NET INCOME $ 331,199 $ 532,127
========== ==========
Earnings per share :
Primary $ 0.07 $ 0.08
========== ==========
Fully diluted $ 0.06 $ 0.08
========== ==========
Weighted average common shares - primary 5,079,822 6,551,889
========== ==========
Weighted average common shares - fully diluted 5,220,940 6,733,704
========== ==========
</TABLE>
***
5
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Additional Foreign Stock
Common Paid-in Accumulated Currency Subscription Stockholder Treasury
Stock Capital Deficit 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 990,962 990,962
Stock issued - secondary offering 2,555 15,248,476 15,251,031
Foreign currency translation (96) (96)
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 7,259 7,259
Stock issued in payment of Debt 26 176,806 176,832
------------------------------------------------------------------------------------------------
Balance, June 30, 1996 $7,897 $24,441,210 $1,099,080 ($6,267) ($991) ($103,500) ($107,651) $25,329,778
================================================================================================
</TABLE>
6
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Cash Flows from Operations:
Net income $ 588,408 $ 990,962
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and amortization 595,794 982,826
Deferred rent expense (3,373) 11,151
Foreign currency translation (1,477) (96)
Increase in trade receivable (349,579) (609,119)
Increase in contracts receivable (687,220) (1,340,159)
Increase in prepaid expenses (319,450) (411,102)
Decrease (increase) in other assets 188,887 (192,186)
Increase (decrease) in accounts payable 156,810 (533,075)
Increase (decrease) in accrued liabilities 228,208 208,897
Increase in income taxes payable -- 459,276
Increase (decrease) in other liabilities (148,161) 274,452
---------- -----------
Net Cash Provided by (Used In) Operations 248,847 (158,173)
---------- -----------
Cash Flows From Investing Activities:
Decrease in cash investments 1,300,100 --
Cash payments for the purchase of property (239,003) (337,659)
Acquisition of businesses net of cash
acquired (167,741) (114,575)
Additional subsidiary acquisition costs (5,668) (62,778)
Decrease (increase) in other receivables (109,447) (78,296)
(Increase) in employee receivables (11,769) (70,149)
(Increase) in stockholder receivable (2,588) (3,105)
---------- -----------
Net Cash Provided by (Used In) Investing
Activities 763,884 (666,562)
---------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 937 15,429,332
Proceeds from stock subscription receivable -- 7,259
Proceeds from issuance of bridge loans -- 2,000,000
Net borrowings on line of credit 471,748 (700,000)
Principal payments on long-term debt (717,659) (6,024,929)
Principal payments on capital lease
obligations (195,045) (464,524)
---------- -----------
Net Cash Provided by (Used In) Financing
Activities (440,019) 10,247,138
---------- -----------
Net increase (decrease) in cash 572,712 9,422,403
Cash balance, beginning of period 278,319 705,179
----------- -----------
Cash balance, end of period $ 851,031 $10,127,582
========== ===========
</TABLE>
7
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1996
--------- -----------
<S> <C> <C>
Cash Flows from Operations:
Net income $ 331,199 $ 532,127
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and amortization 252,096 481,355
Deferred rent expense (1,686) (913)
Foreign currency translation (136) (45)
Increase (decrease) in trade receivable 1,592 (61,061)
Increase in contracts receivable (343,651) (655,056)
Increase in prepaid expenses (173,192) (216,591)
Decrease (increase) in other assets (76,179) 171,393
Increase (decrease) in accounts payable 67,812 (867,230)
Increase (decrease) in accrued liabilities 127,539 (403,165)
Increase in income taxes payable -- 242,735
Increase (decrease) in other liabilities (142,500) 47,923
--------- -----------
Net Cash Provided by (Used In) Operations 42,894 (728,528)
--------- -----------
Cash Flows From Investing Activities:
Cash payments for the purchase of
property (212,023) (245,186)
Acquisition of businesses net of cash
acquired 110,481 (85,181)
Additional subsidiary acquisition costs 34,989 (36,699)
Decrease (increase) in other receivables (147,729) (88,580)
(Increase) decrease in employee
receivables 3,082 (67,429)
(Increase) in stockholder receivable (1,035) (1,552)
--------- -----------
Net Cash Provided by (Used In) Investing
Activities (212,235) (524,627)
--------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock -- 15,429,332
Proceeds from stock subscription
receivable -- 7,259
Proceeds from issuance of bridge loans -- 2,000,000
Net borrowings on line of credit 630,000 (910,000)
Principal payments on long-term debt (434,555) (5,721,637)
Principal payments on capital lease
obligations (115,310) (254,361)
--------- -----------
Net Cash Provided by (Used In) Financing
Activities 80,135 10,550,593
--------- -----------
Net Increase (Decrease) in Cash (89,206) 9,297,438
Cash Balance, Beginning of Period 940,237 830,144
--------- -----------
Cash Balance, End of Period $ 851,031 $10,127,582
========= ===========
</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.
[ORGANIZATIONAL 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 shareholders. Net proceeds to
the Company, after incurred expenses, were approximately $15,251,000.
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
$17,775,500. 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 of 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 $429,874. 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 taxable 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 June 30, 1995
of $3,618,778 and $287,864, respectively, have been restated to reflect ADI's
adjusted gross revenues and adjusted net income of $356,709 and $43,335,
respectively.
As a result of the pooling of interests with ADI, the Company's previously
reported gross revenues and net income for the six months ended June 30, 1995 of
$6,983,409 and $516,816, respectively, have been restated to reflect ADI's
adjusted gross revenues and adjusted net income of $667,534 and $71,592,
respectively.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for the six months ended June 30, 1996 for interest was approximately
$604,000.
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
HDI NPE/PEDI
------------ -----------
<S> <C> <C>
Assets acquired $862,436 $549,855
Liabilities assumed (273,676) (51,500)
Common stock issued (200,001) (426,001)
------------ -----------
Total cash paid 388,759 72,354
Fees and expenses (36,759) (36,177)
Less cash acquired (73,778) (6,784)
------------ -----------
Net cash paid $278,222 $29,393
============ ===========
</TABLE>
The Company also recognized assets and obligations under noncompete agreements
of approximately $184,000 for the six months ended June 30, 1996.
Property and equipment acquired under capital leases for the six months ended
June 30, 1996 was approximately $1,932,000.
11
<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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses 90.3 81.4 90.9 82.9
------- ------- ------- -------
Income from operations 9.7 18.6 9.1 17.1
Interest expense 1.8 5.6 1.8 4.9
Other expense (income) (0.5) (1.5) (0.4) (1.5)
------- ------- ------- -------
Income before provision for income taxes 8.3 14.5 7.7 13.7
Income tax expense 0.0 4.5 0.0 4.3
------- ------- ------- -------
Net income 8.3 % 9.9 % 7.7 % 9.4 %
======= ======= ======= =======
Note: Numbers may not add due to rounding.
</TABLE>
Three Months Ended June 30, 1996 Compared with Three Months Ended June 30, 1995
Gross revenues increased by 34.6% to approximately $5,352,000 for the three
months ended June 30, 1996 from approximately $3,975,000 for the three months
ended June 30, 1995. This increase was due primarily to approximately $1,248,000
derived from acquired businesses and approximately $129,000 from an approximate
10.3% increase in revenues from existing and new customers exclusive of revenues
attributable to acquired businesses.
Operating expenses increased by 21.4% to approximately $4,358,000 for the three
months ended June 30, 1996 from approximately $3,591,000 for the three months
ended June 30, 1995, due to the Company's expanded operations. As a percentage
of gross revenues, total operating expenses decreased to 81.4% from 90.3%. 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 158.5% to approximately $994,000 for the
three months ended June 30, 1996 from approximately $385,000 for the three
months ended June 30, 1995. As a percentage of gross revenues, income from
operations increased to 18.6% for the three months ended June 30, 1996 from 9.7%
in the comparable prior year period.
Interest expense increased by 322.3% to approximately $301,000 for the three
months ended June 30, 1996 from approximately $71,000 for the three months ended
June 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.
12
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
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
utilized subsequent to the second quarter of 1995, and the Company recorded a
provision for federal income taxes of approximately $243,000 for the three
months ended June 30, 1996.
Net income increased by 60.7% to approximately $532,000 for the three months
ended June 30, 1996 from approximately $331,000 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.
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995
Gross revenues increased by 38.2% to approximately $10,574,000 for the six
months ended June 30, 1996 from approximately $7,651,000 for the six months
ended June 30, 1995. This increase was due primarily to approximately
$2,506,000 derived from acquired businesses and approximately $417,000 from an
approximate 16.6% increase in revenues from existing and new customers exclusive
of revenues attributable to acquired businesses.
Operating expenses increased by 26.0% to approximately $8,764,000 for the six
months ended June 30, 1996 from approximately $6,954,000 for the six months
ended June 30, 1995, due to the Company's expanded operations. As a percentage
of gross revenues, total operating expenses decreased to 82.9% from 90.9%. 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 159.8% to approximately $1,810,000 for the
six months ended June 30, 1996 from approximately $697,000 for the six months
ended June 30, 1995. As a percentage of gross revenues, income from operations
increased to 17.1% for the six months ended June 30, 1996 from 9.1% for the six
months ended June 30, 1995.
Interest expense increased by 276.3% to approximately $521,000 for the six
months ended June 30, 1996 from approximately $138,000 for the six months ended
June 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
utilized subsequent to the second quarter of 1995, and the Company recorded a
provision for federal income taxes of approximately $459,000 for the six months
ended June 30, 1996.
13
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Net income increased by 68.4% to approximately $991,000 for the six months ended
June 30, 1996 from approximately $588,000 for the six months ended June 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 shareholders. Net proceeds to
the Company, after incurred expenses, were approximately $15,251,000.
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
$17,775,500. 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 June 30, 2001 and the
Working Capital Facility will terminate on June 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 July 24, 1996, the outstanding principal
borrowings under the Credit Facility were in the amount of $2,000,000, 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,
1996.
14
<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.
15
<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 1: 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.
16
<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: July 31, 1996
17
<PAGE>
EXHIBIT 1
---------
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
18
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Earnings Per Share
June 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 2,555,000 252,692
Options Exercised 6/27/96 125 2
Options Exercised 6/27/96 1,000 16
CCI Acquisition 6/28/96 22,785 250
CCI Debt Conversion 6/28/96 26,861 295
- -------------------------------------------------------------------------------------------------------------------
Shares Outstanding 6/30/96 7,664,073 5,311,557 5,311,557
Common Stock Equivalents (See Schedule) 885,618 1,038,012
----------- -----------
Primary weighted average shares 6,197,175 6,349,569
==========
Fully diluted:
Alpha contingent 24,118
Cardio/HDI contingent 33,333
Reliascan contingent ($1.9375/share) 25,806
Medmark contingent ($1.75/share) 47,620
--------
130,877 130,877
-------- -----------
Fully diluted weighted average shares 6,480,446
===========
June 30, 1996 Net Income $ 990,962 $ 990,962
========== ===========
Earnings Per Share $0.1599 $0.1529
========== ===========
Schedule of Common Stock Equivalents
------------------------------------
Closing price at end of period 6.7500 Primary Fully D.
Average share price during period 6.2762 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
- ------------------------------------------- ----------------------------------------------------------------------
Public warrants 1,375,000 6.2500 8,593,750 1,369,264 1,273,148 5,736 101,852
Shares included in Underwriter's Warrants 156,646 5.5300 866,252 138,022 128,334 18,624 28,312
Warrants included in Underwriter's Warrants 156,646 7.5000 0 0 0 0 0
Private Option (Grossman) 49,693 2.2100 109,822 17,498 16,270 32,195 33,423
ISO's Round #1 75,216 2.2100 166,227 26,485 24,626 48,731 50,590
Non-Qual. Round #1 304,935 2.2100 673,906 107,375 99,838 197,560 205,097
Kirker Non-Qual. #1 3,000 2.6250 7,875 1,255 1,167 1,745 1,833
Pena Non-Qual. #2 2,000 2.6250 5,250 836 778 1,164 1,222
Nosnik #1 Non-Qual. 16,000 1.8400 29,440 4,691 4,361 11,309 11,639
ISO's Round #2 32,000 0.9375 30,000 4,780 4,444 27,220 27,556
Non-Qual. Round #2 173,000 0.9375 162,188 25,842 24,028 147,158 148,972
Warrants (MDI Purchase) 75,000 3.0000 225,000 35,850 33,333 39,150 41,667
Warrants (Post-MDI) 22,000 3.0000 66,000 10,516 9,778 11,484 12,222
Non-Qual. Round #3 200,000 1.6875 337,500 53,775 50,000 146,225 150,000
ISO's Round #3 60,750 1.9375 117,703 18,754 17,438 41,996 43,313
Non-Qual. Round #4 133,000 1.9375 257,688 41,058 38,176 91,942 94,824
Non-Qual Round #5 30,875 4.2500 131,219 20,907 19,440 9,968 11,435
Non-Qual Round #6 130,000 4.2500 552,500 88,031 81,852 41,969 48,148
Nosnik #2 Non-Qual. 60,000 5.2500 315,000 50,190 46,667 9,810 13,333
Non-Qual Round #7 7,000 5.3750 37,625 5,995 5,574 1,005 1,426
Non-Qual Round #8 50,500 6.2500 315,625 50,289 46,759 211 3,741
Bridge Warrants 100,000 6.2500 625,000 99,583 92,593 417 7,407
- -------------------------------------------------------------------------------------------------------------------
Total Common Stock Equivalents 3,213,261 885,618 1,038,012
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
PERIOD ENDED 6/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,127,582
<SECURITIES> 0
<RECEIVABLES> 3,810,887
<ALLOWANCES> (227,257)
<INVENTORY> 0
<CURRENT-ASSETS> 15,677,895
<PP&E> 12,942,399
<DEPRECIATION> (4,293,846)
<TOTAL-ASSETS> 33,941,485
<CURRENT-LIABILITIES> 3,416,092
<BONDS> 2,307,981
0
0
<COMMON> 7,897
<OTHER-SE> 25,321,881
<TOTAL-LIABILITY-AND-EQUITY> 33,941,485
<SALES> 10,573,587
<TOTAL-REVENUES> 10,573,587
<CGS> 0
<TOTAL-COSTS> 8,763,761
<OTHER-EXPENSES> 359,588
<LOSS-PROVISION> (3,068)
<INTEREST-EXPENSE> 520,859
<INCOME-PRETAX> 1,450,238
<INCOME-TAX> 459,276
<INCOME-CONTINUING> 990,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 990,962
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
