<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 March 31, 1997
[ ] 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 March 31, 1997, there were 9,880,314 issued and 9,647,055 shares
outstanding of Registrant's common stock, $.001 par 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 -March 31, 1997 2-3
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity
March 31, 1997 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis or
Plan of Operation 11-13
PART II. OTHER INFORMATION 14
Signatures 15
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit 1 - Statement re: computation of per share earnings 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
March 31, 1997
ASSETS
------
<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Cash and cash equivalents $ 8,867,991
Short term investments --
Accounts receivable:
Trade, net of allowance for doubtful accounts 10,993,712
Accrued interest and other 563,582
Stockholders 42,005
Employees 225,009
Contract receivables - current 1,431,519
Deferred federal income taxes 57,876
Prepaid expenses and other 2,041,009
-----------
Total Current Assets 24,222,703
-----------
PROPERTY & EQUIPMENT:
Office furniture & equipment 1,370,277
Machinery & service equipment 30,276,036
Leasehold improvements 72,433
Less: Accumulated depreciation and amortization (6,226,588)
-----------
Total Property & Equipment 25,492,158
-----------
OTHER ASSETS:
Deposits and other assets 2,073,033
Deferred acquisition costs 187,196
Contract receivables - long-term 2,036,647
Goodwill 29,134,052
Noncompete agreements 3,746,818
Less: Accumulated amortization (1,679,030)
-----------
Total Other Assets 35,498,716
-----------
TOTAL ASSETS $85,213,577
===========
</TABLE>
2
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C>
Accounts payable $ 2,160,535
Accrued liabilities 6,624,972
Current lease obligations 3,662,277
Current portion of long-term debt 3,278,943
Deferred liability 500,000
Notes payable 2,287,000
Current income taxes 720,780
-----------
Total Current Liabilities 19,234,507
Long-term lease obligations 10,638,533
Long-term debt 11,383,058
Deferred rent 154,314
Deferred liability 1,000,000
Other liabilities 1,393,216
Deferred income taxes 1,057,779
-----------
TOTAL LIABILITIES 44,861,407
-----------
Stockholders' Equity:
Common stock, $.001 par value,
authorized 15,000,000 shares;
issued 9,880,314 shares and
outstanding 9,647,055 shares 9,880
Preferred stock, $.001 par value;
authorized 3,000,000 shares;
issued and outstanding 648,986
shares; $4.5 million liquidation
preference 649
Additional paid-in capital 36,968,515
Retained earnings 3,587,827
Foreign currency translation (3,550)
Stockholder receivable (103,500)
Treasury stock (at cost) (107,651)
-----------
TOTAL STOCKHOLDERS' EQUITY 40,352,170
-----------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $85,213,577
===========
</TABLE>
3
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Gross revenues $10,509,976 $5,221,481
----------- ----------
EXPENSES:
General & administrative 547,274 317,603
Salaries & employee benefits 5,048,212 2,633,481
Legal & professional 51,007 33,787
Rent & utilities 199,272 76,648
Taxes & insurance 106,261 78,209
Technical operating expenses 1,430,087 770,522
Provision for doubtful accounts 101,741 (5,719)
Depreciation and amortization 1,162,132 501,471
----------- ----------
TOTAL OPERATING EXPENSES 8,645,986 4,406,002
----------- ----------
INCOME FROM OPERATIONS 1,863,990 815,479
----------- ----------
OTHER INCOME (EXPENSE):
Other income 73,878 79,352
Interest expense (391,456) (219,455)
----------- ----------
TOTAL OTHER INCOME (EXPENSE) (317,578) (140,103)
----------- ----------
INCOME BEFORE INCOME TAXES 1,546,412 675,376
PROVISION FOR FEDERAL INCOME TAXES 525,780 216,541
----------- ----------
NET INCOME $ 1,020,632 $ 458,835
=========== ==========
EARNINGS PER SHARE :
Primary $ 0.10 $ 0.08
=========== ==========
Fully diluted $ 0.10 $ 0.08
=========== ==========
Weighted average common shares - primary 9,767,989 5,944,142
=========== ==========
Weighted average common shares - fully
diluted 10,475,910 6,075,019
=========== ==========
</TABLE>
4
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Unaudited)
For the Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Additional Foreign
Common Preferred Paid-in Retained Currency Stockholder Treasury
Stock Stock Capital Earnings Translation Receivable Stock Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $8,401 $649 $27,617,425 $2,567,195 $(5,900) $(103,500) $(107,651) $29,976,619
Net income 1,020,632 1,020,632
Warrants exercised 1,392 8,661,177 8,662,569
Foreign currency translation 2,350 2,350
Shares issued in
connection with the
following acquisitions:
UDS 87 689,913 690,000
------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 $9,880 $649 $36,968,515 $3,587,827 $(3,550) $(103,500) $(107,651) $40,352,170
======================================================================================================
</TABLE>
5
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash Flows from Operations:
Net income $ 1,020,632 $ 458,835
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and amortization 1,162,132 501,471
Deferred federal income taxes -- --
Increase(decrease) in deferred rent expense (1,112) 12,064
Foreign currency translation adjustments 2,350 (51)
Increase in trade receivable (265,944) (548,058)
Increase in contracts receivable (411,433) (685,103)
Increase in prepaid expenses (681,413) (194,511)
Increase in other assets (1,106,052) (363,579)
Increase in accounts payable 164,840 334,155
Increase in accrued liabilities 5,088,338 612,062
Increase in income taxes payable 525,780 216,541
Increase in other liabilities 614,770 226,529
----------- ---------
Net Cash Provided by Operations 6,112,888 570,355
----------- ---------
Cash Flows Used in Investing Activities:
Decrease in cash investments 5,000,000 --
Cash payments for the purchase of property (349,786) (92,473)
Acquisition of businesses net of cash acquired (14,357,147) (29,394)
Additional subsidiary acquisition costs (148,952) (26,079)
Decrease in other receivables 137,856 10,284
Increase in employee receivables (39,117) (2,720)
Increase in stockholder receivable (1,552) (1,553)
----------- ---------
Net Cash (used in) provided by Investing
Activities (9,758,698) (141,935)
----------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 8,662,569 --
Net borrowings on line of credit 715,000 210,000
Proceeds from bank loans 5,980,000 --
Principal payments on long-term debt (2,582,160) (303,292)
Principal payments on capital lease obligations (491,155) (210,163)
----------- ---------
Net Cash (Used In) provided by Financing
Activities 12,284,254 (303,455)
----------- ---------
Net increase (decrease) in cash 8,638,444 124,965
Cash balance, beginning of period 229,547 705,179
----------- ---------
Cash balance, end of period $ 8,867,991 $ 830,144
=========== =========
</TABLE>
6
<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 1996 balances have been
reclassified to conform to the 1997 presentation. These financial statements
include the accounts of the Company and its subsidiaries, which are set forth in
the following table.
[FLOW CHART APPEARS HERE]
In addition to the above, DHSMS has one inactive wholly-owned subsidiary,
HomeCare International, Inc. Through its ownership in DIS & DISI, the Company
owns all general partner and limited partner interests in Santa Monica Imaging
Center Limited Partnership.
The Company is a leading outsource provider of medical services to hospitals,
physicians' offices and other healthcare facilities in 20 midwestern, western
and southern states, as well as Mexico City. 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, including radiology
technologists, physical and occupational therapists and other healthcare
professionals, on a temporary basis to perform a variety of functions in
hospitals, long-term care facilities, physicians' offices, clinics and home
healthcare settings.
7
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
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 $14,972,500.
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 the Company were $2,524,500.
The Company realized total net proceeds from the Secondary Offering of
approximately $17,504,500. Such net proceeds have been and will be used for
acquisitions, capital expenditures, working capital and retirement of
outstanding debt.
NOTE 3. WARRANTS
On February 14, 1997, the SEC declared effective the Company's Form S-3
Registration Statement relating to an offering of 1,791,150 Warrant Shares,
which are issuable upon exercise of (i) 1,375,000 Redeemable Common Stock
Purchase Warrants (the "Public Warrants") issued in connection with the
Company's 1993 initial public offering (the "IPO"), (ii) 316,150 underwriter
warrants issued in connection with the IPO (the "Underwriters' Warrants"), and
(iii) 100,000 warrants issued in connection with the Company's private placement
in April 1996 (the "Bridge Warrants") of which 2,500 had been exercised prior to
the effectiveness of the registration. On February 18, 1997, the Company called
all of the Public Warrants for redemption.
The Warrants are exercisable at prices ranging from $7.50 per share to $5.48 per
share. In the three months ended March 31, 1997, an aggregate of 1,353,032
Public Warrants and 40,000 Bridge Warrants were exercised. The Company will not
receive any proceeds from the sale of the Warrant Shares, although the Company
did receive proceeds from the exercise of the Warrants. Net proceeds to the
Company were approximately $8,423,993 from such exercise of Public Warrants and
$250,000 from such exercise of Bridge Warrants. The remaining 21,968 Public
Warrants have been redeemed by the Company for $.05 per Public Warrant.
NOTE 4. ACQUISITIONS
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 common stock of the Company.
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.
8
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Effective October 31, 1996, MDS acquired by merger all of the outstanding
capital stock of Dysrythmic Data, Inc. ("DDI), a Texas-based provider of
ambulatory electrocardiographic monitoring services. The consideration paid for
DDI consisted of 39,521 shares of common stock of the Company.
On November 13, 1996, DHSMS purchased substantially all of the operating assets
(exclusive of cash and mobile X-ray assets) of Advanced Clinical Technology,
Inc. and Horizon/MDS Corporation (collectively "ACT"). The consideration paid
for ACT consisted of approximately $12,620,000 in cash and $4,500,000 in the
form of 642,857 shares of Series A Convertible Redeemable Preferred Stock of the
Company, with an aggregate liquidation preference of $4,500,000. The Company
also assumed approximately $4,727,000 of liabilities.
In January 1997, the Company, through its Heart Institute of Tulsa, Inc.
subsidiary, acquired Ultrasound Diagnostic Services, Ltd. ("UDS"), an Arizona-
based provider of non-invasive diagnostic ultrasound testing services. The
consideration paid for UDS consisted of 86,520 shares of common stock of the
Company and a $400,000 cash payment to the former stockholders of UDS.
Effective March 1, 1997, the Company, through its SoCal Diagnostic Services,
Inc. subsidiary, purchased substantially all of the operating assets of the
ultrasound division of Diagnostic Imaging Services, Inc. ("DIS"). The acquired
business includes a mobile/fixed ultrasound business serving clients in San
Diego, Orange and Los Angeles Counties of California. The purchase price paid
was $6,519,475 (subject to post-closing adjustment), which was paid entirely in
cash. In addition, SoCal assumed capital lease obligations, financing agreements
and other commitments related to the fixed assets purchased in the aggregate
principal amount of $1,519,261.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for the three months ended March 31, 1997 for interest was
approximately $391,000.
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>
<S> <C>
Assets acquired $24,536,692
Liabilities assumed (9,343,352)
Common stock issued (690,000)
-----------
Total cash paid 14,503,340
Fees and expenses -
Less cash acquired (146,192)
-----------
Net cash paid $ 278,222
===========
</TABLE>
The Company also recognized assets and obligations under noncompete agreements
of approximately $2,160,000 for the three months ended March 31, 1997.
For the three months ended March 31, 1997, except in connection with the UDS and
DIS acquisitions, no property and equipment was acquired under capital leases.
9
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
NOTE 6. SUBSEQUENT EVENTS
On April 17, 1997 (effective as of March 1, 1997), the Company, through its
SoCal Diagnostic Services, Inc. subsidiary, acquired all of the issued and
outstanding capital stock of Diagnostic Imaging Services, Inc., a California
corporation ("DIS," and together with its wholly-owned subsidiaries, Diagnostic
Imaging Services, Inc. I and Santa Monica Imaging Center Limited Partnership,
collectively referred to herein as the "DIS Companies"), whose business consists
primarily of the ownership and operation of four (4) hospital-based magnetic
resonance imaging (MRI) centers located in southern California. The purchase
price for the stock of DIS was $9,083,865 (subject to post-closing adjustment),
of which $7,583,865 was paid in cash, and the remaining $1,500,000 of which is
payable either in cash or (at the seller's option) in common stock of the
Company (valued at $7.615 per share) in three equal annual installments of
$500,000 each on April 17 of each of 1998, 1999 and 2000. In addition, the DIS
Companies were acquired subject to capital lease obligations, financing
agreements and other commitments in respect of fixed assets of the business in
the aggregate principal amount of $6,046,755.
The funds utilized to pay the cash portion of the purchase price in this
transaction were obtained through the simultaneous issuance and sale by the
Company to The Prudential Insurance Company of America ("Prudential") of
$20,000,000 in principal amount of senior subordinated promissory notes of the
Company (the "Notes"). The Notes bear interest at a fixed rate of 10.5% per
annum (payable quarterly), and mature as to principal in equal one-third
installments on April 17 of each of 2003, 2004 and 2005. The notes may be
prepaid at the Company's option (subject to certain "make-whole" prepayments
premiums in respect of the remaining stated term of the Notes), and the Company
may be required (at the Noteholders' option) to purchase the Notes in the event
of a change in control of the Company. In addition to application to the
payment of the cash portion of the purchase price for the stock of DIS, the net
proceeds from the issuance and sale of the Notes were utilized to repay
$5,500,000 in borrowings obtained under the Company's senior credit facilities
with Texas Commerce Bank National Association (the "Bank") (utilized in
connection with the Company's March 1997 acquisition of the ultrasound business
of DIS), and for short-term investments pending other use of such net proceeds.
In connection with the issuance of the Notes, the Company paid Prudential a fee
in the amount of $54,590, and issued to Prudential a five-year redeemable common
stock purchase warrant (with piggyback registration rights) for 60,000 shares of
common stock of the Company at an exercise price of $12.25 per share. In
addition, the Company paid to Prudential Securities, Inc. (as placement agent) a
fee in the amount of $690,470.
10
<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
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Gross revenues 100.0% 100.0%
Operating expenses 82.3 84.4
----- -----
Income from operations 17.7 15.6
Interest expense 3.7 4.2
Other expense (income) (0.7) (1.5)
----- -----
Income before provision for
income taxes 14.7 12.9
Income tax expense 5.0 4.2
----- -----
Net income 9.7% 8.8%
===== =====
</TABLE>
Note: Numbers may not add due to rounding.
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Gross revenues increased by 101.3% to approximately $10,510,000 for the three
months ended March 31, 1997 from approximately $5,221,000 for the three months
ended March 31, 1996. Excluding revenues attributable to acquired businesses,
gross revenues increased by 24.1% to approximately $5,625,000 for the three
months ended March 31, 1997 from approximately $4,534,000 for the three months
ended March 31, 1996.
Operating expenses increased by 96.2% to approximately $8,646,000 for the three
months ended March 31, 1997 from approximately $4,406,000 for the three months
ended March 31, 1996, due to the Company's expanded operations through its
acquisitions. As a percentage of gross revenues, total operating expenses
decreased to 82.3% from 84.4%. This reduction is attributable primarily to
efficient utilization of personnel and resources, and absorption of fixed costs
over a broader revenue base, 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 128.6% to approximately $1,864,000 for the
three months ended March 31, 1997 from approximately $815,000 for the three
months ended March 31, 1996. As a percentage of gross revenues, income from
operations increased to 17.7% for the three months ended March 31, 1997 from
15.6% in the comparable prior year period. Interest expense increased by 78.4%
to approximately $391,000 for the three months ended March 31, 1997 from
approximately $219,000 for the three months ended March 31, 1996. This increase
was attributable primarily to additional loan and lease liabilities assumed in
connection with acquisitions in the fourth quarter of 1996.
11
<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.
Net income increased by 122.4% to approximately $1,021,000 for the three months
ended March 31, 1997 from approximately $459,000 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.
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 was utilized to retire a portion of the
indebtedness therefore 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 May 13, 1997, the outstanding principal
borrowings under the Credit Facility were in the amount of $6,121,094, all of
which are deemed to be outstanding under the Acquisition Facility.
On February 14, 1997, the SEC declared effective the Company's Form S-3
Registration Statement relating to an offering of 1,791,150 Warrant Shares,
which are issuable upon exercise of (i) 1,375,000 Redeemable Common Stock
Purchase Warrants (the "Public Warrants") issued in connection with the
Company's 1993 initial public offering (the "IPO"), (ii) 316,150 underwriter
warrants issued in connection with the IPO (the "Underwriters' Warrants"), and
(iii) 100,000 warrants issued in connection with the Company's private placement
in April 1996 (the "Bridge Warrants") of which 2,500 had been exercised prior to
the effectiveness of the registration. On February 18, 1997, the Company called
all of the Public Warrants for redemption.
12
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
The Warrants are exercisable at prices ranging from $7.50 per share to $5.48 per
share. In the three months ended March 31, 1997, an aggregate of 1,353,032
Public Warrants and 40,000 Bridge Warrants were exercised. The Company will not
receive any proceeds from the sale of the Warrant Shares, although the Company
did receive proceeds from the exercise of the Warrants. Net proceeds to the
Company were approximately $8,423,993 from such exercise of Public Warrants and
$250,000 from such exercise of Bridge Warrants. The remaining 21,968 Public
Warrants have been redeemed by the Company for $.05 per Public Warrant.
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.
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.
13
<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) The Company did not file any reports on Form 8-K during the quarterly period
ended March 31, 1997.
14
<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: May 14, 1997
15
<PAGE>
EXHIBIT 1
DIAGNOSTIC HEALTH SERVICES, INC. & SUBSIDIARIES
Earnings Per Share
March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Total Issued Primary Fully Diluted
Date # Shares Wtd. Avg. Wtd. Avg.
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued January 1, 1997 1/1/97 8,400,762 8,400,762
Treasury Shares 1/1/97 (233,259) (233,259)
UDS Acquisition 1/1/97 86,520 86,520
Warrants Exercised (2/3/97 - 3/31/97) 1,393,032 291,208
- ------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 3/31/97 9,647,055 8,545,231 8,545,231
Common Stock Equivalents (See Schedule) 1,222,758 1,222,758
---------- ----------
Primary weighted average shares 9,767,989 9,767,989
==========
Fully diluted:
- -------------
Cardio/HDI contingent 22,222
Reliascan contingent ($1.9375/share) 12,903
Medmark contingent ($1.75/share) 23,810
Convertible Preferred - original issuance 642,857
Convertible Preferred - 12/31/96 dividend 6,129
-------
707,921 707,921
------- ----------
Fully diluted weighted average shares 10,475,910
==========
March 31, 1997 Net Income $1,020,632 $1,020,632
========== ==========
Earnings Per Share $ 0.10 $ 0.10
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Schedule of Common Stock Equivalents
------------------------------------
Closing price at end of period 7.8750 Primary Fully D.
Average share price during period 9.0359 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> <C>
Shares included in Underwriter's Warrants 158,075 5.4800 866,251 95,868 95,868 62,207 62,207
Warrants included in Underwriter's Warrants 158,075 7.5000 1,185,563 131,206 131,206 26,869 26,869
Private Option (Grossman) 49,693 2.2100 109,822 12,154 12,154 37,539 37,539
ISO's Round #1 71,150 2.2100 157,242 17,402 17,402 53,748 53,748
Non-Qual. Round #1 304,935 2.2100 673,906 74,581 74,581 230,354 230,354
Kirker Non-Qual. #1 3,000 2.6250 7,875 872 872 2,128 2,128
Pena Non-Qual. #2 2,000 2.6250 5,250 581 581 1,419 1,419
Nosnik #1 Non-Qual. 8,000 1.8400 14,720 1,629 1,629 6,371 6,371
ISO's Round #2 31,500 0.9375 29,531 3,268 3,268 28,232 28,232
Non-Qual. Round #2 173,000 0.9375 162,188 17,949 17,949 155,051 155,051
Warrants (MDI Purchase) 67,229 3.0000 201,687 22,321 22,321 44,908 44,908
Warrants (Post-MDI) 22,000 3.0000 66,000 7,304 7,304 14,696 14,696
Non-Qual. Round #3 200,000 1.6875 337,500 37,351 37,351 162,649 162,649
ISO's Round #3 60,000 1.9375 116,250 12,865 12,865 47,135 47,135
Non-Qual. Round #4 133,000 1.9375 257,688 28,518 28,518 104,482 104,482
Non-Qual Round #5 28,875 4.2500 122,719 13,581 13,581 15,294 15,294
Non-Qual Round #6 130,000 4.2500 552,500 61,145 61,145 68,855 68,855
Nosnik #2 Non-Qual. 60,000 5.2500 315,000 34,861 34,861 25,139 25,139
Non-Qual Round #7 7,000 5.3750 37,625 4,164 4,164 2,836 2,836
Non-Qual Round #8 48,000 6.2500 300,000 33,201 33,201 14,799 14,799
Bridge Warrants/Bank Warrants 60,000 6.2500 375,000 41,501 41,501 18,499 18,499
ISO's Round #4 61,750 6.2500 385,938 42,712 42,712 19,038 19,038
Non-Qual Round #9 60,000 6.2500 375,000 41,501 41,501 18,499 18,499
Bondurant & Dennis ISOs 5,000 7.5000 37,500 4,150 4,150 850 850
Non-Qual Round #10 345,000 7.4375 2,565,938 283,973 283,973 61,027 61,027
Coito & Olson ISOs 3,000 8.6250 25,875 2,864 2,864 136 136
- -----------------------------------------------------------------------------------------------------------------------
Total Common Stock Equivalents 2,250,282 1,222,758 1,222,758
=======================================================================================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
PERIOD ENDING 3/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000895659
<NAME> DIAGNOSTIC HEALTH SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,867,991
<SECURITIES> 0
<RECEIVABLES> 13,082,993
<ALLOWANCES> (1,258,685)
<INVENTORY> 0
<CURRENT-ASSETS> 24,222,703
<PP&E> 31,718,746
<DEPRECIATION> (6,226,588)
<TOTAL-ASSETS> 85,213,577
<CURRENT-LIABILITIES> 19,234,507
<BONDS> 31,249,811
0
649
<COMMON> 9,880
<OTHER-SE> 40,341,641
<TOTAL-LIABILITY-AND-EQUITY> 85,213,577
<SALES> 10,509,976
<TOTAL-REVENUES> 10,509,976
<CGS> 0
<TOTAL-COSTS> 8,544,245
<OTHER-EXPENSES> (73,878)
<LOSS-PROVISION> 101,741
<INTEREST-EXPENSE> 391,456
<INCOME-PRETAX> 1,546,412
<INCOME-TAX> 525,780
<INCOME-CONTINUING> 1,020,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020,632
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
