SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from____________________to_____________________
Commission File No. 1-13392
US DIAGNOSTIC INC.
(Exact name of registrant specified in its charter)
DELAWARE 11-3164389
- --------------------------------------------- ---------------------------------
(State or Other Jurisdiction of Incorporation (IRS Employer Identification
or Organization) number)
777 S. Flagler Drive
Suite 1201 East
West Palm Beach, Florida 33401
(Address of Principal Executive Offices)
(561) 832-0006
(Issuer's Telephone Number, Including Area Code)
(Not Applicable)
(Former Name, Former Address and Former Fiscal Year,
if changed Since Last Report)
Indicate by check mark whether the issuer (I) filed all
reports required to be filed by section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the past 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______
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 13, 1997:
----- ----------------------------
Common Stock, $.01 par value 22,771,817 shares
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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MARCH 31, DECEMBER 31,
1997 1996
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ASSETS:
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 10,455,206 $ 18,640,729
Accounts Receivable, Net of Allowance for Bad Debts of
$11,183,415 and $9,670,150, respectively 50,628,350 38,265,792
Other Receivables, Net of Allowance for Bad Debts of $923,000 10,411,054 10,298,799
Investment in Marketable Equity Securities, ($6,425,291 at cost) -- 7,280,000
Prepaid Expenses and Other Current Assets 8,959,478 5,319,800
---------- ----------
TOTAL CURRENT ASSETS 80,454,088 79,805,120
---------- ----------
Property and Equipment, Net of Accumulated Depreciation and Amortization
of $15,949,897 and $11,824,836, respectively 91,445,446 79,945,956
Intangible Assets, Net of Accumulated Amortization of $7,323,769 and
$4,875,131, respectively 178,119,040 163,674,805
Other Assets 5,411,571 5,397,906
Investment in Unconsolidated Subsidiaries 9,928,472 10,199,596
------------ ------------
TOTAL ASSETS $365,358,617 $339,023,383
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See Notes to Condensed Consolidated Financial Statements.
2
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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MARCH 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 22,131,475 $ 21,054,303
Short-Term Borrowings 30,250,000 750,000
Current Portion of Long-Term Debt 31,159,847 27,335,986
Obligations Under Capital Leases - Current Portion 9,966,462 10,291,327
Other Current Liabilities 4,305,861 5,607,734
Purchase Price Due on Companies Acquired 1,862,373 8,337,831
------------- ------------
TOTAL CURRENT LIABILITIES 99,676,018 73,377,181
Subordinated Convertible Debentures 56,066,386 56,006,652
Long-Term Debt - Net of Current Portion 42,740,296 42,358,837
Obligations Under Capital Leases - Net of Current Portion 15,335,189 18,704,608
Other Liabilities 302,000 229,837
Deferred Income Taxes 7,122,948 6,684,378
------------- ------------
TOTAL LIABILITIES 221,242,837 197,361,493
------------- ------------
MINORITY INTEREST 8,606,069 8,149,805
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COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 6)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value;
5,000,000 Shares Authorized, None Issued -- --
Common Stock $.01 Par Value; 50,000,000 Shares
Authorized, and 22,597,364 Shares and 23,749,217 Shares
Issued and Outstanding, respectively 225,973 237,492
Additional Paid-in Capital 142,414,258 141,941,301
Unrealized Gain on Marketable Equity Securities, Net of Tax -- 525,646
Deferred Stock Based Compensation (5,329,112) (5,357,184)
Accumulated Deficit (1,801,408) (3,835,170)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 135,509,711 133,512,085
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 365,358,617 $339,023,383
============= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
1997 1996
---- ----
<S> <C> <C>
REVENUE $ 52,484,937 $12,568,109
------------ -----------
OPERATING EXPENSES:
General and Administrative 35,715,512 7,165,933
Bad Debt Expense 1,513,265 494,534
Depreciation and Amortization 6,774,151 1,864,543
Stock Based Compensation 439,260 312,730
Loss on Settlement of Claim -- 125,000
Compensation to Terminated Consultant -- 21,875
------------ -----------
TOTAL OPERATING EXPENSES 44,442,188 9,984,615
------------ -----------
INCOME FROM OPERATIONS 8,042,749 2,583,494
------------ -----------
OTHER INCOME (EXPENSE):
Interest Expense (3,872,768) (692,989)
Interest and Other Income 857,552 38,567
Gain on Sale of Marketable Equity Securities 406,340 --
------------ -----------
TOTAL OTHER EXPENSE (2,608,876) (654,422)
------------ -----------
INCOME BEFORE MINORITY INTEREST AND PROVISION FOR INCOME TAXES 5,433,873 1,929,072
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 1,123,484 184,169
PROVISION FOR INCOME TAXES 2,276,627 713,341
------------ -----------
NET INCOME $ 2,033,762 $ 1,031,562
============ ============
EARNINGS PER COMMON SHARE:
Primary $ .09 $ .12
Fully Diluted $ .08 $ .10
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Primary 23,259,036 11,087,163
============ ============
Fully Diluted 24,250,821 16,310,660
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES $(3,685,058) $ 2,358,977
INVESTING ACTIVITIES:
Purchase of Property and Equipment (4,725,008) (2,308,925)
Acquisitions, Net of Cash Acquired (21,826,861) --
Sale of Marketable Securities 7,160,694 --
Decrease in Purchase Price Due
on Companies Acquired (6,475,458) --
Other 271,124 --
----------- -----------
NET CASH - INVESTING ACTIVITIES (25,595,509) (2,308,925)
----------- -----------
FINANCING ACTIVITIES:
Repayments on Debt and Obligations Under Capital Leases (8,917,014) (2,817,840)
Proceeds from Borrowings 29,961,808 1,465,297
Exercise of Options and Warrants 50,250 762,756
----------- -----------
NET CASH - FINANCING ACTIVITIES 21,095,044 $ (589,787)
----------- -----------
NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS (8,185,523) (539,735)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 18,640,729 4,373,876
----------- -----------
CASH AND CASH EQUIVALENTS - AT END OF PERIOD $10,455,206 $ 3,834,141
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,909,044 $ 682,989
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
</TABLE>
The value of restricted stock granted in 1997 was $411,188.
See Notes to Condensed Consolidated Financial Statements.
5
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCK
-------------------
ADDITIONAL DEFERRED TOTAL
NUMBER PAID-IN UNREALIZED STOCK BASED ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL GAIN COMPENSATION DEFICIT EQUITY
--------- ------ ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 23,749,217 $237,492 $141,941,301 $525,646 ($5,357,184) ($3,835,170) $133,512,085
Cancellation of Escrow (1,163,853) (11,639) 11,639 -- -- -- --
Shares
Sale of Marketable Equity -- -- -- (525,646) -- -- (525,646)
Securities
Stock Options Exercised 12,000 120 50,130 -- -- -- 50,250
Restricted Stock Issued -- -- 411,188 -- (411,188) -- --
Amortization of Deferred -- -- -- -- 439,260 -- 439,260
Compensation
Net Income -- -- -- -- -- 2,033,762 2,033,762
---------- -------- ------------ --------- ----------- ----------- ------------
BALANCE - MARCH 31, 1997 22,597,364 $225,973 $142,414,258 $ -- $(5,329,112) $(1,801,408) $135,509,711
========== ======== ============ ========= =========== =========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
[1] INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements as of March 31,
1997 include the accounts of US Diagnostic Inc. and its subsidiaries (the
"Company") and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). All
significant intercompany accounts and transactions have been eliminated. Certain
information related to the Company's organization, significant accounting
policies and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements reflect,
in the opinion of management, all material adjustments (which include only
normal recurring adjustments) necessary to fairly state the financial position
and the results of operations for the periods presented and the disclosures
herein are adequate to make the information presented not misleading. Operating
results for interim periods are not necessarily indicative of the results that
can be expected for a full year.
The accompanying condensed consolidated statements of operations and cash flow
for the three months ended March 31,1996 have been restated from those
previously filed with the SEC on Form 10-QSB. The restatement was necessary as a
result of accounting adjustments reflected in the Company's audited financial
statements included in the Company's Annual Report on Form 10-KSB as of and for
the year ended December 31, 1996 filed with the SEC on April 11, 1997. These
accounting adjustments primarily relate to the Company's accounting for
acquisitions, issuance of equity securities and stock options and provisions for
state and federal income taxes. Weighted average shares outstanding have been
restated to reflect issuances and adjustments to equity securities and
convertible debt.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
In January 1997, six separate lawsuits were filed against the Company and
certain officers, directors and other parties related to the Company. Five
remain pending. The lawsuits purport to allege violations of the federal
securities laws. The lawsuits allege that as a direct result of the wrongful
conduct, plaintiffs and other members of the class suffered damages in
connection with the purchase of the Company's securities during the respective
class periods. The lawsuits seek certification of the actions as a class action,
an unspecified amount for compensatory damages in favor of plaintiffs and other
members of the class for all damages sustained as a result of the defendants
alleged wrongdoing and awarding plaintiffs and the class reasonable costs and
expenses incurred as a result of the lawsuits and such other relief as the court
deems just and proper. Plaintiffs have not alleged a claim for any specific
amount of damages, but generally describe the loss in the millions of dollars.
The outcome of this litigation is uncertain at this time, however, the effect on
the Company's financial position and results of operations could be material.
See Note 6 - Litigation to this Form 10-Q.
The condensed consolidated financial statements included herein should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB filed with the
SEC for the year ended December 31, 1996.
On May 13, 1997, the NASDAQ informed the Company that, following its review of
the Company's Form 10-KSB report for the year ended December 31, 1996, the
NASDAQ staff has determined that the Company does not satisfy the net tangible
asset test of the NASDAQ's current requirements for continued listing on the
NASDAQ National Market System. As the Company stated in its 1996 Form 10-KSB,
the Company's non-compliance with this listing requirement is a result of
accounting conventions associated with the Company's business combinations in
1996. NASDAQ has proposed new alternative maintenance standards, and the Company
satisfies all of the tests under the proposed new maintenance standards. The
Company has requested a review of the staff determination. The Company will
argue that it is in solid financial condition and that its net tangible asset
deficit is the result of an acquisition strategy that has benefited the Company
and its shareholders. The NASDAQ has recognized the need to accommodate
companies that are unable to satisfy the net tangible asset test because of
large amounts of goodwill associated with merger and acquisition activities, and
the Company will request such an accommodation.
7
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[2] EARNINGS PER SHARE
Earnings per common share is computed by dividing the net income for the period
by the weighted average number of common shares and common stock equivalents
outstanding. All stock options and warrants have been included as common stock
equivalents in the computation of earnings per common share on a fully diluted
basis.
[3] INCOME TAXES
Income taxes have been provided for based upon the Company's estimated annual
effective income tax rate. The effective income tax rate differs from the
statutory income tax rate primarily due to amortization of certain intangible
assets which is not deductible for Federal income tax purposes.
[4] LONG-TERM DEBT
In February 1997, the Company entered into a financing agreement with DVI
Financial Services, Inc. ("DVI"). The credit facility has up to $50 million in
borrowing ability. The first $25 million is a revolving credit loan secured by
accounts receivable. The second $25 million will be utilized to finance
acquisitions and other purposes. Advance of funds on the second $25 million line
will be based upon a review by DVI of the entity acquired and a review of the
assets securing the loan. The Company borrowed $25 million under the revolving
credit loan in February 1997. The Note, executed in connection with the
revolving credit loan, is payable on February 26, 1998 and bears interest,
payable monthly, at prime plus two percent (10.5% at March 31, 1997). In March
1997, the Company borrowed $5.25 million, collateralized by equipment, under the
second $25 million line. The $5.25 million of advances are payable in sixty
monthly installments of $112,848 through March 2002.
In April and May 1996, the Company completed a $57.5 million offering of 9%
Subordinated Convertible Debentures Due 2003 (the "Debentures"). The investment
banking firm who acted as the agent in connection with the offering was issued
five-year warrants to acquire 319,445 shares of the Company's Common Stock at
$9.00 per share. The estimated fair value of the warrants is $1,672,550. This
amount is being amortized to interest expense over the term of the related
Debentures.
The holders of the Debentures are entitled to convert 100% of the principal
amount into Common Stock of the Company at a conversion price of $9.00 per
share. The conversion price is subject to adjustment under certain circumstances
as described in the Debenture Indenture ("Indenture"). The Company may not
redeem the Debentures, in whole or in part at any time prior to March 31, 1999.
Thereafter, the Debentures are redeemable at certain redemption prices as set
forth in the Indenture. In the event of a "change of control" as defined in the
Indenture, the Company shall offer to repurchase each holder's Debenture at a
purchase price equal to 100% of the principal amount, plus accrued interest.
Pursuant to the Indenture, the Company is required to maintain consolidated net
worth of at least $18 million. In the event that the Company's consolidated net
worth at the end of two consecutive fiscal quarters is below $18 million, the
Company shall offer to repurchase 12.5% of the aggregate principal amount of
Debentures originally issued (or lesser amount outstanding at the time of the
deficiency). Under certain covenants of the Indenture, the Company is limited in
the amount of debt, as defined, it may incur. The Company and its subsidiaries
may generally incur debt, as defined, if the ratio of Debt to Operating Cash
Flow, of the Company and its subsidiaries after giving pro forma effect to such
debt is 6.5 to 1 or less.
The Indenture also prohibits the Company from paying any dividends on Common
Stock. In addition, the Indenture requires that the Company and its subsidiaries
engage solely in the acquisition, operation and management of multi-modality
diagnostic imaging centers and other medical service facilities.
[5] STOCKHOLDERS' EQUITY
The Company is required to file a registration statement with the SEC, no later
than June 4, 1997, to register 1,671,000 shares of the Company's Common Stock
issued in connection with an acquisition that was consummated in June, 1996.
Under certain circumstances the required filing of the registration statement
may be extended for up to sixty days. If on the date that the registration
statement is declared effective by the SEC, the last sales price for the
Company's Common Stock for the five preceding trading days has not averaged
$7.00 per share, then the sellers have the right to put up to 1,000,000 shares
of the Company's Common Stock back to the Company for $7.00 per share. The put
must be exercised by the seller in writing within ten business days after the
Company informs the sellers in writing of the effective date of the registration
statement. As of May 15, 1997, the Company has not filed a registration
statement with the SEC to register the Company's Common Stock issued in
connection with this acquisition.
The Company has granted contractual rights to certain persons to whom the
Company has issued securities to register such securities under the Securities
Act of 1933 and state securities registration statutes, and in some instances
the Company is
8
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required to repurchase its Common Stock issued to these persons or to pay
specified liquidated damages to these persons if such registration is not
effected in a timely manner. The Company believes that it will be unable to
comply with at least some of these obligations to register such securities,
primarily because of the events relating to the Company described in Note 6. If
such persons assert their rights to have their securities repurchased or to
liquidated damages or make claims against the Company for damages for breach of
the agreements to register their securities, and if the Company is not able to
negotiate modifications to such agreements, the Company's liquidity could be
materially adversely affected.
The Company's liquidity may also be materially adversely effected to the extent
that persons to whom the Company has issued securities successfully assert
claims against the Company based upon the recent events relating to the Company
described in Note 6.
The Company placed 1,163,853 shares of the Company's Common Stock in escrow
pursuant to an escrow agreement in connection with the Company's 1994 initial
public offering. Because the Company did not meet specified income goals in
1996, the escrow shares were canceled in 1997.
In March 1997, the Company granted options to acquire 100,000 shares of the
Company's common stock to its Chairman of the Board and options to acquire
35,000 shares of the Company's common stock to each of two directors. The three
Directors comprise the Special Committee appointed by the Company's Board of
Directors to review the Company's prior relationship with Coyote Consulting and
Keith Greenberg (See Note 6). The options vest upon (i) successful completion by
the Special Committee of the Board of Directors of its work and final report and
recommendation to the Board of Directors of its findings and (ii) the continued
involvement of the Special Committee members until the final resolution of
compliance issues with both the SEC and NASDAQ. The exercise price of the
options is equal to the market value of the Company's common stock at the date
of grant.
On March 17, 1997, the Company issued 51,000 shares of restricted stock to
Gordon Rausser, a member of the Company's Board of Directors, in connection with
a consulting agreement. The shares vest over a five year period from date of
grant. The fair market value of the shares at date of grant is $411,188 and is
included in Deferred Stock Based Compensation in the accompanying condensed
consolidated financial statements. The amount is being amortized over the five
year vesting period of the restricted shares.
[6] LITIGATION
Compensation to Terminated Consultant is comprised of cash compensation paid to
and value of equity securities granted to Coyote Consulting and Financial
Services, LLC ("Coyote Consulting"). Keith Greenberg, on behalf of Coyote
Consulting, provided various consulting services to the Company. In January
1997, six separate lawsuits were filed against the Company and certain officers,
directors and other parties related to the Company. The lawsuits allege
disclosure was not made by the Company and named officers and directors about
the role played by Mr. Greenberg in the affairs of the Company and about Mr.
Greenberg's criminal and regulatory background. Plaintiffs have not alleged a
claim for any specific amount of damages, but generally describe the loss in the
millions of dollars. The outcome of this litigation is uncertain at this time,
however, the effect on the Company's financial position and results of
operations could be material. For further information with respect to Coyote
Consulting and related litigation matters reference is made to Note 17
"Litigation" of the Company's audited financial statements filed with the SEC on
Form 10-KSB for the year ended December 31, 1996.
The Company could be subject to legal actions arising out of the performance of
its diagnostic imaging services. Damages assessed in connection with, and the
cost of defending, any such actions could be substantial. The Company has
readily obtained and currently maintains liability insurance which it believes
is adequate for its present operations. There can be no assurance that the
Company will be able to continue or increase such coverage or to do so at an
acceptable cost, or that the Company will have other resources sufficient to
satisfy any liability or litigation expense that may result from any uninsured
or underinsured claims. The Company also requires all of its affiliated
physicians to maintain malpractice and other liability coverage.
The Company is also a party to, and has been threatened with, a number of other
legal proceedings. While it is not feasible to predict or determine the outcome
of these matters, the Company does not anticipate that an adverse outcome in any
of these matters individually would have a material adverse effect on the
Company. See Part II, Item I - Legal Proceedings - for further information with
respect to litigation.
9
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[7] ACQUISITIONS
In February 1997, the Company acquired Medical Diagnostic Inc. ("MDI") for
approximately $22 million in cash resulting in goodwill of approximately $18.3
million.
The following summarizes the unaudited pro forma effect of the acquisition of
MDI accounted for under the purchase method as if it had been acquired as of
January 1, 1996. This presentation is prepared in accordance with Accounting
Principles Board ("APB") Opinion No. 16 and does not reflect estimates for
potential operating efficiencies and other cost savings.
THREE MONTHS ENDED MARCH 31,
1997 1996
---- ----
(UNAUDITED)
Revenue as Reported $ 52,484,937 $ 12,568,109
Effect of Acquisitions 3,315,950 5,598,981
---------- ------------
Pro Forma Revenue $ 55,800,887 $ 18,167,090
========== ============
Net Income as Reported $ 2,033,762 $ 1,031,562
Effect of Acquisitions (395,205) 120,777
------------ ------------
Pro Forma Net Income $ 1,638,557 $ 1,152,339
=========== ============
Earnings Per Share
Primary:
Historical $ .09 $ .12
Effect of Acquisitions (.02) .01
------------ ------------
Pro Forma Earnings Per Share $ .07 $ .13
============ ============
Fully Diluted:
Historical $ .08 $ .10
Effect of Acquisitions (.01) .01
------------ ------------
Pro Forma Earnings Per Share $ .07 $ .11
============ ============
[8] PENDING TERMINATION OF EMPLOYMENT AGREEMENTS
On February 3, 1997, Jeffrey Goffman, at the time the Company's Chairman and
Chief Executive Officer, was voluntarily placed on administrative leave by the
Company's Board of Directors. During this administrative leave, he was relieved
of all corporate duties and did not participate in any meetings of the Company's
Board of Directors. On March 25, 1997, Mr. Goffman declared his election to
treat himself as having been terminated without cause by the Company under his
employment contract, thus, invoking constructive termination provisions of his
employment agreement. The Company has treated this election as a resignation.
This action followed the recommendation of a Special Committee of the Board of
Directors reviewing the Company's former relationship with Coyote Consulting and
Financial Services, LLC and Keith Greenberg. For further information, see Note 6
- - Litigation.
On April 24, 1997, the Company and Mr. Goffman entered into a Letter of Intent
(the "Letter") with respect to the resolution of certain disputes between Mr.
Goffman and the Company in connection with his employment with the Company.
Pursuant to the terms of the Letter, Mr. Goffman resigned as an officer,
director and employee of the Company effective as of March 31, 1997. Mr. Goffman
received $165,000 upon execution of the Letter with an additional $300,000 to be
paid in monthly installments of $16,666 over an 18 month period commencing from
the signing of a definitive agreement by the Company and Mr. Goffman. Mr.
Goffman also agreed to transfer or vote, as required by the Company, all proxies
or other agreements by which he exercises the right to vote or exercise legal
control over the Company's stock in which others have a beneficial interest. All
previously vested restricted stock and stock options will be kept by Mr.
Goffman. All unvested restricted stock as of March 31, 1997 (220,000 shares)
will (i) become vested (i.e., the applicable risk of forfeiture restrictions
will lapse) in accordance with the schedule originally established at the time
of award of such restricted stock (notwithstanding Mr. Goffman's resignation)
or, if earlier, upon the sale of the Company or a change of control (as
defined), and (ii) be placed in an escrow account held by a mutually agreeable
escrow agent. In addition, the Letter provides that unvested options for 100,000
shares of Company Common Stock which are exercisable at $5.125 per share will be
placed in the escrow account. The Letter provides that notwithstanding
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Mr. Goffman's resignation, these options shall vest in accordance with the
schedule originally established at the time such options were awarded to Mr.
Goffman or, if earlier, upon the sale of the Company or a change of control (as
defined) on or before March 31, 1999. The Letter provides that all other options
which were unvested as of March 31, 1997, (specifically the 100,000 options
granted on June 1, 1996 exercisable at $7.125 and the 250,000 options granted on
October 9, 1996 exercisable at $12.125) will vest only upon the sale of the
Company or a change in control (as defined) on or before March 31,1999. The
Letter provides that no option, whether currently vested or unvested, would be
exercisable beyond its original expiration date (exclusive of provisions for
earlier termination relating to termination of employment) or prior to the date
when any exercise price relating to the Company's Common Stock previously
established for the exercise of such option has been met. Because an incentive
stock option may not be exercised more than three months following termination
of employment as a matter of tax law, options exercised after such period would
be treated as non-statutory stock options. The Letter provides that any stock
purchased as a result of the exercise of an option held in the escrow account
will remain in the escrow account until released from escrow pursuant to its
terms.
The Letter provides that the Company and Mr. Goffman shall exchange mutual
special releases, releasing certain claims and retaining the ability to bring
certain possible claims against each other. The escrow account would be
available according to its terms to satisfy in whole, or in part, any claims
excepted from the mutual special release.
At March 31, 1997 the Company has deferred compensation totaling $2,343,576
relating to Mr. Goffman which is included in Deferred Stock Based Compensation
in the accompanying condensed consolidated balance sheet. The Company
anticipates entering into the definitive agreement with Mr. Goffman in the
second quarter of 1997. If the restricted stock and options are not forfeited,
and the definitive agreement containing substantially the same terms as included
in the Letter is entered into, the $2,343,576 of deferred compensation and the
$300,000 of cash payments will be expensed in the Company's statement of
operations for the three months ended June 30, 1997. The $165,000 paid to Mr.
Goffman upon execution of the Letter will be expensed in the second quarter of
1997.
Michael D. Karsch, the Company's former Senior Vice President, former General
Counsel and former Secretary of the Company, and the Company were parties to a
five-year employment agreement dated June 1, 1996. On February 3,1997, Mr.
Karsch was placed on administrative leave by the Company's Board of Directors.
During this administrative leave, he was relieved of all corporate duties and
was not to participate in any meetings of the Company's Board of Directors. On
March 25, 1997, Mr. Karsch declared his election to treat himself as having been
terminated without cause by the Company under his employment contract, thus,
invoking constructive termination provisions of his employment agreement. The
Company has treated this election as a resignation. At this point, the Company
has not agreed to any severance arrangements with Mr. Karsch. The Company is
currently exploring, through counsel, the possibility of resolving any claims
with respect to Mr. Karsch's employment contract. This action followed the
recommendation of a Special Committee of the Board of Directors reviewing the
Company's former relationship with Coyote Consulting and Keith Greenberg (See
Note 6). At March 31, 1997, the Company has deferred compensation totaling
$616,449 relating to Mr. Karsch which is included in Deferred Stock Based
Compensation in the accompanying condensed consolidated balance sheet. For
further information regarding Mr. Karsch's employment agreement see Item 10 -
Executive Compensation - "Employment Agreements" in the Company's 1996 Annual
Report on Form 10-KSB/A.
[9] RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued FASB
Statement 128 "Earnings Per Share" ("FAS 128"). FAS 128 is effective for interim
and annual periods ending after December 15, 1997. Earlier application is not
permitted. FAS 128 superseded APB Opinion 15, "Earnings Per Share. The pro forma
"basic" and "diluted" earnings per share information assuming the Company
adopted FAS 128 as of January 1, 1997 is $.09 and $.09, respectively.
In addition, FASB, in March 1997, issued FASB 129, "Disclosure of Information
about Capital Structure" ("FAS 129"). FAS 129 is effective for interim and
annual periods ending after December 15, 1997. The Company believes FAS 129 will
have little, if any, effect on the information already disclosed in the
Company's financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made
11
<PAGE>
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, economic, competitive, regulatory, growth strategies,
available financing, and other factors discussed elsewhere in this report and
the documents filed by the Company with the SEC. Many of these factors are
beyond the Company's control. Actual results could differ materially from the
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this report
will, in fact, occur.
OVERVIEW
The Company's financial performance is substantially dependent upon its ability
to integrate the operations of acquired Facilities into the Company's
infrastructure and reduce operating expenses of acquired entities, its ability
to deliver equivalent service to clients immediately after an acquisition
without significant interruption or inconvenience and various other risks
associated with the acquisition of businesses, including expenses associated
with the integration of the acquired businesses. The Company will be required to
hire additional management and implement new systems. If the Company is unable
to manage growth effectively, the Company's operating results could be
materially adversely affected.
The Company believes that its cash and cash equivalents and cash generated from
operations will be sufficient to meet its working capital requirements of the
next 12 months. There is no assurance, however, that additional funds will be
available on terms satisfactory to the Company. To the extent the Company is not
able to obtain additional capital or to borrow funds in a manner acceptable to
the Company, the Company will be required to delay or reduce its planned
acquisition and growth strategy. Additionally, various class action lawsuits
have been filed against the Company as described in Part II, Item 1 Legal
Proceedings and elsewhere herein. While the Company is unable to predict the
outcome of any of these lawsuits or any other class action lawsuits that may be
filed against the Company, any of such lawsuits, if determined adversely to the
Company, could have a material adverse effect on the Company's financial
condition and result of operations and on the Company's ability to meet its cash
requirements.
Approximately 96% all of the Company's revenues are derived from third party
payors. For the year ended December 31, 1996, the Company derived approximately
81% of its revenues from non-government payors and approximately 15% from
government sponsored healthcare programs (principally Medicare and Medicaid).
The Company's revenues and profitability may be materially adversely affected by
the current trend in the healthcare industry toward cost containment as
government and private third party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with services
providers. Continuing budgetary constraints at both the federal and state level
and the rapidly escalating costs of healthcare and reimbursement programs have
led, and may continue to lead, to significant reductions in government and other
third party reimbursements for certain medical charges and to the negotiation of
reduced contract rates or capitated or other financial risk-shifting payment
systems by third party payors with service providers. In addition, rates paid by
private third party payors, including those that provide Medicare supplemental
insurance, are generally higher than Medicare payment rates. Changes in the mix
of the Company's patients among the non-government payors and government
sponsored healthcare programs, and among different types of non-government payor
sources, could have a material adverse effect on the Company. Further reductions
in payments to physicians or other changes in reimbursement for healthcare
services could have a material adverse effect on the Company, unless the Company
is otherwise able to offset such payment reductions through cost reductions,
increased volume, introduction of new procedures or otherwise.
The Company reports revenue at the estimated net realizable amounts from
patients, third-party payors and others for services rendered including
estimated contractual adjustments under reimbursement agreements with
third-party payors. These adjustments are accrued on an estimated basis in the
period the related services are rendered and are adjusted in future periods as
final settlements are determined.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH
THE THREE MONTHS ENDED MARCH 31, 1996
Revenue for the three months ended March 31, 1997 increased $39,916,828 from
$12,568,109 in 1996 to $52,484,937 in 1997. This increase is primarily the
result of acquisitions. Net income for the three months ended March 31,1997
increased by $1,002,200 from $1,031,562 in 1996 to $2,033,762 in 1997. Primary
earnings per share was $.09 in 1997 compared to $.12 in 1996.
12
<PAGE>
General and Administrative expense was $35,715,512 for the three months ended
March 31, 1997 compared to $7,165,933 for the three months ended March 31, 1996.
This increase of $28,549,579 is primarily due to: (i) increase in corporate
overhead as the Company consolidated or commenced consolidation of most
administrative functions at its headquarters and increases in legal, accounting
and other general expenses due to acquisitions, litigation and regulatory
issues. General and administrative expenses were 68% of revenue in 1997 compared
to 57% of revenue in 1996. Depreciation and Amortization increased by $4,909,608
from $1,864,543 in 1996 to $6,774,151 in 1997. The increase in depreciation and
amortization is the result of the increase in intangible assets and property and
equipment primarily as a result of acquisitions.
Stock Based Compensation increased by $126,530 from $312,730 in the three months
ended March 31, 1996 to $439,260 in the three months ended March 31, 1997.
Results of operations for the three months ended March 31, 1997 includes a
$406,340 realized gain on the sale of marketable equity securities.
Results of operations for the three months ended March 31, 1996 includes a Loss
of Settlement of Claim of $125,000 and Compensation to Terminated Consultant of
$21,875.
Interest Expense increased $3,179,779 from $692,989 in the three months ended
March 31, 1996 to $3,872,768 in the three months ended March 31, 1997. The
increase is primarily attributable to debt incurred to finance acquisitions and
the purchase of property and equipment.
LIQUIDITY
At March 31, 1997, the Company had cash and cash equivalents of $10,455,206 and
a working capital deficit of 19,221,930. For the three months ended March 31,
1997, the Company used $3,685,058 in operations. The Company used $21,826,861
cash on the MDI acquisition, $4,725,008 for the purchase of property and
equipment and $8,917,014 for payments on debt and capital lease obligations. The
Company also borrowed $29,961,808 in additional borrowings in the quarter ended
March 31, 1997.
In February 1997, the Company entered into a financing agreement with DVI. The
credit facility has up to $50 million of borrowing availability. The first $25
million, which the Company utilized in the quarter ended March 31, 1997, is a
revolving credit loan secured by accounts receivable. The second $25 million
will be utilized to finance acquisitions and other purposes. Advance of funds on
the second $25 million line will be based upon a review by DVI of the entity
being acquired and a review of the assets securing the loan. In March 1997, the
Company borrowed $5.25 million collateralized by equipment under the second $25
million. The $5.25 million of advances are payable in sixty monthly installments
of $112,848 through March 2002.
As a result of the five class action lawsuits described in Item 3 - Legal
Proceedings - of the Company's 1996 Annual Report on Form 10-KSB filed with the
SEC on April 11, 1997, there will be substantial legal fees and expenses
incurred by the Company. Since the plaintiffs in these lawsuits have not
specified the amount of any damages, the Company does not know what amount, if
any, it may have to pay in the event of one or more unfavorable outcome(s) with
respect to these matters.
The Company has granted contractual rights to certain persons to whom the
Company has issued securities to register such securities under the Securities
Act of 1933 and state securities registration statutes, and in some instances
the Company is required to repurchase its Common Stock issued to these persons
or to pay specified liquidated damages to these persons if such registration is
not effected in a timely manner. The Company believes that it may be unable to
comply with at least some of these obligations to register such securities,
primarily because of the events relating to the Company described elsewhere
herein. If such persons assert their rights to have their securities repurchased
or to liquidated damages or make claims against the Company for damages for
breach of the agreements to register their securities, and if the Company is not
able to negotiate modifications to such agreements, the Company's liquidity
could be materially adversely affected.
The Company is required to file a registration statement with the SEC, no later
than June 4, 1997, to register 1,671,000 shares of the Company's Common Stock
issued in connection with an acquisition that was consummated in June, 1996
Under certain circumstances the required filing of the registration statement
may be extended for up to sixty days. If on the date that the registration
statement is declared effective by the SEC, the last sales price for the
Company's Common Stock for the five preceding trading days has not averaged
$7.00 per share, then the sellers have the right to put up to 1,000,000 shares
of the
13
<PAGE>
Company's Common Stock back to the Company for $7.00 per share. The put
must be exercised by the seller in writing within ten business days after the
Company informs the sellers in writing of the effective date of the registration
statement. As of May 15, 1997, the Company has not filed a registration
statement with the SEC to register the Company's Common Stock issued in
connection with this acquisition.
The Company's liquidity may also be materially adversely effected to the extent
that persons to whom the Company has issued securities successfully assert
claims against the Company based upon the recent events relating to the Company
described in the Company's 1996 Annual Report on Form 10-KSB filed with the SEC
on April 11, 1997.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1997, six separate lawsuits were filed against the Company and
certain officers, directors and other parties related to the Company. Five
remain pending. The plaintiffs brought each action individually and as a
purported class action consisting of all persons who purchased shares of the
Company's common stock on the open market during the respective class periods.
The lawsuits purport to allege violations of the federal securities laws.
Specifically, the lawsuits allege disclosures were not made by the Company and
named officers and directors about the role played by Keith Greenberg in the
affairs of the Company and about Mr. Greenberg's criminal and regulatory
background. Mr. Greenberg, a convicted felon, also entered into a consent
judgment for permanent injunction with the Securities and Exchange Commission
and had default judgments entered against him in separate civil proceedings, all
of which were unrelated to the Company. Mr. Greenberg, on behalf of Coyote
Consulting provided various consulting services to the Company. The plaintiffs
further allege that when this information became public on December 23, 1996,
the Company's stock price dropped significantly. The lawsuits allege that as a
direct result of the wrongful conduct, plaintiffs and other members of the class
suffered damages in connection with the purchase of the Company's securities
during the respective class periods.
The remaining lawsuits seek certification of the actions as a class action, an
unspecified amount for compensatory damages in favor of plaintiffs and other
members of the class for all damages sustained as a result of the defendants
alleged wrongdoing and awarding plaintiffs and the class reasonable costs and
expenses incurred as a result of the lawsuits and such other relief as the court
deems just and proper. Plaintiffs have not alleged a claim for any specific
amount of damages, but generally describe the loss in the millions of dollars.
The outcome of this litigation is uncertain at this time, however, the effect on
the Company's financial position and results of operations could be material.
In September, 1992, MDI and its affiliate Greater Springfield MRI Limited
Partnership ("Springfield") (through its general partner, Western Massachusetts
Magnetic Resonance Services, Inc. a subsidiary of MDI ("WMMRS")), filed suits
against Raytel Corporation, Inc. and certain other parties (collectively, the
"Raytel Defendants") seeking a declaration, damages and equitable relief against
the Raytel Defendants. Plaintiffs alleged that, among other things, the Raytel
Defendants violated their fiduciary and/or contractual obligations in attempting
(i) to interfere with plaintiffs' plans to provide imaging services on the
campus of Mercy Hospital in Springfield, Massachusetts and (ii) to coerce
plaintiffs into granting an affiliate of one of the Raytel Defendants a greater
interest in the profits of a now-dissolved joint venture in which MDI and one of
the Raytel Defendants directly or indirectly held an interest. The Raytel
Defendants have filed counterclaims against the Company seeking up to $8 million
in damages and injunctive relief. The Company acquired MDI (of which Springfield
and WMMRS are direct or indirect subsidiaries) in February 1997. As part of this
acquisition the seller, Advanced NMR Systems, Inc. ("ANMR"), agreed to indemnify
the Company and MDI for losses incurred in connection with the foregoing
litigation. To secure this indemnity obligation, ANMR escrowed $1 million and
1,250,000 shares in Advanced Mammography Systems, a publicly-traded company. The
Company believes that there are meritorious defenses to the claims of the Raytel
Defendants and intends to prosecute and defend this matter vigorously.
Reference is made to Item 3 - Legal Proceedings - in the Company's 1996 Annual
Report on Form 10-KSB and to Note 17 "Litigation" of the Company's audited
financial statements filed with the SEC on Form 10-KSB for the year ended
December 31, 1996 for further information with respect to the foregoing
Litigation.
ITEM 5. OTHER INFORMATION
The Company announced on April 3, 1997 it had received a letter from Medical
Resources Inc. suggesting a business combination. The Company stated that the
highly conditional terms of the letter and the irresponsibly low proposed
purchase price made the suggested combination of no interest to US Diagnostic
Inc.
The Company also announced on April 3, 1997 confirmation that it has retained
Smith Barney Inc. for a variety of purposes including considering and advising
on possible financings, acquisitions and divestitures and other strategic
alternatives. In
15
<PAGE>
connection with this engagement, Smith Barney has been authorized to explore a
variety of possible business combinations. No decision has been made, however,
to sell the Company nor is there any assurance that any transaction of any
nature will take place.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
2.1 - Agreement and Plan of Merger, dated as of August 1,1996, among the
Company, MICA Acquiring Corporation, a California corporation and
Medical Imaging Centers of America., a California Corporation. (11)
3.1 - Certificate of Incorporation of the Registrant. (1)
3.2 - Bylaws of the Registrant. (2)
4.1 - Form of Unit Purchase Option. (1)
4.2 - Form of Warrant Agreement. (1)
4.3 - Escrow Agreement. (1)
4.4 - Indenture - 9% Subordinated Convertible Debentures. (14)
4.5 - Registration Rights Agreement. (14)
10.1 - 1993 Stock Option Plan. (1)
10.2 - Asset Purchase Agreement among the Company, Columbus Diagnostic Center
Inc. and Physicians Diagnostic Associates of Columbus, L.P. (1)
10.3 - Employment Agreement with Robert Burke, M.D. (1)
10.4 - Equipment Lease with Ventura Partners. (1)
10.5 - Lease between the Company and United Properties Co. (1)
10.6 - Asset Purchase Agreement dated as of December 31, 1994 among the
Company, Santa Fe Imaging Center, Ltd. and Santa Fe Imaging Center
Inc., a subsidiary of the Company. (2)
10.7 - Equipment Lease dated as of December 31, 1994 between Santa Fe
Imaging Center, Ltd. and Santa Fe Imaging Center Inc., a subsidiary of
the Company. (2)
10.8 - Property Lease dated as of December 31, 1994 among Santa Fe Imaging
Center, Ltd. and Santa Fe Imaging Center Inc., a subsidiary of the
Company and the Company. (2)
10.9 - Asset Purchase Agreement dated as of February 27, 1995 among the
Company, Open Air MRI, Inc., Community Radiology of Virginia, Inc. and
CROV Acquisition Corp., a subsidiary of the Company. (3)
10.10 - Radiology Agreement dated as of February 27, 1995 between Stephen
Raskin, M.D., P.C. and CROV Acquisition Corp., a subsidiary of the
Company. (3)
10.11 - Management Agreement dated as of February 27, 1995 among the Company,
Open Air MRI, Inc., Community Radiology of Virginia, Inc. and CROV
Acquisition Corp., a subsidiary of the Company. (3)
10.12 - Escrow Agreement dated as of February 27, 1995 among the Company, Open
Air MRI, Inc., Community Radiology of Virginia, Inc. and CROV
Acquisition Corp., a subsidiary of the Company. (3)
10.13 - Guaranty dated as of February 27, 1995 of the Company. (3)
10.14 - Stock Purchase Agreement dated as of February 15, 1995 among the
Company, Laborde Diagnostics, Inc. and Jeffrey J. Laborde, M.D. (4)
10.15 - Employment Agreement dated as of February 15, 1995 among the Company,
Laborde Diagnostics, Inc. and Jeffrey J. Laborde, M.D. (4)
10.16 - 1995 Long Term Incentive Plan. (5)
10.17 - Consulting Agreement with Gordon Rausser. (5)
10.18 - Consulting Agreement with Coyote Consulting. (5)
10.19 - Consulting Agreement with Sawgrass Consulting. (5)
10.20 - Asset Purchase Agreement dated as of October 10, 1995 among the
Company, Central Alabama Medical Enterprises, Inc. and Advanced
Medical Imaging Center, Inc., a subsidiary of the Company. (6)
10.21 - Property Lease dated as of October 10, 1995 among the Company, Central
Alabama Medical Enterprises, Inc. and Advanced Medical Imaging Center,
Inc., a subsidiary of the Company. (6)
10.22 - Employment Agreement dated as of August 1, 1995 between the Company
and David Cohen. (6)
10.23 - Amendment to Employment Agreement of Jeffrey Goffman. (7)
10.24 - Amendment to Coyote Consulting Agreement. (7)
10.25 - Merger Agreement dated as of February 27, 1996 among the Company, U.S.
Imaging, Inc. and U.S.I. Acquisition Inc., a subsidiary of the
Company. (8)
10.26 - Escrow Agreement dated as of June 4, 1996 among the Company and the
Reese General Trust. (8)
10.27 - Asset Purchase Agreement dated as of June 28, 1996 among the Company,
Allegheny Open MRI/CT Group and USDL Pittsburgh Inc., a subsidiary of
the Company. (9)
10.28 - Registration and Sale Rights Agreement dated as of June 28, 1996 among
the Company and the Allegheny Open MRI/CT Group. (9)
10.29 - Employment Agreement dated as of June 18, 1996 between the Company and
Joseph Paul. (9)
10.30 - Employment Agreement dated as of June 1, 1996 between the Company and
Michael Karsch. (9)
10.31 - Employment Agreement dated as of July 1, 1996 between the Company and
Andrew Shaw. (9)
17
<PAGE>
10.32 - Stock Purchase Agreement dated as of June 20, 1996 among the Company,
MediTek Health Corporation and HEICO Corporation. (10)
10.33 - Registration and Sale Rights Agreement dated as of June 20, 1996
between the Company and HEICO Corporation. (10)
10.34 - Termination Agreement dated January 29, 1997 among the Company, Coyote
Consulting & Financial Services LLC and Keith Greenberg. (12)
10.35 - Loan and Security Agreement and Secured Promissory Note among US
Diagnostic Inc. and DVI Credit Corporation dated as of February 25,
1997. (15)
10.36 - Subscription Agreement between Diversified Therapy Corp. and US
Diagnostic Inc. (15)
10.37 - Employment Agreement dated August 31, 1994 between US Diagnostic Labs,
Inc. and Jeffrey A. Goffman. (15)
10.38 - Amended and restated Employment Agreement dated August 9, 1996 between
the Company and Todd R. Smith. (15)
10.39 - Employment Agreement dated June 30, 1995 between the Company and Amos
F. Almand, III. (15)
10.40 - Employment Agreement dated October 15, 1996 between the Company and
Len Platt. (15)
10.41 - Employment Agreement dated May 1, 1996 between the Company and Alan
M. Winakor. (15)
10.42 - Employment Agreement dated October 15, 1996 between the Company and
Arthur Quillo. (15)
10.43 - Consulting Agreement dated October 1, 1996 between the Company and
Robert Burke, M.D. (15)
11 - Earnings Per Share Calculation.
27 - Financial Data Schedule.
99.1 - Press release dated January 29, 1997. (12)
99.2 - Complaints filed in the United States District Court of the Southern
District of Florida entitled Lynne M. Golden, Trustee, UAD 1/6/96;
Lynne M. Golden Trust; individually and on behalf of a class of all
persons similarly situated vs. U.S. Diagnostic Inc., Jeffrey A.
Goffman, Keith G. Greenberg, Joseph A. Paul, Robert D. Burke; Amos F.
Almand, III and Coyote Consulting & Financial Services LLC: Muriel
Edelstein vs. U.S. Diagnostic Inc., Jeffrey A. Goffman, Joseph A.
Paul, Dr. Robert D. Burke and Keith G. Greenberg: Steven Shapiro,
Plaintiff; vs. U.S. Diagnostic Inc., et al, Defendants: Sandra Neuman,
Plaintiff vs. U.S. Diagnostic Inc., et al., Defendants. (12)
99.3 - Permanent Injunction against Keith Greenberg. (12)
99.4 - Information and Guilty Plea by Keith Greenberg. (12)
99.5 - Press Release of US Diagnostic Inc. dated February 3, 1997. (13)
- ----------------------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (file no. 33-73414)
(2) Incorporated by reference to the Company's Report on Form 8-K dated
January 11, 1995.
(3) Incorporated by reference to the Company's Report on Form 8-K dated
February 27, 1995.
(4) Incorporated by reference to the Company's Report on Form 8-K dated
March 20,1994.
(5) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (file no. 33-93536)
(6) Incorporated by reference to the Company's Report on Form 8-K dated
October 30,1995.
(7) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31,1995.
(8) Incorporated by reference to the Company's Report on Form 8-K dated
June 5, 1996.
(9) Incorporated by reference to the Company's Report on Form 8-K dated
June 28, 1996.
(10) Incorporated by reference to the Company's Report on Form 8-K dated
July 24, 1996.
(11) Incorporated by reference to the Company's Report on Form 10-QSB for the
three months ended June 30, 1996.
(12) Incorporated by reference to the Company's Report on Form 8-K dated
January 29, 1997.
(13) Incorporated by reference to the Company's Report on Form 8-K dated
February 3, 1997.
(14) Incorporated by reference to the Company's Registration Statement on
Form S-3 dated June 6, 1996.
(15) Incorporated by reference to the Company's Annual report on Form
10-KSB/A for the year ended December 31, 1996.
(b) The following reports on Form 8-K were filed during the quarter ended
March 31, 1997:
Form 8-K dated January 29, 1997 reporting the termination of the
Company's relationship with Coyote Consulting and Financial Services
LLC ("Coyote") and Keith Greenberg, including a press release, a
termination agreement dated January 29, 1997 and other Exhibits relating
to Coyote and Keith Greenberg.
Form 8-K dated February 3, 1997 reporting management changes at the
Company.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
US DIAGNOSTIC INC.
Dated: May 20, 1997 By: /S/ JOSEPH A. PAUL
------------------------------------------
Joseph A. Paul
Chief Executive Officer,
Chief Operating Officer and President
By: /S/ PAUL ANDREW SHAW
------------------------------------------
Paul Andrew Shaw
Vice President and Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Computation of Earnings Per Share of Common Stock
27 Financial Data Schedule
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT 11
THREE MONTHS ENDED MARCH 31,
---------------------------
PRIMARY EARNINGS PER SHARE: 1997 1996
---- ----
<S> <C> <C> <C>
Weighted average shares outstanding 21,603 6,158
Dilutive effect of conversions 1,656 4,929
------- -----
Primary weighted average shares of common stock and
common stock equivalents outstanding 23,259 11,087
======= ======
Net Income $ 2,034 $1,032
Adjustments to net income for interest savings, net of
related income taxes adjusted net income -- 321
Adjusted net income 2,034 1,353
Earnings per share - primary $ .09 $ .12
======= ======
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 22,595 7,400
including escrow shares
Dilutive effect of conversions 1,656 8,773
Dilutive effect of assumed conversion -convertible debt -- 138
------- ------
Fully diluted weighted average shares of common stock
and common stock equivalents outstanding 24,251 16,311
======= ======
Net Income $ 2,034 $1,032
Adjustments to net income for interest savings, net of
related income taxes -- 582
------- ---
Adjusted net income $ 2,034 $1,614
======= ======
Earnings per share - fully diluted $ .08 $ .10
======= ======
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,445,206
<SECURITIES> 0
<RECEIVABLES> 73,145,819
<ALLOWANCES> (12,106,415)
<INVENTORY> 0
<CURRENT-ASSETS> 80,454,088
<PP&E> 107,395,343
<DEPRECIATION> (15,949,897)
<TOTAL-ASSETS> 365,358,617
<CURRENT-LIABILITIES> 99,676,018
<BONDS> 114,141,871
0
0
<COMMON> 225,973
<OTHER-SE> 135,283,738
<TOTAL-LIABILITY-AND-EQUITY> 365,358,617
<SALES> 52,484,937
<TOTAL-REVENUES> 52,484,937
<CGS> 0
<TOTAL-COSTS> 42,928,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,513,265
<INTEREST-EXPENSE> 3,872,768
<INCOME-PRETAX> 5,433,873
<INCOME-TAX> 2,276,627
<INCOME-CONTINUING> 2,033,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,033,762
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
</TABLE>
