SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
[ ] 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 Small Business Issuer as 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)
Check 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 JULY 29, 1996:
----- -----------------------------
Common Stock, $.01 par value 12,777,015 shares
Traditional Small Business Disclosure Format
Yes [X] No [ ]
<PAGE>
US DIAGNOSTIC INC.
INDEX TO FORM 10-QSB/A
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995......................................................3
Condensed Consolidated Statements of Operations for the Three and Six
Months ended June 30, 1996 and 1995........................................5
Condensed Consolidated Statements of Stockholders' Equity
for the Six Months Ended June 30, 1996.....................................6
Condensed Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1996 and 1995...............................................7
Notes to Condensed Consolidated Financial Statements.......................8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................................................11
SIGNATURES................................................................14
2
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<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1 9 9 6 1 9 9 5
--------------- --------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 58,532,625 $ 4,373,876
Accounts Receivable (Net of Allowance for Bad Debts
of $2,632,654 and $645,294 Respectively) 18,451,196 10,818,919
Prepaid Expenses 1,808,390 900,619
Other Current Assets 708,901 270,796
--------------- --------------
Total Current Assets 79,501,112 16,364,210
-------------- -------------
Property and Equipment - Net 33,997,615 22,550,884
-------------- -------------
INTANGIBLE ASSETS:
Goodwill 38,350,922 12,941,462
Covenants Not to Compete 2,821,832 2,305,639
Customer Lists 3,148,278 2,745,833
-------------- -------------
TOTAL INTANGIBLE ASSETS, Net 44,321,032 17,992,934
-------------- -------------
Other Assets 3,498,341 371,196
TOTAL ASSETS $ 161,318,100 $ 57,279,224
=============== =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1 9 9 6 1 9 9 5
-------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 2,925,760 $ 2,862,399
Short-Term Borrowings 750,000 667,286
Current Portion of Long-Term Debt 3,468,625 3,831,975
Obligations Under Capital Leases - Current Portion 1,859,974 2,519,982
Other Current Liabilities 1,601,683 536,759
-------------- ------------
TOTAL CURRENT LIABILITIES 10,606,042 10,418,401
-------------- ------------
Subordinated Convertible Debentures 56,066,386 --
Long-Term Debt (Net of Current Portion) 26,624,620 15,992,617
Obligations Under Capital Leases (Net of Current Portion) 6,256,955 5,072,018
Other Liabilities 374,899 423,500
Deferred Income Taxes 6,501,454 164,452
-------------- ------------
TOTAL LIABILITIES 106,430,356 32,070,988
-------------- ------------
MINORITY INTERESTS 1,839,176 715,543
-------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value; Authorized 5,000,000 Shares, None Issued -- --
Common Stock, $.01 Par Value; 50,000,000 Shares Authorized
and 12,027,015 and 7,032,622 Shares Issued and Outstanding at
June 30, 1996 and December 31, 1995, respectively. 120,270 70,326
Additional Paid in Capital 56,270,526 22,953,590
Retained Earnings 3,958,615 2,495,678
Deferred Stock Based Compensation (7,300,843) (1,026,901)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 53,048,568 24,492,693
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 161,318,100 $ 57,279,224
============== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 15,615,382 $ 6,055,967 $ 28,183,491 $ 10,950,083
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and Administrative Expense 8,968,372 4,059,533 16,134,305 7,611,424
Bad Debt Expense 614,440 118,744 1,108,974 214,707
Depreciation and Amortization Expense 1,972,127 593,607 3,836,670 989,713
Stock Based Compensation 254,702 -- 567,432 --
Loss on Settlement of Claim -- -- 125,000 --
Compensation to Terminated Consultant 751,861 30,000 773,736 40,000
------------ ------------ ------------ ------------
Total Operating Expenses 12,561,502 4,801,884 22,546,117 8,855,844
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 3,053,880 1,254,083 5,637,374 2,094,239
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest Expense (1,961,047) (201,298) (2,654,036) (395,205)
Interest and Other Income 506,367 18,657 544,934 44,855
------------ ------------ ------------ ------------
TOTAL OTHER (EXPENSE) (1,454,680) (182,641) (2,109,102) (350,350)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES AND 1,599,200 1,071,442 3,528,272 1,743,889
MINORITY INTEREST
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 360,439 42,705 544,608 105,072
PROVISION FOR INCOME TAXES 807,386 423,087 1,520,727 435,393
------------ ------------ ------------ ------------
NET INCOME $ 431,375 $ 605,650 $ 1,462,937 $ 1,203,424
============ ============ ============ ============
NET INCOME PER COMMON SHARE
Primary $ .06 $ .14 $ .17 $ .29
============ ============ ============ ============
Fully Diluted $ .06 $ .14 $ .15 $ .29
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS
OUTSTANDING:
Primary 17,559,284 4,229,761 16,397,659 4,130,861
============ ============ ============ ============
Fully Diluted 18,917,512 4,229,761 17,820,342 4,130,861
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
------------
ADDITIONAL TOTAL
----------- -----------
NUMBER OF PAID-IN DEFERRED STOCKHOLDERS'
---------- ----------- ------------ RETAINED -----------
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
---------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 7,032,622 $ 70,326 $22,953,590 $(1,026,901) $ 2,495,678 $ 24,492,693
Common Stock and Options 1,920,070 19,201 7,881,940 -- -- 7,901,141
Issued for Acquisitions
Stock Options Exercised 29,000 290 104,710 -- -- 105,000
Compensation Cost - Stock -- -- 2,644,360 (2,423,630) -- 220,730
Options Granted
Warrants Exercised 2,928,123 29,281 15,828,810 -- -- 15,858,091
Common Stock Issued in 20,000 200 124,800 -- -- 125,000
Settlement of Litigation
Common Stock Issued to 93,000 930 580,320 -- -- 581,250
Cancel Consulting Agreement
Common Stock Issued for 4,200 42 15,958 -- -- 16,000
Debt Conversion
Restricted Stock Issued -- -- 4,248,750 (4,248,750) -- --
Fair Value of Detachable -- -- 1,672,550 -- -- 1,672,550
Warrants -
Convertible Debentures
Income Tax Benefit from -- 214,738 214,738
Options Exercised -- -- --
Amortization of Deferred -- -- 398,438
Compensation -- 398,438 --
Net Income -- -- -- -- 1,462,937 1,462,937
---------- --------- ----------- ------------ ------------ -----------
BALANCE - JUNE 30, 1996 12,027,015 $ 120,270 $56,270,526 $(7,300,843) $ 3,958,615 $53,048,568
========== ========= =========== ============ ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
----------------------------
1 9 9 6 1 9 9 5
------------ ------------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES $ 1,833,529 $ 210,793
INVESTING ACTIVITIES:
Purchase of Property and Equipment (2,741,740) (505,853)
Acquisitions [Net of Cash Acquired] (13,164,606) (1,330,000)
------------ ------------
NET CASH - INVESTING ACTIVITIES (15,906,346) (1,835,853)
------------ ------------
FINANCING ACTIVITIES:
Proceeds From Subordinated Convertible Debentures 54,492,532 --
Repayments on Debt and Capital Lease Obligations (4,470,413) (2,714,067)
Proceeds from Borrowings 2,246,356 2,130,211
Common Stock Issued and Exercise of Warrants and Options 15,963,091 100,000
Bridge Loans Proceeds -- 850,000
------------ ------------
NET CASH - FINANCING ACTIVITIES 68,231,566 366,144
------------ ------------
NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS 54,158,749 (1,258,916)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 4,373,876 2,824,440
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 58,532,625 $ 1,565,524
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,419,305 $ 393,643
Income Taxes $ -- $ --
</TABLE>
The fair market value of Common Stock and options issued in connection with
acquisitions was $7,901,141 in 1996.
The fair market value of Common Stock issued in connection with the settlement
of claim totaled $125,000 in 1996.
The fair market value of Common Stock issued in connection with the cancellation
of a consulting agreement totaled $581,250 in 1996.
The fair market value of detachable warrants issued in connection with the
Convertible Debentures was $1,672,550 in 1996.
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
[1] INTERIM FINANCIAL STATEMENTS AND RESTATEMENT
The accompanying condensed consolidated financial statements as of and for the
three and six months ended June 30, 1996 of US Diagnostic Inc. (formerly U.S.
Diagnostic Labs Inc.) and its subsidiaries (the "Company") have been restated
from those previously filed with the Securities and Exchange Commission (the
"SEC"). 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.
The accompanying condensed consolidated financial statements include the
accounts of the Company and have been prepared by the Company pursuant to the
rules and regulations of 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.
These condensed consolidated financial statements should be read in conjunction
with the Company's 1996 audited consolidated financial statements and notes
thereto included in the Company's Annual Report, filed with the SEC, on Form
10-KSB.
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.
[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. Fully diluted earnings per share includes 1,163,853 escrowed shares
issued in connection with the Company's initial public offering. The escrow
shares will be released if the Company attains certain earnings in 1996. Due to
the large number of common stock equivalents, fully diluted earnings per share
is computed using the modified treasury stock method.
[3] INCOME TAXES
Income taxes have been provided for based upon the Company's annual effective
income tax rate for 1996.
[4] LONG-TERM DEBT
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
8
<PAGE>
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
In connection with a settlement agreement, dated January 30, 1996, the Company
issued 20,000 shares of Common Stock in consideration for the alleged improper
termination of employment and cancellation of options to purchase 40,000 shares
of the Company's Common Stock. The aggregate market value of these 20,000 shares
of Common Stock was approximately $125,000 and is included in Loss on Settlement
of Claim in the accompanying consolidated condensed statement of operations.
A former director of the Company is one of three stockholders of Med LNC, Inc.,
to which the Company was obligated to pay monthly consulting fees of $15,000
through June 1999. This consulting agreement was entered into in conjunction
with an acquisition. In January 1996, the Company issued 93,000 shares of Common
Stock in full payment of the remaining 41 months of the agreement. The aggregate
market value of the stock issued was $581,250 at the date the shares were
issued. This amount is included in General and Administrative Expense in the
accompanying consolidated condensed statement of operations.
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 1, 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 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 in Note 8. 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 8.
In June 1996, the Company granted 275,000 shares of restricted Common Stock to
officers and directors of the Company. These restricted stock grants have
vesting periods ranging from two to five years. The aggregate market value at
grant date of the restricted stock granted was $3,540,625. Such amount is being
amortized over the vesting periods.
In June 1996, the Company also granted 55,000 shares of restricted Common Stock
to Coyote Consulting. These restricted stock grants vested over five years. The
market value at grant date was $708,125. The related consulting agreement with
Coyote Consulting was terminated subsequent to December 31, 1996. The
unamortized deferred compensation was expensed in the fourth quarter of 1996.
See Note 8 - Litigation.
In connection with the Company's public stock offerings in 1994 and 1995, a
total of 4,237,250 Class A Warrants (including 425,000 warrants issued in
connection with a $850,000 bridge financing in 1995) and 3,812,250 Class B
Warrants were issued. The Class A Warrants entitled each registered holder to
purchase one share of Common Stock and one Class B Warrant at an
9
<PAGE>
exercise price of $6.25. The Class B Warrants entitled each registered holder to
purchase one share of Common Stock at an exercise price of $8.00. In June 1996,
in accordance with the terms of the warrants, the Company called for the
redemption of all of the outstanding Class A and Class B Warrants. In connection
therewith, the Company redeemed 2,928,123 shares and received net proceeds of
$15,858,091.
[6] STOCK BASED COMPENSATION
The Company has two stock-based compensation plans. In accordance with Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation", ("FAS 123"), the Company has accounted for all 1996, stock-based
grants to non-employees as provided for by FAS 123. The Company has elected to
continue to account for its stock-based grants to employees and directors in
accordance with the provisions of APB Opinion No. 25 "Accounting for Stock
Issued to Employees". The fair value of each option granted to non-employees was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest rates ranging from 5.8 percent
through 7.1 percent; dividend yield of zero percent; expected lives ranging from
4 to 7 years; and volatility of 73 percent.
[7] ACQUISITIONS
All of the acquisitions made by the Company during the three months ended June
30, 1996, were accounted for under the purchase method of accounting. The
Company allocates the purchase price to net assets acquired based upon their
estimated fair market values. The Company may adjust the allocation of the
purchase price subsequent to the initial allocation as more information becomes
available.
During the three months ended June 30, 1996, the Company and its subsidiaries
acquired at least a majority interest in 5 multi-modality diagnostic businesses.
The combined purchase price for the businesses was $23,978,512. The purchase
price was comprised of $13,179,739 in cash, $2,532,032 in debt, and common stock
and options of the Company with an aggregate market value of $8,268,750 at the
respective valuation dates of the acquisitions. The excess of the purchase price
over the fair value of net tangible assets acquired relating to these
acquisitions totaled $23,622,467.
Certain of the above acquisition agreements provide for contingent consideration
upon the achievement of certain earnings in future periods by the acquired
company. When and if the consideration is paid, goodwill will be increased by
the amount of the additional consideration. Goodwill will be amortized on a
prospective basis over its remaining estimated life.
In connection with the aforementioned acquisitions, the Company entered into
consulting and employment contracts with certain individuals of the acquired
companies. Payments relating to these contracts are charged to operations in the
period in which the related services are provided.
The Company also entered into non-compete agreements with certain individuals of
some of the companies acquired. The cost of these non-compete agreements is
recorded as an intangible asset as of the date of the related acquisition and
amortized over the contractual life of the agreement.
The results of operations of the acquired businesses are included in the
Company's consolidated results of operations from the date of acquisition.
The following summarizes the unaudited pro forma effect of the businesses
acquired during the six months ended June 30, 1996 accounted for under the
purchase method as if the businesses had been acquired as of January 1, 1995.
This presentation is prepared in accordance with APB Opinion No. 16 and does not
reflect estimates for potential operating efficiencies and other cost savings.
10
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SIX MONTHS ENDED JUNE 30,
-------------------------------
1996 1995
-------------- --------------
Revenue as reported $ 28,183,491 $ 10,950,083
Effect of Acquisitions 11,700,000 11,650,000
-------------- --------------
Pro Forma revenue $ 39,883,491 $ 22,600,083
============== ==============
Net Income as Reported $ 1,462,937 $ 1,203,424
Effect of Acquisitions 1,704,000 622,000
-------------- --------------
Pro Forma Net Income $ 3,166,937 $ 1,825,424
============== ==============
Earnings Per Share
Primary:
Historical $ .17 $ .29
Effect of Acquisitions .09 .06
-------------- --------------
Pro Forma Earnings Per Share $ .26 $ .35
============== ==============
Fully Diluted:
Historical $ .15 $ .29
Effect of Acquisitions .08 .02
-------------- --------------
Pro Forma Earnings Per Share $ .23 $ .31
============== ==============
The Company has Letters of Intent to acquire the following five diagnostic
facilities:
<TABLE>
<CAPTION>
NAME LOCATION BUSINESS PURCHASED OWNERSHIP %
- ---- -------- -------- ---------------------
<S> <C> <C> <C>
MediTek Health Corp. South Florida Multi-Modality Imaging 100%
LINC Imaging Southern California MRI 100%
Medical Marketing Development New York Area Multi-Modality Imaging 100%
Medical Imaging Center of Southern California Multi-Modality Imaging and 100%
America, Inc. Fee for Service Contract
Integrated Health Concepts. Houston, TX Multi-Modality Imaging 70%
</TABLE>
The Company intends to finance these acquisitions with cash, notes, convertibles
notes and common stock.
[8] LITIGATION FILED SUBSEQUENT TO JUNE 30, 1996
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. 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.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The accompanying condensed consolidated financial statements as of June 30, 1996
have been restated from those previously filed with the SEC. The Company's Form
10-KSB for the year ended December 31, 1996 was filed with the SEC on April 11,
1997 and should be read in conjunction with the following analysis of the
Company as of June 30, 1996.
11
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The Company was incorporated in Delaware on June 17, 1993, and is a medical
services provider specializing in the acquisition, operation and management of
multi-modality diagnostic imaging centers and related medical facilities. The
Company provides a variety of medical diagnostic testing and evaluation service
procedures including magnetic resonance imaging, computerized tomography
scanning, ultrasound, cardiology and various radiological services.
The Company's financial performance is substantially dependent upon its ability
to integrate the operations of acquired imaging centers and therapy centers into
the Company's infrastructure and reduce operating expenses of acquired entities,
while continuing to deliver equivalent service to clients immediately after an
acquisition without significant interruption or inconvenience. Also there are
various other risks associated with the acquisition of businesses, including
expenses associated with the integration of the acquired businesses.
Approximately 95% all of the Company's revenues are derived from third party
payors. 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
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. Statements in this Form 10-QSB/A that are not
descriptions of historical fact are forward-looking statements that are subject
to risks and uncertainties. Actual results could differ materially from those
currently anticipated.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED
WITH THE THREE AND SIX MONTHS ENDED JUNE 30, 1995
Revenue for the three months ended June 30, 1996 increased $9,559,415 from
$6,055,967 to $15,615,382 as compared to the comparable 1995 period. Net income
for the three months ended June 30, 1995 was $605,650 compared to net income of
$431,375 for the three months ended June 30, 1996. The revenue increase is
primarily due to acquisitions.
Net patient revenue for the six months ended June 30, 1996 increased $17,233,408
from $10,950,083 to $28,183,491 as compared to the comparable 1995 period. Net
income for the six months ended June 30, 1996 increased $259,513 from $1,203,424
to $1,462,937. The revenue increase is primarily from acquisitions.
General and administrative expenses for the three months ended June 30, 1996
increased $4,908,839 from $4,059,533 in the 1995 period to $8,968,372 in the
1996 period. General and administrative expenses for the six months ended June
30, 1996 increased $8,522,881 from $7,611,424 in the 1995 period to $16,134,305
in the 1996 period. The increases relate to (i) the increase in operating
expenses of the Company as a result of the acquisitions described above, and
(ii) the increase in corporate overhead as the Company consolidated or commenced
consolidation of most administrative operations at its headquarters.
Bad debt expense increased from $118,744 and $214,707 for the three and six
months ended June 30, 1995 to $614,440 and $1,108,974 in the comparable 1996
periods.
Depreciation and amortization for the three months ended June 30, 1996 increased
$1,378,520 from $593,607 to $1,972,127 as compared to 1995. For the six months
ended June 30, 1996, depreciation and amortization increased $2,846,957 from
$989,713 to $3,836,670 as compared to 1995. The increases were primarily due to
acquisitions.
Stock Based Compensation Expense and Compensation to Terminated Consultant
totaled $1,006,563 and $1,341,168 for the three months and six months ended June
30, 1996, respectively, compared to $30,000 and $40,000 for the comparable
periods in
12
<PAGE>
1995. The six months ended June 30, 1996 also includes $125,000 relating to a
Loss on Settlement of a Claim incurred in the quarter ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company's cash and cash
equivalents increased by approximately $54.2 million. The Company generated
$68.2 million from financing activities, primarily from the Debentures, offset
by the repayment of notes and capital leases and used $15.9 million in investing
activities, primarily acquisitions and equipment purchases.
The Company has an unused line of credit of $15 million at the prime interest
rate with a bank.
As of June 30, 1996, the Company had an aggregate of approximately $30.1 million
of notes payable, of which approximately $3.5 million are classified as current.
Substantially all of these amounts relate to notes issued in connection with
acquisitions and equipment purchases. At that date, the Company also had
approximately $8.1 million of capital lease obligations, of which approximately
$1.8 million are current. Substantially all of these obligations are related to
equipment for the Company's imaging centers acquired pursuant to completed
acquisitions. The Company's monthly payments for capitalized lease obligations
aggregate approximately $191,000. The Company also pays aggregate annual
rent of approximately $3.7 million for its 31 facilities.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this amendment to be signed on
its behalf by the undersigned, thereunto duly authorized.
US DIAGNOSTIC INC.
Dated: May 21, 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
14
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 Computation of Earnings Per Share of Common Stock
27 Financial Data Schedule
15
<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
- ----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ---------------------------
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE(1):
Weighted average shares outstanding 7,485 4,230 6,816 4,131
Dilutive effect of conversions 10,074 -- 9,582 --
--------- -------- --------- --------
Primary weighted average shares of common
stock and common stock equivalents outstanding 17,559 4,230 16,398 4,131
========= ======== ========= ========
Net Income $ 431 $ 606 $ 1,463 $ 1,203
Adjustment to net income for interest
savings, net of related income taxes 658 -- 1,319 --
--------- -------- --------- --------
Adjusted net income $1,089 $ 606 $2,782 $1,203
========= ======== ========= ========
Earnings per share - primary $.06 $.14 $ .17 $.29
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding, including
escrow shares 9,021 4,230 8,210 4,131
Dilutive effect of conversions 9,897 4,972 9,610 4,972
--------- -------- --------- --------
Fully diluted weighted average shares of
common stock and common stock equivalents
outstanding 18,918 9,202 17,820 9,103
========= ======== ========= ========
Net Income $ 431 $ 606 $ 1,463 $ 1,203
Adjustments to net income for interest savings,
net of related income taxes 620 775 1,204 1,546
--------- -------- --------- --------
Adjusted net income $1,051 $1,381 $2,667 $2,749
========= ======== ========= ========
Earnings per share - fully diluted $.06 $.15 $.15 $.30
========= ======== ========= ========
</TABLE>
(1) For the 1995 periods the effects of common stock equivalents was
anti-dilutive and therefore excluded from the calculation of earnings per share.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITE ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-30-1996
<CASH> 58,532,625
<SECURITIES> 0
<RECEIVABLES> 21,083,850
<ALLOWANCES> (2,632,654)
<INVENTORY> 0
<CURRENT-ASSETS> 79,501,112
<PP&E> 39,188,631
<DEPRECIATION> (5,191,016)
<TOTAL-ASSETS> 161,318,100
<CURRENT-LIABILITIES> 10,606,042
<BONDS> 88,947,961
0
0
<COMMON> 120,270
<OTHER-SE> 52,928,298
<TOTAL-LIABILITY-AND-EQUITY> 161,318,100
<SALES> 0
<TOTAL-REVENUES> 28,183,491
<CGS> 0
<TOTAL-COSTS> 21,437,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,108,974
<INTEREST-EXPENSE> 2,654,036
<INCOME-PRETAX> 3,528,272
<INCOME-TAX> 1,520,727
<INCOME-CONTINUING> 1,462,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,462,937
<EPS-PRIMARY> .17
<EPS-DILUTED> .15
</TABLE>
