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 September 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)
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DELAWARE 11-3164389
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification Number)
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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 October 31, 1996:
----- --------------------------------
Common Stock, $.01 par value 23,440,201 shares
Traditional Small Business Disclosure Format
Yes [X] No [ ]
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US DIAGNOSTIC INC.
INDEX TO FORM 10-QSB/A
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PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.................................................................................3
Condensed Consolidated Statements of Operations for the Three and Nine
Months ended September 30, 1996 and 1995..............................................................5
Condensed Consolidated Statements of Stockholders' Equity for Nine Months
ended September 30, 1996..............................................................................6
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 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................................................................................12
SIGNATURES...........................................................................................15
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1 9 9 6 1 9 9 5
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ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $81,863,494 $ 4,373,876
Accounts Receivable (Net of Allowance for Bad Debts
of $5,110,118 and $645,928 Respectively) 28,614,307 10,818,919
Prepaid Expenses 5,222,286 900,619
Other Current Assets 930,076 270,796
-------------- -------------
TOTAL CURRENT ASSETS 116,630,163 16,364,210
-------------- -------------
Property and Equipment - Net 51,261,859 22,550,884
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INTANGIBLE ASSETS:
Goodwill 87,893,955 12,941,462
Covenants Net to Compete 3,678,575 2,305,639
Customer Lists 2,581,445 2,745,833
-------------- -------------
TOTAL INTANGIBLE ASSETS - Net 94,153,975 17,992,934
-------------- -------------
Other Assets 4,575,627 371,196
Investment in Unconsolidated Subsidiaries 5,197,725 --
-------------- -------------
TOTAL ASSETS $271,819,349 $ 57,279,224
=============== =============
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See Notes to Condensed Consolidated Financial Statements.
3
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1 9 9 6 1 9 9 5
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 6,870,952 $ 2,862,399
Short-Term Borrowings 750,000 667,286
Current Portion of Long-Term Debt 13,198,992 3,831,975
Obligations Under Capital Leases - Current Portion 2,156,267 2,519,982
Other Current Liabilities 2,190,904 536,759
-------------- -------------
TOTAL CURRENT LIABILITIES 25,167,115 10,418,401
-------------- -------------
Subordinated Convertible Debentures 56,126,120 --
Long-Term Debt (Net of Current Portion) 32,725,912 15,992,617
Obligations Under Capital Leases (Net of Current Portion) 9,482,373 5,072,018
Other Liabilities 350,599 423,500
Deferred Income Taxes 7,924,930 164,452
-------------- -------------
TOTAL LIABILITIES 131,777,049 32,070,988
-------------- -------------
MINORITY INTERESTS 5,204,633 715,543
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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 22,931,163
and 7,032,622 Shares Issued and Outstanding at September 30, 1996 and
December 31, 1995, respectively 229,312 70,326
Additional Paid in Capital 135,848,378 22,953,590
Retained Earnings 5,066,392 2,495,678
Deferred Stock Based Compensation (6,306,415) (1,026,901)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 134,837,667 24,492,693
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 271,819,349 $ 57,279,224
=============== =============
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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 OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
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REVENUES $ 31,368,079 $ 7,282,203 $ 59,551,570 $18,232,286
---------- --------- ---------- ----------
OPERATING EXPENSES:
General and Administrative Expense 19,020,265 4,961,288 35,154,570 12,573,212
Bad Debt Expense 1,234,282 142,788 2,343,256 357,495
Depreciation and Amortization Expense 2,982,041 696,013 6,818,711 1,685,726
Stock Based Compensation 1,037,055 -- 1,604,487 --
Loss on Sale of Stock of Subsidiary 389,305 -- 389,305 --
Loss on Settlement of Claim -- -- 125,000 --
Compensation to Terminated Consultant 1,424,041 37,792 2,197,777 77,292
----------- -------------- -------------- -----------
Total Operating Expenses 26,086,989 5,837,881 48,633,106 14,693,725
----------- ------------ ------------- ----------
INCOME FROM OPERATIONS 5,281,090 1,444,322 10,918,464 3,538,561
---------- ------------ ------------ ----------
OTHER INCOME [EXPENSE]:
Interest Expense (2,933,265) (337,360) (5,587,301) (732,565)
Interest and Other Income 872,240 270,243 1,417,174 315,098
Non-Cash Finance Charge -- (414,375) -- (414,375)
------------------ ------------- ---------------- --------------
TOTAL OTHER [EXPENSE] (2,061,025) (481,492) (4,170,127) (831,842)
-------------- ------------ ------------ -------------
INCOME BEFORE PROVISION FOR INCOME TAXES AND 3,220,065 962,830 6,748,337 2,706,719
MINORITY INTEREST
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 633,542 75,075 1,178,150 180,147
PROVISION FOR INCOME TAXES 1,478,746 65,242 2,999,473 500,635
--------- -------------- -------------- --------------
NET INCOME $ 1,107,777 $ 822,513 $ 2,570,714 $ 2,025,937
========= ======== ========= =========
NET INCOME PER COMMON SHARE
Primary $ .05 $ .15 $ .18 .43
=== ==== === ==
Fully Diluted $ .05 $ .15 $ .15 .43
==== ===== === ==
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON
SHARE EQUIVALENTS
OUTSTANDING:
Primary 21,277,918 5,579,413 14,021,092 4,662,733
============= ============ =========== =============
Fully Diluted 23,282,035 5,579,413 17,099,589 4,662,733
============== ============ =========== =============
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See Notes to Condensed Consolidated Financial Statements
5
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
ADDITIONAL TOTAL
NUMBER OF PAID-IN DEFERRED RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
------ ------ ------- ------------ -------- ------------
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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 2,670,070 26,701 12,452,903 -- -- 12,479,604
Issued for Acquisitions
Stock Options Exercised 33,000 330 124,670 -- -- 125,000
Compensation Cost - Stock -- -- 2,780,028 (2,559,298) -- 220,730
Options Granted
Warrants Exercised 12,933,441 129,335 89,696,983 -- -- 89,826,318
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 149,030 1,490 761,300 -- -- 762,790
Debt Conversion
Restricted Stock Issued -- -- 4,248,750 (4,248,750) -- --
Fair Value of Detachable -- -- 1,672,550 -- -- 1,672,550
Warrants - Subordinated
Convertible Debentures
Income Tax Benefit from -- -- 452,484 -- -- 452,484
Options Exercised
Amortization of Deferred -- -- -- 1,528,534 -- 1,528,534
Compensation
Net Income -- -- -- -- 2,570,714 2,570,714
------------- ---------- ------------ ------------ ---------- ------------
BALANCE - SEPTEMBER 22,931,163 $229,312 $135,848,378 $(6,306,415) $5,066,392 $134,837,667
30, 1996 ============= ========== ============ ============ ========== ============
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See Notes to Condensed Consolidated Financial Statements
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1 9 9 6 1 9 9 5
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NET CASH - OPERATING ACTIVITIES $ 1,294,509 $ 1,594,748
INVESTING ACTIVITIES:
Purchase of Property and Equipment (3,783,813) (5,577,107)
Acquisitions [Net of Cash Acquired] (61,424,162) (6,612,632)
Investment in Unconsolidated Subsidiary (1,094,312) --
Sale of Subsidiary 1,800,000 --
Intangible Assets -- (2,461,962)
---------- -----------
NET CASH - INVESTING ACTIVITIES (64,502,287) (14,651,701)
----------- -----------
FINANCING ACTIVITIES:
Proceeds From Subordinated Convertible Debentures 54,492,532 --
Repayments on Debt and Capital Lease Obligations (7,107,121) (4,737,046)
Proceeds from Borrowings 3,360,667 7,885,090
Common Stock Issued and Exercise of Warrants and Options 89,951,318 12,187,067
---------- ----------
NET CASH - FINANCING ACTIVITIES 140,697,396 15,335,111
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 77,489,618 2,278,158
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 4,373,876 2,824,440
------------- ----------
CASH AND CASH EQUIVALENTS - AT END OF PERIOD $ 81,863,494 $ 5,102,598
============= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 4,969,838 $ 732,565
Income Taxes $ 3,388,463 $ --
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The fair market value of Common Stock and options issued in connection with
acquisitions was $12,479,604 in 1996.
The fair market value of Common Stock issued in connection with the settlement
of a 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.
Common stock issued in connection with the conversion of debt totaled $762,790
in 1996.
The fair 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
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US DIAGNOSTIC INC. AND SUBSIDIARIES
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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 nine months ended September 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.
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 interim financial statements should be read in
conjunction with the Company's 1996 audited consolidated financial statements
and notes thereto including 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 which will be
released if the Company attains certain earnings in 1996.
[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. Debenture issuance costs of $3,463,785 are being amortized as
interest expense over the term of the Debentures. The unamortized balance is
included in Other Assets in the accompanying balance sheet at September 30,
1996.
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
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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
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 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 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 9. 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.
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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 9.
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 9.
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 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.
[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 and
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions for 1996: 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] INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
In August 1996, the Company sold its clinical laboratory business, with a net
book value of $3,389,305, to a non-affiliated entity ("Buyer"). The Company
received 30,000 Preference Shares of the Buyer valued pursuant to the terms of
the Asset Purchase Agreement at $3,000,000. The Company recorded a loss of
$389,305 on the sale. In the fourth quarter of 1996, the Company wrote-off the
$3,000,000 of Preference Shares. The write-off was based on the receipt by the
Company of the Buyer's audited financial statements for the year ended October
31, 1996 which reflected negative working capital and a tangible net deficit
applicable to common stockholders. In addition, the Buyer had incurred operating
losses for the past year.
Effective July 1, 1996, the Company entered into a 50 - 50 joint venture with
Phycor of Jacksonville, Inc., a wholly-owned subsidiary of Phycor, Inc., to
lease outpatient imaging equipment and facilities and equipment to affiliated
providers in South Georgia and North Florida through Diagnostic Equity Partners,
("DEP"), a partnership. The Company initially contributed the fixed assets and
related debt of its Orange Park facility and subsequently the fixed assets of
its Salisbury facility with a combined net book value of $1,093,878. In July
1996, the Company acquired the remaining 20% of the common stock of Salisbury
owned by a Director and Officer of the Company for $567,437.
[8] ACQUISITIONS
All of the acquisitions made by the Company during the three months ended
September 30, 1996, were accounted for under the purchase method of accounting.
The Company allocates the purchase price to net assets acquired
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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 September 30, 1996, the Company and its
subsidiaries acquired at least a majority interest in 6 multi-modality
diagnostic businesses. The combined purchase price for the businesses was
$61,090,821. The purchase price was comprised of $42,994,966 in cash,
$12,973,355 in debt, and common stock and options of the Company with an
aggregate market value of $5,122,500 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 $51,535,366.
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 nine months ended September 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.
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1995
----------- --------------
Revenue as Reported $59,551,570 $ 18,232,286
Effect of Acquisitions 30,588,000 46,386,000
----------- --------------
Pro Forma Revenue $90,139,570 $ 64,618,286
=========== ==============
Net Income as Reported $ 2,570,714 $ 2,025,937
Effect of Acquisitions 1,121,000 (24,000)
----------- --------------
Pro Forma Net Income $ 3,691,714 $ 2,001,937
=========== ==============
Earnings Per Share
Primary:
Historical $ .18 $ .43
Effect of Acquisitions .06 (.12)
----------- --------------
Pro Forma Earnings Per Share $ .24 $ .31
=========== ==============
Fully Diluted:
Historical $ .15 $ .43
Effect of Acquisitions .06 (.16)
----------- --------------
Pro Forma Earnings Per Share $. 21 $ .27
=========== ==============
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The Company has Letters of Intent to acquire the following five diagnostic
facilities:
NAME LOCATION BUSINESS PURCHASED OWNERSHIP %
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Lee Imaging New York, NY Nuclear Imaging Chain 80%
Sunport San Antonio, TX Imaging Chain 100%
Medical Marketing Development New York Multi-Modality Imaging 100%
MICA San Diego, CA Imaging Chain 100%
Dayton Medical Imaging Dayton, OH Imaging Chain 100%
</TABLE>
The Company intends to finance these acquisitions with cash, notes, convertibles
notes and common stock.
[9] LITIGATION FILED SUBSEQUENT TO SEPTEMBER 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 September 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 September 30, 1996.
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% 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 service
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
12
<PAGE>
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 NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
Net patient revenue for the three months ended September 30, 1996 increased
$24,085,876 from $7,282,203 to $31,368,079 as compared to the comparable 1995
period. The revenue increase is a result of the acquisition of imaging centers
during the nine months ended September 30, 1996.
Net patient revenue for the nine months ended September 30, 1996 increased
$41,319,284 from $18,232,286 to $59,551,570 as compared to the comparable 1995
period. Net income for the nine months ended September 30, 1996 increased
$544,777 from $2,025,937 to $2,570,714. The revenue increase reflects the
acquisition of imaging centers. Revenues for centers owned as of January 1, 1995
increased by an average of 5% on a same center basis for the nine months ended
September 30, 1996 compared to the 1995 period.
The Company sold its clinical laboratory operations as of August 1, 1996 and
recognized a loss of $389,315 in the three and nine months ended September 30,
1996.
General and administrative expenses for the three months ended September 30,
1996 increased $14,058,977 from $4,961,288 in the 1995 period to $19,020,265 in
the 1996 period, but declined as a percentage of net revenues from approximately
68% to 61%. General and administrative expenses for the nine months ended
September 30, 1996 increased $22,581,358 from $12,573,212 in the 1995 period to
$35,154,570 in the 1996 period, but declined as a percentage of net revenues
from approximately 69% to 59%. 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.
Depreciation and amortization for the three months ended September 30, 1996
increased approximately $2,286,028 from $696,013 to $2,982,041 as compared to
1995. Depreciation and amortization for the nine months ended September 30, 1996
increased approximately $5,132,985 from $1,685,726 to $6,818,711 as compared to
1995. The increases were primarily due to acquisitions.
Stock Based Compensation Expense and Compensation to Terminated Consultant
totaled $2,461,096 and $3,802,264 for the three months and nine months ended
September 30, 1996, respectively compared to $37,792 and $77,292 in the
comparable periods of 1995. The nine months ended September 30, 1996 also
includes a $125,000 loss relating to a settlement of a claim incurred in the
quarter ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had approximately $81,863,000 in cash and
cash equivalents and working capital of $91,463,048. In 1996 the Company has
raised an aggregate of approximately $143 million, primarily as a result of the
offering of $57.5 million principal amount of 9% Subordinated Convertible
Debentures due 2003 (the "Debentures") in April and May 1996, which generated
net proceeds of $53 million, as well as the exercise of substantially all of the
Class A Warrants, Class B Warrants and other outstanding warrants, which
generated net proceeds of $90 million. Of the cash on hand at September 30,
1996, approximately $11 million was used for the MMD, Sunport and Lee Imaging
transactions and $35 million is expected to be used for the MICA transaction.
The Company will use the remaining proceeds for future acquisitions and for
working capital and general corporate purposes. There can be no assurance that
the Company will be able to effectively utilize all of such cash.
13
<PAGE>
For the nine months ended September 30, 1996, the Company increased its cash and
cash equivalents by $77.5 million. The Company generated $140.7 million from
financing activities, primarily from the Debentures and exercise of the
warrants. The Company used $64.5 million for investing activities. Operating
activities generated $1.3 million in cash.
The Company's facilities are generally cash flow positive from the date of
acquisition, and as such the Company's capital needs primarily relate to the
acquisition of additional facilities. Acquisitions will be funded through cash,
notes, equity securities issued by the Company, or any combinations of the
foregoing.
The Company has an unused line of credit of $15 million at the prime interest
rate with a bank and is currently negotiating for an increased line of credit.
The Company is also having discussions with various institutions with respect to
raising additional capital.
Item 3. OTHER INFORMATION
MEDICAL IMAGING CENTERS OF AMERICA, INC.
On November 12, 1996, the Company completed its previously announced merger (the
"Merger") with Medical Imaging Centers of America, Inc. ("MICA"). Pursuant to
the Merger, each outstanding share of MICA's common stock ("MICA Common Stock"),
was converted into a right to receive $11.75 in cash (the "Merger
Consideration"). Each option to purchase MICA Common Stock (each "MICA
Option") was cancelled and each holder of a MICA Option became entitled to a
cash payment equal to the product of the total number of shares subject to the
MICA Option and the excess of $11.75 over the exercise price per share of the
MICA Common Stock subject to the MICA Option.
On September 29, 1996, Raytel Medical Corporation ("Raytel"), which owns 51% of
the Orlando Diagnostic Center ("ODC"), commenced litigation in the Superior
Court of San Diego County seeking to enjoin the Merger and certain unspecified
damages. The complaint alleged that MICA breached a joint venture agreement and
partnership agreement relating to ODC by entering into the merger agreement with
the Company relating to the Merger since the Company operates two imaging
centers in Orlando. The complaint also asserted claims against MICA and the
Company for intentional interference with economic relations and conspiracy to
interfere with economic relations.
On November 7, 1996, the court denied Raytel's request to enjoin the Merger. The
court ordered the parties to appoint an independent receiver at USD's and MICA's
expense to manage ODC until the dispute is resolved in order to maintain the
status quo. The court also denied Raytel's request requiring MICA to sell its
49% interest in ODC to Raytel for the fair market value or at a price no higher
than the price offered by MICA to Raytel for Raytel's interest in ODC.
14
<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 23, 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
15
<PAGE>
EXH EXHIBIT INDEX
- --- -------------
11 Computation of Earnings per share of Common Stock
27 Financial Data Schedule
<TABLE>
<CAPTION>
US DIAGNOSTIC INC. AND SUBSIDIARIES
================================================================================
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
================================================================================
EXHIBIT 11
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 18,287 4,671 10,662 3,755
Dilutive effect of conversions 2,991 908 3,359 908
------ ----- ------ -----
Primary weighted average shares of common stock and
common stock equivalents outstanding 21,278 5,579 14,021 4,663
====== ===== ======= =====
Net Income $1,108 $823 $2,571 $2,026
====== === ===== =====
Earnings per share - primary $.05 $.15 $.18 $.43
=== === === ===
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding, including
escrow shares 20,325 4,671 12,254 3,755
Dilutive effect of conversions 2,957 7,182 4,846 5,996
Fully diluted weighted average shares of common stock
and common stock equivalents outstanding 23,282 11,853 17,100 9,751
====== ====== ====== =====
Net Income $1,108 $ 823 $2,571 $ 2,026
Adjustments to net income for interest savings, net
of income taxes -- 955 -- 2,477
------ --- ------ -----
Adjusted Net Income $1,108 $1,778 $2,571 $4,503
====== ===== ====== =====
Earnings per share - fully diluted $.05 $.15 $.15 $.46
==== ==== ==== ===
</TABLE>
- ---------------------------------------
16
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 ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JUL-01-1996
<CASH> 81,863,494
<SECURITIES> 0
<RECEIVABLES> 33,724,425
<ALLOWANCES> (5,110,118)
<INVENTORY> 0
<CURRENT-ASSETS> 116,630,163
<PP&E> 56,837,581
<DEPRECIATION> (5,575,722)
<TOTAL-ASSETS> 271,819,349
<CURRENT-LIABILITIES> 25,167,115
<BONDS> 98,334,405
0
0
<COMMON> 229,312
<OTHER-SE> 134,608,355<F1>
<TOTAL-LIABILITY-AND-EQUITY> 271,819,349
<SALES> 0
<TOTAL-REVENUES> 59,551,570
<CGS> 0
<TOTAL-COSTS> 46,289,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,343,256
<INTEREST-EXPENSE> 5,587,301
<INCOME-PRETAX> 6,748,337
<INCOME-TAX> 2,999,473
<INCOME-CONTINUING> 2,570,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,570,714
<EPS-PRIMARY> .18
<EPS-DILUTED> .15
<FN>
<F1>*Retained earnings - $5,066,392
</FN>
</TABLE>
