UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the period from ___________________ to _________________
Commission file number 0-25344
----------------------------------------
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 25-1741216
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1315 Greg Street, Suite 103
Sparks, Nevada 89431
(Address of principal (Zip Code)
executive offices)
(702) 356-2315
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months
(or such shorter period that the issuer 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 practical date: Common Stock, par value $.01
per share, 7,456,844 shares outstanding as of April 30, 1996.
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $6,324,229 $6,580,223
Accounts receivable - billed 2,570,579 2,020,862
Accounts receivable - unbilled 502,664 231,000
Accounts receivable - principal stockholders 50,000 --
Miscellaneous receivable 17,240 30,189
Other assets and prepaid expenses 20,047 5,218
---------- ----------
Total current assets 9,484,759 8,867,492
---------- ----------
Deposit on software license 700,000 700,000
Property and equipment, net 19,029 14,232
Client lists, net 3,911,223 2,376,195
Deferred costs 7,143 20,810
----------- -----------
Total assets $14,122,154 $11,978,729
=========== ===========
LIABILITIES
Current liabilities:
Accrued subcontract fees $1,064,632 $1,051,895
Accounts payable and accrued expenses 70,417 572,252
Federal income taxes payable 189,412 135,612
---------- ----------
Total current liabilities 1,324,461 1,759,759
---------- ----------
Deferred income taxes 5,422 --
Commitments and contingent liabilities -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,0000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 7,426,844 and 7,119,167 shares
issued and outstanding 74,269 71,192
Paid-in capital 11,092,433 8,952,880
Retained earnings 1,625,569 1,194,898
---------- ---------
Total stockholders' equity 12,792,271 10,218,970
---------- ----------
Total liabilities and stockholders' equity $14,122,154 $11,978,729
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
INCOME STATEMENTS
For the Three Month Periods Ended March 31, 1996 and 1995
1996 1995
----------- -----------
(unaudited) (unaudited)
Revenues $2,134,761 $1,209,469
Subcontract expense 1,379,950 846,628
----------- -----------
Operating Income 754,811 362,841
Selling, general and administrative expense 104,333 116,422
Interest (income) (51,915) --
----------- -----------
Income before income taxes 702,393 246,419
----------- -----------
Provision for income taxes:
Current 266,300 83,800
Deferred 5,422 --
----------- -----------
271,722 83,800
----------- -----------
Net income $430,671 $162,619
=========== ===========
Primary net income per share $0.06 $0.03
=========== ===========
Weighted average number of shares
outstanding used in primary calculation 7,751,189 4,666,667
=========== ===========
Fully diluted net income per share $0.06 $0.03
=========== ===========
Weighted average number of shares
outstanding used in fully diluted calculation 7,829,694 4,666,667
=========== ===========
See accompanying notes to financial statements.
3
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net $ 430,671 $ 162,619
Adjustments to reconcile net income to cash
(used in) operating activities:
Depreciation and amortization expense 59,223 174
Deferred income taxes 5,422 --
Changes in assets and liabilities:
Increase in receivables (586,768) (1,209,469)
Increase (decrease) in other assets (14,829) 1,768
Increase in accounts payable and accrued expenses 10,902 954,427
Decrease in payable to stockholder -- (5,000)
Increase in income taxes payable 53,800 83,800
----------- -----------
Net cash used in operations (41,579) (11,681)
----------- -----------
Cash flow from investing activities:
Receivables acquired in acquisition (271,664) --
Deferred costs-contract acquisitions 13,667 --
Purchase of property and equipment (5,797) (6,215)
Deposit on software license -- (700,000)
Client lists 56,749 --
----------- -----------
Net cash used in investing activities (207,045) (706,215)
----------- -----------
Cash flow from financing activities:
Initial public offering costs (7,370) (101,866)
Collection of stockholder's receivables -- 100,937
----------- -----------
Net cash provided by financing activities (7,370) (929)
----------- -----------
Net increase in cash (255,994) (718,825)
Cash balance, Beginning balance 6,580,223 718,825
----------- -----------
Cash balance, Ending balance $6,324,229 $ --
=========== ===========
Supplemental data:
Cash paid for income taxes $ 212,500 $ --
=========== ===========
Non-cash items:
Stock issued for business and contract acquisitions $2,150,000 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying unaudited statements of National Medical Financial
Services Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial information.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1996 are not necessarily indicative of the results of operations
that may be expected for the year ending December 31, 1996.
2. Business Acquisition:
In June 1995, the Company acquired the cash, accounts receivable and
client contracts of a billing and collection company that provides services to
medical service providers. The total consideration paid for the aforementioned
assets was $1,050,000 in cash plus 250,000 shares of the Company's Common Stock
based on a value of $4.00 per share. An additional 2,500 shares in lieu of
interest were issued on October 1, 1995 in connection with this transaction.
The terms of the transaction allow for an adjustment in the purchase
price based upon the monthly average of the actual client fees collected during
the three-month period immediately preceding the first anniversary of the
closing date. The transaction was accounted for by the purchase method of
accounting.
Subsequent to the asset acquisition by the Company, the Chairman and
principal stockholder of the Company acquired the stock of the billing and
collection company for $1.00. The fair market value of the billing and
collection company was negligible at that time.
The pro forma unaudited results of operations for the three months
ended March 31, 1995, assuming the consummation of the purchase described above,
as of January 1, 1995, are as follows:
Three Months Ended
and Year to Date
March 31, 1995
------------------
Revenues $1,597,290
Net income 165,042
Net income per share $0.03
3. Contract Acquisitions:
On February 13, 1996, the Company acquired the accounts receivable and
client contracts to provide billing and collection services to medical service
providers in Nevada. The total consideration paid was $1,800,000, consisting of
$150,000 in cash and 194,118 shares of Common Stock based on a value of $8.50
per share. The Common Stock has been placed into
5
<PAGE>
escrow and will be subject to forfeiture if the contracts do not maintain
prescribed amounts of revenue.
4. Software License:
In January 1995, the Company made a refundable deposit of $700,000 for
an unlimited site software license for a maximization of reimbursement program
currently being developed. Management expects that the program will be completed
during 1996. The software company is owned and controlled by the Company's
Chairman and principal stockholder.
5. Common Stock:
Effective February 12, 1996, the Company registered 4,666,667 shares of
Common Stock, which are owned by certain stockholders of the Company, including
3,670,833 shares which are owned by the Company's Chairman.
6. Subsequent Events:
On April 1, 1996, the Company acquired the accounts receivable and
client contracts to provide billing and collection services to medical service
providers in Nevada. The total consideration paid was $550,000, consisting of
$250,000 in cash and 30,000 shares of Common Stock based on a value of $10.00
per share. The Common Stock has been placed into escrow and will be subject to
forfeiture if the contracts do not maintain prescribed amounts of revenue.
On May 10, 1996, the Board of Directors approved a Stock Option Plan
for Non-Employee Directors (the "Plan"). The Plan will be presented at the
Company's 1996 Annual Meeting of Stockholders for stockholder adoption and
approval.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
attached financial statements and notes thereto, and with the Company's audited
financial statements and notes thereto for the fiscal year ended December 31,
1995.
Important Factors Regarding Forward Looking Statements
Some of the information presented in this report constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results of the
Company's marketing and acquisition activities and its results of operations
will not differ materially from its expectations. Factors which could cause
actual results to differ from expectations include, among others, uncertainty of
whether the Company's marketing activities will result in an expansion of its
client base or lead to additional acquisitions of contracts and entities,
uncertainties related to state and federal governmental regulation of the
Company's business, uncertainties related to the demand for the services
provided by the Company, uncertainties related to the completion of the
reimbursement software program, and the uncertainty of whether the combination
of operating cash flows and the proceeds of the Company's initial public
offering will be sufficient to fund its growth and operations over the next
twelve months. Specific reference is made to the risks and uncertainties
described in the Company's Registration Statement on Form SB-2, Registration No.
333-804, and the Company's Registration Statement on Form SB-2, Registration No.
33-87266-LA.
Results of Operations
Total revenues for the quarters ended March 31, 1996 and 1995 were
$2,134,761 and $1,209,469, respectively. Approximately 53% of the 1996 revenues,
as compared to 100% of the 1995 revenues, were derived from the Company's
contracts with Medical Service Providers owned, controlled by, or affiliated
with the Company's Chairman and principal stockholder. The acquisitions made by
the Company during the second and fourth quarters of 1995 and an acquisition
made in the quarter of 1996 are the primary reasons for the increased volumes.
The acquisitions were accounted for using the purchase method of accounting.
Revenues earned for the quarter ended March 31, 1996 were $1,828,020, or 85.6%
of revenues, for billing and collection services, $138,022, or 6.5% of revenues,
for accounting services, $53,403, or 2.5% of revenues, for late charges, and
$115,316, or 5.4% of revenues, for consulting services. Revenues earned for the
quarter ended March 31, 1995 were $1,048,571, or 86.7% of revenues, for billing
and collection services, and $160,898, or 13.3% of revenues, for accounting
services.
During the quarters ended March 31, 1996 and 1995, the Company paid
Russell Data Services, Inc., a Nevada corporation which is owned by the
Company's Chairman and principal stockholder, $1,379,950 and $846,628,
respectively, for services rendered. The Company reported operating income of
$754,811, income before taxes of $702,393, net income of $430,671, and primary
earnings per share of $0.06 for the quarter ended March 31, 1996. The Company
reported operating income of $362,841, income before taxes of $246,419, net
income of $162,619 and primary earnings per share of $0.03 for the quarter ended
March 31, 1995.
The Company incurred selling, general and administrative expenses of
$104,333 and $116,422 for the quarters ended March 31, 1996 and 1995,
respectively. The expenses for 1996
7
<PAGE>
consisted primarily of amortization related to acquisition costs of client
contracts and salaries and related benefits, while the expenses for 1995
consisted primarily of salaries and related employee benefits and professional
fees. The Company completed its first acquisition on June 30, 1995.
The Company's effective tax rate was 38.2% and 34.0% for the quarters
ended March 31, 1996 and 1995, respectively.
Liquidity and Capital Resources
At inception, the Company's operations were funded by $1,000,000 in
capital contributions in the form of notes received from the Company's
stockholders. As of March 31, 1996 and 1995, the Company received $1,000,000 and
$869,867, respectively, from the stockholders as payments against the notes. In
addition, the Company realized net income from operations of $430,671 and
$162,619 for the quarters ended March 31, 1996 and 1995, respectively.
In June 1995, the Company acquired the cash, accounts receivable and
the client contracts of Asterino, a billing and collection company located in
Schenectady, New York that provided services to approximately 20 medical service
providers ("Medical Service Providers") who were not affiliated with Asterino or
the Company's Chairman and principal stockholder. The total consideration paid
for the acquisition was $1,050,000 in cash and $600,000 in Common Stock valued
at the Company's initial public offering price, or 150,000 shares. These shares
are freely tradable, subject to a lock-up agreement expiring January 1, 1997. An
additional 2,500 shares in lieu of interest were issued on October 1, 1995 in
connection with this transaction. The Company placed an additional 100,000
shares of Common Stock into escrow pursuant to the purchase agreement. Fewer
shares will ultimately be released from escrow if certain revenue levels are not
maintained.
On August 9, 1995, the Company completed its initial public offering
(the "Offering") of 2,000,000 shares of Common Stock at $4.00 per share. In
addition, the underwriters exercised their over-allotment of 300,000 shares in
full on August 21, 1995. The net proceeds to the Company of the Offering and the
exercise of the over-allotment option was approximately $7,550,000.
On December 1, 1995, the Company acquired a billing contract between
Rapier Investments Ltd. and University Emergency Medical Foundation, Inc.
The total consideration paid for the contract was $750,000 consisting of
$650,000 in cash and 13,559 shares of Common Stock valued at $7.375 per share,
the price of the Common Stock on December 1, 1995. In accordance with the
purchase agreement, the Company placed these shares into escrow. Fewer shares
may be released from escrow if certain revenue levels are not maintained.
On February 13, 1996, the Company acquired the accounts receivable and
client contracts from Doctors Medical Billing Services, A Limited Liability
Corporation. The client contracts related to this acquisition provide billing
and collection services to approximately 25 Medical Service Providers in the Las
Vegas, Nevada area. The total consideration paid for this acquisition was
$1,800,000, consisting of $150,000 in cash and 194,118 shares of Common Stock
valued at $8.50 per share. In accordance with the purchase agreement, the
Company placed these shares into escrow. Fewer shares will ultimately be
released from escrow if certain revenue levels are not maintained.
On April 1, 1996, the Company acquired the accounts receivable and
client contracts from National Medical Services, Inc. The client contracts
related to this acquisition provide billing and
8
<PAGE>
collection services to approximately 19 Medical Service Providers in the Las
Vegas, Nevada area. The total consideration paid for this acquisition was
$550,000, consisting of $250,000 in cash and 30,000 shares of Common Stock
valued at $10.00 per share. In accordance with the purchase agreement, the
Company placed these shares into escrow. Fewer shares will ultimately be
released if certain revenue levels are not maintained.
As of March 31, 1996, certain of the Medical Service Providers which
are owned, controlled by, or affiliated with the Company's Chairman and
principal stockholder, owed the Company approximately $1.6 million in fees for
services. Of this amount, approximately $960,000 is past due 90 days or more as
of March 31, 1996. In accordance with the client contracts between the Company
and these Medical Service Providers, the Company has assessed late fees to these
Medical Service Providers. The late fees charged for the first quarter ended
March 31, 1996 was approximately $50,000. As of April 30, 1996, the Company
received approximately $296,000 related to the amounts which were due to the
Company from these entities. As of April 29, 1996, $664,000 has been prepaid to
Russell Data.
The Company's principal sources of liquidity are anticipated to be cash
flows from operations and proceeds from the Offering. The Company expects to
fund future acquisitions of contracts and future acquisitions of businesses by a
combination of funds available through the proceeds of the Offering, cash from
operations and the issuance of Common Stock and promissory notes. A similar
funding strategy is anticipated to be used in its future business growth. The
Company anticipates the cash flow from operations and the proceeds of the
Offering will be adequate to fund its operations for the next twelve months,
although there can be no assurance to that effect.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings:
(No response required)
Item 2: Changes in Securities:
(No response required)
Item 3: Defaults upon Senior Securities:
(No response required)
Item 4: Submission of Matters to a Vote of Security Holders:
(No response required)
Item 5: Other Information:
(No response required)
Item 6: Exhibits and Reports on Form 8-K:
a. Exhibits
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
b. Forms 8-K
1. Form 8-K dated February 13, 1996.
10
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
---------------------------------------------------------
(Registrant)
By: /s/ Alan H.L. Carr-Locke
---------------------------------------
Alan H.L. Carr-Locke
President and Chief Executive Officer
By: /s/ Robert W. Horner, Jr.
---------------------------------------
Robert W. Horner, Jr.
Chief Financial Officer, Secretary
and Treasurer
Signing on behalf of the registrant
and as Principal Accounting Officer
Date: May 14, 1996
11
Exhibit 11
Computation of Per Share Earnings
For the Three Month Periods Ended March 31, 1996 and 1995
1996 1995
---------- ----------
PRIMARY NET INCOME PER SHARE
Average shares outstanding 7,335,118 4,666,667
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price 416,071 --
Effect of shares payable in connection
with acquisitions -- --
---------- ----------
Total 7,751,189 4,666,667
---------- ----------
Net income $430,671 $162,619
========== ==========
Primary net income per share $0.06 $0.03
========== ==========
FULLY DILUTED NET INCOME PER SHARE
Average shares outstanding 7,335,118 4,666,667
Net effect of dilutive stock options and
warrants based on the treasury stock
method using ending market price 494,576 --
Effect of shares payable in connection
with acquisitions -- --
---------- ----------
Total 7,829,694 4,666,667
---------- ----------
Net income $430,671 $162,619
========== ==========
Fully diluted net income per share $0.06 $0.03
========== ==========
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,324,229
<SECURITIES> 0
<RECEIVABLES> 3,073,243
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,484,759
<PP&E> 21,307
<DEPRECIATION> 2,278
<TOTAL-ASSETS> 14,122,154
<CURRENT-LIABILITIES> 1,324,461
<BONDS> 0
0
0
<COMMON> 74,269
<OTHER-SE> 12,718,002
<TOTAL-LIABILITY-AND-EQUITY> 14,122,154
<SALES> 2,134,761
<TOTAL-REVENUES> 2,134,761
<CGS> 0
<TOTAL-COSTS> 1,379,950
<OTHER-EXPENSES> 104,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (51,915)
<INCOME-PRETAX> 702,393
<INCOME-TAX> 271,722
<INCOME-CONTINUING> 430,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430,671
<EPS-PRIMARY> $0.06
<EPS-DILUTED> $0.06
</TABLE>
