<PAGE>
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 September 30, 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, 7,478,214 shares outstanding as of October 31, 1996.
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $2,770,963 $6,580,223
Accounts receivable 2,852,985 2,282,051
Notes receivable - related party 3,200,000 --
Other assets and prepaid expenses 273,615 5,218
----------- -----------
Total current assets 9,097,563 8,867,492
----------- -----------
Deposit on software license 700,000 700,000
Property and equipment, net 20,236 14,232
Client lists, net 5,176,490 2,376,195
Deferred costs and other assets 126,737 20,810
----------- -----------
Total assets $15,121,026 $11,978,729
=========== ===========
LIABILITIES
Current liabilities:
Accrued subcontract fees $858,522 $1,051,895
Accounts payable and accrued expenses 103,516 572,252
Short term debt 137,214 --
Federal income taxes payable -- 135,612
----------- -----------
Total current liabilities 1,099,252 1,759,759
----------- -----------
Deferred income taxes 5,422 --
Commitments and contingent liabilities -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 7,478,214 and 7,119,167 shares
issued and outstanding 74,782 71,192
Paid-in capital 11,586,920 8,952,880
Retained earnings 2,354,650 1,194,898
----------- -----------
Total stockholders' equity 14,016,352 10,218,970
----------- -----------
Total liabilities and stockholders' equity $15,121,026 $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 September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Revenues $2,358,406 $1,640,088
Subcontract expense 1,614,755 1,148,061
---------- ----------
Operating Income 743,651 492,027
Selling, general and administrative expense 335,151 198,152
Interest expense (income) (105,126) (37,357)
---------- ----------
Income before income taxes 513,626 331,232
Provision for income taxes:
Current 158,500 112,858
Deferred -- --
---------- ----------
158,500 112,858
---------- ----------
Net income $355,126 $218,374
========== ==========
Primary net income per share $0.05 $0.04
========== ==========
Weighted average number of shares
outstanding used in primary calculation 7,810,028 6,126,450
========== ==========
Fully diluted net income per share $0.05 $0.04
========== ==========
Weighted average number of shares
outstanding used in fully diluted calculation 7,810,028 6,126,450
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
INCOME STATEMENTS
For the Nine Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Revenues $6,767,039 $4,084,769
Subcontract expense 4,544,289 2,859,338
---------- ----------
Operating Income 2,222,750 1,225,431
Selling, general and administrative expense 699,080 438,324
Interest expense (income) (246,093) (39,057)
---------- ----------
Income before income taxes 1,769,763 826,164
---------- ----------
Provision for income taxes:
Current 604,589 280,958
Deferred 5,422 --
---------- ----------
610,011 280,958
---------- ----------
Net income $1,159,752 $545,206
========== ==========
Primary net income per share $0.15 $0.11
========== ==========
Weighted average number of shares
outstanding used in primary calculation 7,811,578 5,158,608
========== ==========
Fully diluted net incoper share $0.15 $0.11
========== ==========
Weighted average number of shares
outstanding used in fully diluted calculation 7,811,578 5,158,608
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $1,159,752 $545,206
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization expense 235,136 22,280
Deferred income taxes 5,422 --
Interest paid in stock -- 10,000
Changes in assets and liabilities:
(Increase) decrease in receivables (209,048) 995,306
Increase in other assets (25,222) (359)
Decrease in accounts payable and accrued expenses (162,109) (875,917)
Decrease in payable to stockholder -- (5,000)
Decrease in income taxes payable (230,810) (104,300)
---------- ----------
Net cash provided by operations 773,121 587,216
---------- ----------
Cash flow from investing activities:
Receivables acquired in acquisitions (361,886) (231,000)
Origination of notes receivable (5,200,000) --
Principal collections of notes receivable 2,000,000 --
Deferred costs-contract acquisitions (95,048) (16,896)
Purchase of property and equipment (8,913) (6,215)
Deposit on software license -- (700,000)
Client lists (874,070) (682,087)
Other assets (10,879) --
---------- ----------
Net cash used in investing activities (4,550,796) (1,636,198)
---------- ----------
Cash flow from financing activities:
Initial public offering costs (7,370) (694,005)
Proceeds from sale of stock -- 8,200,000
Collection of stockholder's receivables -- 231,250
Payments of short term debt (24,215) --
---------- ----------
Net cash provided by (used in) financing activities (31,585) 7,737,245
---------- ----------
Net decrease in cash ($3,809,260) $6,688,263
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net decrease in cash ($3,809,260) $6,688,263
Cash balance, Beginning balance 6,580,223 718,825
---------- ----------
Cash balance, Ending balance $2,770,963 $7,407,088
========== ==========
Supplemental data:
Cash paid for income taxes $823,128 $385,258
========== ==========
Cash paid for interest $7,309 $3,723
========== ==========
Non-cash items:
Stock issued for business and contract acquisitions $2,650,000 $600,000
========== ==========
Stock issued in lieu of interest $ -- $10,000
========== ==========
Short term debt issued in lieu of insurance $161,429 $ --
========== ==========
</TABLE>
See accompanying notes to financial statements.
6
<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 and nine month periods ended September 30, 1996 are not
necessarily indicative of the results of operations that may be expected for
the year ending December 31, 1996.
2. Accounts Receivable:
Accounts receivables consisted of the following at September 30, 1996 and
December 31, 1995:
September 30, December 31,
1996 1995
---- ----
Accounts receivable - billed $2,060,710 $3,115,214
Accounts receivable - unbilled 592,886 231,000
Accounts receivable - principal stockholders 50,000 --
Miscellaneous receivable 149,389 1,700
---------- ----------
Total $2,852,985 $3,347,914
========== ==========
3. Notes Receivable:
On May 1, 1996, the Company entered into a transaction with First United
Equities Corporation ("First United"), a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934, as amended. First United is the principal market maker in the
Company's Common Stock. Pursuant to the transaction, the Company loaned
$5,200,000 through a series of advances evidenced by a promissory note
bearing interest at the rate of 10% per annum. Such note was due and payable
on demand with seven days notice. On May 29, 1996, First United repaid
$2,000,000 to the Company, leaving a balance on the loan of $3,344,174,
including interest at September 30, 1996. The note was collateralized by the
guarantees of the principals of First United. Effective October 1, 1996, the
remaining balance of the note and accrued interest was satisfied through the
establishment of an unsecured note due from Russell Data Services, Inc., a
Nevada corporation which is owned by the Company's Chairman and principal
stockholder ("Russell Data"), in the amount of $3,344,174. The note bears
interest at the rate of 10% per annum and establishes a payment schedule
which will result in the balance and accrued interest being paid in full by
September 15, 1997.
7
<PAGE>
4. 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 nine months ended
September 30, 1995, assuming the consummation of the purchase described
above, as of January 1, 1995, are as follows:
Nine Months Ended
and Year to Date
September 30, 1995
Revenues $4,900,317
Net income 678,435
Net income per share $0.13
5. 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 escrow and
is subject to forfeiture if the contracts do not maintain prescribed amounts
of revenue.
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
is subject to forfeiture if the contracts do not maintain prescribed amounts
of revenue.
On August 1, 1996, the Company acquired seven additional contracts to
provide billing, collection and accounts receivable management services to
medical service providers in Massachusetts and New Hampshire. The total
consideration paid was $945,000, consisting of $750,000 in cash and 21,370
shares of Common Stock based on a value of $9.125 per share. The Common
Stock has been placed into escrow and is subject to forfeiture if the
contracts do not maintain prescribed amounts of revenue.
8
<PAGE>
6. 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. The program is currently being installed
and management expects that the project to be completed during the fourth
quarter of 1996. The software company is owned and controlled by the
Company's Chairman and principal stockholder.
7. Common Stock:
On May 10, 1996 (the "Effective Date"), the Board of Directors approved
a Stock Option Plan for Non-Employee Directors (the "Plan"). The Plan
provides for options to purchase up to 500,000 shares of common stock, which
may be granted to non-employee directors. Under the terms of the Plan each
non-employee director of the Company will automatically be granted, on the
date of the Company's annual meeting of stockholders each year during the
term of the plan, options to purchase 25,000 shares. The option exercise
price will be the fair market value of a share of the Company's Common Stock
on the date of grant. The options will become exercisable six months after
the date of grant and will expire ten years after the date of grant. In
addition, on the Effective Date, each of the three eligible directors (other
than the Chairman) were granted stock options to purchase 50,000 shares of
Common Stock at an exercise price equal to 85% of the fair market value on
the day of grant (or $10.20). The Plan was presented to the stockholders for
their approval at the Company's 1996 Annual Meeting of Stockholders. The
stockholders voted in favor of its adoption. On June 25, 1996, each of the
four eligible directors (including the Chairman) were granted stock options
to purchase 25,000 shares of Common Stock at an exercise price of $8.565, the
fair market value on the day of grant.
In September 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 ("Selling
Stockholders"). All of the shares offered were subject to a lock-up
agreement, pursuant to which the Selling Stockholders had agreed that,
without the prior written consent of the underwriter, they would not sell,
offer to sell, contract to sell or otherwise dispose of or transfer any
shares of Common Stock owned by such Selling Stockholders until August 3,
1997. The underwriter consented to the filing of this registration statement
and orally agreed to release the Selling Stockholders from such lock-up
agreement with respect to 50% of the shares of Common Stock, or options or
warrants to purchase shares of Common Stock, owned by the Selling Stockholders.
On September 13, 1996, the Company announced that its Chairman and
principal stockholder, together with the other principal stockholder
directors of the Company had entered into lock-up agreements with First
United Equities Corporation ("First United"). Under the agreements, these
stockholders have agreed not to sell any of their shares of Common Stock for
a period of one year without the prior consent of First United. First United
is an investment banker to the Company and a market maker in its stock.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
operations or the result of the Company's marketing and acquisition
activities and 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, repayment of notes 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 risks and uncertainties described in the Company's Registration
Statement on Form S-3, Registration No. 333-11391.
RESULTS OF OPERATIONS
QUARTERS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Total revenues for the quarters ended September 30, 1996 and 1995 were
$2,358,406 and $1,640,088, respectively. Approximately 48% of the 1996
revenues, as compared to 76% 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 the acquisitions made in the first, second and third quarters of
1996 are the primary reasons for the increased volumes. Revenues earned for
the quarter ended September 30, 1996 consisted of $2,172,058, or 92.1% of
revenues, for billing and collection services, $134,656, or 5.7% of revenues,
for accounting services, and $51,692, or 2.2% of revenues, for late charges
and consulting services. Revenues earned for the quarter ended September 30,
1995 consisted of $1,431,962, or 87.3% of revenues, for billing and
collection services, and $208,126, or 12.7% of revenues, for accounting
services.
During the quarters ended September 30, 1996 and 1995, the Company
incurred costs to Russell Data Services, Inc., a Nevada corporation which is
owned by the Company's Chairman and principal stockholder ("Russell Data"),
in the amount of $1,614,755 and $1,148,061, respectively, for services
rendered. The Company reported operating income of $743,651, income before
taxes of $513,626, net income of $355,126, and primary earnings per share of
$0.05 for the quarter ended September 30, 1996. The Company reported
operating income of $492,027, income before taxes of $331,232, net income of
$218,374 and primary earnings per share of $0.04 for the quarter ended
September 30, 1995.
10
<PAGE>
The Company incurred selling, general and administrative expenses of
$335,151 and $198,152 for the quarters ended September 30, 1996 and 1995,
respectively. The expenses for 1996 consisted primarily of amortization
related to acquisition costs of client contracts and salaries and related
benefits and professional fees, while the expenses for 1995 consisted
primarily of salaries and related employee benefits and professional fees.
The Company's effective tax rate was 38.2% and 34.0% for the quarters
ended September 30, 1996 and 1995, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Total revenues for the nine months ended September 30, 1996 and 1995
were $6,676,039 and $4,084,769, respectively. Approximately 51% of the 1996
revenues, as compared to 90% 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 the acquisitions made in the first, second and third quarters of
1996 are the primary reasons for the increased volumes. Revenues earned for
the nine months ended September 30, 1996 consisted of $6,076,554, or 89.8% of
revenues, for billing and collection services, $416,718, or 6.2% of revenues,
for accounting services, $154,895, or 2.3% of revenues, for late charges, and
$118,872, or 1.7% of revenues, for consulting services. Revenues earned for
the nine months ended September 30, 1995 consisted of $3,534,846, or 86.5% of
revenues, for billing and collection services, and $549,923, or 13.5% of
revenues, for accounting services.
During the nine months ended September 30, 1996 and 1995, the Company
incurred costs to Russell Data, in the amount of $4,544,289 and $2,859,338,
respectively, for services rendered. The Company reported operating income
of $2,222,750, income before taxes of $1,769,763, net income of $1,159,752,
and primary earnings per share of $0.15 for the nine months ended September
30, 1996. The Company reported operating income of $1,225,431, income before
taxes of $826,164, net income of $545,206 and primary earnings per share of
$0.11 for the nine months ended September 30, 1995. The Company incurred
selling, general and administrative expenses of $699,080 and $438,324 for the
nine months ended September 30, 1996 and 1995, respectively. The expenses
for 1996 consisted primarily of amortization related to acquisition costs of
client contracts, salaries and related benefits and professional fees, while
the expenses for 1995 consisted primarily of salaries and related employee
benefits and professional fees.
The Company's effective tax rate was 38.2% and 34.0% for the nine months
ended September 30, 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 September 30, 1995, the Company received $1,000,000 from
the stockholders in repayment of the notes. In addition, the Company realized
net income from operations of $1,159,752 and $545,206 for the nine months
ended September 30, 1996 and 1995, respectively.
In June 1995, the Company acquired the cash, accounts receivable and the
client contracts of Asterino & Associates, Inc. ("Asterino"), a billing and
collection company located in Schenectady, New York that provided services to
approximately
11
<PAGE>
20 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 in full their over-allotment option for
300,000 shares 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. ("Rapier") 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 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.
On August 1, 1996, the Company acquired from Rapier seven additional
contracts to provide billing, collection and accounts receivable management
services to medical service providers in Massachusetts and New Hampshire.
The total consideration paid was $945,000, consisting of $750,000 in cash and
21,370 shares of Common Stock, based on a value of $9.125 per share. The
Common Stock will be placed in escrow and is subject to forfeiture if the
contracts do not maintain prescribed amounts of revenues.
On May 1, 1996, the Company entered into a transaction with First United
Equities Corporation ("First United"), a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934, as amended. First United is the principal market maker in the
Company's common stock. Pursuant to the transaction,
12
<PAGE>
the Company loaned $5,200,000 in a series of advances evidenced by a
promissory note bearing interest at the rate of 10% per annum. Such note
was due and payable on demand with seven days notice. On May 29, 1996, First
United repaid $2,000,000 to the Company, leaving a balance on the loan of
$3,344,174, including interest as of September 30, 1996. The note was
collateralized by the guarantees of the principals of First United.
Effective October 1, 1996, the remaining balance of the note and accrued
interest was satisfied through the establishment of an unsecured note due from
Russell Data in the amount of $3,344,174. The note bears interest at the
rate of 10% per annum and establishes a payment schedule which will result in
the balance and accrued interest being paid in full by September 15, 1997.
As of September 30, 1996, certain medical service providers which are
owned, controlled by, or affiliated with the Company's Chairman and principal
stockholder, owed the Company approximately $1.3 million in fees for
services. Of this amount, approximately $358,000 is past due 90 days or more
as of September 30, 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
nine months ended September 30, 1996 were approximately $155,000. As of
November 14, 1996, the Company received approximately $346,000 related to the
amounts which were due to the Company by these entities. As of November 14,
1996, approximately $288,000 has been prepaid to Russell Data.
The Company's principal sources of liquidity are anticipated to be cash
flows from operations, repayment of notes and the remaining proceeds of 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 that 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.
13
<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
At the time of the Offering, the holders of all of the shares of the
Common Stock outstanding immediately prior to the Offering and the holders of
substantially all options and warrants to purchase Common Stock outstanding
agreed that, for a period of 24 months after the date of the Offering, such
holders would not offer, sell, contract to sell or otherwise dispose of any
of the shares of Common Stock acquired prior to the Offering or purchasable
or exercisable under any option, warrant or convertible debt owned by them
prior to the Offering without the prior written consent of the managing
underwriter for the Offering. The underwriter orally agreed to
amend this agreement to allow such holders to offer, sell, contract to sell
or otherwise dispose of up to 50% of their shares of Common Stock acquired
prior to the Offering or purchasable or exercisable under any option, warrant
or convertible debt owned by them prior to the Offering.
On September 13, 1996, the Company announced that its Chairman and principal
stockholder, together with the other principal stockholder directors of the
Company had entered into lock-up agreements with First United. Under the
agreements, these stockholders have agreed not to sell any of their shares of
Common Stock for a period of one year without the prior consent of First
United. First United is an investment banker to the Company and a market
maker in its stock.
14
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11.1 Statement Regarding Computation of Per Share Earnings (Three
Months)
11.2 Statement Regarding Computation of Per Share Earnings (Six
Months)
27.1 Financial Data Schedule
b. Forms 8-K
1. No reports on Form 8-K were filed during the quarter for
which this report is filed.
15
<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/ 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: November 14, 1996
16
<PAGE>
Exhibit 11.1
Computation of Per Share Earnings
For the Three Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
Average shares outstanding 7,471,013 6,126,450
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price 339,015 --
--------- ---------
Total 7,810,028 6,126,450
--------- ---------
Net income $355,126 $218,374
========= =========
Primary net income per share $0.05 $0.04
========= =========
FULLY DILUTED NET INCOME PER SHARE
Average shares outstanding 7,471,013 6,126,450
Net effect of dilutive stock options and
warrants based on the treasury stock
method using ending market price 339,015 --
--------- ---------
Total 7,810,028 6,126,450
--------- ---------
Net income $355,126 $218,374
========= =========
Fully diluted net income per share $0.05 $0.04
========= =========
</TABLE>
17
<PAGE>
Exhibit 11.2
Computation of Per Share Earnings
For the Nine Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
Average shares outstanding 7,421,174 5,158,608
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price 390,404 --
---------- ---------
Total 7,811,578 5,158,608
---------- ---------
Net income $1,159,752 $545,206
========== =========
Primary net income per share $0.15 $0.11
========== =========
FULLY DILUTED NET INCOME PER SHARE
Average shares outstanding 7,421,174 5,158,608
Net effect of dilutive stock options and
warrants based on the treasury stock
method using ending market price 390,404 --
---------- ---------
Total 7,811,578 5,158,608
---------- ---------
Net income $1,159,752 $545,206
========== =========
Fully diluted net income per share $0.15 $0.11
========== =========
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,770,963
<SECURITIES> 0
<RECEIVABLES> 6,052,985
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,097,563
<PP&E> 24,428
<DEPRECIATION> 4,192
<TOTAL-ASSETS> 15,121,026
<CURRENT-LIABILITIES> 1,099,252
<BONDS> 0
0
0
<COMMON> 74,782
<OTHER-SE> 13,941,570
<TOTAL-LIABILITY-AND-EQUITY> 15,121,026
<SALES> 6,767,039
<TOTAL-REVENUES> 6,767,039
<CGS> 0
<TOTAL-COSTS> 4,544,289
<OTHER-EXPENSES> 699,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (246,093)
<INCOME-PRETAX> 1,769,763
<INCOME-TAX> 610,011
<INCOME-CONTINUING> 1,159,752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,159,752
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
