<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 March 31, 1998
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 Exchange 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 No x.
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, par value
$.01 per share, 1,703,336 shares outstanding as of May 1, 1998.
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 309.5 $ 317.5
Accounts receivable 2,334.5 3,009.2
Notes and interest receivable - related party 1,901.3 2,848.0
Refundable income taxes 1,756.6 1,756.6
Other assets and prepaid expenses 311.6 309.0
-------- --------
Total current assets 6,613.5 8,240.3
Property and equipment, net 196.0 19.8
Intangible assets, net 1,751.2 624.2
Deferred costs and other assets 157.5 185.3
------- ------
Total assets $ 8,718.2 $ 9,069.6
-------- ---------
-------- ---------
LIABILITIES
Current liabilities:
Accrued subcontract fees $ 1,465.1 $ 2,165.1
Accounts payable and accrued expenses 148.9 46.9
Accrued termination costs 257.2 305.7
Short-term capitalized leases 3.3 -
Short-term debt 99.8 97.7
-------- --------
Total current liabilities 1,974.3 2,615.4
Long-term capitalized leases 22.5 -
Long-term debt 146.0 171.8
-------- --------
Total liabilities 2,142.8 2,787.2
-------- -------
Commitments and contingent liabilities - -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding - -
Common stock, $.01 par value, 40,000,000 shares
authorized, 1,703,336 and 1,539,932 shares
issued and outstanding 17.0 15.4
Paid-in capital 12,909.7 12,511.3
Retained earnings (deficit) (5,351.3) (5,244.3)
Common stock in escrow to be returned (1,000.0) (1,000.0)
-------- ---------
Total stockholders' equity 6,575.4 6,282.4
-------- --------
Total liabilities and stockholders' equity $ 8,718.2 $ 9,069.6
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
INCOME STATEMENTS
(In Thousands)
For the Three Month Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)(unaudited)
<S> <C> <C>
Revenues $ 510.1 $2,382.8
Cost of services 483.1 1,654.2
------- -------
Operating income 27.0 728.6
Selling, general and administrative expense 152.2 152.8
Depreciation and amortization expense 28.3 112.9
Interest expense (income) (46.5) (89.1)
------ ------
Income (loss) before income taxes (107.0) 552.0
------ ------
Provision for income taxes:
Current - 181.0
Deferred - -
------ ------
- 181.0
------ ------
Net income (loss) ($ 107.0) $ 371.0
-------- -------
-------- -------
Basic net income (loss) per share $0.06) $ 0.25
-------- -------
-------- -------
Weighted average number of shares
outstanding used in basic calculation 1,703,336 1,497,671
--------- ---------
--------- ---------
Diluted net income (loss) per share ($0.06) $0.24
-------- ---------
-------- ---------
Weighted average number of shares
outstanding used in diluted calculation 1,708,719 1,555,610
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
(In Thousands)
For the Three Month Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)(unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) ($107.0) $ 371.0
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization expense 28.3 112.9
Insurance in lieu of cash 27.8 66.7
Changes in assets and liabilities:
(Increase) decrease in receivables 849.9 (962.7)
(Increase) decrease in other assets (2.5) 127.2
Increase (decrease) in accounts payable
and accrued expenses (646.5) (696.1)
------ ------
Net cash provided by (used in) operations 150.0 (981.0)
------ ------
Cash flow from investing activities:
Receivables acquired in acquisitions (175.3) -
Origination of notes receivable (48.3) (69.2)
Principal collections of notes receivable 995.0 1,104.4
Deferred costs - acquisitions - (59.7)
Purchase of property and equipment (156.2) 18.4
Client lists (749.6) (409.5)
Other assets - 10.9
------ ------
Net cash provided by (used in) investing activities (134.4) 595.3
------- ------
Cash flow from financing activities:
Payments of short term debt (23.6) (94.6)
------ ------
Net cash used in financing activities (23.6) (94.6)
------ ------
Net decrease in cash (8.0) (480.3)
Cash balance, beginning balance 317.5 2,882.0
----- -------
Cash balance, ending balance $ 309.5 $2,401.7
------- --------
------- --------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
(In Thousands)
For the Three Month Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(unaudited)(unaudited)
<S> <C> <C>
Supplemental data:
Cash paid for income taxes $ - $ 25.0
------- --------
------- --------
Cash paid for interest $ 5.8 $ 1.5
------- --------
------- --------
Non-cash items:
Stock issued for contract acquisitions $ 400.0 $ 265.0
------- --------
------- --------
Note payable issued for insurance $ - $ 78.0
------- --------
------- --------
Capital leases assumed from acquisitions $ 25.8 $ -
------- --------
------- --------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. Description of Business:
Effective December 31, 1997, National Medical Financial Services
Corporation (the "Company") restructured its operations and wrote-off all
of the contracts it had acquired during the period from June 1995 through
August 1997. Additionally, the contracts the Company had with medical
service providers that were owned by, controlled by or affiliated with the
Company's Chairman and principal stockholder (the "Chairman") had expired on
September 30, 1997 and were not renewed. No further revenues or related
subcontract expenses (except for incidental income) were recognized after
that date.
As part of the restructuring, the Company announced that it plans to
strategically align and affiliate itself, through acquisitions and
partnerships, with established companies that offer billing and collection
and practice management services to medical service providers. Following the
consummation of such acquisitions and partnerships, the Company will provide
access to offshore labor and high technology. The Company will also attempt
to acquire the service component of certain medical service providers that
perform their own billing functions.
2. Basis of Presentation:
The accompanying unaudited statements of 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, 1998
are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 1998.
3. Accounts Receivable:
Accounts receivables consisted of the following at March 31, 1998 and
December 31, 1997, respectively:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(In Thousands)
<S> <C> <C>
Accounts receivable - billed $2,333.2 $3,008.5
Miscellaneous receivable 1.3 .7
------- -------
Total $2,334.5 $3,009.2
-------- --------
-------- --------
</TABLE>
4. 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. First United was 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 10%. Such note was due and payable on
demand with seven days notice. The note was collateralized by the guarantees
of the principals of First United. On May 29, 1996, First United repaid
$2,000,000 to the Company. Effective October 1, 1996, the remaining balance
on the note and accrued interest was satisfied through the establishment of
an unsecured note due from Russell Data Services, Inc., a Nevada corporation
("Russell Data"), which was owned by EquiMed, Inc., a publicly traded company
which is controlled by the Company's Chairman and principal stockholder (the
"Chairman"), in the amount of $3,344,200. The note bears interest at 10% and
established a payment schedule of $1,000,000 each at January 15, April 15 and
July 15, 1997 plus accrued interest thereon, with the remaining balance and
interest thereon due on September 30, 1997. On February 10, 1997, the
Company received
6
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS, continued
4. Notes Receivable, continued:
$1,104,800 in principal and accrued interest from Russell Data in accordance
with the payment schedule. The balance of the scheduled payments were due on
September 30, 1997. The Company did not receive any additional payments
during this time. On January 6, 1998, March 4, 1998 and April 21, 1998, the
Company received additional principal payment of $915,000, $80,000 and
$30,000, respectively, leaving an outstanding principal balance of
$1,319,200. In the opinion of management, this amount is fully collectible.
On May 23, 1997, the Company loaned $250,000, evidenced by a promissory
note, to EquiMed Pakistan (Private) Limited, a Pakistan company ("EquiMed
Pakistan"), which is a wholly-owned subsidiary of EquiMed. The promissory
note bears interest at 12% and was scheduled to be repaid on September 22,
1997. Such repayment has not yet occurred. In the opinion of management,
this amount is fully collectible.
5. Business Acquisitions:
On January 6, 1998, the Company entered into an Accounting Business Asset
Purchase Agreement with Morris Maybruch D/B/A Maybruch & Co. and a Medical
Billing Business Asset Purchase Agreement with Morris Maybruch and Shoreline
Medical Billing Systems, Inc., a New York corporation, pursuant to which Mr.
Maybruch sold the assets and operations of his accounting and medical
business. The purchase price for the assets and business operations was
$913,700 in cash and 163,405 shares of the Company's Common Stock based on a
value of $2.45 per share. Under the terms of the Agreements, additional
shares of the Company's Common Stock may be issued if its closing price
decreases over a defined period. The transaction was accounted for as the
purchase.
6. Intangible Assets:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(In Thousands)
<S> <C> <C>
Goodwill $1,099.6 $ --
Non-competition agreement 50.0 --
Software license 700.0 700.0
------- -----
1,849.6 700.0
Less accumulated amortization (98.4) (75.8)
------ -----
Total $1,751.2 $624.2
-------- -------
-------- -------
</TABLE>
7. Long-term Debt:
Long-term debt consisted of the following at March 31, 1998 and December
31, 1997, respectively:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(In Thousands)
<S> <C> <C>
Term note payable; bearing interest at 7.86%;
payable in monthly installments of principal
and interest of $9,600; due in July 2000 $245.8 $ 269.5
Less current portion (99.8) (97.7)
------- ---------
Long-term debt, less current portion $146.0 $ 171.8
------- ---------
------- ---------
</TABLE>
7
<PAGE>
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS, continued
7. Long-term Debt, continued:
Interest paid during the three month periods ended March 31, 1998 and
1997 was $5,800 and $1,500, respectively.
8. Common Stock:
On December 24, 1997, the Board of Directors of the Company approved a
one for ten reverse stock split and no corresponding increase in the number
of authorized shares of the Company's Common Stock, which would remain at
40,000,000 shares pursuant to Section 78.207 of the Nevada General
Corporation Law (the "Reverse Split"). Following the Reverse Split, rather
than issue fractional shares or pay cash to such persons otherwise entitled
to receive fractional shares, the Company would round up to the nearest whole
share of Common Stock held by each stockholder. Under Nevada law, the
affirmative vote of the stockholders holding a majority of voting power of
Common Stock is required to approve the amendment to the Company's
Certificate of Incorporation that would be filed in connection with the
Reverse Split. The close of business on December 31, 1997, was fixed by the
Board of Directors as the record date (the "Record Date") for determination
of stockholders entitled to execute written consents to authorize the Reverse
Split. An Information Statement was mailed on or before January 13, 1998,
with the Company planning on taking all necessary action to consummate the
Reverse Split on or before February 10, 1998. On February 10, 1998,
approximately 61.0% of the eligible stockholders, which constituted a
majority vote, had voted in favor of the Reverse Split. The Reverse Split
was distributed on February 10, 1998 and all stock related data in the
financial statements reflect the Reverse Split for all periods presented.
On March 13, 1998, the Company repriced the stock options previously
granted to the current officers and directors in order to maintain a
competitive compensation package to retain the current officers and directors
of the Company. The stock options previously granted to those individuals
were repriced at an exercise price of $1.63 per share, the fair market value
on that date.
8
<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,
1997.
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 relating to the Company's future business and results of
operations. 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 results 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
as to whether the Company's marketing activities will result in an expansion
of its client base or lead to additional acquisitions and affiliation with
established companies that offer billing and collection and practice
management services to Medical Service Providers, 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 to provide access to offshore labor and high technology, and
the uncertainty of whether the combination of operating cash flows, the
proceeds remaining from the Company's initial public offering and repayment
of accounts and notes receivables and income tax refunds will be sufficient
to fund the Company's 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. 333-11381).
Results of Operations
Quarters Ended March 31, 1998 and March 31, 1997
Total revenues for the quarters ended March 31, 1998 and 1997 were
$510,100 and $2,382,800, respectively, a decrease of approximately 78.6%.
None of the 1998 revenues were derived from the Company's contracts with
Medical Service Providers owned by, controlled by, or affiliated with the
Chairman, as compared to 47.1% of the 1997 revenues. These contracts expired
on September 30, 1997 and were not renewed. Accordingly, no further revenues
were recognized after that date. An additional reason for the decrease in
revenues is due to the write-off as of December 31, 1997 of all of the
acquired contracts to provide billing and collection services it had acquired
during the period from June 30, 1995 through August 1, 1997. The acquired
contracts were not providing sufficient cash flows to support the Company's
operations. The Company's revenues in 1998 were derived solely from the
operations it had acquired effective January 1, 1998. Revenues earned for the
quarter ended March 31, 1998 consisted of $420,100, or 82.4% of revenues, for
billing and collection services, and $90,000, or 17.6% of revenues, for
accounting services. Revenues earned for the quarter ended March 31, 1997
consisted of $2,224,300, or 93.4% of revenues, for billing and collection
services, and $138,900, or 5.8% of revenues, for accounting services, and
$19,600, or 0.8% of revenues, for late charges and consulting services. The
percentage of revenues attributable to billing and collection services as
compared to accounting services has decreased due to the change in contracts
due to their expiration or being written-off.
During the quarters ended March 31, 1998 and 1997, the Company incurred
direct cost of services of $483,100 and $1,654,200, respectively. Effective
January 1, 1998, the Company acquired the assets and operations of two
businesses that provided the accounting and medical billing services for the
Company's operations, whereas during the first quarter of 1997, the Company
incurred subcontract expenses in the amount for services rendered.
Substantially all of the costs incurred in 1997 were payable to Russell Data.
The Company reported operating income of $27,000, loss before taxes of
$107,000, net loss of $107,000 and basic loss per share of $0.06 for the
quarter ended March 31, 1998. The Company reported operating income of
$728,600, income before taxes of $552,000, net income of $371,000 and basic
earnings per share of $0.25 for the quarter ended March 31, 1997. The
reasons for the decreases in operating income, income before taxes and net
income for the quarter ended March 31, 1998 as compared to the same period of
1997 were due to the contracts which expired on September 30, 1997 and were
not renewed and the write-off of acquired contracts on December 31, 1997.
The Company incurred selling, general and administrative expenses of
$152,200 and $152,800 for the quarters ended March 31, 1998 and 1997,
respectively. Those expenses consisted primarily of salaries
and related benefits, insurance expense and professional fees.
The Company experienced an operating loss of $9,200,600 in 1997, which
resulted in net operating loss carryforwards totaling $4,750,000 that will be
available to offset future taxable income. These net operating loss
carryforwards will be available through the year 2012. The Company's
effective tax rate was 32.8% for the
9
<PAGE>
quarter ended March 31, 1997.
Liquidity and Capital Resources
At March 31, 1998 and 1997, the Company had cash and cash equivalents of
$309,500 and $2,401,700, respectively.
The Company realized net income (loss) from operations of ($107,000) and
$371,000 for the three months ended March 31, 1998 and 1997, respectively.
During the three month periods ended March 31, 1998 and 1997, the Company had
net cash provided by (used in) operations of $150,000 and ($981,000),
respectively. The Company had net cash provided by (used in) investing
activities of ($134,400) and $595,300 for the three months ended March 31,
1998 and 1997, respectively. The Company had net cash used in financing
activities of $23,600 and $94,600 for the three months ended March 31, 1998
and 1997, respectively.
On March 1, 1997, the Company acquired a contract to provide billing and
collection services to certain medical service providers in Rhode Island.
The total consideration paid was $165,000, consisting of $100,000 in cash and
1,445 shares of Common Stock valued at $45.00 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. At December 31, 1997, 1,445 shares of Common Stock held in
escrow will be released by the Company in 1998.
On March 1, 1997, the Company acquired a contract to provide billing and
collection services to certain medical service providers in the Cleveland,
Ohio area. The total consideration paid was $500,000, consisting of $300,000
in cash and 4,445 shares of Common Stock valued at $45.00 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. At December 31, 1997, 4,445 shares of Common Stock held
in escrow will be released by the Company in 1998.
On August 1, 1997, the Company acquired twelve contracts to provide
billing and collection services to certain medical service providers in
Arizona. The total consideration paid was $1,800,000, consisting of $600,000
in cash, 38,400 shares of Common Stock valued at $15.60 per share and
promissory notes in the aggregate amount of $600,000. In accordance with the
purchase agreement, the Company placed the shares into escrow. The Common
Stock and promissory notes will be subject to total or partial forfeiture if
certain revenue levels are not maintained. At December 31, 1997, 38,400
shares of Common Stock held in escrow will be returned to the Company and the
promissory notes were written-off.
Effective December 31, 1997, the Company terminated the contracts that
were purchased in 1995 through 1997, because they were not providing
sufficient cash flows to support the Company's operations. At December 31,
1997, these purchased contracts had a book value of $8,000,400, net of
amortization. At December 31, 1997, 77,276 shares of the Company's Common
Stock were being held in escrow pending achievement of targeted revenue
levels on these contracts. Since the revenue levels on certain contracts
were not sufficient to require full release of shares maintained in escrow,
58,400 shares valued at $1,000,000 will not be released and will be returned
to the Company in 1998.
In addition, the contracts with entities owned by, controlled by or
affiliated with the Company's Chairman expired on September 30, 1997 and were
not renewed. Accordingly, no further revenues and related subcontract
expenses (except some incidental income) were recognized after that date. The
Company had a net write-off of $129,800 from entities owned by, controlled by
or affiliated with the Company's Chairman.
The effects of the net operating loss experienced in the 1997 of
$9,200,600 created a net loss of $2,597,600 to be carried back to obtain
refunds of income taxes paid in 1994 through 1996 of $1,355,900. In
addition, refunds of estimated tax payments made in 1997 and tax overpayments
in prior years amount to $400,700, which will be refunded. The Company has
net operating loss carryforwards totaling $4,750,000 that will be available
to offset future taxable income. These net operating loss carryforwards will
be available through the year 2012.
On January 1, 1998, as part of its new operating strategy, the Company
acquired the assets and operations of Shoreline Medical Billing Systems, Inc.
and Maybruch & Co., two privately-owned companies which perform physician
billing and collection and various practice management and accounting
services. The total consideration paid was $1,313,700, consisting of
$913,700 in cash and 163,405 shares of Common Stock valued at $2.45 per
share. In accordance with the purchase agreements, additional shares of
Common Stock may be issued if the price of the Common Stock falls below
certain levels.
On May 1, 1996, the Company entered into a transaction with First United,
a broker-dealer registered with the Securities and Exchange Commission.
First United is the principal market maker in the Company's common stock.
Pursuant to the transaction, the Company loaned $5,200,000 in a series of
advances evidenced by a promissory note bearing interest at 10%. Such note
was due and payable on demand with seven days notice.
10
<PAGE>
The note was collateralized by the guarantees of the principals of First
United. On May 29, 1996, First United repaid $2,000,000 to the Company.
Effective October 1, 1996, the remaining balance on the note and accrued
interest was satisfied through the establishment of an unsecured note due
from Russell Data in the amount of $3,344,200. The note bears interest at
10% and established a payment schedule which would have resulted in the
balance being paid in full by September 15, 1997. On February 10, 1997, the
Company received $1,104,800 of principal and accrued interest from Russell
Data representing the first in the series of scheduled payments. The balance
of the scheduled payments were due on September 30, 1997. The Company did
not receive any additional payments during that time period. On January 6,
1998, March 4, 1998 and April 21, 1998 the Company received additional
principal payment of $915,000, $80,000 and $30,000, respectively, leaving an
outstanding principal balance of $1,319,200. In the opinion of management,
this amount is fully collectible.
On May 23, 1997, the Company loaned $250,000, evidenced by a promissory
note, to EquiMed Pakistan which bears interest at 12% and was scheduled to be
repaid on September 22, 1997. Such repayment has not yet occurred.
As of March 31, 1998, certain of the medical service providers, which are
owned by, controlled by, or affiliated with the Chairman, owed $2,008,500 to
the Company. Since these contracts expired on September 30, 1997 and were
not renewed, there was no additional amounts billed to these entities since
December 31, 1997. Since December 31, 1997, the Company has received
$1,000,000 relating to these receivables and has paid Russell Data $750,000
for services related to these amounts. As of March 31, 1998 and 1997, the
Company owed Russell Data $1,465,100 and $253,500, respectively, for services
provided. Included in the 1997 amount is prepayments of $1,042,000 the
Company made to Russell Data for the benefit of the acquired contracts which
were indirectly subcontracted to the former President and Chief Executive
Officer. As of December 31, 1997, these contracts were written-off since
they were not providing sufficient cash flows to support the Company's
operations.
The Company's principal sources of liquidity are anticipated to be cash
flows from operations, proceeds remaining from the Company's initial public
offering, repayment of accounts and notes receivables and income tax refunds.
The Company expects to fund future acquisitions of contracts and future
acquisitions of businesses by a combination of funds available through the
cash from operations, proceeds remaining from the initial public offering,
repayment of the accounts and notes receivables, income tax refunds and
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, the proceeds remaining from the initial
public offering, repayment of the accounts and notes receivables and income
tax refunds will be adequate to fund its operations for the next twelve
months, although there can be no assurance to that effect.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
(No response required)
Item 2: CHANGES IN SECURITIES
In connection with the acquisition of the assets and operations of an
accounting practice and medical billing and collection business on effective
January 1, 1998, the Company issued 163,405 unregistered shares of Common
Stock valued at $2.45 per share. Such issuance was exempt from registration
under Section 4(2) of the Securities Act of 1933.
Item 3: DEFAULTS UPON SENIOR SECURITIES
(No response required)
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 1998, the Company solicited consents
from its stockholders of record as of December 31, 1997, for approval of a
one for ten reverse stock split of the Company's Common Stock. Stockholders
representing approximately 61.1% of the eligible Common Stock outstanding
consented to the reverse stock split and stockholders representing
approximately 2.3% of the eligible Common Stock voted against the reverse
stock split.
Item 5: OTHER INFORMATION
(No response required)
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11.1 Statement Regarding Computation of Per Share Earnings (Three
Months).
27.1 Financial Data Schedule.
b. Forms 8-K
1. Form 8-K dated January 6, 1998.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL MEDICAL FINANCIAL SERVICES CORPORATION
-----------------------------------------------
(Registrant)
By: /s/ Robert W. Horner, Jr.
----------------------------------------------
Robert W. Horner, Jr., Vice President,
Chief Financial Officer, Secretary
and Treasurer
(Signing on behalf of the Registrant
and as Principal Accounting Officer)
Date: May 15, 1998
<PAGE>
Exhibit 11.1
Computation of Per Share Earnings
(In Thousands)
For the Three Month Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE
Average shares outstanding 1,703,336 1,497,671
--------- ---------
--------- ---------
Net income (loss) ($107.0) $371.0
--------- ---------
--------- ---------
Basic net income (loss) per share ($0.06) $0.25
--------- ---------
--------- ---------
DILUTED NET INCOME (LOSS) PER SHARE
Average shares outstanding 1,703,336 1,497,671
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price 5,383 57,939
---------- --------
Total 1,708,719 1,555,610
--------- ---------
--------- ---------
Net income (loss) ($107.0) $371.0
--------- --------
--------- --------
Diluted net income (loss) per share ($0.06) $0.24
--------- --------
--------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 309,500
<SECURITIES> 0
<RECEIVABLES> 4,235,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,613,500
<PP&E> 202,500
<DEPRECIATION> 6,500
<TOTAL-ASSETS> 8,718,200
<CURRENT-LIABILITIES> 1,974,300
<BONDS> 168,500
0
0
<COMMON> 17,000
<OTHER-SE> 6,558,400
<TOTAL-LIABILITY-AND-EQUITY> 8,718,200
<SALES> 510,100
<TOTAL-REVENUES> 510,100
<CGS> 0
<TOTAL-COSTS> 483,100
<OTHER-EXPENSES> 180,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (46,500)
<INCOME-PRETAX> (107,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,063,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,000)
<EPS-PRIMARY> ($0.06)
<EPS-DILUTED> ($0.06)
</TABLE>
