0000912057-95-007782.txt : 19950915 0000912057-95-007782.hdr.sgml : 19950915 ACCESSION NUMBER: 0000912057-95-007782 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MMI MEDICAL INC CENTRAL INDEX KEY: 0000746072 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS REPAIR SERVICES [7600] IRS NUMBER: 953619990 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13608 FILM NUMBER: 95573602 BUSINESS ADDRESS: STREET 1: 1611 POMONA RD CITY: CORONA STATE: CA ZIP: 91720 BUSINESS PHONE: 9097364570 MAIL ADDRESS: STREET 1: 1611 POMONA RD CITY: CORONA STATE: CA ZIP: 91720 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------- For Quarter Ended Commission File No. July 31, 1995 0-13608 MMI MEDICAL, INC. California 95-3619990 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1611 Pomona Road, Corona, California 91720 (Address of principal executive offices) Registrant's telephone number including area code (909) 736-4570. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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. X ---- YES NO Shares of Registrant's common stock, $.01 par value, outstanding at September 11, 1995 - 5,035,833 MMI MEDICAL, INC. FORM 10-Q JULY 31, 1995 TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Consolidated Statements of Cash Flow 5 Notes to the Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Report on Form 8K 13 Exhibit Index 15 Exhibit 11.1 Computation of Per Share Earnings 16 2 MMI MEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ($000's)
JULY 31, 1995 APRIL 30,1995 ------------- ------------- (RECLASSIFIED) ASSETS Current assets Cash and cash equivalents $ 922 $ 1,827 Receivables 6,445 7,284 Inventory 9,977 9,199 Prepaid expenses 841 532 Deferred income taxes 1,211 1,192 ------------------------------ Total current assets 19,396 20,034 Equipment, net 5,851 6,056 Deferred income taxes 2,155 2,155 Goodwill, net 3,659 3,698 Other assets 1,487 1,310 ------------------------------ $ 32,548 $33,253 ------------------------------ ------------------------------ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Accounts payable $ 4,018 $ 2,916 Accrued liabilities 4,144 4,258 Deferred revenues 5,735 5,521 Current portion of long-term debt 1,545 3,262 ------------------------------ Total current liabilities 15,442 15,957 Long-term debt 64 141 Shareholders' equity Common stock, $.01 par value 10,000,000 shares authorized 5,035,833 shares issued and outstanding at July 31, 1995 (5,035,833 at April 30, 1995) 51 51 Paid-in capital 17,303 17,303 Retained earnings (312) (199) ------------------------------ Total shareholder's equity 17,042 17,155 ------------------------------ $ 32,548 $33,253 ------------------------------ ------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 3 MMI MEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ($000's)
Three Months Ended ------------------------------- July 31, 1995 July 29, 1994 ------------- ------------- Revenues $ 11,968 $ 8,662 Costs and expenses Cost of operations 9,466 7,722 Depreciation 485 492 Selling and administrative 2,156 1,490 Interest expense (income) 49 (9) ------------------------------- Total costs and expenses 12,156 9,695 ------------------------------- Loss before income taxes (188) (1,033) Benefit for income taxes (75) (413) ------------------------------- Net loss $ (113) $ (620) ------------------------------- ------------------------------- Earnings per share: Net loss $ (.02) $ (.20) ------------------------------- -------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 4 MMI MEDICAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($000's)
Three Months Ended ------------------------------ July 31, 1995 July 29, 1994 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (113) $ (620) Adjustments to reconcile net loss to net cash flows from operations: Depreciation and amortization 485 492 Deferred income taxes (19) 3 Changes in assets and liabilities: Receivables 839 545 Inventory (778) 314 Prepaid expenses (309) 34 Accounts payable 1,102 (399) Accrued liabilities (114) (329) Other assets (177) -- Deferred revenues 214 (21) ------------------------------ Net cash provided by operating activities 1,130 19 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business operations -- 208 Net book value of equipment sold 80 -- Purchase of equipment (321) (82) ------------------------------ Net cash provided by (used in) investing activities (241) 126 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments of long-term debt (1,794) -- Exercise of stock options -- 96 Payment of dividends -- (118) ------------------------------ Net cash used in financing activities (1,794) (22) ------------------------------ Increase (decrease) in cash (905) 123 Cash at beginning of period 1,827 1,341 ------------------------------ Cash at end of period $ 922 $ 1,464 ------------------------------ ------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 5 MMI MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1995 (UNAUDITED) 1. GENERAL The condensed consolidated financial statements included herein have been prepared by the Company without audit, include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three months ended July 31, 1995, and July 29, 1994, pursuant to the rules and regulations of the Securities and Exchange Commission, and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. Any and all adjustments made are of a normal and recurring nature in accordance with Rule 10-01(b)(8). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures in such financial statements are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Company's annual report on Form 10-K dated July 31, 1995, filed with the Securities and Exchange Commission. The results of operations for the three months ended July 31, 1995, and July 29, 1994, are not necessarily indicative of the results for the full year. 2. RECLASSIFICATIONS The fiscal 1996 presentation includes reclassifications from that previously presented. Such reclassifications include advance billings, previously classified as a reduction in receivables, which are presently classified as deferred revenues as well as the classification of the Company's Advanced Imaging Technologies, Inc. subsidiary ("AIT") as a continuing operation (see Note 3). 3. DISCONTINUED OPERATION In October 1994, the Company announced the adoption by the Company's Board of Directors of a plan to dispose of the operations of its Advanced Imaging Technologies, Inc. subsidiary ("AIT"). Since that date, the Company actively marketed AIT but was unable to locate a buyer. Concurrent with the election to dispose of AIT, the Company made certain changes in the operations of AIT, which resulted in improved profitability. Additionally, as the Company's InnoServ Technologies, Inc. Asset Management service program continues to grow, AIT's capability to repair and maintain a variety of x-ray film processors enables AIT to play a strategic role in support of such growth. As a result of both improved profitability and the strategic capabilities of AIT, the Company's Board of Directors has elected not to dispose of AIT which is accounted for as a part of continuing operations in the Company's financial statements included with this report. 6 MMI MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1995 (UNAUDITED) 4. NET INCOME PER SHARE Net income per share is based on the weighted average number of common and common share equivalents during each period, as follows: Three Months Ended ------------ July 31, 1995 5,038,650 July 29, 1994 3,041,375 5. INCOME TAXES The benefits for taxes are based on the estimated annual tax rates and include the benefit of various tax credits. The components of the benefits for taxes for the three months ended July 31, 1995, and July 29, 1994 are as follows ($000's):
Three Months Ended -------------------------------- July 31, 1995 July 29, 1994 ------------- ------------- Current: Federal $ (67) $ (213) State (27) (61) Deferred: Federal 46 (139) State (27) 0 ------ ------ $ (75) $ (413) ------ ------ ------ ------
7 MMI MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1995 (UNAUDITED) 6. ACQUISITION OF MEDIQ EQUIPMENT AND MAINTENANCE SERVICES, INC. On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment and Maintenance Services, Inc. ("MEMS"), a wholly owned subsidiary of MEDIQ Incorporated, as a result of the merger of MMI Acquisition Subsidiary, Inc., a wholly-owned subsidiary of the Company incorporated to effect the Acquisition, with and into MEMS which became a wholly-owned subsidiary of the Company. All of MEMS common stock was converted into 2,006,438 shares of the Company's common stock and a warrant to purchase 325,000 shares thereof at an exercise price of $6.25 per share exercisable through August 3, 1998. An additional 20,000 shares of the Company's common stock was issued to MEDIQ in connection with a noncompetition agreement which became effective as of the closing of the reorganization and merger. The estimated aggregate purchase price, including expenses of the Acquisition, was approximately $6,565,000. Prior to the Acquisition, MEMS was a national independent service organization specializing in providing repair and maintenance services and sale of replacement parts for CT scanners, nuclear medicine equipment and magnetic resonance imaging systems to hospitals, outpatient imaging centers and physician groups. MEMS also offered a multi-vendor asset management program which provided comprehensive on-site management for the maintenance and repair of all diagnostic imaging equipment at hospitals. The transaction was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired based on their appraised fair values. Costs in excess of net assets acquired related to the Acquisition of approximately $1,637,000 is being amortized on a straight-line basis over 20 years. MEMS results of operations have been reflected in the consolidated financial statements of the Company since the date of the Acquisition. Unaudited pro forma results of operations of the Company and MEMS are included in Note 8. 7. LONG-TERM DEBT The Company's revolving credit agreement contains certain restrictive covenants relating to tangible net worth, profitability, payment of dividends and future borrowings. As a result of the operating loss incurred in current quarter of fiscal 1996, the Company did not meet certain covenants required by such agreement. The Company has requested the bank waive the Company's non- compliance with such covenants through July 31, 1995 and has a reasonable expectation that the bank will do so. 8 MMI MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1995 (UNAUDITED) 8. INTERIM PRO FORMA FINANCIAL INFORMATION The following Pro Forma Consolidated Statements of Operations for the three months ended July 29, 1994 give effect to the acquisition (the "Acquisition") of MEDIQ Equipment and Maintenance Services, Inc. ("MEMS") by the Company, as described herein, as if such transaction had occurred as of April 30, 1994. The Acquisition has been accounted for pursuant to the purchase method of accounting. The Pro Forma Consolidated Statements of Operations for the three months ended July 29, 1994 are unaudited, but in the opinion of the Company include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operation and financial position for the periods presented. The historical data of the Company included in the pro forma financial statements is as of the periods presented. The historical data of MEMS included in Pro Forma Consolidated Statements of Operations is for the three months ended August 2, 1994. The Pro Forma Consolidated Statements of Operations for the three months ended July 29, 1994 are not necessarily indicative of the results of operations that actually would have taken place had the Acquisition been consummated as of the date indicated, or that may be achieved in the future and should be read in conjunction with the notes in such statements. 9 MMI MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1995 (UNAUDITED)
Three Months Ended July 29, 1994 (In $000's, except per share amounts) ------------------------------------------------------- Pro Forma Consolidated MMI MEMS (1) Adjustments Total ------------------------------------------------------- Revenues $ 8,662 $ 4,576 $13,238 Costs and expenses Costs of operations 7,722 4,023 (606) (2) 11,139 Depreciation and amortization 492 360 (201) (3) 651 Selling and administrative 1,490 494 (166) (4) 1,818 Interest expense (income), net (9) 54 -- 45 ------------------------------------------------------- Total costs and expenses 9,695 4,931 (973) 13,653 ------------------------------------------------------- Income (loss) before taxes (1,033) (355) 973 (415) Provision (benefit) for income taxes (413) (101) 348 (5) (166) ------------------------------------------------------- Net income (loss) $ (620) $ (254) $ 625 $ (249) ------------------------------------------------------- ------------------------------------------------------- Net income per share $ (.20) N/A $ (.05) ------------------------------------------------------- ------------------------------------------------------- ----------------------------------- NOTES: (1) Historical data of MEMS is for the three months ended August 2, 1994. (2) Reflects the elimination of certain duplicate positions, resulting in a reduction in cost of operations of approximately $482,000 in salaries and benefits for the period. Amortization of the spare parts inventory over a seven year period, consistent with that of MMI, is expected to result in reduced amortization expenses of $495,000, annually. (3) As a result of purchase accounting adjustments, depreciation and amortization expense will change. Depreciating the new basis over a five year period will result in a reduction to such expense of $922,000 annually. Amortization of the additional goodwill and covenant not to compete will result in increased amortization expense of $117,000 annually. (4) Reflects the elimination of certain duplicate positions, resulting in a reduction in selling and administrative expense of approximately $166,000 in salaries and benefits for the period. (5) Consolidated provision for income taxes is calculated at 40%.
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL ACQUISITION OF MEDIQ EQUIPMENT & MAINTENANCE SERVICES, INC. On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment and Maintenance Services, Inc. ("MEMS"), a wholly-owned subsidiary of MEDIQ Incorporated. The Acquisition was accounted for as a purchase and MEMS became a wholly-owned subsidiary of the Company. All of MEMS common stock was converted into 2,006,438 shares of the Company's common stock and a warrant to purchase 325,000 shares thereof at an exercise price of $6.25 per share exercisable through August 3, 1998. An additional 20,000 shares of the Company's common stock was issued to MEDIQ in connection with a noncompetition agreement which became effective as of the closing of the Acquisition. The estimated aggregate purchase price, including expenses of the Acquisition, was approximately $6,565,000. Prior to the Acquisition, MEMS was a national independent service organization specializing in providing repair and maintenance services and sale of replacement parts for CT scanners, nuclear medicine equipment and magnetic resonance imaging systems to hospitals, outpatient imaging centers and physician groups. MEMS also offered a multi-vendor asset management program ("Asset Management") which provides comprehensive on-site management for the maintenance and repair of all diagnostic imaging equipment at hospitals. Following the Acquisition, the Company combined the operations of its R Squared subsidiary with those of MEMS and changed the name of R Squared to InnoServ Technologies, Inc. ("InnoServ") in September 1994. MEMS results of operations have been reflected in the consolidated financial statements of the Company since the date of the Acquisition. DISCONTINUED OPERATION In October 1994, the Company announced the adoption by the Company's Board of Directors of a plan to dispose of the operations of its Advanced Imaging Technologies, Inc. subsidiary ("AIT"). Since that date, the Company actively marketed AIT but was unable to locate a buyer. Concurrent with the election to dispose of AIT, the Company made certain changes in the operations of AIT, which resulted in improved profitability. Additionally, as InnoServ's Asset Management service program continues to grow, AIT's capability to repair and maintain a variety of x-ray film processors enables AIT to play a strategic role in support of such growth. As a result of both improved profitability and the strategic capabilities of AIT, the Company's Board of Directors has elected not to dispose of AIT which is accounted for as a part of continuing operations in the Company's financial statements included with this report. 11 RESULTS OF OPERATIONS FIRST QUARTER FISCAL 1996 COMPARED TO FIRST QUARTER FISCAL 1995 Consolidated revenues increased approximately $3,300,000 to $11,968,000 from $8,662,000 primarily as a result of the Acquisition. Revenues at InnoServ from Asset Management service agreements constitute approximately $2,300,000 of this increase. Additionally, InnoServ recorded a net increase in revenues of approximately $900,000 from Computed Tomography ("CT") and Magnetic Resonance Imaging ("MRI") maintenance agreements; a $240,000 increase in revenues from the sale of equipment; and, an increase in the sale of labor, parts and x-ray tubes of approximately $120,000. Revenues at the Company's diagnostic imaging operation were slightly higher primarily due to increased utilization of rental equipment. In July 1995, the diagnostic imaging operation discontinued its fee- for-service mobile CT operations which is not expected to have a material effect on the Company's total revenues during the remainder of the current fiscal year. Revenues at AIT declined resulting primarily from lower sales of x-ray film, chemistry and related accessories. On a pro forma basis (see Note 8 to the Notes to Condensed Consolidated Financial Statements), consolidated revenues decreased approximately $1,250,000 resulting primarily from a decline in the number of CT maintenance agreements in effect at InnoServ in the first quarter of fiscal 1996 compared to the total of such agreements in effect for R Squared and MEMS combined in the first quarter of fiscal 1995. InnoServ continues to experience a decline in the number of such agreements in effect and expects this trend to continue as a result of customer's older CT equipment being upgraded or removed from service. Offsetting the trend of declines in CT maintenance agreements, revenues on a pro forma basis for Asset Management increased approximately 70% and MRI maintenance agreements increased approximately 25% in the first quarter of fiscal 1996 compared to the same period prior fiscal year. Subsequent to the end of the current quarter, InnoServ was selected by Intermountain Health Care, Inc. ("IHC") in Salt Lake City, Utah to provide, subject to the signing of a definitive agreement, all of IHC's twenty-four (24) hospitals with InnoServ's Asset Management service program. Implementation of this program is expected to commence during the third quarter of fiscal 1996 for an initial term of five years and will, following implementation, add substantial revenues to InnoServ thereafter. While the cost of operations increased approximately $1,750,000 from the same period in the prior fiscal year, such costs declined as a percent of revenue from 89% in the first quarter of fiscal 1995 to 79% in fiscal 1996. This decline resulted primarily from improved labor efficiencies at InnoServ associated with the Acquisition and elimination of personnel in the field service infrastructure. Depreciation costs remained consistent with the prior year. Selling and Administrative expenses increased only slightly as a percent of revenue, from 17% to 18%, also as a result of efficiencies from the Acquisition. Loss before income taxes declined approximately $850,000 from $1,033,000 in fiscal 1995 to $188,000 in fiscal 1996 primarily as a result of increased revenues associated with the Acquisition and the associated improvement in margins. Additionally, loss before income taxes in the first quarter of fiscal 1995 at InnoServ (then R Squared) included a special charge of approximately $360,000 in severance expenses associated with the elimination of certain of the Company's personnel in duplicate operational 12 and sales functions in conjunction with the Acquisition and the resignation of the Company's Chief Financial Officer in June 1994. Interest expense increased to $49,000 in the first quarter of fiscal 1995 from income of $9,000 in the same period of the prior year as a result of the assumption of long-term debt associated with the Acquisition and borrowings from the Company's line of credit. The effective tax rate remained at 40% and the benefit for income taxes decreased $338,000 from $413,000 in the first quarter of fiscal 1995 to $75,000 in fiscal 1996 as a result of the reduction in the loss incurred. LIQUIDITY AND CAPITAL RESOURCES At July 31, 1995, the Company had net working capital of $3,954,000, a decrease of $123,000 from April 30, 1995. The Company has a $2,000,000 revolving line of credit with a bank, of which $1,200,000 was utilized at July 31, 1995. During the quarter, the Company utilized net cash provided by operating activities as well as cash on hand to reduce the Company's line of credit by $1,705,000. The outstanding balance on the Company's line of credit is classified as a current liability. The Company's revolving credit agreement contains certain restrictive covenants relating to tangible net worth, profitability, payment of dividends and future borrowings. As a result of the operating loss incurred in current quarter of fiscal 1996, the Company did not meet certain covenants required by such agreement. The Company has requested the bank waive the Company's non-compliance with such covenants through July 31, 1995 and has a reasonable expectation that the bank will do so. The Company believes that internally generated funds and its existing credit facility will provide sufficient capital resources to finance operations, fund planned capital expenditures and make interest payments on outstanding borrowings in both the short and long term. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 6. EXHIBITS AND REPORT ON FORM 8-K. (a) Exhibit Index is included herewith at page 14. (b) On May 25, 1995 the Company filed a Report on Form 8-K containing certain documents received from Deloitte & Touche relating to the acquisition of MEDIQ Equipment and Maintenance Services, Inc. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: September 13, 1995 MMI MEDICAL, INC. By: /s/ Samuel Salen, M.D. ------------------------------------- Samuel Salen, M.D. President and Chief Executive Officer 14 EXHIBIT INDEX EXHIBIT PAGE 11.1 Computation of Per Share Earnings 16 15 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS (1) (Amounts in thousands, except per share data)
Three Months Ended ---------------------------------- July 31, 1995 July 29, 1994 ------------- ------------- Primary Average Shares Outstanding 5,039 2,963 Net effect of dilutive stock options, based upon the treasury stock method using average market price -- 78 ---------------------------------- Total 5,039 3,041 ---------------------------------- ---------------------------------- Net loss $ (113) $ (620) ---------------------------------- ---------------------------------- Per share amount $ (.02) $ (.20) ---------------------------------- ---------------------------------- Fully Diluted Average Shares Outstanding 5,039 2,963 Net effect of dilutive stock options, based upon the treasury stock method using average market price, since higher than year end price -- 78 ---------------------------------- Total 5,039 3,041 ---------------------------------- ---------------------------------- Net loss $ (113) $ (620) ---------------------------------- ---------------------------------- Per share amount $ (.02) $ (.20) ---------------------------------- ----------------------------------
16 EX-27 3 EXHIBIT 27 - FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED FINANCIAL STATEMENTS OF THE COMPANY FOR THE THREE MONTHS ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS APR-30-1995 MAY-01-1995 JUL-31-1995 922 0 7,998 1,553 9,977 19,396 28,140 (22,289) 32,548 15,442 0 51 0 0 16,991 32,548 2,753 11,968 2,175 9,466 2,596 45 49 (188) (75) (113) 0 0 0 (113) (.02) (.02)