-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nwrt9xrFVGuX/Kf93LprDbaJqeDmE3kTbx5TJYgqnBLNdX9NDDFcsdP74sUPh8lg d0lS4zbvnvJ0B+jUz3BdVw== 0000912057-95-011163.txt : 19951218 0000912057-95-011163.hdr.sgml : 19951218 ACCESSION NUMBER: 0000912057-95-011163 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951215 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: 95601889 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 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. October 31, 1995 0-13608 INNOSERV TECHNOLOGIES, 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 December 11, 1995 - 5,035,833 INNOSERV TECHNOLOGIES, INC. FORM 10-Q OCTOBER 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 6 Notes to the Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Report on Form 8K 16 Exhibit Index 18 Exhibit 10.1 Amendment No. 5 to Business Loan Agreement 19 Exhibit 10.2 Security Agreement 22 Exhibit 11.1 Computation of Per Share Earnings 27 Exhibit 27.1 Financial Data Schedules (EDGAR filing only) -- 2 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ($000's) OCTOBER 31, 1995 APRIL 30,1995 ---------------- ------------- (Reclassified) ASSETS Current assets Cash and cash equivalents $ 131 $ 1,827 Receivables 6,061 7,284 Inventory 10,580 9,199 Deferred income taxes 1,249 1,192 Prepaid expenses 502 532 ------- ------- Total current assets 18,523 20,034 Equipment, net 5,884 6,056 Deferred income taxes 2,155 2,155 Goodwill, net 3,621 3,698 Long-term notes receivable & other assets 1,675 1,310 ------- ------- $31,858 $33,253 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,637 $ 2,916 Accrued liabilities 3,747 4,258 Deferred revenues 5,736 5,521 Current portion of long-term debt 1,451 3,262 ------- ------- Total current liabilities 14,571 15,957 Long-term debt 60 141 Shareholders' equity Common stock, $.01 par value 10,000,000 shares authorized 5,035,833 shares issued and outstanding at October 31, 1995 (5,035,833 at April 30, 1995) 51 51 Paid-in capital 17,303 17,303 Retained earnings (127) (199) ------- ------- Total shareholder's equity 17,227 17,155 ------- ------- $31,858 $33,253 ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements. 3 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ($000's) THREE MONTHS ENDED --------------------------------------- OCTOBER 31, 1995 OCTOBER 28, 1994 ---------------- ---------------- Revenues $11,898 $13,395 Costs and expenses Cost of operations 9,247 11,493 Depreciation 501 646 Selling and administrative 1,807 2,126 Interest expense (income) 35 10 ------- ------- Total costs and expenses 11,590 14,275 ------- ------- Income (loss) before income taxes 308 (880) Provision (benefit) for income taxes 123 (352) ------- ------- Net income (loss) $ 185 $ (528) ======= ======= PER SHARE INFORMATION: Net income (loss) $ .04 $ (.11) ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements. 4 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ($000's) SIX MONTHS ENDED -------------------------------------- OCTOBER 31, 1995 OCTOBER 28, 1994 ---------------- ---------------- Revenues $23,866 $22,057 Costs and expenses Cost of operations 18,713 19,216 Depreciation 986 1,137 Selling and administrative 3,963 3,616 Interest expense (income) 84 1 ------- ------- Total costs and expenses 23,746 23,970 ------- ------- Income (loss) before income taxes 120 (1,913) Provision (benefit) for income taxes 49 (765) ------- ------- Net income (loss) $ 71 $(1,148) ======= ======= PER SHARE INFORMATION: Net income (loss) $ .01 $ (.29) ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements. 5 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($000's) SIX MONTHS ENDED -------------------------------------- OCTOBER 31, 1995 OCTOBER 28, 1994 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 72 $(1,148) Adjustments to reconcile net loss to net cash flows from operations: Depreciation and amortization 986 1,137 Deferred income taxes (57) (6) Changes in assets and liabilities: Receivables 1,224 (1,227) Inventory (1,381) 314 Prepaid expenses 30 45 Accounts payable 721 (291) Accrued liabilities (607) (896) Other assets (327) -- Deferred revenues 217 174 ------ ------ Net cash provided by operating activities 878 (1,898) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business operations -- (299) Net book value of equipment sold 112 223 Purchase of equipment (887) (162) ------ ------ Net cash provided by (used in) investing activities (775) (238) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from line of credit -- 2,555 Principal payments of long-term debt (1,799) (1,288) Exercise of stock options -- 211 Payment of dividends -- (565) ------ ------ Net cash used in financing activities (1,799) 913 ------ ------ Increase (decrease) in cash (1,699) (1,223) Cash at beginning of period 1,827 1,341 ------ ------ Cash at end of period $ 131 $ 118 ====== ====== See accompanying Notes to Condensed Consolidated Financial Statements. 6 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 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 and six months ended October 31, 1995 and October 28, 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) of Regulation S-X. 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 regulation however, 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 for the fiscal year ended April 30, 1995, filed with the Securities and Exchange Commission. The results of operations for the three and six months ended October 31, 1995 and October 28, 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 are comprised of 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 AIT. Thereafter, the Company actively marketed AIT but was unable to locate a buyer. At October 28, 1994 and April 30, 1995, AIT was classified as a discontinued operation in the Company's financial statements. 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 which are serviced under the Asset Management program, enables AIT to play a strategic role in support of such growth. In the first quarter of fiscal 1996, as a result of both improved profitability and the strategic capabilities of AIT, the Company's Board of Directors elected not to dispose of AIT. Accordingly, AIT has been reclassified back to continuing operations in the Company's financial statements included with this report. 7 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 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 SIX MONTHS ENDED ENDED ------------ ---------- October 31, 1995 5,035,833 5,037,538 October 28, 1994 4,951,493 3,893,973 5. INCOME TAXES The provision (benefit) for taxes for the three and six months ended October 31, 1995 and October 28, 1994, is based on the estimated annual tax rates for fiscal 1996 and 1995, respectively, and include the benefit of various tax credits. The components of the provision (benefit) for taxes based on income (loss) for the three and six months ended October 31, 1995 and October 28, 1994 are as follows ($000's): THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- OCTOBER 31, OCTOBER 28, OCTOBER 31, OCTOBER 28, 1995 1994 1995 1994 -------------------------- -------------------------- Current: Federal $109 $ (80) $ 43 $(185) State 45 (81) 18 (187) Deferred: Federal (75) (131) (29) (300) State 44 42 17 92 -------------------------- -------------------------- $123 $(250) $ 49 $(580) -------------------------- -------------------------- 8 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 (UNAUDITED) 6. LONG-TERM DEBT The Company has an agreement with a bank to provide the Company with a $2,000,000 line of credit, $1,200,000 of which was utilized at the end of the second quarter of fiscal 1996. Subsequent to the end of the second fiscal quarter, the Company borrowed an additional $500,000. As part of the Company's plan to relocate its headquarters operations to Arlington, Texas, the Company is currently finalizing negotiations to secure an expanded credit facility with a bank located in the Arlington area. The Company was in compliance with all financial covenants required by such agreement at the end of the second quarter. 7. SUPPLEMENTAL CASH FLOW DISCLOSURE Interest of $52,000 and $100,000 was paid in the three and six month periods ended October 31, 1995 respectively. No income taxes were paid during the periods. 8. NAME CHANGE On October 6, 1995, the Company changed its name from MMI Medical, Inc. to InnoServ Technologies, Inc. 9. INTERIM PRO FORMA FINANCIAL INFORMATION On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment and Maintenance Services, Inc. ("MEMS"), a wholly owned subsidiary of MEDIQ Incorporated in exchange for 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. 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. The Acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired based on their appraised fair market 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. The results of operations of MEMS have been reflected in the Consolidated Financial Statements of the Company since the date of the Acquisition. 9 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 (UNAUDITED) The following Pro Forma Consolidated Statements of Operations for the six months ended October 28, 1994 give effect to the Acquisition as if it occurred as of April 30, 1994. The Pro Forma Consolidated Statements of Operations for the six months ended October 28, 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 six months ended October 28, 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. 10 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 (UNAUDITED) SIX MONTHS ENDED OCTOBER 28, 1994 (IN $000'S, EXCEPT PER SHARE AMOUNTS) ---------------------------------------------- PRO FORMA CONSOLIDATED INNOSERV MEMS(1) ADJUSTMENTS TOTAL ---------------------------------------------- Revenues $22,057 $4,576 $26,633 Costs and expenses Costs of operations 19,216 4,023 (606)(2) 22,633 Depreciation and amortization 1,137 360 (201)(3) 1,296 Selling and administrative 3,616 494 (166)(4) 3,944 Interest expense (income), net 1 54 -- 55 ---------------------------------------------- Total costs and expenses 23,970 4,931 (973) 27,928 ---------------------------------------------- Loss before taxes (1,913) (355) 973 (1,295) Benefit for income taxes (765) (101) 348(5) (518) ---------------------------------------------- Net loss $(1,148) $ (254) $ 625 $(777) ============================================== Net loss per share $(.29) N/A $(.18) ============================================== - ----------------------------------------- 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 InnoServ, 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%. 11 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 in exchange for 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. 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. 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 AIT. Thereafter, the Company actively marketed AIT but was unable to locate a buyer. At October 28, 1994 and April 30, 1995, AIT was classified as a discontinued operation in the Company's financial statements. 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 which are serviced under the Asset Management program, enables AIT to play a strategic role in support of such growth. In the first quarter of fiscal 1996, as a result of both improved profitability and the strategic capabilities of AIT, the Company's Board of Directors elected not to dispose of AIT. Accordingly, AIT has been reclassified back to continuing operations in the Company's financial statements included with this report (see Note 3 to the Notes to Condensed Consolidated Financial Statements). NAME CHANGE Effective October 6, 1995, the Company changed its name from MMI Medical, Inc. to InnoServ Technologies, Inc. 12 RESULTS OF OPERATIONS SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995 Consolidated revenues decreased approximately $1,500,000 to $11,898,000 from $13,395,000 as a result of strategic changes at both AIT and the Company's diagnostic imaging operation, as well as the continued declines in the number of Computed Tomography ("CT") maintenance agreements in effect. Revenues at AIT declined approximately $550,000, primarily from lower sales of x-ray film, chemistry and related accessories, as a result of AIT's planned exit from the traditionally low-margin institutional x-ray film market. Revenues at the Company's diagnostic imaging operation declined approximately $450,000 resulting from the discontinuance of its fee-for-service operations, decreased utilization of rental equipment and fewer rental units in the fleet. Revenues from the Company's Multi-Vendor Asset Management Service Program ("Asset Management") increased approximately $1.2 million or 84% and MRI maintenance agreements increased approximately $275,000 or 37% in the second quarter of fiscal 1996 compared to the same period in the prior fiscal year. Additionally, the Company recorded a net decrease of approximately $475,000 in revenues from the sale of equipment and an increase in the sale of labor, parts and x-ray tubes of approximately $550,000 compared to the same period in the prior fiscal year. During the second quarter, the Company was selected by Intermountain Health Care, Inc. ("IHC") in Salt Lake City, Utah to provide all of IHC's twenty-four (24) hospitals with the Company's Asset Management service program for an initial term of five years. Partial implementation of this program commenced October 1, 1995 with complete implementation expected on January 1, 1996. The Company also entered into agreements with two group purchasing organizations to provide member hospitals with access to the Company's various radiology maintenance service programs and with a provider of telemedicine products to provide installation, warranty and after-warranty service. Subsequent to the end of the current quarter, the Company was awarded a five-year contract to provide biomedical and laboratory repair services to Children's Hospital, Columbus, Ohio. Cost of operations decreased approximately $2,250,000, from 86% to 78% of revenue, from the same period in the prior fiscal year resulting primarily from a decrease in the cost of parts, supplies and materials related to the provision of CT maintenance services and cost of x-ray film, chemistry and related accessories sold at AIT. Additionally, in the second quarter of fiscal 1995, the Company experienced higher than normal expenses for x-ray tubes as a result of higher utilization and a non-recurring supplier problem. Depreciation costs decreased from the prior year approximately 24% primarily as a result of purchase accounting adjustments associated with the Acquisition. Selling and Administrative expenses decreased approximately 15% from the second quarter of fiscal 1995 as a result of decreases in salary, bad debt expense and occupancy costs from elimination of duplicate administrative personnel, improved collection of accounts receivable and lower facility expense for the Company's Arlington, Texas facility, respectively. Income (loss) before income taxes increased approximately $1,190,000 from a loss of $880,000 in fiscal 1995 to income of $308,000 in fiscal 1996 as a result of decreased operating, selling and administrative costs and the associated improvement in margins as all operating units reduced operating infrastructure costs. Additionally, cost reductions and price increases improved margins at 13 AIT producing an operating profit in the current quarter of fiscal 1996 compared with an operating loss in the prior fiscal year. 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 provision (benefit) for income taxes increased $475,000 from a benefit of $352,000 in the second quarter of fiscal 1995 to an expense of $123,000 in the second quarter of fiscal 1996 as a result of the Company's return to profitability. SIX MONTHS FISCAL 1996 COMPARED TO SIX MONTHS FISCAL 1995 The net increase in consolidated revenues of approximately $1,810,000 to $23,866,000 from $22,057,000 resulted from primarily from the Acquisition. Revenues from Asset Management service agreements increased approximately $3,470,000 and Magnetic Resonance Imaging ("MRI") maintenance agreements added approximately $930,000 in revenues, while the Company concurrently experienced a net decrease in revenues from CT maintenance service agreements of approximately $1,480,000. Revenues at the Company's diagnostic imaging operation decreased approximately $380,000 due to the discontinuance of its fee-for-service operations, decreased utilization of rental equipment and fewer rental units in the fleet. Revenues at AIT declined approximately $850,000 resulting primarily from lower sales of x-ray film, chemistry and related accessories to institutional customers. On a pro forma basis (see Note 9 to the Notes to Condensed Consolidated Financial Statements), consolidated revenues decreased approximately $2,770,000 resulting primarily from a substantial decline in the number of CT maintenance agreements in effect in the first six months of fiscal 1996 compared to the total of such agreements in effect for R Squared and MEMS combined in the first six months of fiscal 1995. The Company continues to experience a decline in the number of such agreements in effect and expects this trend to continue primarily as a result of customer's older CT equipment being upgraded or removed from service and not replaced. Asset Management revenues increased on a pro forma basis by approximately $2,100,000 or 76% and revenues from MRI maintenance agreements increased approximately $4,450,000 or 31%. Cost of operations decreased approximately $500,000, falling from 87% of revenue in the second quarter of fiscal 1995 to 78% in the same period of fiscal 1996. This decline resulted primarily from a decrease in the cost of maintenance expense at the diagnostic imaging operation and reduced expenses for x-ray film, chemistry and related accessories sold at AIT (directly associated with the decline in revenue from the sale of such items). Depreciation costs decreased from the prior year approximately 24% primarily as a result of certain rental units operated by the imaging operations becoming fully depreciated at the end of fiscal 1995 as well as certain purchase accounting adjustments associated with the Acquisition. Selling and Administrative expenses increased approximately 10% from the first six months of fiscal 1995 primarily associated with the Acquisition, which resulted in the inclusion of labor expense for the full six months in 1996 compared to only three months in fiscal 1995. On a pro forma basis, Selling and Administrative expenses remained constant from the same period in the prior fiscal year. 14 Income (loss) before income taxes increased approximately $2,030,000 from a loss of $1,913,000 in the first six months of fiscal 1995 to income of $120,000 in the same period in fiscal 1996 as a result of improved margins as all operating units reduced operating infrastructure costs. Cost reductions and price increases substantially improved margins at AIT producing an operating profit in the first six months of fiscal 1996 compared with an operating loss in the prior fiscal year. Operating margins also improved at the diagnostic imaging operation as a result of reduced expenses noted above and the elimination of the infrastructure associated with the fee-for-service mobile CT operations. Interest expense increased to $84,000 in the first quarter of fiscal 1995 from expense of $1,000 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 provision for income taxes increased $814,000 from a benefit of $765,000 in the first six months of fiscal 1995 to an expense of $49,000 in fiscal 1996 as a result of the Company's return to profitability. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1995, the Company had net working capital of $3,952,000, a decrease of $125,000 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 October 31, 1995. The Company was in compliance with all financial covenants required by such agreement at the end of the second quarter. Subsequent to the end of the second fiscal quarter, the Company borrowed an additional $500,000. As part of the Company's plan to relocate its headquarters operations to Arlington, Texas, the Company expects to finalize negotiations to secure an expanded credit facility with a bank located in the Arlington area. 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. 15 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders was held on September 15, 1995. Items voted on at the annual meeting were as follows: 1. To elect directors to hold office until the 1996 Annual Meeting of Shareholders and until their successors are elected and qualified. The following directors were elected: VOTES CAST ------------------------ DIRECTOR FOR WITHHELD - -------- --------- -------- Dudley A. Rauch 4,457,500 41,092 Samuel Salen, M.D. 4,460,305 38,287 Bernard J. Korman 4,459,699 38,893 Michael M. Sachs 4,460,774 37,848 Michael F. Sandler 4,459,699 38,893 David A. Wegmann 4,462,505 36,087 2. Approval of the Amendment to the Company's Articles of Incorporation to change the Company's name from "MMI Medical, Inc." to "InnoServ Technologies, Inc.": For: 4,382,333 Against: 98,190 Abstain: 18,069 Broker non-votes: 0 ITEM 5. OTHER INFORMATION. (a) Effective October 6, 1995, the Company changed its name from MMI Medical, Inc. to InnoServ Technologies, Inc. (b) On December 14, 1995, the Company announced the appointment of Michael G. Puls as President and Chief Executive Officer of the Company. The Company expects Mr. Puls to assume his duties prior to the end of December 1995. ITEM 6. EXHIBITS AND REPORT ON FORM 8-K. (a) Exhibit Index is included herewith at page 18. (b) Report on Form 8-K. None 16 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: December 15, 1995 INNOSERV TECHNOLOGIES, INC. By: /s/ Samuel Salen, M.D. ----------------------------------- Samuel Salen, M.D. President and Chief Executive Officer 17 EXHIBIT INDEX Exhibit PAGE - ------- ---- 10.1 Amendment No. 5 to Business Loan Agreement 19 10.2 Security Agreement 22 11.1 Computation of Per Share Earnings 27 27.1 Financial Data Schedules (EDGAR filing only) -- 18 EX-10. 2 EX 10.1 Bank of America Amendment to Documents - ----------------------------------------------------------------------------- AMENDMENT NO. 5 TO BUSINESS LOAN AGREEMENT This Amendment No. 5 (the "Amendment") dated as of --------------, 1995 is between Bank of America National Trust and Savings Association (the "Bank") and MMI Medical, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Business Loan Agreement dated as of October 1, 1993, as previously amended (the "Agreement"). B. The Bank and the Borrower desire to further amend the Agreement. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 In subparagraph (a) of Paragraph 1.1 of the Agreement, the amount "Two Million Dollars ($2,000,000)" is substituted for the amount "Five Million Dollars ($5,000,000)." 2.2 Subparagraph (a) of Paragraph 1.3 of the Agreement is amended and restated in its entirety to read as follows: "(a) Unless the Borrower elects an optional interest rate as described below, the interest rate is the Bank's Reference Rate plus 1.00 percentage point." 2.3 Paragraph 2.2 of the Agreement is amended and restated in its entirety to read as follows: "2.2 Expenses. (a) The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees, and documentation fees. (b) The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorney's fees, including any allocated costs of the Bank's in-house counsel. (c) The Borrower agrees to reimburse the Bank for the cost of periodic audits and appraisals of the personal property collateral securing this Agreement, at such intervals as the Bank may reasonably require. The audits and appraisals may be performed by employees of the Bank or by independent appraisers." 2.4 The first paragraph of Article 4 is amended in its entirety to read as follows: "The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrower under this Agreement." 2.5 New paragraphs 4.2, 4.3, 4.4 and 4.5 are added to Article 4 of the Agreement to read as follows" "4.2 Security Agreements. Signed original security agreement, assignments, financing statements and fixture filings (together with collateral in which the Bank requires a possessory security interest), which the Bank requires. 4.3 Evidence of Priority. Evidence that security interests and liens in favor of the Bank are valid, enforceable, and prior to all others' rights and interests, except those the Bank consents to in writing. 4.4 Insurance. Evidence of insurance coverage, as required in the "Covenants" section of this Agreement. 4.5 Other Items. Any other items that the Bank reasonably requires." 2.6 A new Paragraph 5.14 is added to the Agreement to read as follows: "5.14 Collateral. All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others." 2.7 Paragraph 6.11 of the Agreement is amended in its entirety to read as follows: "6.11 Dividends. Not to declare or pay any dividends on any of its shares except dividends payable in capital stock of the Borrower, and not to purchase, redeem or otherwise acquire for value any of its shares, or create any sinking fund in relation thereto." 2.8 Paragraph 6.19 of the Agreement is amended in its entirety to read as follows: "6.19 Insurance. (a) Insurance Covering Collateral. To maintain all risk property damage insurance policies covering the tangible property comprising the collateral. Each insurance policy must be in an amount reasonably acceptable to the Bank. The insurance must be issued by an insurance company reasonably acceptable to the Bank and must include a lender's loss payable endorsement in favor of the Bank in a form reasonably acceptable to the Bank. (b) General Business Insurance. To maintain insurance as is usual for the business it is in. (c) Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy or, if permitted by the Bank, a certificate of insurance listing all insurance in force." 2.9 A new paragraph 6.22 is added to the Agreement to read as follows: "6.22 Perfections of Liens. To help the Bank perfect and protect its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens." 2.10 A new Paragraph 7.14 of the Agreement is added to the Agreement to read as follows: "7.14 Lien Priority. The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this loan." 2.11 A new Article 9 is added to the Agreement to read as follows: "9. COLLATERAL 9.1 Personal Property. The Borrower's obligations to the Bank under this Agreement will be secured by personal property the Borrower now owns or will own in the future as listed below. The collateral is further defined in security agreement executed by the Borrower. In addition, all personal property collateral securing this Agreement shall also secure all other present and future obligations of the Borrower to the Bank (excluding any consumer credit covered by the federal Truth in Lending law, unless the Borrower has otherwise agreed in writing). All personal property collateral securing any other present or future obligations of the Borrower to the Bank shall also secure this Agreement. (a) Machinery, equipment, and fixtures. (b) Inventory. (c) Receivables." 3. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank: 3.1 An executed Corporate Resolution to Obtain Credit signed Samuel Salen and James P. Butler in the amount of Two Million Dollars ($2,000,000). 3.2 An executed Security Agreement (Receivables, Inventory and Equipment) signed by Samuel Salen and James P. Butler. 3.3 An executed Financing Statement (UCC-1) signed by Samuel Salen and James P. Butler 4. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America MMI Medical, Inc. National Trust and Savings Association /s/ Helen C. Wilson /s/ Samuel Salen - ----------------------------------- ----------------------------------- By: Helen C. Wilson, Vice President By: Samuel Salen, President and Chief Executive Officer /s/ James P. Butler ----------------------------------- By: James P. Butler, Assistant Secretary, Treasurer and Chief Financial Officer EX-10. 3 EX 10.2 Bank of America Security Agreement (Receivables, Inventory and Equipment) - --------------------------------------------------------------------------- 1. THE SECURITY. The undersigned MMI Medical, Inc. ("Borrower") hereby assigns and grants to Bank of America National Trust and Savings Association ("Bank") a security interest in the following described property ("Collateral"): A. All of the following, whether now owned or hereafter acquired by Borrower: accounts, contract rights, chattel paper, instruments, deposit accounts and general intangibles. B. All inventory now owned or hereafter acquired by Borrower. C. All machinery, furniture, fixtures and other equipment of every type now owned or hereafter acquired by Borrower (including, but not limited to, the equipment described in the attached Equipment Description, if any). D. All negotiable and nonnegotiable documents of title now owned or hereafter acquired by Borrower covering any of the above-described property. E. All rights under contracts of insurance now owned or hereafter acquired by Borrower covering any of the above-described property. F. All proceeds, product, rents and profits now owned or hereafter acquired by Borrower of any of the above-described property. G. All books and records now owned or hereafter acquired by Borrower pertaining to any of the above-described property, including but not limited to any computer-readable memory and any computer hardware or software necessary to process such memory ("Books and Records"). 2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of Borrower to Bank. For the purposes of this Agreement, "Indebtedness" means all loans and advances made by Bank to Borrower and all other obligations and liabilities of Borrower to Bank, whether now existing or hereafter incurred or created, whether voluntary or involuntary, whether due or not due, whether absolute or contingent, or whether incurred directly or acquired by Bank by assignment or otherwise. Unless Borrower shall have otherwise agreed in writing, Indebtedness, for the purposes of this Agreement, shall not include "consumer credit" subject to the disclosure requirements of the Federal Truth in Lending Act or any regulations promulgated thereunder. 3. BORROWER'S COVENANTS. Borrower covenants and warrants that unless compliance is waived by Bank in writing: A. Borrower will properly preserve the Collateral; defend the Collateral against any adverse claims and demands; and keep accurate Books and Records. B. Borrower has notified Bank in writing of, and will notify Bank in writing prior to any change in, the locations of (i) Borrower's place of business or Borrower's chief executive office if Borrower has more than one place of business, and (ii) any Collateral, including the Books and Records. C. Borrower will notify Bank in writing prior to any change in Borrower's name, identity or business structure. D. Borrower will maintain and keep in force insurance covering Collateral designated by Bank against fire and extended coverages. Such insurance shall require losses to be paid on a replacement cost basis (except with respect to mobile CT scanners and cardiac cath labs), be issued by insurance companies acceptable to Bank and include a loss payable endorsement in favor of Bank in a form acceptable to Bank. E. Borrower has not granted and will not grant any security interest in any of the Collateral except to Bank, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature except the security interest of Bank. F. Borrower will not sell, lease, agree to sell or lease, or otherwise dispose of, or remove from Borrower's place of business (i) any inventory except in the ordinary course of business as heretofore conducted by Borrower, or (ii) any other Collateral except with the prior written consent of Bank. G. Borrower will promptly notify Bank in writing of any event which affects the value of the Collateral, the ability of Borrower or Bank to dispose of the Collateral, or the rights and remedies of Bank in relation thereto, including, but not limited to, the levy of any legal process against any Collateral and the adoption of any marketing order, arrangement or procedure affecting the Collateral, whether governmental or otherwise. H. If any Collateral is or becomes the subject of any registration certificate or negotiable document of title, including any warehouse receipt or bill of lading, Borrower shall immediately deliver such document to Bank. I. Borrower will not attach any Collateral to any real property or fixture in a manner which might cause such Collateral to become a part thereof unless Borrower first obtains the written consent of any owner, holder of any lien on the real property or fixture, or other person having an interest in such property to the removal by Bank of the Collateral from such real property, or fixture. Such written consent shall be in form and substance acceptable to Bank and shall provide that Bank has no liability to such owner, holder of any lien, or any other person. J. Until Bank exercises its rights to make collection, Borrower will diligently collect all Collateral. 4. ADDITIONAL OPTIONAL REQUIREMENTS. Borrower agrees that Bank may at its option at any time, whether or not Borrower is in default: A. Require Borrower to segregate all collections and proceeds of the Collateral so that they are capable of identification and deliver daily such collections and proceeds to Bank in kind. B. Require Borrower to deliver to Bank (i) copies of or extracts from the Books and Records, and (ii) information on any contracts or other matters affecting the Collateral. C. Examine the Collateral, including the Books and Records, and make copies of or extracts from the Books and Records, and for such purposes enter at any reasonable time upon the property where any Collateral or any Books and Records are located. D. Require Borrower to deliver to Bank any instruments or chattel paper. E. Require Borrower to obtain Bank's prior written consent to any sale, lease, agreement to sell or lease, or other disposition of any inventory. F. Notify any account debtors, any buyers of the Collateral, or any other persons of Bank's interest in the Collateral. G. Require Borrower to direct all account debtors to forward all payments and proceeds of the Collateral to a post office box under Bank's exclusive control. H. Demand and collect any payments and proceeds of the Collateral. In connection therewith Borrower irrevocably authorizes Bank to endorse or sign Borrower's name on all checks, drafts, collections, receipts and other documents, and to take possession of and open the mail addressed to Borrower and remove therefrom any payments and proceeds of the Collateral. 5. DEFAULTS. Any one or more of the following shall be a default hereunder: A. Borrower fails to pay any Indebtedness when due. B. Borrower breaches any term, provision, warranty or representation under this Agreement, or under any other obligation of Borrower to Bank. C. Any custodian, receiver or trustee is appointed to take possession, custody or control of all or a substantial portion of the property of Borrower or of any guarantor of any Indebtedness. D. Borrower or any guarantor of any Indebtedness becomes insolvent, or is generally not paying or admits in writing its inability to pay its debts as they become due, fails in business, makes a general assignment for the benefit of creditors, dies or commences any case, proceeding or other action under any bankruptcy or other law for the relief of, or relating to, debtors. E. Any case, proceeding or other action is commenced against Borrower or any guarantor of any Indebtedness under any bankruptcy or other law for the relief of, or relating to, debtors. F. Any involuntary lien of any kind or character attaches to any Collateral. G. Any financial statements, certificates, schedules or other information now or hereafter furnished by Borrower to Bank proves false or incorrect in any material respect. 6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default Bank may do any one or more of the following: A. Declare any Indebtedness immediately due and payable, without notice or demand. B. Enforce the security interest given hereunder pursuant to the Uniform Commercial Code and any other applicable law. C. Enforce the security interest of Bank in any deposit account of Borrower maintained with Bank by applying such account to the Indebtedness. D. Require Borrower to assemble the Collateral, including the Books and Records, and make them available to Bank at a place designated by Bank. E. Enter upon the property where any Collateral, including any Books and Records, are located and take possession of such Collateral and such Books and Records, and use such property (including any buildings and facilities) and any of Borrower's equipment, if Bank deems such use necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral. F. Grant extensions and compromise or settle claims with respect to the Collateral for less than face value, all without prior notice to Borrower. G. Use or transfer any of Borrower's rights and interests in any Intellectual Property now owned or hereafter acquired by Borrower, if Bank deems such use or transfer necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral. Borrower agrees that any such use or transfer shall be without any additional consideration to Borrower. As used in this paragraph, "Intellectual Property" includes, but is not limited to, all trade secrets, computer software, service marks, trademarks, trade names, trade styles, copyrights, patents, applications for any of the foregoing, customer lists, working drawings, instructional manuals, and rights in processes for technical manufacturing, packaging and labeling, in which Borrower has any right or interest, whether by ownership, license, contract or otherwise. H. Have a receiver appointed by any court of competent jurisdiction to take possession of the Collateral. I. Take such measures as Bank may deem necessary or advisable to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, and Borrower hereby irrevocably constitutes and appoints Bank as Borrower's attorney-in-fact to perform all acts and execute all documents in connection therewith. 7. MISCELLANEOUS. A. Any waiver, express or implied, of any provision hereunder and any delay or failure by Bank to enforce any provision shall not preclude Bank from enforcing any such provision thereafter. B. Borrower shall, at the request of Bank, execute such other agreements, documents, instruments, or financing statements in connection with this Agreement as Bank may reasonably deem necessary. C. All notes, security agreements, subordination agreements and other documents executed by Borrower or furnished to Bank in connection with this Agreement must be in form and substance satisfactory to Bank. D. This Agreement shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. E. All rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy. F. All terms not defined herein are used as set forth in the Uniform Commercial Code. G. In the event of any action by the Bank to enforce this Agreement or to protect the security interest of Bank in the Collateral, or to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, Borrower agrees to pay immediately the costs and expenses thereof, together with reasonable attorney's fees and allocated costs for in-house legal services. H. Any Borrower who is married agrees that such Borrower's separate property shall be liable for payment of the Indebtedness if such Borrower is personally liable for the Indebtedness. Date:----------------------, 1995 Bank of America Borrower National Trust and Savings Association MMI Medical, Inc. /s/ Helen C. Wilson /s/ Samuel Salen - ----------------------------------- ------------------------------- By: Helen C. Wilson, Vice President By: Samuel Salen, President and Chief Executive Officer /s/ James P. Butler ------------------------------- By: James P. Butler, Assistant Secretary, Treasurer and Chief Financial Officer EX-11. 4 EX 11.1 EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS ($000's, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------------------------- OCTOBER 31, OCTOBER 28, OCTOBER 31, OCTOBER 28, 1995 1994 1995 1994 ------------------------ ------------------------ PRIMARY Average Shares Outstanding 5,036 4,951 5,038 3,894 Net effect of dilutive stock options, based upon the treasury stock method using average market price -- -- -- -- ------------------------ ------------------------ Total 5,036 4,951 5,038 3,894 ======================== ======================== Net income (loss) $ 185 $ (528) $ 71 $(1,148) ======================== ======================== Per share amount $ 0.04 $(0.11) $ .01 $ (0.29) ======================== ======================== FULLY DILUTED Average Shares Outstanding 5,036 4,951 5,038 3,894 Net effect of dilutive stock options, based upon the treasury stock method using average market price -- -- -- -- ------------------------ ------------------------ Total 5,036 4,951 5,038 3,894 ======================== ======================== Net income (loss) $ 185 $ (528) $ 71 $(1,148) ======================== ======================== Per share amount $ 0.04 $(0.11) $ .01 $ (0.29) ======================== ========================
EX-27 5 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THOSE FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q FOR THE PERIOD ENDED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS APR-30-1996 MAY-01-1995 OCT-31-1995 131 0 7,508 (1,447) 10,580 18,523 28,585 (22,701) 31,858 14,571 0 51 0 0 17,303 17,227 2,935 23,866 2,115 19,402 4,260 18 84 120 49 71 0 0 0 71 0.01 0.01
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