-----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, GfZWzhXjT8UDsIe5wHrF6SWoPu7YrNsKyHjICq8jLlKeS6ZdFkIP8hrJZrt6MfhE zqkdz10o0EXwUPXNvRctsA== 0000936392-96-000176.txt : 19960514 0000936392-96-000176.hdr.sgml : 19960514 ACCESSION NUMBER: 0000936392-96-000176 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL IMAGING CENTERS OF AMERICA INC CENTRAL INDEX KEY: 0000746712 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 953643045 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12787 FILM NUMBER: 96562101 BUSINESS ADDRESS: STREET 1: 9444 FARNHAM ST STE 100 CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6195600110 MAIL ADDRESS: STREET 2: 9444 FARNHAM STREET SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92123 10-Q 1 FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /x/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996, or / / Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------ ------- Commission File Number 0-12787 MEDICAL IMAGING CENTERS OF AMERICA, INC. (Exact name of registrant as specified in its charter) California 95-3643045 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9444 Farnham St., Suite 100 San Diego, California 92123 (Address of principal executive offices) (Zip Code) (619) 560-0110 (Registrant's telephone number, including area code) 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. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 2,674,307 shares of Common Stock as of May 7, 1996 Page 1 of 13 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS (in thousands except share information) - ---------------------------------------
March 31, 1996 December 31, 1995 -------------- ----------------- ASSETS: Current assets: Cash and cash equivalents (includes restricted cash of $170 in 1996 and $422 in 1995) $ 6,835 $ 10,732 Trade and notes receivable, net of allowance for doubtful accounts of $4,379 in 1996 and $4,503 in 1995 8,036 7,711 Prepaid expenses and other current assets 704 725 -------- -------- Total current assets 15,575 19,168 Equipment and leasehold improvements, net of accumulated depreciation and amortization of $16,372 in 1996 and $25,168 in 1995 14,844 16,274 Equipment held for sale, net of accumulated depreciation of $2,277 in 1996 and $4,863 in 1995 700 800 Investment in and advances to unconsolidated entities, net of reserves of $1,845 in 1996 and $1,788 in 1995 1,375 1,489 Intangible assets, net of accumulated amortization of $1,606 in 1996 and $1,645 in 1995 950 1,087 Other assets 797 830 -------- -------- $ 34,241 $ 39,648 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Current portion long-term debt and capital lease obligations $ 6,212 $ 11,161 Current portion convertible subordinated debt 2,800 2,800 Accounts payable 1,149 1,107 Accrued compensation 487 697 Other accrued liabilities 2,805 3,066 -------- -------- Total current liabilities 13,453 18,831 Long-term debt and capital lease obligations 9,883 11,182 Minority interest in consolidated partnerships 1,098 1,222 Convertible subordinated debt 5,400 5,400 Commitments Shareholders' Equity: Preferred stock, no par value, 5,000,000 shares authorized; Series B preferred shares, no par value, 300,000 shares authorized, no shares issued or outstanding -- -- Common stock, no par value, 30,000,000 shares authorized; 2,671,774 and 2,479,460 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively 55,906 54,691 Accumulated deficit (51,499) (51,678) ------- -------- Total shareholders' equity 4,407 3,013 -------- -------- $ 34,241 $ 39,648 ======== ========
See accompanying notes. Page 2 of 13 3 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, ---------------------------- (in thousands except per share information) 1996 1995 - ------------------------------------------- ---------- --------- REVENUES: Medical services $ 9,105 $ 12,139 Equipment and medical suite sales 348 2,036 -------- -------- Total revenues 9,453 14,175 COSTS AND EXPENSES: Costs of medical services 5,202 7,406 Costs of equipment and medical suite sales 66 1,542 Marketing, general and administrative 697 782 Provision for doubtful accounts 123 268 Depreciation and amortization of equipment and leasehold improvements 1,676 2,633 Amortization of intangibles and deferred costs 101 122 Equity in net income of unconsolidated entities (180) (183) Interest expense 560 955 Interest income (128) (154) Special charge 1,325 -- -------- -------- Total costs and expenses 9,442 13,371 -------- -------- Income before minority interest and extraordinary gain 11 804 Minority interest in net (income) loss of consolidated partnerships (81) 120 -------- -------- Income (loss) before extraordinary gain (70) 924 Extraordinary gain, net of tax 382 -- -------- -------- Net income $ 312 $ 924 ======== ======== PRIMARY EARNINGS PER SHARE: Income (loss) before extraordinary gain $ (.03) $ .37 Extraordinary gain $ .14 $ -- -------- -------- Net income $ .11 $ .37 ======== ======== FULLY DILUTED EARNINGS PER SHARE: Net income $ .11 $ .35 ======== ======== SHARES USED IN PER SHARE AMOUNTS: Primary 2,752 2,476 ======== ======== Fully Diluted 2,752 3,227 ======== ========
See accompanying notes. Page 3 of 13 4 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ---------------------------- (in thousands) 1996 1995 - -------------- ---- ---- OPERATING ACTIVITIES: Net income $ 312 $ 924 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,777 2,755 Amortization of deferred financing costs 18 36 Provision for doubtful accounts 123 268 Minority interest in net income (loss) of consolidated partnerships 81 (120) Net value of equipment sold 120 1,555 Extraordinary gain from debt forgiveness (517) -- Change in assets and liabilities: (Increase) decrease in trade receivables (448) 27 Decrease in prepaid expenses and other current assets 21 142 Decrease in accounts payable and other accrued liabilities (219) (702) Decrease in accrued compensation (210) (701) -------- ------- Net cash provided by operating activities 1,058 4,184 INVESTING ACTIVITIES: Capital expenditures (137) (169) Decrease in investment in and advances to unconsolidated entities, net 114 337 Cost of acquisitions (205) (50) Other, net 33 (6) -------- ------- Net cash (used in) provided by investing activities (195) 112 FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease obligations (4,735) (4,506) Distribution to minority interests -- (151) Redemption of Shareholder Rights (133) -- Other, net 108 (2) -------- ------- Net cash used in financing activities (4,760) (4,659) -------- ------- Net decrease in cash and cash equivalents (3,897) (363) Cash and cash equivalents at beginning of period 10,732 8,524 -------- ------- Cash and cash equivalents at end of period $ 6,835 $ 8,161 ======== ======= SUPPLEMENTAL CASH FLOW DATA: Interest paid $ 419 $ 754 ======== ======= Income taxes paid $ 47 $ 6 ======== ======= SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: Additions to capital lease and long-term debt obligations $ 131 $ 280 ======== ======= Retirement of debt and termination of capital lease obligations $ 1,649 $ 389 ======== =======
See accompanying notes. Page 4 of 13 5 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Common Shares ---------------------- Issued and Outstanding ---------------------- Accumulated (in thousands except share information) Shares Amount Deficit - --------------------------------------- ------ ------ ------- Balance at December 31, 1995 2,479,460 $54,691 $(51,678) Proceeds from issuance of common stock purchase warrants (see Note 4) 160,000 912 -- Fair value assigned to warrants issued in connection with debt forgiveness (see Note 4) -- 200 -- Stock options exercised 32,314 103 -- Redemption of Shareholder Rights (see Note 3) -- -- (133) Net income -- -- 312 ----------------------------------------- Balance at March 31, 1996 2,671,774 $55,906 $(51,499) ==========================================
See accompanying notes. Page 5 of 13 6 MEDICAL IMAGING CENTERS OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The financial statements included herein have been prepared by Medical Imaging Centers of America, Inc. ("MICA" or the "Company"), without audit, according to the rules and regulations of the Securities and Exchange Commission. 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 the disclosures that are made are adequate to make the information presented not misleading. Further, in the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations of the Company as of and for the periods indicated, have been included. It is suggested that these financial statements be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 1995, which are included in the Company's Form 10-K. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 1996. 2. On January 2, 1996, Steel Partners II, L.P. ("Steel"), which as of March 19, 1996 owned 19.8% of the Company's outstanding common stock, filed proxy materials with the Securities and Exchange Commission to replace the current Board of Directors with its own representatives. The Company held a special meeting of shareholders on February 26, 1996. On March 19, 1996, the Company and Steel entered into an Agreement of Compromise and Settlement (the "Settlement Agreement"). The Settlement Agreement calls for the dismissal of all pending litigation and provides for mutual releases. The Settlement Agreement also provides that the February 26, 1996 Special Meeting of Shareholders will be adjourned without any final report from the Inspector of Elections, leaving the current Board of Directors in place. Pursuant to the Settlement Agreement, the Company is required to initiate a process to sell or merge the Company ("Auction Process"). If the process does not result in an announcement of a sale or merger transaction by June 19, 1996, a definitive agreement for a sale or merger transaction by July 19, 1996, or the consummation of a sale or merger transaction by November 19, 1996, the current members of the Company's Board of Directors will resign from their positions and be replaced by designees of Steel. The Settlement Agreement calls for the Company to amend the severance agreements of the Company's chief executive officer and chief financial officer to provide that the Company's failure to meet such deadlines shall constitute an "involuntary termination" for purposes of their respective severance packages. Steel has agreed that it will not acquire beneficial ownership of any of the Company's securities during the Auction Process. The Settlement Agreement also requires the Company to redeem all outstanding Rights issued pursuant to the Company's Shareholder Rights plan and prohibits the Company from enacting a new shareholder rights plan without the prior written consent of Steel. Simultaneous with its entering into the settlement, the Company entered into a Standstill Agreement with Arrowhead Holdings Corporation, a Delaware corporation ("Arrowhead"), containing substantially the same terms as the Settlement Agreement with Steel. The Company estimates that the total expenditures for such solicitation, including the fees and expenses of the Company's attorneys, financial advisors, public relations firm and proxy solicitors, excluding salaries and wages of its officers and employees and including $425,000 reimbursed to Steel, will approximate $1,325,000, and such amount has been recorded as a Special Charge to operations in the first quarter of 1996. Page 6 of 13 7 3. The Board of Directors set March 29, 1996 as the record date for determining the holders of Rights entitled to payment of the $.05 per share Redemption Price and April 8, 1996 as the date for payment of the Redemption Price. The Company paid $133,000 in the aggregate to holders of Rights issued pursuant to the Rights Plan to effect the redemption of all outstanding Rights. Such amount has been reflected in the financial statements as of March 31, 1996. 4. In January 1996, the Company repaid a $3.1 million promissory note. The Company paid $1,425,000 in cash and applied $912,000 in proceeds received from the exercise of a warrant attached to the note to purchase 160,000 shares of MICA's Common Stock as payment in full to retire the note. In connection with this transaction the Company issued an additional warrant to purchase 60,000 shares of the Company's Common Stock at an exercise price of $8.50 per share which expires on December 31, 1998. The Company assigned a $200,000 value to the warrant and recorded an extraordinary gain of $382,000, net of tax, from the settlement of this obligation in January 1996. 5. Primary and fully diluted net income per share is computed on the basis of weighted average number of common shares outstanding and includes common stock equivalents when their effect is dilutive. For the quarter ended March 31, 1996, common stock equivalents and additional shares from the conversion of debentures were excluded from the fully diluted net income computation as their effect was antidilutive. The Company effected a one-for-five reverse stock split for shareholders of record on October 16, 1995. All per share data has been restated for all periods presented to give effect to the reverse stock split. 6. No income tax provisions have been recorded for the three months ended March 31, 1996 and 1995, respectively, due to net operating loss carryforwards available for income tax purposes. 7. Certain 1995 amounts have been reclassified to conform with the March 31, 1996 presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: BUSINESS The Company is a California corporation organized in July 1981 which provides outpatient services and medical equipment rentals to physicians, managed care providers and hospitals. These services include magnetic resonance imaging ("MRI"), computed tomography ("CT"), nuclear medicine and ultrasound. The Company's operations include diagnostic medical centers ("DMCs"), diagnostic equipment rentals, fee-for-service agreements (fixed and mobile), and management, marketing and related support services. OPERATING TRENDS Medical services revenues declined during the first quarter of 1996 primarily due to the Company's termination of unprofitable fee-for-service contracts and sales of underperforming assets used in the fee-for-service business. As such, the Company believes that revenues from its fee-for-service business, which accounted for 39% of medical services revenues reported in 1995 and 30% of medical services revenues reported in the first quarter of 1996, will continue to decline. In view of the historical unprofitability and uncertainty regarding its fee-for-service business, the Company's strategy is to sell equipment used in its fee-for-service business as related hospital contracts expire. Revenues earned by the Company's DMCs in the first quarter of 1996 were negatively affected by declining reimbursement which is the direct result of cost containment efforts at the state and federal level as well as efforts by insurer and payor groups to reduce healthcare costs. MICA expects the decline in reimbursement trends to continue in the future. The Company's strategy is to offset the decline in reimbursement by securing managed care contracts and developing strategic alliances with hospitals and other healthcare providers to increase the utilization of its diagnostic imaging services. By positioning itself to take greater advantage of managed care contracts, thereby increasing the utilization of its services, management believes that it can maintain its DMC revenues. Although there can be no assurances, the Company believes that declining reimbursement trends can be offset with increased utilization so that such trends will not have a significant negative impact on the Company's operating results or its liquidity in the future. Management believes that its cash on hand and cashflow from future operations will be sufficient to meet the Company's obligations as they come due. Page 7 of 13 8 Although the Company cannot accurately anticipate the effect of inflation on its operations, it does not believe that inflation has had, or is likely in the foreseeable future to have, a material impact on its net sales or results of operations. RESULTS OF OPERATIONS REVENUES FROM MEDICAL SERVICES Revenues from its DMCs for the first quarter declined $400,000 from $6.8 million in 1995 to $6.4 million in 1996 primarily due to declining trends in both reimbursement and utilization. Revenues from its fee-for-service business for the first quarter declined $2.6 million from $5.3 million in 1995 to $2.7 million in 1996, primarily due to the Company's sale of underperforming assets and termination of certain unprofitable leases and contracts used in its fee-for-service business. The Company's sale of its Chicago-based Ultrasound and Nuclear Medicine Division (the "Division") in July of 1995 accounted for $1.4 million of the decline. As noted above, a number of factors exist that could have an impact on the Company's future revenues, including declining prices and an oversupply in the diagnostic equipment market, declining trends in reimbursement and competition in the healthcare industry. REVENUES FROM EQUIPMENT AND MEDICAL SUITE SALES Revenues from equipment and medical suite sales for the first quarter decreased from $2 million in 1995 to $350,000 in 1996. The decrease in sales is due to the quantity and type of equipment and medical suites sold and will vary accordingly. The Company intends to sell equipment and its remaining inventory of medical suites in the future, but such sales are subject to market conditions and there can be no assurances that such sales will or will not occur. COSTS OF MEDICAL SERVICES Costs of medical services from its DMCs for the first quarter decreased from $4.2 million (35% of medical services revenues) in 1995 to $3.9 million (43% of medical services revenues) in 1996 primarily due to the renegotiation of certain DMC lease obligations. Costs of medical services from its fee-for-service business for the first quarter decreased from $3.2 million (26% of medical services revenues) in 1995 to $1.3 million (14% of medical services revenues) in 1996, primarily due to the Company's sale of Division assets in July 1995 which accounted for $950,000 of the decrease in costs, termination of leases and contracts, sales of fee-for-service equipment, and various actions taken by the Company to reduce spending. COSTS OF EQUIPMENT AND MEDICAL SUITE SALES Costs of equipment and medical suite sales for the first quarter decreased from $1.5 million in 1995 to $65,000 in 1996. The difference in costs is directly related to the quantity and type of equipment and medical suites sold and will vary accordingly. MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES Marketing, general and administrative expenses decreased from $780,000 (6% of medical services revenues) in 1995 to $695,000 (8% of medical services revenues) in 1996. The decrease in costs resulted from reductions in administrative personnel, expiration of certain leases, and other spending reductions. PROVISION FOR DOUBTFUL ACCOUNTS Provision for doubtful accounts for the first quarter decreased from $270,000 (2% of medical services revenues) in 1995 to $125,000 (1% of medical services revenues) in 1996. The provision for doubtful accounts is based upon management's evaluation of the collectability of accounts receivable and varies accordingly. DEPRECIATION AND AMORTIZATION Depreciation and amortization of equipment and leasehold improvements for the first quarter decreased from $2.6 million in 1995 to $1.7 million in 1996. This decrease is primarily due to the sale of underperforming assets and termination of certain unprofitable leases used in the fee-for-service business and the Company's sale of Division assets in July of 1995 which accounted for $235,000 of the decline. INTEREST EXPENSE Interest expense for the first quarter decreased from $955,000 in 1995 to $560,000 in 1996. This decrease primarily resulted from the sale of underperforming assets and termination of certain unprofitable leases used in the fee-for-service business. In addition, interest expense decreased $60,000 due to the declining balance of its convertible subordinated debt. MINORITY INTEREST IN NET INCOME/LOSS OF CONSOLIDATED PARTNERSHIPS The minority interest in the consolidated partnerships increased from a net loss of $120,000 in the first quarter of 1995 to net income of $80,000 in the first quarter of 1996 due to improved performance of certain of its DMCs with minority ownership. Page 8 of 13 9 EXTRAORDINARY GAIN On January 16, 1996 the Company entered into an agreement with a creditor to pay off a promissory note. The Company paid $1,425,000 in cash and applied $912,000 in proceeds received from the exercise of a warrant to purchase 160,000 shares of MICA's Common Stock as payment in full to retire the note. In connection with this transaction the Company issued an additional warrant to purchase 60,000 shares of the Company's Common Stock at an exercise price of $8.50 per share which expires on December 31, 1998. At the date of grant, the Company allocated $200,000 to the cost of the warrant which was determined to be its fair value. The Company recorded an extraordinary gain of $382,000, net of tax, from the settlement of this obligation in the quarter ended March 31, 1996. SPECIAL CHARGE Total expenditures related to the Settlement Agreement and related proxy solicitation, including the fees and expenses of the Company's attorneys, financial advisors, public relations firm and proxy solicitors, excluding salaries and wages of its officers and employees and including $425,000 reimbursed to Steel, approximated $1,325,000, and were recorded as a Special Charge to operations in the first quarter of 1996 (see Note 2). LIQUIDITY AND CAPITAL RESOURCES At March 31, 1996, the Company's cash and cash equivalents totaled $6.8 million which is a decrease of $3.9 million since December 31, 1995. This decrease primarily reflects principal payments of $4.7 million offset by net cash provided by operations of $1 million. Included in the first quarter's principal payments is $1.4 million paid to retire a promissory note (see Note 4) and $1.1 million in payments related to a negotiation to settle certain equipment lease debt. The Company had working capital of $2.1 million at March 31, 1996, which, when combined with its cash on hand was adequate to meet the Company's mandatory sinking fund payment of $2.8 million on April 30, 1996 to holders of its convertible subordinated debt. The Company's ability to meet its current obligations is dependent on its ability to maintain revenues from existing contracts while reducing related costs. In addition, a number of factors exist that could have an impact on the Company's future revenues. Such factors in some cases have affected the Company's results, and in the future could cause the Company's actual results for the second quarter of 1996, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These factors are discussed under the caption "Risk Factors and Certain Cautionary Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and include, among others, the following: (i) declining prices and an oversupply in the diagnostic equipment market; (ii) changes in healthcare legislation which have limited reimbursement and prohibited referrals from physician investors; (iii) healthcare initiatives which could reduce reimbursement to the Company; and (iv) competition in the healthcare industry. Page 9 of 13 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings On January 2, 1996, Steel Partners II, L.P. ("Steel"), who at that time had acquired 19.9% of the Company's outstanding common stock, commenced a proxy solicitation against the Company by filing preliminary proxy materials with the SEC demanding that a Special Meeting of Shareholders be called on February 26, 1996 to remove the Company's current Board and elect Steel's nominees in their place. On January 10, 1996, the Company commenced litigation in the United States District Court for the Southern District of California (the "Court") against Steel and certain of its affiliates (together with Steel, the "Steel Defendants") alleging that the Steel Defendants violated certain federal securities laws and state tort laws in connection with their acquisition of Common Stock and their proxy solicitation. The Company's complaint alleged, among other matters, that the Steel Defendants violated Section 13(d) of the Securities Exchange Act of 1934 by, among other things, filing false and misleading Schedules 13D that failed to disclose the Steel Defendants' true ownership of Common Stock and their true intent to attempt to take control of the Company. The complaint also alleged that the Steel Defendants tortiously interfered with the Company's economic relations with a lender of the Company by, among other things, claiming to have enough control of the Company to have instructed the Company to stop making payments to its lenders. The complaint sought, among other things, to have the Court preliminarily and permanently enjoin the Steel Defendants' proxy solicitation and their acquisition and voting of shares of Common Stock, and damages for the Steel Defendants' tortious interference with the Company's economic relations. The complaint further sought to have the Court require the Steel Defendants to publicly disclose their beneficial ownership of 20% or more of the Common Stock and declare that the Steel Defendants have thereby become an "Acquiring Person" for purposes of the Company's Shareholder Rights Plan (the "Rights Plan"), enabling all of the Company's shareholders other than the Steel Defendants to purchase shares of Common Stock at bargain prices, under certain circumstances. On January 19, 1996, a federal magistrate denied the Company's application for expedited discovery and granted the Steel Defendants' application for a stay of discovery. On February 7, 1996, the Court upheld the federal magistrate's ruling, scheduled a hearing on the Steel Defendants' motion to dismiss the Company's complaint, which was filed on January 17, 1996, for February 14, 1996 and scheduled a hearing on the Company's motion for a preliminary injunction for February 23, 1996. On February 14, 1996, the Court denied the Steel Defendants' motion to dismiss, thereby lifting the stay on discovery. Also on February 14, 1996, a federal magistrate granted the Company's application for expedited discovery. On February 15, 1996, Steel commenced litigation in the United States District Court for the Southern District of California against the Company alleging that the Rights Plan violates California law because, among other things, it discriminates among the Company's shareholders under certain circumstances. Steel's complaint sought, among other things, to have the Court enjoin the Company from permitting the separation or distribution of any rights pursuant to the Rights Plan and declare the Rights Plan invalid. On February 23, 1996, Judge Rudi Brewster of the United States District Court for the Southern District of California issued a preliminary injunction based on his finding that the Company had demonstrated that there was sufficient evidence to show probable success on the merits of the Company's claim that Steel had violated the requirements of Section 13(d) of the Securities Exchange Act of 1934 by failing to disclose its unidentified foreign investor. Judge Brewster also found sufficient evidence to show probable success on the merits of the Company's claim that brokerage customers of Jack Howard, an affiliate of Steel, were members of a "group" which included Steel. On February 26, 1996, the Company held a Special Meeting of Shareholders as scheduled. On March 19, 1996, the Company and certain of its affiliates, on the one hand, and Steel and certain of its affiliates, on the other hand, entered into an Agreement of Compromise and Settlement (the "Settlement Agreement"). The Settlement Agreement calls for the dismissal of all pending litigation between Steel and the Company and provides for mutual releases between the Company and its affiliates and Steel and its affiliates. The Settlement Agreement also provides that the February 26, 1996 Special Meeting of Shareholders will be adjourned without any final report from the Inspector of Elections, leaving the current Board of Directors in place. Page 10 of 13 11 Pursuant to the Settlement Agreement, the Company is required to initiate a process to sell or merge the Company. The Company's financial advisor, Batchelder & Partners, Inc., will advise the Company in connection with the sale or merger process. If the process does not result in an announcement by the Company of a sale or merger transaction by June 19, 1996, a definitive agreement for a sale or merger transaction by July 19, 1996, or the consummation of a sale or merger transaction by November 19, 1996, the current members of the Company's Board of Directors will resign from their positions and be replaced by designees of Steel. The Settlement Agreement calls for the Company to amend the severance agreement of the Company's chief executive officer and chief financial officer to provide that the Company's failure to meet such deadlines shall constitute an "involuntary termination" for purposes of their respective severance packages. In the meantime, Steel has agreed that it will not, and will cause its affiliates not to, acquire or offer to acquire, directly or indirectly, by purchase or otherwise, beneficial ownership of any of the Company's securities during the sale or merger process. The Settlement Agreement also requires the Company to redeem all outstanding Rights issued pursuant to the Company's Rights Plan and prohibits the Company from enacting a new shareholder rights plan without the prior written consent of Steel. Simultaneous with its entering into the settlement, the Company entered into a Standstill Agreement with Arrowhead Holdings Corporation, a Delaware corporation ("Arrowhead"), containing substantially the same terms as the Settlement Agreement (the "Arrowhead Agreement"). The Arrowhead Agreement, like the Settlement Agreement, provides that the Company shall initiate a process to sell or merge the Company and shall redeem all outstanding Rights granted pursuant to the Rights Plan. The Arrowhead Agreement also contains mutual release provisions and prohibits Arrowhead from acquiring beneficial ownership of the Company's securities. Pursuant to the Settlement Agreement, the Company agreed to reimburse Steel for expenses up to $425,000 incurred by Steel in connection with its solicitation of proxies for the February 26, 1996 Special Meeting of Shareholders. Total expenditures related to the Settlement Agreement and related proxy solicitation, including the fees and expenses of the Company's attorneys, financial advisors, public relations firm and proxy solicitors, excluding salaries and wages of its officers and employees and including the $425,000 reimbursed to Steel, approximated $1,325,000, and were recorded as a Special Charge to operations in the first quarter of 1996. Item 4. Submission of Matters to a Vote of Security Holders. A Special Meeting of Shareholders was held on February 26, 1996. The matters voted on were the removal of all present directors without cause; and if approved, the election of new directors. Pursuant to the March 19, 1996 Settlement Agreement, the February 26, 1996 Special Meeting of Shareholders was adjourned without any final report from the Inspector of Elections, leaving the current Board of Directors in place (see Note 2). Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: Exhibit 11 - Computation of Earnings per Share Exhibit 27 - Financial Data Schedule (b) Reports: A Form 8-K was filed on January 16, 1996 reporting the resignation of a director of the Company's Board of Directors. A Form 8-K was filed on January 25, 1996 amending the Company's Shareholder Rights Plan. Page 11 of 13 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MEDICAL IMAGING CENTERS OF AMERICA, INC. Date : May 13, 1996 /s/ Robert S. Muehlberg ----------------------- Robert S. Muehlberg Chairman of the Board of Directors, President and Chief Executive Officer Date : May 13, 1996 /s/ Denise L. Sunseri --------------------- Denise L. Sunseri Vice President, Chief Financial Officer and Secretary Page 12 of 13 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 MEDICAL IMAGING CENTERS OF AMERICA, INC. COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31, ---------------------------- (in thousands except per share information) 1996 1995 - ------------------------------------------- ------- ------- (B) Net income for computation of primary earnings per share $ 312 $ 924 Fully diluted: Adjustment for interest and amortization for the conversion of debentures -- 201 ----------- ----------- Net income for computation of fully diluted earnings per share $ 312 $1,125 =========== =========== - -------------------------------------------------------------------------------------------------------------- Average shares: Common shares 2,627 2,426 Stock option and warrant equivalent shares (A) 125 50 ----------- ----------- Average shares for computation of primary earnings per share 2,752 2,476 Fully diluted: Stock option and warrant equivalent shares - difference from primary (A) -- 18 Conversion of debentures -- 733 ----------- ----------- Average shares for computation of fully diluted earnings per share 2,752 3,227 =========== =========== - -------------------------------------------------------------------------------------------------------------- Net income per share: Primary $ .11 $ .37 =========== =========== Fully diluted $ .11 $ .35 =========== =========== - --------------------------------------------------------------------------------------------------------------
(A) In 1996 and 1995, the treasury stock method was used to calculate the common stock equivalent number of shares from options and warrants. (B) Adjustment for interest and amortization and additional shares from the conversion of debentures issued in 1989 are not included in the calculation of fully diluted earnings per share for the three months ended March 1996 as their effect would be antidilutive. Page 13 of 13 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 6,835 0 12,415 4,379 0 15,575 34,193 18,649 34,241 13,453 15,283 0 0 55,906 (51,499) 34,241 348 9,453 66 5,268 1,777 123 560 11 0 (70) 0 382 0 312 $0.11 $0.11
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