0001005477-01-501080.txt : 20011008
0001005477-01-501080.hdr.sgml : 20011008
ACCESSION NUMBER: 0001005477-01-501080
CONFORMED SUBMISSION TYPE: 8-K/A
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010712
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 20010919
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EMERGENT GROUP INC/NY
CENTRAL INDEX KEY: 0001021097
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090]
IRS NUMBER: 931215401
STATE OF INCORPORATION: NV
FISCAL YEAR END: 0430
FILING VALUES:
FORM TYPE: 8-K/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-21475
FILM NUMBER: 1740170
BUSINESS ADDRESS:
STREET 1: 375 PARK AVENUE 36TH FL
CITY: NEW YORK
STATE: NY
ZIP: 10152
BUSINESS PHONE: 7183694160
MAIL ADDRESS:
STREET 1: 375 PARK AVE 36TH FL
CITY: NEW YORK
STATE: NY
ZIP: 10152
FORMER COMPANY:
FORMER CONFORMED NAME: DYNAMIC INTERNATIONAL LTD
DATE OF NAME CHANGE: 19960815
8-K/A
1
b01-0032.txt
AMENDMENT TO 8-K
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 8-K/A
Amendment No. 1
-----------------------------------
Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 12, 2001
Commission File Number: 0-21475
EMERGENT GROUP INC.
-------------------
(Exact name of registrant as specified in its charter)
Nevada 93-1215401
------ ----------
(State of jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
375 Park Avenue
New York, NY 10152-3699
-----------------------
(Address of principal executive offices)
(212) 813-9700
--------------
(Registrant's telephone number)
Not Applicable
--------------
(Former name, address and fiscal year, if changed since last report)
-----------------------------------
================================================================================
In July 2001, the Company completed its acquisition of Medical Resources
Management, Inc. ("MRM") as per the agreement dated January 2001. As required by
the terms of the agreement, the Company exchanged 5,633,667 shares of its Common
Stock, which represents 11.3% of the total post-merger outstanding shares, for
all the issued and outstanding Common Stock of MRM at a conversion ratio of
0.37. Based on the average of the Company's closing stock price for the 10
preceding days prior to the acquisition, the purchase price for MRM is
$3,244,992. MRM will operate as a wholly owned subsidiary of the Company.
Item 7. Financial Information, Pro Forma Financial Information and Exhibits
(a) Pro Forma Financial Information
The following unaudited pro forma condensed combining financial data,
which are presented to reflect the acquisition of MRM by the Company, have
been prepared as if the acquisition had taken place on January 1, 2001 and
2000. The transaction will be accounted for under the purchase method of
accounting. The unaudited pro forma condensed combining financial data are
based upon the historical financial statements of the Company and MRM. The
Company is in the process of determining how the purchase price will be
allocated to the net assets acquired and accordingly, the accompanying pro
forma financial statements represent a preliminary estimate of such
allocation. The actual purchase price allocation may vary significantly.
The unaudited pro forma condensed combining financial data are not
necessarily an indication of the results that would have been achieved had
the transaction been consummated as of the date indicated or that may be
achieved in the future.
(b) Other Information
As a result of differing year-ends of the Company and MRM, results of
operations for the dissimilar periods have been combined. The Company's
results of operations for the six months ended June 30, 2001 have been
combined with MRM's results of operations for the eight months ended June
30, 2001. The Company's results of operations for the year ended December
31, 2000 have been combined with MRM's results of operations for the year
ended October 31, 2000.
The unaudited pro forma condensed combining financial data should be read
in conjunction with the notes thereto and with historical audited
consolidated financial statements and notes thereto included in the
Company's and MRM's Annual Report on Form-10K.
2
Unaudited Pro Forma Combining Balance Sheet
As of June 30, 2001
(in thousands)
Pro Forma Combining
Emergent MRM Combined Adjustments Pro Forma
--------- ---------- ---------- ----------- ------------
ASSETS
Current assets $ 2,685 $ 2,769 $ 5,454 $ (960) (B) $ 4,494
Property and equipment, net 308 11,495 11,803 -- 11,803
Intangible assets, net 181 245 426 3,245 (A) 1,318
(2,353) (A)
Other assets, net 747 184 931 -- 931
--------- ---------- ---------- -------- ----------
Total assets $ 3,921 $ 14,693 $ 18,614 $ (68) $ 18,546
========= ========== ========== ======== ==========
LIABILITIES $ 1,080 $ 12,340 $ 13,420 $ (960) (B) $ 12,460
========= ========== ========== ======== ==========
STOCKHOLDERS' EQUITY
Preferred Stock $ -- $ -- $ -- $ -- $ --
Common Stock 44 15 59 (9) (A) 50
Additional paid-in capital 8,629 3,984 12,613 (745) (A) 11,868
Accumulated deficit (5,832) (1,646) (7,478) 1,646 (A) (5,832)
--------- ---------- ---------- -------- ----------
Total stockholders' equity 2,841 2,353 5,194 892 6,086
========= ========== ========== ======== ==========
Total liabilities and stockholders' equity $ 3,921 $ 14,693 $ 18,614 $ (68) $ 18,546
========= ========== ========== ======== ==========
See accompanying notes to unaudited pro forma combining financial information
3
Unaudited Pro Forma Combining Income Statsment
For the Six Months Ending June 30, 2001
(in thousands, except earnings per share)
Pro Forma Combining
Emergent MRM Combined Adjustments Pro Forma
---------- ----------- ----------- ----------- ---------
Revenue, net $ -- $ 7,397 $ 7,397 $ -- $ 7,397
Cost of revenue -- 4,947 4,947 -- 4,947
---------- ----------- ----------- ----------- ----------
Gross profit -- 2,450 2,450 -- 2,450
Operating Expenses 2,407 3,191 5,598 89 (C) 5,687
---------- ----------- ----------- ----------- ----------
Operating loss (2,407) (741) (3,148) (89) (3,237)
Unrealized gain (loss) on
trading investments 137 -- 137 -- 137
Interest/other expense 49 (864) (815) 25 (B) (815)
(25) (B)
---------- ----------- ----------- ----------- ----------
Loss before income taxes (2,221) (1,605) (3,826) (89) (3,915)
Income tax benefit -- -- -- -- --
---------- ----------- ----------- ----------- ----------
Net loss $ (2,221) $ (1,605) $ (3,826) $ (89) $ (3,915)
========== =========== =========== =========== ==========
EARNINGS PER SHARE DATA:
Basic and diluted earnings per share $ (0.05) $ (0.08)
Weighted average common shares (D) 44,173 5,634 49,807
See accompanying notes to unaudited pro forma combining financial information
4
Unaudited Pro Forma Combining Income Statsment
For the Year Ending December 31, 2000
(in thousands, except earnings per share)
Pro Forma Combining
Emergent MRM Combined Adjustments Pro Forma
---------- ---------- ---------- ----------- ---------
Revenue, net $ -- $ 11,103 $ 11,103 $ -- $ 11,103
Cost of revenue -- 6,987 6,987 -- 6,987
---------- ---------- ---------- ----------- ----------
Gross profit -- 4,116 4,116 -- 4,116
Operating Expenses 3,738 4,590 8,328 178 (C) 8,506
---------- ---------- ---------- ----------- ----------
Operating loss (3,738) (474) (4,212) (178) (4,390)
Unrealized gain (loss) on
trading investments -- -- -- -- --
Interest/other expense 128 (1,124) (996) 2 (B) (996)
(2) (B)
---------- ---------- ---------- ----------- ----------
Loss before income taxes (3,610) (1,598) (5,208) (178) (5,386)
Income tax benefit -- -- -- -- --
---------- ---------- ---------- ----------- ----------
Net loss $ (3,610) $ (1,598) $ (5,208) $ (178) $ (5,386)
========== ========== ========== =========== ==========
EARNINGS PER SHARE DATA:
Basic and diluted earnings per share $ (0.08) $ (0.11)
Weighted average common shares (D) 44,173 5,634 49,807
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
(A) Reflects the recording of the purchase of MRM by the Company including
elimination of all of MRM's capital accounts.
Issuance of Emergent Shares...................5,633,667
Price per Share.............................$ 0.576
-----------
Purchase Price..............................$ 3,244,992
===========
(B) Reflects the elimination of MRM note receivable by the Company and MRM's
note Payable to the Company in the amount of $960,000 at June 30, 2001 and
the elimination of $24,592 of interest income and expense, respectively.
For the year ended December 31, 2000, $1,791 of interest income and
expense is eliminated.
(C) Reflects the amortization expense for the six months ended June 30, 2001
and the year ended December 31, 2000 of $89,248 and $178,496,
respectively, for the excess amount of the purchase price of $892,481 over
the net assets acquired of $2,352,511. The excess amount of the purchase
price over the net assets acquired is being amortized over five (5) years.
(D) The average number of common shares outstanding used in calculating pro
forma loss per common share is calculated assuming that the shares of
common stock issued in the merger with MRM were outstanding from the
beginning of the period. Warrants to purchase shares of common stock were
not included in computing pro forma diluted earnings per common share
because their inclusion would result in a smaller loss per common share.
5
(c) Exhibits
99.1 Medical Resources Management, Inc.'s Annual Report for the year ended
October 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EMERGENT GROUP INC.
Date: September 19, 2001 By: /s/ Mark Waldron
-------------------------------------
Mark Waldron, Chief Executive Officer
6
EX-99.1
3
ex99-1.txt
ANNUAL REPORT
2001
Annual Report
mrm [LOGO]
medical resources management inc.
Medical Resources Management, Inc.
932 Grand Central Avenue
Glendale, CA 91201
(800) 660-6162
(818) 240-8250
Table of Contents
Company Profile Below
Financial Highlights 2
Letter to Our Shareholders 2
About Our Company 3
Financial Report 5
Report of Independent Auditors 5
Consolidated Balance Sheet 6
Consolidated Statements of Income 8
Consolidated Statements of Shareholders' Equity 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements 11
Management's Discussion and Analysis 23
Common Stock Information 26
Shareholder Information 27
Board of Directors and Officers 27
Company Profile
Medical Resources Management, Inc. makes mobile laser/surgical services
available to our customers by providing this equipment on a per procedure basis
to hospitals, out patient surgery centers, and physicians' offices. We provide
these mobile lasers with technical support to ensure the lasers are working
correctly for the physicians. We also provide other medical equipment on a
rental basis to hospitals and surgery centers. This equipment is used throughout
such facilities to supplement their requirement for certain medical equipment.
The combination of mobile laser/surgical services and medical equipment rental
illustrates our overall strategy and focus on diversification.
Our laser/surgical services focus on two of the most rapidly growing areas
of the health care industry: managed care and cosmetic surgery. For managed
care, minimally invasive procedures can be performed by physicians at hospitals
who rent our laser equipment. The hospitals that are our customers find the
investment in the latest laser surgery equipment and trained technicians to be
uneconomical. For cosmetic surgery, by renting our equipment, the physicians
benefit from having a multitude of different laser technologies available to
offer to their patients without the burden of investing a significant amount of
money. In both instances, physicians and hospitals receive technical support and
expertise which is provided with the equipment, which allows the staff to
concentrate on their duties without the additional tasks of running a laser.
2
Financial Highlights
---------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) FY 2000 FY 1999 FY 1998
------- ------- -------
Selected Income Statement Data:
Net revenues $11,103 $11,729 $11,322
Operating income (loss) (474) 1,288 1,292
Earnings before interest, taxes, depreciation
and amortization (EBITDA) 1,622 3,269 2,965
Net income (loss) (1,598) 43 170
Net income (loss) per share (basic and diluted) (.20) .01 .02
Weighted average shares outstanding 8,112 7,396 7,385
Selected Balance Sheet Data:
Total assets $15,103 $15,540 $16,163
Long-term obligations 4,656 6,732 7,894
Total liabilities 11,546 12,282 12,958
Total shareholders' equity 3,557 3,258 3,205
---------------------------------------------------------------------------------------------------------
January 26, 2001
To Our Shareholders:
In the last year, MRM began to implement expansion plans by aligning itself with
Emergent Group, Inc., a New York based merchant bank with interests in the
medical technology industry. We have launched new products in the areas of
visualization for ENT surgery and cryoblation to treat prostate cancer.
In fiscal 2000, we met the challenge of building market share in an increasingly
competitive market, but the cost was high. We had to be price competitive. That
created a revenue shortfall on a procedure basis resulting in a net loss for the
fiscal year ended October 31, 2000. Now we are moving forward by increasing our
prices to be more consistent with the superior service that we provide our
customers.
We have added experienced management in the financial and sales areas of the
company to support the next step in our plans to expand nationally.
In 2001, we will continue our efforts to grow nationally by looking for
strategic acquisitions, forming limited liability companies, and expanding
internally. As always, we will search out new technology and be the forerunner
in introducing and distributing these products to the medical industry.
We believe that what separates us from our competition are: (1) the quality of
the service that we provide through our experienced technicians, and (2) having
the ability to bring additional procedures to our doctors, hospitals, and
medical surgery centers.
MRM has entered into a plan for reorganization and merger with Emergent Group,
Inc. The merger is subject to SEC approval and shareholder approval. The details
of the merger can be found in Footnote 10 of the enclosed audited financial
statements. Management believes that the proposed merger will accelerate its
plans for national expansion, bring greater financial stability to the company,
and enhance shareholder value. We look forward, as you should, to new
opportunities and the continued growth of MRM.
Sincerely,
Richard Whitman Al Guadagno
Chairman, President and CEO Executive Vice President and CFO
3
About Our Company
Medical Resources Management, Inc. was incorporated in Nevada in 1991. Our
largest wholly owned operating subsidiary, PRI, was incorporated in California
in 1973 and moved to its present headquarters building in 1994, located in
Glendale, California. PRI also has sales and service offices in Dublin, CA,
Englewood, CO, Salt Lake City, UT, Las Vegas, NV and Tempe, AZ. PRI produced
approximately 82% and 75% of our consolidated revenues during the fiscal years
ended October 31, 2000 and 1999, respectively.
We entered the hospital equipment rental market in 1974, the mobile
laser/surgical services market in 1987, cosmetic skin resurfacing in 1994 and
leg vein treatment and tattoo removal in 1997. We began to expand our mobile
laser/surgical services to doctors' offices and their clinics in 1995. This
business is complementary to our existing laser/surgical services which we
provide to hospitals. In 1997, we made the decision to expand our cosmetic
services to include specialized lasers for treatment of vascular lesions,
pigmented lesions and tattoo removal.
During the past few years, revenue from our mobile laser/surgical services
business has exceeded revenue from our medical equipment rental business.
However, we have a large array of general medical equipment which we rent,
primarily to hospitals, and have acquired substantial additional general medical
equipment since fiscal 1997. Our inventory of medical equipment includes an
extensive variety of medical devices, serving a broad range of hospital
departments or needs. This wide array of medical rental equipment, delivered to
customers on very short notice, was our primary business until about 1987, when
we developed the mobile surgical laser business.
Growth
We have historically focused on providing rental and other services to our
clients on an as needed basis. As a result, we have established long-term
relationships with a number of physicians, hospitals and other medical care
providers. We believe that such relationships provide an opportunity to
introduce additional products to these customers by expanding our product lines
beyond laser/surgical services and medical equipment rentals.
Our strategic plan is to grow through (1) internal expansion, (2) the
acquisition of or combination with other companies in the medical services
business to take advantage of current opportunities in the market place and (3)
the formation of limited liability partnerships with physicians. Opportunities
for growth are created because a wider range of new surgical laser equipment is
coming to market with features oriented toward a wider variety of medical
specialties. This is increasing the number of surgical laser procedures
performed. Another factor favoring growth of surgical laser rentals by hospitals
is the effort by managed care to reduce costs through less invasive procedures.
The managed care effort has also reduced funds available for investment in new
equipment and training.
Marketing and Sales
The principal focus of our business is providing mobile laser/surgical services.
Additionally, we are expanding our business of renting medical equipment to
hospitals, surgery centers and physicians in their offices. Our sales efforts
are supported by a direct sales force which focuses on providing timely service
and products to our customers. In addition, we sponsor educational seminars on
new laser technology, which are attended by physicians. This allows our direct
sales force to introduce new laser technology and procedures to our customer
base as soon as new lasers are offered by manufacturers. This method has proven
to be successful in developing new business from physicians. We benefit from the
physician training which occurs at these educational seminars because the
physicians can immediately implement the new laser technology we offer.
Our sales representatives attend national and regional physician medical
seminars and trade shows to present our services and products. We also create
markets for our products and services through direct mailing of marketing
literature and promotional materials regarding our complete range of
laser/surgical services to hospitals, surgery centers and physicians.
4
Hospital Mobile Laser/Surgical Services
The Southern California market is a mature market place and growth is
dependent on new procedures and products. The market in other parts of the
country is not as mature, providing us with greater growth opportunities in
other geographic markets.
Mobile laser/surgical services, both hospital/surgery center based and
physician office based, provide an entry into new geographic markets with
multiple strategies. Once a facility is established in a new geographic market,
the opportunity exists to use that facility as a dispatch point for equipment
rentals and new products.
Cosmetic Mobile Laser/Surgical Services
The cosmetic laser business is primarily physician office based. This market did
not emerge for us until early 1995, and has been characterized by rapid changes
in specific techniques as new technology emerges.
In recent years, skin resurfacing cosmetic laser surgery has shown significant
growth. However, price competition is emerging in this market from smaller start
up companies. In the past few years, legislation in California and some other
states restricting anesthesia in doctors' offices has redirected some of this
cosmetic surgery to hospitals and surgery centers, where we have a strong base.
As the skin rejuvenation market matures, new markets will be emerging for the
treatment of leg veins and the removal of unwanted hair. Because of customer
inquiries, we believe that recently developed laser technology for collapsing
veins so that they are no longer visible will produce a significant increase in
the number of doctors using mobile lasers. In addition, the anticipated
introduction to the market of new lasers for unwanted hair removal will add a
companion procedure to the vein procedure.
Hospital Medical Equipment Rentals
We entered the hospital equipment rental market in 1974, and maintained that
business as our primary source of revenue until the mobile laser/surgical
services became predominate in 1987. That transition took place because of
competition from national medical rental companies and high demand for the newly
developed mobile laser/surgical services.
We believe that we have a competitive advantage in the market, since we are one
of the few companies that provide both mobile laser/surgical services and
medical equipment rental. There are a number of synergies among the mobile
laser/surgical services and the medical equipment rental business, including:
o Shared facilities
o Shared warehouse and delivery employees
o Shared delivery vehicles
o Complimentary scheduling and booking staff
o Common management
o Shared sales staff at start up
As the medical rental market continues to be challenged by smaller competitors
we intend to respond by offering new products, as well as remaining competitive
on current market pricing.
Equipment and Disposable Sales
We continue to evaluate several lines of disposable medical products to
introduce to our customers. This is a natural progression for us, since we have
a large customer base typified by repeat business and ongoing personal contact
between our sales representatives and our customers.
Another source of revenue is the re-marketing of used equipment. As a result of
our practice of updating laser and medical rental equipment, we occasionally
sell used equipment.
5
Report of Independent Auditors
Board of Directors and Shareholders
Medical Resources Management, Inc.
We have audited the accompanying consolidated balance sheet of Medical Resources
Management, Inc. as of October 31, 2000, and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the two years in
the period ended October 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Medical
Resources Management, Inc. at October 31, 2000, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
October 31, 2000, in conformity with accounting principles generally accepted in
the United States.
As discussed in Note 1 to the consolidated financial statements, the Company's
net loss and the net working capital deficiency raises substantial doubt about
its ability to continue as a going concern. Management's plans as to these
matters are also described in Note 1. The consolidated financial statements as
of and for the year ended October 31, 2000 do not include any adjustments that
might result from the outcome of this uncertainty.
Ernst & Young LLP
Los Angeles, California
January 26, 2001
6
Medical Resources Management, Inc. and Affiliates
Consolidated Balance Sheet
October 31, 2000
Assets
Current assets:
Cash and cash equivalents $ 98,578
Accounts receivable, less allowance of $ 60,000 1,376,840
Inventories 737,184
Prepaid expenses 172,329
-----------
Total current assets 2,384,931
Property and equipment:
Rental equipment 22,019,599
Transportation equipment 905,354
Office furniture and equipment 496,477
Leasehold improvements
85,573
-----------
23,507,003
Less accumulated depreciation and amortization 11,460,040
-----------
Net property and equipment 12,046,963
Other assets:
Intangible assets, net of accumulated amortization of $ 382,046 348,815
Deposits and other assets 322,359
-----------
Total other assets 671,174
-----------
Total assets $15,103,068
===========
See accompanying notes to consolidated financial statements.
7
Medical Resources Management, Inc. and Affiliates
Consolidated Balance Sheet (continued)
October 31, 2000
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 587,438
Accrued expenses 754,854
Note payable to a bank 917,724
Current portion of long-term debt 2,745,954
Current portion of obligations under capital leases 1,883,709
-----------
Total current liabilities 6,889,679
Long-term debt, net of current portion 1,434,458
Obligations under capital leases, net of current portion 2,001,651
Deferred income taxes 1,220,016
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 13,892,155 13,892
Additional paid-in capital 3,585,035
Accumulated deficit (41,663)
-----------
Total shareholders' equity 3,557,264
-----------
Total liabilities and shareholders' equity $15,103,068
===========
See accompanying notes to consolidated financial statements.
8
Medical Resources Management, Inc. and Affiliates
Consolidated Statements of Operations
Year Ended October 31
2000 1999
--------------------------
Net revenue $11,102,650 $11,728,537
Cost of revenue 5,068,584 4,276,953
Depreciation expense 1,918,352 1,696,356
--------------------------
Gross profit 4,115,714 5,755,228
Selling expenses 2,190,047 2,203,848
General and administrative expenses 2,001,201 2,263,076
Restructuring and closure expenses 398,395 --
--------------------------
Operating income (loss) (473,929) 1,288,304
Interest expense 1,124,285 1,217,757
--------------------------
Income (loss) before income taxes (1,598,214) 70,547
Provision for income taxes -- 27,711
--------------------------
Net income (loss) $(1,598,214) $ 42,836
==========================
Net income (loss) per common share (basic and diluted) $ (.20) $ .01
==========================
Weighted average common shares (basic and diluted) 8,112,227 7,396,283
==========================
See accompanying notes to consolidated financial statements.
9
Medical Resources Management, Inc. and Affiliates
Consolidated Statements of Changes in Shareholders' Equity
Common Stock Additional Retained
Shares Amount Paid-in Capital Earnings Total
--------------------------------------------------------------------
Balance at October 31, 1998 7,385,927 $ 7,386 $1,683,326 $ 1,513,715 $ 3,204,427
Issuance of stock for acquisitions 21,000 21 10,479 -- 10,500
Net income for year -- -- -- 42,836 42,836
--------------------------------------------------------------------
Balance at October 31, 1999 7,406,927 7,407 1,693,805 1,556,551 3,257,763
Issuance of stock 5,833,332 5,833 1,738,177 -- 1,744,010
Issuance of stock upon exercise
of stock options 686,576 687 127,038 -- 127,725
Issuance of stock to non-employees 15,320 15 22,965 -- 22,980
Issuance of stock options to
non-employees -- -- 28,000 -- 28,000
Cancellation of stock surrendered (50,000) (50) (24,950) -- (25,000)
Net loss for year -- -- -- (1,598,214) (1,598,214)
--------------------------------------------------------------------
Balance at October 31, 2000 13,892,155 $13,892 $3,585,035 $ (41,663) $ 3,557,264
====================================================================
See accompanying notes to consolidated financial statements.
10
Medical Resources Management, Inc. and Affiliates
Consolidated Statements of Cash Flows
Year Ended October 31
2000 1999
--------------------------
Operating activities
Net income (loss) $(1,598,214) $ 42,836
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization of property and equipment 1,963,507 1,736,088
Amortization of intangibles 132,171 141,459
Provision for doubtful accounts 32,129 76,215
Deferred income taxes -- 25,111
(Gain) loss on sales of assets (4,875) (2,390)
Write off of customer list 151,139 --
Changes in operating assets and liabilities:
Accounts receivable 229,308 201,667
Inventories 84,430 (44,879)
Prepaid expenses (18,011) 34,374
Income tax receivable (2,430) 20,843
Accounts payable (227,940) (480,068)
Accrued expenses 128,044 (141,726)
--------------------------
Net cash provided by operating activities 869,258 1,609,530
Investing activities
Purchases of property and equipment (1,837,438) (1,372,434)
Net proceeds from sales of assets 230,366 26,900
Payments for non-compete agreements -- (38,000)
Increase in deposits and other assets (106,831) (54,407)
--------------------------
Net cash used for investing activities (1,713,903) (1,437,941)
Financing activities
Net proceeds from sales of common stock 1,744,010 --
Proceeds from exercise of stock options 127,725 --
Borrowings (repayments) on bank line of credit (124,910) 1,042,634
Borrowings on long-term debt 1,843,925 2,899,604
Borrowings on capital lease refinancing 34,176 --
Principal payments on long-term debt (850,915) (1,997,603)
Principal payments on capital lease obligations (1,876,120) (2,212,120)
--------------------------
Net cash (used for) provided by financing activities 897,891 (267,485)
Net increase (decrease) in cash and cash equivalents 53,246 (95,896)
Cash and cash equivalents at beginning of period 45,332 141,228
--------------------------
Cash and cash equivalents at end of period $ 98,578 $ 45,332
==========================
Supplemental information:
Cash paid during the period for:
Interest $ 1,145,081 $ 1,271,140
==========================
Taxes $ 2,400 $ 2,730
==========================
Capital lease obligations entered into for equipment $ 439,587 $ 158,850
==========================
Common stock and stock options issued as compensation $ 50,980 $ 10,500
==========================
See accompanying notes to consolidated financial statements.
11
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements
October 31, 2000
1. Summary of Significant Accounting Policies
Description of Business
Medical Resources Management, Inc. (MRM or the Company) engages in the business
of renting medical equipment, providing associated technical support, and also
selling related supplies. Customers of the Company are located throughout much
of the western United States. The financial statements include MRM, the holding
company, consolidated with all of its wholly owned subsidiaries - Physiologic
Reps, Inc. (acquired in fiscal year 1996), Pulse Medical Products, Inc. (Pulse),
Laser Medical, Inc., MedSurg Specialties, Inc. (all acquired in fiscal year
1997) and Texas Oxygen and Medical Equipment Company (acquired in fiscal year
1998). All significant intercompany accounts and transactions have been
eliminated.
Basis of Presentation
The consolidated financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of MRM's business. As of October 31, 2000, the
Company has a working capital deficiency of $4.5 million and for the year ended
October 31, 2000 incurred a net loss of $1.6 million. Management has recently
announced a merger agreement with Emergent Group, Inc. (see Note 10). Management
intends to raise capital to fund the future operations and growth of MRM. In
addition, management is in current negotiations to extend the existing line of
credit. Until these transactions occur, there can be no assurance that the
Company will have sufficient liquidity to fund operations. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Restructuring and Closure Expenses
During the quarter ended April 30, 2000, the Company conducted an intensive
review of its corporate staff and of each of its operating subsidiaries. At the
conclusion of this review, a decision was made to restructure or eliminate
certain management positions. In addition, MRM decided to close two of its
offices, in Boise, Idaho and Mansfield, Texas due to ongoing operating losses
and negative cash flows in these geographic areas.
As a result of these decisions, the Company incurred certain restructuring and
closure expenses during the quarter ended April 30, 2000. These restructuring
and closure costs and expenses included (i) the write-off of customer lists and
certain other non-cash write-offs, as well as legal fees, travel expenses,
severance expense, consulting fees and employee benefit accruals, all of which
amounted to $398,395 in the aggregate, and (ii) the write-down of certain
supplies and consumables inventories in conjunction with the closures in Idaho
and Texas in the amount of $123,000 (included in cost of sales for the quarter
ended April 30, 2000).
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments in highly liquid debt instruments with maturities of three months or
less when purchased to be cash equivalents.
12
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Inventories
Inventories, consisting primarily of supplies, are stated at the lower of cost
(first-in, first-out) or market basis.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which vary
from five to ten years. Capitalized leases and leasehold improvements are being
amortized using the straight-line method over the shorter of the lease term or
estimated useful lives. Amortization of capital leases is included in
depreciation expense. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged as incurred.
Intangible Assets and Long-Lived Assets
Intangible assets consisting of the excess of purchase price over assets
acquired are being amortized over a period of 12 to 15 years. Payments for
non-compete agreements are capitalized and then amortized over the period of the
non-compete agreement. The carrying value of intangible assets and long-lived
assets is reviewed if the facts and circumstances suggest that they may be
impaired. If this review indicates that the assets will be recoverable, as
determined based on estimated undiscounted cash flows of the Company over the
remaining amortization period, the carrying value would be reduced by the
estimated shortfall of discounted cash flows. Any impairment is charged to
expense in the period in which the impairment is incurred.
Income Taxes
The Company utilizes the liability method to determine the provision for income
taxes. Deferred tax assets and liabilities are determined based on differences
between the tax basis of assets and liabilities and the related financial
reporting amounts using currently enacted laws and rates.
Revenue Recognition
The Company recognizes revenue at the time that the rental service is rendered
to the customer, including the providing of technical support.
13
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees" and related interpretations, and intends to
continue doing so. Under APB 25, because the exercise price of the Company's
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 established a fair value-based method of
accounting for compensation costs related to stock options and other forms of
stock-based compensation plans. However, SFAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. The Company provides proforma disclosures of net
income (loss) and earnings (loss) per share as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense.
The Company accounts for equity instruments issued to non-employees in exchange
for goods or services using the fair value method, and records expense based on
the values determined.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with banks.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers primarily with small balances.
Management reviews these balances on a monthly basis and maintains reserves for
potential credit losses, which losses have historically been within management's
expectations. The Company generally sells on credit terms of 30 days and
requires no collateral.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could vary from those estimates.
Earnings per Share
Earnings per share has been computed in accordance with Statement of Financial
Accounting Standards No. 128, "Accounting for Earnings per Share." Basic
earnings per share has been computed based on the weighted average number of
shares of common stock outstanding. Stock options and warrants for the diluted
earnings per share presentation have not been considered because the effect was
either not material or antidilutive.
14
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying value of financial instruments such as cash, cash equivalents,
accounts receivable, accounts payable, accrued expenses and short-term debt
approximate their fair value based on the short-term maturities of these
instruments. The carrying amount of the Company's outstanding balances under its
long-term debt instruments approximates fair value because the interest rates on
outstanding borrowings vary according to current market rates or are set to
approximate market rates.
New Accounting Principles
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives will be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated a
part of a hedge transaction and, if it is, the type of hedge transaction. SFAS
133 will be effective in fiscal 2001. The Company is in the process of
determining the impact of this new standard and anticipates that it will not
have a material impact on the Company's financial results when effective.
2. Investments
During fiscal years 2000 and 1999, the Company acquired an approximate 20%
equity interest in each of seven separate limited liability companies (LLCs).
The LLCs were formed by the Company and certain physicians for an investment by
the Company of between $5,000 and $17,500. The Company manages the LLCs and
provides operating and administrative services to the LLCs. The Company accounts
for its interests in the LLCs using the equity method of accounting. During the
fiscal years ended October 31, 2000 and 1999, the Company recognized fee
revenues of $1,118,367 and $887,851, respectively, relating to the operations,
management and other services provided to the LLCs. In addition, $15,803 and
$36,001 was recorded for the Company's equity interests in the profit of these
LLCs during fiscal years 2000 and 1999, respectively. Additionally, the Company
is a guarantor of certain debt of two of the LLCs in the aggregate amount of
$86,416.
15
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
3. Obligations Under Capital Leases
The Company leases certain equipment under capital lease obligations which
contain purchase options. Cost and accumulated depreciation of equipment under
capital leases included in equipment as of October 31, 2000 are as follows:
Rental equipment $8,812,694
Less accumulated depreciation 2,780,615
----------
Net book value $6,032,079
==========
The following is a schedule by year of future minimum lease payments required
under the leases, together with their present value as of October 31, 2000:
2001 $2,293,614
2002 1,325,949
2003 722,307
2004 193,246
2005 20,229
----------
Total minimum lease payments 4,555,345
Less amount representing interest 669,985
----------
Present value of minimum lease payments due under capital leases 3,885,360
Less current portion 1,883,709
----------
Obligations under capital leases, net of current portion $2,001,651
==========
16
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
4. Debt
In March 1999, the Company entered into a $2,000,000 revolving credit facility
with a bank that matures on March 2, 2001. This facility provides for borrowings
using a formula based upon eligible accounts receivable, as defined. The
revolving credit facility bears interest at the prime rate plus 1.00% (10.50% at
October 31, 2000). As of October 31, 2000, there was $917,724 outstanding under
this facility, and there was approximately $65,000 of unused borrowing capacity
available.
Long-term debt consists of the following at October 31, 2000:
Note payable to a bank (term loan), payable in 60 monthly
installments of $33,333 plus interest at the prime rate
plus 1.25% (10.75% at October 31, 2000), secured by
accounts receivable, inventories, equipment and the
personal guarantee of one shareholder $1,433,333
Notes payable to a finance company for a line of credit of
$300,206 maturing April 2001, bearing interest at a rate of
12% per annum, interest payable monthly, secured by the
accounts receivable and inventories of Pulse 300,206
Various installment notes payable to a finance company
in monthly installments totaling $63,270 including interest
varying between 8.9% and 10.5% per annum, collateralized
by rental equipment, maturing through September 2004 2,089,174
Various notes payable in monthly installments totaling $7,898
including interest varying between 7.1% and 12.5% per annum,
collateralized by trucks, vans and automobiles, maturing
through January 2004 89,270
Other 268,429
----------
Total long-term debt 4,180,412
Less current portion 2,745,954
----------
Long-term debt, net of current portion $1,434,458
==========
Long-term debt matures as follows during the years ending October 31:
2001 $2,745,954
2002 637,474
2003 554,277
2004 242,707
2005 --
----------
$4,180,412
==========
The revolving credit facility and term loan prohibit the payment of cash
dividends and require the Company to maintain certain levels of net worth and to
generate certain ratios of cash flows to debt service. As of October 31, 2000,
the Company was not in compliance with certain financial covenants of its
revolving credit facility and term loan. As a result, the Company has classified
all of the bank loan facilities as current liabilities in the balance sheet as
of October 31, 2001.
17
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
5. Provision for Income Taxes
The provisions for income taxes for the years ended October 31, 2000 and 1999
consist of the following:
Year ended October 31, 2000
Current Deferred Total
-----------------------------------
Federal $ -- $ -- $ --
State -- -- --
-----------------------------------
$ -- $ -- $ --
===================================
Year ended October 31, 1999
Current Deferred Total
-----------------------------------
Federal $ -- $22,067 $22,067
State 2,730 2,914 5,644
-----------------------------------
$ 2,730 $24,981 $27,711
===================================
Significant components of the Company's deferred tax assets and liabilities at
October 31, 2000 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,232,699
Allowance for doubtful accounts 23,568
Other 182,634
-----------
Total deferred assets 1,438,901
Deferred tax liabilities:
Depreciation (2,632,378)
Other (24,539)
-----------
Total deferred liabilities (2,658,917)
-----------
Net deferred liabilities $(1,220,016)
===========
A reconciliation of the provision for income taxes with the amounts obtained by
applying the federal statutory tax rate is as follows:
Year ended October 31
2000 1999
----------------------
Income tax based on federal statutory rate $(543,392) $ 24,084
State tax, net of federal tax benefit (84,386) 3,740
Decrease in net operating loss carryforward 627,778 --
----------------------
$ -- $ 27,824
======================
At October 31, 2000, the Company had federal and state net operating loss
carryforwards for tax purposes of approximately $5.0 million and $2.4 million,
respectively, which will expire primarily in years 2017 through 2020. As a
result of ownership changes, net operating losses may be subject to limitations
under the Internal Revenue Code.
18
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
6. Equity
During September 2000, the Company sold 5,833,332 shares of its common stock in
a private offering. These shares were sold at a price of $0.30 per share,
resulting in gross proceeds of $1,750,000 and net proceeds of $1,744,010 after
expenses.
Between November 1, 1996 and March 31, 1997, the Company sold 291,600 Units in a
private offering. These Units consisted of 291,600 shares of common stock, as
well as 291,600 Class A warrants and 291,600 Class B warrants to purchase, in
the aggregate, 583,200 shares of common stock. The Units were sold at $1.25 per
Unit, resulting in gross proceeds of $364,500 and net proceeds of $324,480 after
expenses. The Class A and Class B warrants have a per share exercise price of
$2.50 and $4.00, respectively. In September 1999, the Company extended the
expiration date of these warrants for a period of two years from November 1,
1999 to November 1, 2001. As of October 31, 2000 no such warrants had been
exercised.
During March 1997, the Company issued an additional 202,840 Units to certain
shareholders (including the then principal officer of the Company) in exchange
for $253,550 of indebtedness owed to these shareholders. These Units consisted
of 202,840 shares of common stock, as well as 202,840 Class A warrants and
202,840 Class B warrants to purchase, in the aggregate, 405,680 shares of common
stock. The Units were issued at a rate of one Unit for each $1.25 of shareholder
debt forgiven. The Class A and Class B warrants have a per share exercise price
of $2.50 and $4.00, respectively. In September 1999, the Company extended the
expiration date of these warrants for a period of two years from November 1,
1999 to November 1, 2001. As of October 31, 2000 no such warrants had been
exercised.
In April 1997, in connection with a loan from a finance company, warrants were
granted to the finance company to purchase 100,000 shares of common stock at a
price of $2.00 per share, exercisable at any time during the six years following
the date of the loan.
7. Benefit Plan
The Company has adopted a defined contribution retirement plan (Plan) which
qualifies under Section 401(k) of the Internal Revenue Code. The Plan covers
substantially all employees with over one year of service. The Company makes an
annual election to provide matching contributions of up to 50% of each
participant's deferral up to a maximum of 3% of compensation. Effective January
2000, the Company elected to suspend any matching contributions. The amounts of
matching contributions included in expense were $ 9,316 and $ 85,747 for the
years ended October 31, 2000 and 1999, respectively.
19
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
8. Stock Options
In September 1996, the Company adopted the 1996 Stock Incentive Plan (Plan) to
allow officers, employees and certain non-employees to receive certain options
to purchase common stock and to receive grants of common stock subject to
certain restrictions. Under the Plan, regular salaried employees and directors
may be granted options exercisable at not less than 100 percent of the fair
market value of the shares at the date of grant. The exercise price of any
option granted to an optionee who owns stock possessing more than ten percent of
the voting power of all classes of common stock of the Company must be 110
percent of the fair market value of the common stock on the date of grant, and
the duration may not exceed five years. Options generally become exercisable at
a rate of one-third of the shares subject to option on each of the first, second
and third anniversary dates of the grant. The duration of options may not exceed
ten years. A maximum number of 1,500,000 shares of common stock may be issued
under the Plan.
In February 2000, the Company adopted the 2000 Stock Incentive Plan (Stock Plan)
to allow officers, employees and certain non-employees to receive certain
options to purchase common stock and to receive grants of common stock subject
to certain restrictions. Under the Stock Plan, regular salaried employees,
including directors, who are full time employees, may be granted options
exercisable at not less than 100 percent of the fair market value of the shares
at the date of grant. The exercise price of any option granted to an optionee
who owns stock possessing more than ten percent of the voting power of all
classes of common stock of the Company must be 110 percent of the fair market
value of the common stock on the date of grant, and the duration may not exceed
five years. Options generally become exercisable at a rate of one-third of the
shares subject to option on each of the first, second and third anniversary
dates of the grant. The duration of options may not exceed ten years. A maximum
number of 2,500,000 shares of common stock may be issued under the Stock Plan
and the Company has reserved 2,500,000 shares of common stock for future
issuance in connection with the exercise of these options.
20
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
The following table summarizes stock option activity under both plans:
Year ended October 31
2000 1999
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------------------------------------
Outstanding at beginning of year 1,138,004 $0.34 877,854 $0.37
Granted 1,802,350 $0.21 379,500 $0.25
Exercised (686,576) $0.19 -- --
Forfeited or cancelled (103,250) $0.32 (119,350) $0.31
---------------------------------------
Outstanding at end of year 2,150,528 $0.29 1,138,004 $0.34
========= ===== ========= =====
Options exercisable at year-end 1,665,278 $0.30 670,504 $0.35
========= ===== ========= =====
The weighted average fair value of options granted during the years ended
October 31, 2000 and 1999 was $0.21 and $0.25 at October 31, 2000 and 1999,
respectively. The weighted average remaining contractual life of stock options
was 8.68 years as of October 31, 2000. The range of prices of outstanding
options under the Plan at October 31, 2000 was $0.19 to $1.50.
Year ended October 31
2000 1999
----------- -----------
Net income (loss) as reported $(1,598,214) $ 42,836
=========== ===========
Proforma net loss $(1,948,214) $ (40,875)
=========== ===========
Net income (loss) per common share as reported $ (.20) $ .01
=========== ===========
Proforma net loss per common share $ (.24) $ (.01)
=========== ===========
The Company utilized the Black-Scholes method to estimate the fair value of
options, which includes the weighted average calculation of the fair value using
the following assumptions: (i) a risk-free interest rate of 6%; (ii) an expected
life of 8 years; (iii) expected volatility of 4.46; and (iv) no expected
dividends.
21
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
9. Commitments, Contingencies and Related Party Transactions
The Company leases premises under non-cancelable operating leases expiring in
2001 and future minimum lease payments are $85,105. The lease on the corporate
headquarters contains provisions for cost of living increases and certain
options to renew for a period of five additional years. The Company exercised
this option in February 2001. Other facilities are on a month-to-month basis.
Rent expense was $239,231 and $306,483 for the years ended October 31, 2000 and
1999, respectively.
In April 2000, the Company borrowed $100,000 each from two individuals, for an
aggregate borrowing of $200,000. These loans are in the form of a note payable
to each of the two individuals, and bear interest at a rate of 10% per annum,
with interest payable monthly and principal due in full in April 2001. In
addition, each of these two individual lenders received 50,000 non-qualified
stock options at the time that the loan proceeds were received by the Company,
which resulted in deemed compensation of $28,000 in the aggregate. One of these
individuals is the father of the Company's Chairman, President and CEO. The
terms and conditions of these loans are believed to be the same as would be
offered to an independent third party by the Company.
In January 2000, the Company entered into a 3-year employment contract
with Richard Whitman, its Chairman, President and CEO. This contract provides
for an annual base compensation of $180,000, an annual bonus based upon
performance, and the issuance of 1,009,050 non-qualified stock options at the
inception of the contract (equal to 10% of the fully diluted shares outstanding
at the inception of this contract). In addition, the contract provides that, if
Mr. Whitman is terminated prior to the end of the contract, he will then be
entitled to receive compensation through the end of the contract.
In August 2000, the Company entered into a 2-year employment contract with
Al Guadagno, its Senior Vice President and CFO. This contract provides for an
annual base compensation of $150,000, an annual bonus based upon performance,
and the issuance of 350,000 non-qualified stock options at the inception of the
contract. In addition, the contract provides that, if Mr. Guadagno is terminated
prior to the end of the contract, he will then be entitled to receive
compensation through the end of the contract.
10. Subsequent Events
During November and December 2000, the Company issued an aggregate of $400,000
in convertible subordinated debt to certain affiliates. These instruments bear
interest at a rate of 8% per annum, mature 3 months from date of issuance and
are convertible into shares of our common stock at a rate of one share for each
$0.10 of principal amount. This convertible subordinated debt was exempt from
registration under Section 4(2) of the Securities Act of 1933.
In December 2000, the Company sold 1,333,333 shares of its common stock to a
strategic buyer in a private offering exempt from registration under Section
4(2) of the Securities Act of 1933. These shares were sold at a price of $0.30
per share, with no offering expenses, resulting in net proceeds of $400,000.
In January 2001, the Company entered into an agreement with Emergent Group, Inc.
(OTC BB: EMGRE.OB) ("Emergent") for a merger of the two companies. Under the
terms of the agreement, each share of the Company's common stock will be
exchanged for 0.37 shares of Emergent stock. The Company will operate as a
wholly owned subsidiary of Emergent after the merger. Consummation of the merger
is subject, among other conditions, to approval by the shareholders of each of
the two companies.
22
Medical Resources Management, Inc. and Affiliates
Notes to Consolidated Financial Statements (continued)
Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read together with the
financial statements and notes thereto included elsewhere herein.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Statements of Income:
Year ended October 31,
----------------------
2000 1999
----- -----
Net revenue ........................................... 100.0% 100.0%
Cost of revenue ....................................... 45.6 36.5
Depreciation expense .................................. 17.3 14.4
----- -----
Gross profit .......................................... 37.1 49.1
Selling expenses ...................................... 19.7 18.8
General and administrative expenses ................... 17.8 19.3
Restructuring and closure expenses .................... 3.6 --
----- -----
Operating income (loss) ............................... (4.0) 11.0
Interest expense ...................................... 10.1 10.4
----- -----
Income (loss) before income taxes ..................... (14.1) 0.6
Provision for income taxes ............................ -- 0.2
----- -----
Net income (loss) ..................................... (14.1)% 0.4%
===== =====
Year Ended October 31, 2000 Compared to Year Ended October 31, 1999
For the year ended October 31, 2000, net revenue was $11.10 million,
compared to $11.73 million during the fiscal year ended October 31, 1999, a
decrease of $626,000, or 5.3%. The decrease in net revenue is principally due
to (1) a decrease in disposable and equipment sales of $483,000 and a decrease
in medical rental revenue of approximately $459,000, both as a result of the
closure of operations in Idaho and Texas and of lower medical rental revenue in
Southern California and (2) a decrease in biomedical service revenue of
$139,000, all of which decreases were offset in part by (3) an increase in
surgical and cosmetic laser services revenue of $404,000 attributable to a
higher volume of cases in Southern California (offset in part by lower per case
revenue) and (4) an increase of $51,000 in other revenue. The decreases in
revenue cited above were principally the result of the closure of facilities in
Boise, Idaho and Mansfield, Texas during the quarter ended April 30, 2000.
During that quarter, the Company conducted an intensive review of its corporate
staff and of each of its operating subsidiaries. At the conclusion of this
review, a decision was made to restructure or eliminate certain management
positions. In addition, the Company decided to close it offices in Idaho and
Texas due to ongoing operating losses and negative cash flows in these
geographic areas.
Cost of revenue (excluding depreciation expense) for the year ended
October 31, 2000 totaled $5.07 million, or 45.6% of net revenue, compared to
$4.28 million, or 36.5% of net revenue, in the prior fiscal year ended October
31, 1999, an increase of $792,000, or 18.5%. The increase in cost of revenue is
chiefly attributable to (1) an increase in the volume of laser surgical service
cases in Southern California of approximately 12% during fiscal year 2000,
resulting in higher direct costs, principally disposables and technician labor,
(2) the write-off of approximately $123,000 in inventories in conjunction with
the closure of facilities in Idaho and Texas, (3) higher cost of equipment sales
during the second and third quarters of fiscal year 2000, (4) $89,000 in costs
relating to the lithotripsy services introduced in fiscal year 2000 and (5)
higher fuel expense due to rising gasoline prices during fiscal year 2000.
23
Depreciation expense directly attributable to net revenue for fiscal year
2000 was $1.92 million compared to $1.70 million for fiscal year 1999, an
increase of $222,000, or 13.1%. This increase in depreciation expense is
primarily the result of the addition of equipment during the latter part of
fiscal year 1999 and the first nine months of fiscal year 2000.
Gross profit for the fiscal year ended October 31, 2000 was $4.12 million,
or 37.1% of net revenue, compared to $5.76 million, or 49.1% of net revenue, in
the prior fiscal year, a decrease of $1.64 million, or 28.5%. The decrease in
gross profit is principally the result of the factors described previously.
For the fiscal year ended October 31, 2000, selling expenses were $2.19
million, compared to selling expenses of $2.20 million for the prior fiscal
year, a slight decrease of $14,000, or 0.6%. As a percentage of net revenue,
selling expenses increased somewhat to 19.7% in the year ended October 31, 2000,
compared to 18.8% in the prior fiscal year, as a result of lower revenue in
fiscal year 2000.
General and administrative ("G&A") expenses totaled $2.00 million for the
year ended October 31, 2000, compared to $2.26 million in the year ended October
31, 1999, a decrease of $ 261,000, or 11.6%. As a percentage of net revenue, G&A
expenses decreased from 19.3% in the fiscal year 1999 to 18.0% in the fiscal
year 2000. The decrease in the amount of G&A expense is chiefly attributable to
(1) a decrease in write-off of software development costs from $107,000 in
fiscal year 1999 to no write-offs in fiscal year 2000, (2) a decrease of $44,000
in expenses relating to the effort to refinance debt during fiscal year 1999 and
(3) a reduction of management personnel related to the corporate restructuring
during the second quarter of fiscal year 2000, all of which decreases were
offset in part by higher compensation costs and higher professional fees during
the later half of fiscal year 2000.
Restructuring and closure expenses for the year ended October 31, 2000
totaled approximately $398,000. There were no such expenses during the prior
fiscal year. See Note 1 to the audited financial statements filed as an exhibit
hereto.
Operating loss for fiscal year 2000 was $474,000, or 4.3% of net revenue,
compared to operating income of $1.29 million in the year ended October 31,
1999, or 11.0% of net revenue. This decrease in operating income in fiscal year
2000 from fiscal year 1999 is attributable to all of the factors previously
cited herein.
For the year ended October 31, 2000, interest expense totaled $1.12
million, compared to $1.22 million in the prior fiscal year, a decrease of
$93,000, or 7.7%. This decrease in interest expense is primarily the result of
capital leases which have matured in fiscal 2000.
The loss before income taxes was $1.60 million for the year ended October
31, 2000, compared to income before taxes of $71,000 in the year ended October
31, 1999, a negative variance of $1.67 million. The loss before income taxes, as
a percentage of net revenue, was 14.4% in the year ended October 31, 2000,
compared to income before taxes equal to 0.6% of net revenue in the year ended
October 31, 1999. This variance occurred as a result of the all of the
aforementioned factors.
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Liquidity and Capital Resources
Our liquidity requirements arise from the funding of our working capital needs,
principally accounts receivable and inventories, as well as our capital
expenditure needs. Our primary sources for working capital have historically
been borrowings under debt facilities, leasing arrangements, trade payables and
the sale of our Common Stock.
During the fiscal year ended October 31, 2000, net cash provided by operating
activities was $ 869,000, which resulted principally from net loss of $1.60
million adjusted for (a) depreciation and amortization expense of $2.10 million,
(b) the write-off of customer lists in the amount of $ 151,000, (c) a provision
for doubtful accounts of $32,000 and (d) a net decrease of approximately
$193,000 in working capital items, all of which were offset in part by gains
from sales of assets of approximately $ 5,000.
Net cash used in investing activities during the fiscal year ended October
31, 2000 totaled $1.71 million, which was comprised of (a) capital expenditures
in the amount of $1.84 million, (b) an increase in other assets of $92,000 and
(c) an increase in loan fees of $15,000, all of which were offset in part by net
proceeds from the sales of assets of $230,000.
During the fiscal year ended October 31, 2000, net cash provided by
financing activities totaled $898,000, consisting of (a) net proceeds in the
amount of $1.74 million from the issuance of common stock, (b) $1.84 million in
borrowings on long-term debt, (c) $128,000 in proceeds from the exercise of
stock options and (d) $34,000 in borrowings on capital lease refinancings, all
of which were offset in part by (e) repayments on a bank line of credit in the
amount of $ 125,000, (f) $1.88 million in principal payments on capital lease
obligations and (g) $851,000 in principal payments on long-term debt.
Debt Refinancing
On March 31, 1999 we entered into an agreement with a bank that provides
for a $2 million term loan (Bank Term Loan) and a $2 million line of credit
(Bank Line of Credit). The proceeds from the Bank Term Loan were used to repay
in full the then-existing term loan with Merrill Lynch, as well as for working
capital purposes, including payment of past-due lease payments. The Bank Term
Loan bears interest at a rate of prime plus 1.25%, with principal due in 60
equal monthly installments commencing in May 1999. The balance on the Bank Term
Loan as of October 31, 2000 was approximately $ 1.43 million.
The proceeds from the Bank Line of Credit were used for working capital
purposes. This Bank Line of Credit bears interest at a rate of prime plus 1.00%,
with borrowings based upon eligible accounts receivable as defined. The balance
outstanding under the Bank Line of Credit as of October 31, 2000 was
approximately $ 918,000.
The Bank Line of Credit and Bank Term Loan prohibit the payment of cash
dividends and require us to maintain certain levels of net worth and to generate
certain ratios of cash flows to debt service. As of October 31, 2000, we were
not in compliance with certain financial covenants of the Bank Line of Credit
and Bank Term Loan. As a result, we have classified all of the bank loan
facilities as current liabilities in the balance sheet as of October 31, 2000.
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Common Stock Information
Our Common Stock is traded under the symbol "MRMC" in the over-the-counter
market through the NASD's electronic OTC Bulletin Board service. The following
table sets forth the range of high and low bid prices per share of our Common
Stock for each of the periods indicated. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
Bid Prices
------------------------
High Low
Quarter ended:
January 31, 1999 $0.531 $0.125
April 30, 1999 $0.531 $0.125
July 31, 1999 $2.063 $0.125
October 31, 1999 $1.000 $0.250
January 31, 2000 $0.625 $0.125
April 30, 2000 $0.875 $0.188
July 31, 2000 $0.563 $0.156
October 31, 2000 $0.438 $0.187
Holders of Common Stock
As of October 31, 2000, the number of holders of record of our common
stock was 465.
Dividends
To date, we have not paid any cash dividends on our common stock and do
not anticipate paying cash dividends in the foreseeable future. We anticipate
that all earnings, if any, for the foreseeable future will be retained for
development of our business. We are prohibited from paying dividends by our bank
loan agreement if we are in default of any of the loan covenants.
Recent Sales of Unregistered Securities
During November and December 2000, we issued an aggregate of $400,000 in
convertible subordinated debt to certain affiliates. These instruments bear
interest at a rate of 8% per annum, mature 3 months from date of issuance and
are convertible into shares of our common stock at a rate of one share for each
$0.10 of principal amount. This convertible subordinated debt was exempt from
registration under Section 4(2) of the Securities Act of 1933.
In December 2000, we sold 1,333,333 shares of our common stock to a
strategic buyer in a private offering exempt from registration under Section
4(2) of the Securities Act of 1933. These shares were sold at a price of $0.30
per share, with no offering expenses, resulting in net proceeds of $400,000.
Commitments
We had no material commitments for capital expenditures at October 31,
2000. However, although we have no present commitments or agreements to make
such capital expenditures, during the next 12 months we expect to make
substantial capital expenditures, in accordance with our historical practice.
The mobile laser/surgical services and medical equipment rental businesses are
capital intensive. We believe that funds generated from operations, together
with funds available from debt facilities, as well as additional debt or equity
offerings, will be sufficient to finance our working capital and capital
expenditure requirements for the next 12 months. However, there can be no
assurance that any additional debt or equity offerings will occur. If we are
unable to obtain such funds from additional debt or equity offerings, we will
have to curtail our capital expenditures.
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Shareholder Information
Directors & Officers
Corporate Offices
932 Grand Central Ave.
Glendale, California 91201
(818) 240-8250
Independent Auditors
Ernst & Young LLP
Los Angeles, California
Transfer Agent
Atlas Stock Transfer Corp.
Salt Lake City, Utah
Legal Counsel
Sidley & Austin
Los Angeles, California
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held at the company offices in
Glendale, California.
Board of Directors
Richard Whitman
Chairman of the Board
Daniel Yun
Emergent Capital
Mark Waldron
Emergent Capital
Donald Petrie
Insurance executive
Rick Greenwood
Marc Kerner
Paul Mikus
President and CEO of Endocare
Officers
Richard Whitman
President and CEO
Al Guadagno
Executive Vice President and CFO
Annual Report on Form 10-KSB
Any shareholder who wishes to receive a copy of our Annual Report on From
10-KSB may obtain one at no charge by writing to: Al Guadagno, Secretary at the
corporate office address shown above.
OTCBB Symbol: MRMC.OB
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