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RadNet 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
radnet_10q-033111.htm


 
UNITED STATES
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, 2011
 
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 0-19019

RadNet, Inc.
(Exact name of registrant as specified in charter)

Delaware
13-3326724
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
   
   
1510 Cotner Avenue
 
Los Angeles, California
90025
(Address of principal executive offices)
(Zip Code)
 
(310) 478-7808
(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 and 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes  ¨    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
       
Large accelerated filer  ¨
Accelerated filer  x
Non-accelerated filer  ¨
Smaller reporting company  ¨
   
(do not check if a smaller
reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes  ¨    No  x

The number of shares of the registrant’s common stock outstanding on May 5, 2011, was 37,319,725 shares.
 


 
 

 

Table of Contents

RADNET, INC.

INDEX

PART I – FINANCIAL INFORMATION
Page
       
 
ITEM 1.
Condensed Consolidated Financial Statements
 
       
   
Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010
3
       
   
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 and 2010
4
       
   
Condensed Consolidated Statement of Equity Deficit for the Three Months ended March 31, 2011
5
       
   
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010
6
       
   
Notes to Condensed Consolidated Financial Statements
8
       
 
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
       
 
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
33
       
 
ITEM 4.
Controls and Procedures
33
       
PART II – OTHER INFORMATION
 
       
 
ITEM 1.
Legal Proceedings
34
       
 
ITEM 1A.
Risk Factors
34
       
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
34
       
 
ITEM 3.
Defaults Upon Senior Securities
34
       
 
ITEM 4.
Removed and Reserved
34
       
 
ITEM 5.
Other Information
34
       
 
ITEM 6.
Exhibits
34
       
SIGNATURES
35
       
INDEX TO EXHIBITS
36

 
 
2

 

PART I - FINANCIAL INFORMATION
RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
   
(unaudited)
       
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 259     $ 627  
Accounts receivable, net
    104,666       96,094  
Prepaid expenses and other current assets
    16,300       14,304  
Total current assets
    121,225       111,025  
PROPERTY AND EQUIPMENT, NET
    195,633       194,230  
OTHER ASSETS
               
Goodwill
    147,752       143,353  
Other intangible assets
    57,165       57,348  
Deferred financing costs, net
    14,956       15,486  
Investment in joint ventures
    17,274       15,444  
Deposits and other
    2,577       2,628  
Total assets
  $ 556,582     $ 539,514  
LIABILITIES AND EQUITY DEFICIT
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
  $ 91,206     $ 82,619  
Due to affiliates
    3,051       2,975  
Deferred revenue
    1,382       1,568  
Current portion of notes payable
    5,966       8,218  
Current portion of deferred rent
    863       745  
Current portion of obligations under capital leases
    7,787       9,139  
Total current liabilities
    110,255       105,264  
LONG-TERM LIABILITIES
               
Deferred rent, net of current portion
    10,366       10,379  
Deferred taxes
    277       277  
Line of credit
    15,900       -  
Notes payable, net of current portion
    480,131       481,578  
Obligations under capital lease, net of current portion
    4,276       5,639  
Other non-current liabilities
    17,208       18,850  
Total liabilities
    638,413       621,987  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
EQUITY DEFICIT
               
Common stock - $.0001 par value, 200,000,000 shares authorized;
               
37,307,225 and 37,223,475 shares issued and outstanding at
               
March 31, 2011 and December 31, 2010, respectively
    4       4  
Paid-in-capital
    163,591       162,444  
Accumulated other comprehensive loss
    (1,801 )     (2,137 )
Accumulated deficit
    (243,717 )     (242,841 )
Total Radnet, Inc.'s equity deficit
    (81,923 )     (82,530 )
Noncontrolling interests
    92       57  
Total equity deficit
    (81,831 )     (82,473 )
Total liabilities and equity deficit
  $ 556,582     $ 539,514  
 
 
The accompanying notes are an integral part of these financial statements.

 
3

 
 
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
 
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
NET REVENUE
  $ 146,217     $ 124,178  
                 
OPERATING EXPENSES
               
Cost of operations
    115,828       98,639  
Depreciation and amortization
    13,921       13,275  
Provision for bad debts
    7,905       7,677  
Loss on sale of equipment
    259       104  
Severance costs
    145       132  
Total operating expenses
    138,058       119,827  
                 
INCOME FROM OPERATIONS
    8,159       4,351  
                 
OTHER EXPENSES
               
Interest expense
    12,915       9,967  
Other income
    (1,871 )     -  
Total other expenses
    11,044       9,967  
                 
LOSS BEFORE INCOME TAXES AND EQUITY
               
IN EARNINGS OF JOINT VENTURES
    (2,885 )     (5,616 )
Provision for income taxes
    (147 )     (334 )
Equity in earnings of joint ventures
    2,224       1,861  
NET LOSS
    (808 )     (4,089 )
Net income attributable to noncontrolling interests
    68       22  
NET LOSS ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
  $ (876 )   $ (4,111 )
                 
BASIC AND DILUTED NET LOSS PER SHARE
               
ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
  $ (0.02 )   $ (0.11 )
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
               
Basic and diluted
    37,257,683       36,363,946  

The accompanying notes are an integral part of these financial statements.

 
4

 
 
RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
(unaudited)
 
     
Common Stock
     
Paid-in
     
Accumulated
     
Accumulated
Other
Comprehensive
     
Total
Radnet, Inc.'s
     
Noncontrolling
     
Total
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Loss
   
Equity Deficit
   
Interests
   
Equity Deficit
 
                                                                 
BALANCE - JANUARY 1, 2011
    37,223,475     $ 4     $ 162,444     $ (242,841 )   $ (2,137 )   $ (82,530 )   $ 57     $ (82,473 )
Issuance of common stock upon exercise of options/warrants
    83,750       -       99       -       -       99       -       99  
Stock-based compensation
    -       -       1,048       -       -       1,048       -       1,048  
Dividends paid to noncontrolling interests
    -       -       -       -       -       -       (33 )     (33 )
Change in cumulative foreign currency translation adjustment
    -       -       -       -       30       30       -       30  
Change in fair value of cash flow hedge from prior periods reclassified to earnings
    -       -       -       -       306       306       -       306  
Net loss
    -       -       -       (876 )     -       (876 )     68       (808 )
Comprehensive loss
    -       -       -       -       -       (540 )     68       (472 )
BALANCE - MARCH 31, 2011
    37,307,225     $ 4     $ 163,591     $ (243,717 )   $ (1,801 )   $ (81,923 )   $ 92     $ (81,831 )
 
 
 
 
 
5

 
 
RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  (IN THOUSANDS)
(Unaudited)
 
   
Three months ended
 
   
March 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (808 )   $ (4,089 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization
    13,921       13,275  
Provision for bad debts
    7,905       7,677  
Equity in earnings of joint ventures
    (2,224 )     (1,861 )
Distributions from joint ventures
    2,504       3,095  
Deferred rent amortization
    105       359  
Amortization of deferred financing cost
    748       670  
Amortization of bond discount
    58       -  
 Loss on sale of equipment
    259       104  
Amortization of cash flow hedge
    306       -  
Stock-based compensation
    1,048       819  
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:
               
Accounts receivable
    (15,481 )     (8,071 )
Other current assets
    (2,345 )     (1,426 )
Other assets
    51       (1,287 )
Deferred revenue
    (186 )     -  
Accounts payable and accrued expenses
    9,335       7,337  
Net cash provided by operating activities
    15,196       16,602  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of imaging facilities
    (6,343 )     (6,708 )
Purchase of property and equipment
    (15,616 )     (12,900 )
Proceeds from sale of equipment
    235       -  
Purchase of equity interest in joint ventures
    (1,500 )     -  
Net cash used in investing activities
    (23,224 )     (19,608 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
Principal payments on notes and leases payable
    (6,490 )     (5,538 )
Deferred financing costs
    (218 )     -  
Proceeds from, net of payments on, line of credit
    15,900       -  
Payments to counterparties of interest rate swaps, net of amounts received
    (1,611 )     (1,581 )
Distributions to noncontrolling interests
    (33 )     (18 )
Proceeds from issuance of common stock upon exercise of options/warrants
    99       49  
Net cash provided by (used in) financing activities
    7,647       (7,088 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    13       -  
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (368 )     (10,094 )
CASH AND CASH EQUIVALENTS, beginning of period
    627       10,094  
CASH AND CASH EQUIVALENTS, end of period
  $ 259     $ -  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid during the period for interest
  $ 6,330     $ 9,340  

 The accompanying notes are an integral part of these financial statements.
 
 
6

 

RADNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)

Supplemental Schedule of Non-Cash Investing and Financing Activities

We acquired equipment and certain leasehold improvements for approximately $7.4 million and $3.8 million during the three months ended March 31, 2011 and 2010, respectively, that we had not paid for as of March 31, 2011 and 2010, respectively.  The offsetting amount due was recorded in our consolidated balance sheet under accounts payable and accrued expenses.
 
As discussed in Note 6, as a result of our debt refinancing completed on April 6, 2010, our interest rate swaps are no longer effective.  Accordingly, all changes in their fair value after April 6, 2010 are, and will continue to be recognized in earnings as other income.
  
Detail of investing activity related to acquisitions can be found in Note 4.
 
 
 

 


 
7

 

RADNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

At March 31, 2011, we operated a group of regional networks comprised of 201 diagnostic imaging facilities located in six states with operations primarily in California, Maryland, Florida, Delaware, New Jersey and New York.  We provide diagnostic imaging services including magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), nuclear medicine, mammography, ultrasound, diagnostic radiology, or X-ray, fluoroscopy and other related procedures. The Company’s operations comprise a single segment for financial reporting purposes.
 
The unaudited condensed consolidated financial statements include the accounts of Radnet Management, Inc. (or “Radnet Management”) and Beverly Radiology Medical Group III, a professional partnership (“BRMG”).  The unaudited condensed consolidated financial statements also include Radnet Management I, Inc., Radnet Management II, Inc.,  Radiologix, Inc., Radnet Management Imaging Services, Inc., Delaware Imaging Partners, Inc., New Jersey Imaging Partners, Inc. and Diagnostic Imaging Services, Inc. ( “ DIS ” ), all wholly owned subsidiaries of Radnet Management.  All of these affiliated entities are referred to collectively as “RadNet”, “we”, “us”, “our” or the “Company” in this report.
 
Accounting Standards Codification Section 810-10-15-14 stipulates that generally any entity with (a) insufficient equity to finance its activities without additional subordinated financial support provided by any parties, or (b) equity holders that, as a group, lack the characteristics specified in the Codification which evidence a controlling financial interest, is considered a Variable Interest Entity (“VIE”).  We consolidate all voting interest entities in which we own a majority voting interest and all VIEs for which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity.

Howard G. Berger, M.D. is our President and Chief Executive Officer, a member of our Board of Directors and owns approximately 14.5% of our outstanding common stock. Dr. Berger also owns, indirectly, 99% of the equity interests in BRMG. BRMG provides all of the professional medical services at the majority of our facilities located in California under a management agreement with us, and employs physicians or contracts with various other independent physicians and physician groups to provide the professional medical services at most of our other California facilities. We generally obtain professional medical services from BRMG in California, rather than provide such services directly or through subsidiaries, in order to comply with California’s prohibition against the corporate practice of medicine. However, as a result of our close relationship with Dr. Berger and BRMG, we believe that we are able to better ensure that medical service is provided at our California facilities in a manner consistent with our needs and expectations and those of our referring physicians, patients and payors than if we obtained these services from unaffiliated physician groups. BRMG is a partnership of ProNet Imaging Medical Group, Inc. (99%), Breastlink Medical Group, Inc. (100%) and Beverly Radiology Medical Group, Inc. (99%), each of which are 99% or 100% owned by Dr. Berger.  RadNet provides non-medical, technical and administrative services to BRMG for which it receives a management fee, per the management agreement. Through the management agreement and our relationship with Dr. Berger, we have exclusive authority over all non-medical decision making related to the ongoing business operations of BRMG. Through our management agreement with BRMG we determine the annual budget of BRMG and make all physician employment decisions.  BRMG has insignificant operating assets and liabilities, and de minimis equity.  Through the management agreement with us, all of BRMG’s cash flows are transferred to us.  We have determined that BRMG is a variable interest entity, and that we are the primary beneficiary, and consequently, we consolidate the revenue and expenses of BRMG. BRMG recognized $13.2 million and $12.4 million of revenue, net of management service fees to RadNet, for the three months ended March 31, 2011 and 2010, respectively, and $13.2 million and $12.4 million of operating expenses for the three months ended March 31, 2011 and 2010, respectively.  RadNet recognized $49.1 million and $41.7 million of net revenues for the three months ended March 31, 2011 and 2010, respectively, for management services provided to BRMG relating primarily to the technical portion of total billed revenue.  The cash flows of BRMG are included in the accompanying consolidated statements of cash flows.  All intercompany balances and transactions have been eliminated in consolidation.


 
8

 

The creditors of BRMG do not have recourse to our general credit and we do not believe other arrangements would expose us to material losses.  However, BRMG is managed to recognize no net income or net loss and, therefore, RadNet may be required to provide financial support to cover any operating expenses in excess of operating revenues.
 
Aside from centers in California where we contract with BRMG for the provision of professional medical services, at the remaining centers in California and at all of the centers which are located outside of California, we have entered into long-term contracts with independent radiology groups in each area to provide physician services at those facilities. These third party radiology practices provide professional services, including supervision and interpretation of diagnostic imaging procedures, in our diagnostic imaging centers.  The radiology practices maintain full control over the provision of professional services. The contracted radiology practices generally have outstanding physician and practice credentials and reputations; strong competitive market positions; a broad sub-specialty mix of physicians; a history of growth and potential for continued growth.  In these facilities we enter into long-term agreements with radiology practice groups (typically 40 years). Under these arrangements, in addition to obtaining technical fees for the use of our diagnostic imaging equipment and the provision of technical services, we provide management services and receive a fee based on the practice group’s professional revenue, including revenue derived outside of our diagnostic imaging centers.  We own the diagnostic imaging equipment and, therefore, receive 100% of the technical reimbursements associated with imaging procedures.  The radiology practice groups retain the professional reimbursements associated with imaging procedures after deducting management service fees.  We have no financial controlling interest in the independent (non-BRMG) radiology practices; accordingly, we do not consolidate the financial statements of those practices in our consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles complete financial statements; however, in the opinion of our management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods ended March 31, 2011 and 2010 have been made. The results of operations for any interim period are not necessarily indicative of the results for a full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto contained in our annual report on Form 10-K for the year ended December 31, 2010.
 
Significant accounting policies
 
As of the period covered in this report, there have been no material changes to the significant accounting policies we use, and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2010.

Liquidity and Capital Resources
 
We had a working capital balance of $11.0 million and $5.8 million at March 31, 2011 and December 31, 2010, respectively.  We had a net loss attributable to RadNet, Inc.’s common stockholders of $876,000 and $4.1 million for the three months ended March 31, 2011 and 2010, respectively.  We also had an equity deficit of $81.8 million and $82.5 million at March 31, 2011 and December 31, 2010, respectively.
 
We operate in a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations.  In addition to operations, we require a significant amount of capital for the initial start-up and development expense of new diagnostic imaging facilities, the acquisition of additional facilities and new diagnostic imaging equipment, and to service our existing debt and contractual obligations.  Because our cash flows from operations have been insufficient to fund all of these capital requirements, we have depended on the availability of financing under credit arrangements with third parties.
 
Our business strategy with regard to operations focuses on the following:
 
 
·
maximizing performance at our existing facilities;
 
 
·
focusing on profitable contracting;
 
 
·
expanding MRI, CT and PET applications;
 
 
·
optimizing operating efficiencies; and
 
 
·
expanding our networks.
 

 
9

 

On April 6, 2010, we completed a series of transactions which we refer to as our "debt refinancing plan" for an aggregate of $585 million.  As part of the debt refinancing plan, our wholly owned subsidiary Radnet Management, Inc. issued and sold $200,000,000 in 10 3/8% senior notes due 2018 (the "senior notes"). All payments of the senior notes, including principal and interest, are guaranteed jointly and severally on a senior unsecured basis by RadNet, Inc. and all of Radnet Management’s current and future domestic wholly owned restricted subsidiaries. The senior notes were issued under an indenture, dated April 6, 2010, by and among Radnet Management, as issuer, RadNet, Inc., as parent guarantor, the subsidiary guarantors thereof and U.S. Bank National Association, as trustee, in a private placement that was not subject to the registration requirements of the Securities Act.  The senior notes initially issued on April 6, 2010 in a private placement were subsequently publicly offered for exchange enabling holders of the outstanding senior notes to exchange the outstanding notes for publicly registered exchange notes with nearly identical terms.

In addition to the issuance of senior notes, the debt refinancing plan provided for the entry by Radnet Management entered into a new Credit and Guaranty Agreement with a syndicate of lenders (the "New Credit Agreement"), whereby Radnet Management obtained $385,000,000 in senior secured first-lien bank financing, consisting of (i) a $285,000,000, six-year term loan facility and (ii) a $100,000,000, five-year revolving credit facility, including a swing line subfacility and a letter of credit subfacility (collectively, the “New Credit Facilities”). Radnet Management’s obligations under the New Credit Agreement are unconditionally guaranteed by RadNet, Inc., all of Radnet Management’s current and future wholly owned domestic subsidiaries as well as certain affiliates, including Beverly Radiology Medical Group III and its equity holders (Beverly Radiology Medical Group, Inc., BreastLink Medical Group, Inc. and ProNet Imaging Medical Group, Inc.). These New Credit Facilities created by the New Credit Agreement are secured by a perfected first-priority security interest in all of Radnet Management’s and the guarantors’ tangible and intangible assets, including, but not limited to, pledges of equity interests of Radnet Management and all of our current and future wholly owned domestic subsidiaries.

In connection with the issuance of the outstanding notes and entering into the New Credit Agreement, Radnet Management used the net proceeds from the issuance of the outstanding notes and the New Credit Facilities created by the New Credit Agreement to repay in full its existing first lien term loan for $242.0 million in aggregate principal amount outstanding, which would have matured on November 15, 2012, and its second lien term loan for $170.0 million in aggregate principal amount outstanding, which would have matured on November 15, 2013.

At March 31, 2011, Radnet Management had $200 million aggregate principal amount of senior notes outstanding, $282.2 million of senior secured term loan debt outstanding and $15.9 million outstanding under the revolving credit facility.

NOTE 2 — SUPPLEMENTAL GUARANTOR INFORMATION
 
The following tables present condensed consolidating financial information for: (a) RadNet, Inc. (the “Parent”) on a stand-alone basis as a guarantor of the senior secured term loan due 2016 and the senior notes due 2018 ; (b) Radnet Management, Inc., the subsidiary issuer (the “Subsidiary Issuer”) of the senior secured term loan due 2016 and the senior notes due 2018; (c) on a combined basis, the guarantor subsidiaries (the “Guarantor Subsidiaries”) of the senior secured term loan due 2016 and the senior notes due 2018, which include all other 100% owned subsidiaries of the Subsidiary Issuer; (d) on a combined basis, the non-guarantor subsidiaries, which include joint venture partnerships of which the Subsidiary Issuer holds investments of 50% or greater, as well as BRMG, which we consolidate as a variable interest entity. Separate financial statements of the Subsidiary Issuer or the Guarantor Subsidiaries are not presented because the guarantee by the Parent and each Guarantor Subsidiary is full and unconditional, joint and several. In lieu thereof, the Parent includes the following:
 
 
10

 

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2011
(in thousands)
(unaudited)

         
Subsidiary
   
Guarantor
   
Non-Guarantor
             
   
Parent
   
Issuer
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
ASSETS
                                   
CURRENT ASSETS
                                   
Cash and cash equivalents
  $ -     $ -     $ 198     $ 61     $ -     $ 259  
Accounts receivable, net
    -       -       58,328       46,338       -       104,666  
Prepaid expenses and other current assets
    -       9,462       6,175       663       -       16,300  
Total current assets
    -       9,462       64,701       47,062       -       121,225  
PROPERTY AND EQUIPMENT, NET
    -       45,850       147,719       2,064       -       195,633  
OTHER ASSETS
                                               
Goodwill
    -       41,768       105,984       -       -       147,752  
Other intangible assets
    -       115       57,050       -       -       57,165  
Deferred financing costs, net
    -       14,956       -       -       -       14,956  
Investment in subsidiaries
    (81,923 )     223,260       9,269       -       (150,606 )     -  
Investment in joint ventures
    -       -       17,274       -       -       17,274  
Deposits and other
    -       1,279       1,298       -       -       2,577  
Total assets
  $ (81,923 )   $ 336,690     $ 403,295     $ 49,126     $ (150,606 )   $ 556,582  
LIABILITIES AND EQUITY DEFICIT
                                               
CURRENT LIABILITIES
                                               
Intercompany
  $ -     $ (143,373 )   $ 111,376     $ 31,997             $ -  
Accounts payable and accrued expenses
    -       44,804       39,695       6,707       -       91,206  
Due to affiliates
    -       -       3,051       -       -       3,051  
Deferred revenue
                    1,382                       1,382  
Current portion of notes payable
    -       2,975       2,991       -       -       5,966  
Current portion of deferred rent
    -       412       451       -       -       863  
Obligations under capital leases
    -       4,739       2,694       354       -       7,787  
Total current liabilities
    -       (90,443 )     161,640       39,058       -       110,255  
LONG-TERM LIABILITIES
                                               
Deferred rent, net of current portion
    -       6,081       4,285       -       -       10,366  
Deferred taxes
    -       -       277       -       -       277  
Line of credit
    -       15,900                               15,900  
Notes payable, net of current portion
    -       475,185       4,946       -       -       480,131  
Obligations under capital leases, net of current portion
    -       2,756       813       707       -       4,276  
Other non-current liabilities
    -       9,134       8,074       -       -       17,208  
Total liabilities
    -       418,613       180,035       39,765       -       638,413  
                                                 
EQUITY DEFICIT
                                               
Total Radnet, Inc.'s equity deficit
    (81,923 )     (81,923 )     223,260       9,269       (150,606 )     (81,923 )
Noncontrolling interests
    -       -       -       92       -       92  
Total equity deficit
    (81,923 )     (81,923 )     223,260       9,361       (150,606 )     (81,831 )
Total liabilities and equity deficit
  $ (81,923 )   $ 336,690     $ 403,295     $ 49,126     $ (150,606 )   $ 556,582  

 
11

 
 
RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31, 2010
(in thousands)
(unaudited)
 
         
Subsidiary
   
Guarantor
   
Non-Guarantor
             
   
Parent
   
Issuer
   
Subsidiaries
   
Subsidiaries
    Eliminations    
Consolidated
 
ASSETS
                                   
CURRENT ASSETS
                                   
Cash and cash equivalents
  $ -     $ 205     $ -     $ 422     $ -     $ 627  
Accounts receivable, net
    -       -       52,493       43,601       -       96,094  
Prepaid expenses and other current assets
    -       8,481       5,543       280       -       14,304  
Total current assets
    -       8,686       58,036       44,303       -       111,025  
PROPERTY AND EQUIPMENT, NET
    -       46,893       145,770       1,567       -       194,230  
OTHER ASSETS
                                               
Goodwill
    -       41,768       101,585       -       -       143,353  
Other intangible assets
    -       137       57,211       -       -       57,348  
Deferred financing costs, net
    -       15,486       -       -       -       15,486  
Investment in subsidiaries
    (82,530 )     218,393       9,223       -       (145,086 )     -  
Investment in joint ventures
    -       -       15,444       -       -       15,444  
Deposits and other
    -       1,320       1,308       -       -       2,628  
Total assets
  $ (82,530 )   $ 332,683     $ 388,577     $ 45,870     $ (145,086 )   $ 539,514  
LIABILITIES AND EQUITY DEFICIT
                                               
CURRENT LIABILITIES
                                               
Intercompany
  $ -     $ (133,637 )   $ 107,258     $ 26,379             $ -  
Accounts payable and accrued expenses
    -       44,450       30,997       7,172       -       82,619  
Due to affiliates
    -       -       1,082       1,893       -       2,975  
Deferred revenue
                    1,568                       1,568  
Current portion of notes payable
    -       3,082       5,136       -       -       8,218  
Current portion of deferred rent
    -       321       424       -       -       745  
Obligations under capital leases
    -       5,640       3,150       349       -       9,139  
Total current liabilities
    -       (80,144 )     149,615       35,793       -       105,264  
LONG-TERM LIABILITIES
                                               
Deferred rent, net of current portion
    -       6,086       4,293       -       -       10,379  
Deferred taxes
    -       -       277       -       -       277  
Notes payable, net of current portion
    -       475,231       6,347       -       -       481,578  
Obligations under capital leases, net of current portion
    -       3,535       1,307       797       -       5,639  
Other non-current liabilities
    -       10,505       8,345       -       -       18,850  
Total liabilities
    -       415,213       170,184       36,590       -       621,987  
                                                 
EQUITY DEFICIT
                                               
Total Radnet, Inc.'s equity deficit
    (82,530 )     (82,530 )     218,393       9,223       (145,086 )     (82,530 )
Noncontrolling interests
    -       -       -       57       -       57  
Total equity deficit
    (82,530 )     (82,530 )     218,393       9,280       (145,086 )     (82,473 )
Total liabilities and equity deficit
  $ (82,530 )   $ 332,683     $ 388,577     $ 45,870     $ (145,086 )   $ 539,514  

 
12

 

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended  March 31, 2011
(in thousands)
(unaudited)

   
Parent
   
Subsidiary
Issuer
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
NET REVENUE
  $ -     $ 31,116     $ 99,961     $ 15,140     $ -     $ 146,217  
                                                 
OPERATING EXPENSES
                                               
Operating expenses
    -       26,728       75,112       13,988       -       115,828  
Depreciation and amortization
    -       3,496       10,315       110       -       13,921  
Provision for bad debts
    -       991       6,350       564       -       7,905  
Loss on sale of equipment
    -       87       172       -       -       259  
Severance costs
    -       69       76       -       -       145  
Total operating expenses
    -       31,371       92,025       14,662       -       138,058  
                                                 
INCOME (LOSS) FROM OPERATIONS
    -       (255 )     7,936       478       -       8,159  
                                                 
OTHER EXPENSES
                                               
Interest expense
    -       7,319       5,578       18       -       12,915  
Other income
    -       (1,871 )     -       -       -       (1,871 )
Total other expenses
    -       5,448       5,578       18       -       11,044  
                                                 
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES
    -       (5,703 )     2,358       460       -       (2,885 )
Provision for income taxes
    -       (13 )     (132 )     (2 )     -       (147 )
Equity in earnings (losses) of consolidated subsidiaries
    (876 )     4,840       390               (4,354 )     -  
Equity in earnings of joint ventures
    -       -       2,224       -       -       2,224  
NET INCOME (LOSS)
    (876 )     (876 )     4,840       458       (4,354 )     (808 )
Net income attributable to noncontrolling interests
    -       -       -       68       -       68  
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
  $ (876 )   $ (876 )   $ 4,840     $ 390     $ (4,354 )   $ (876 )





 
13

 

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended  March 31, 2010
(in thousands)
(unaudited)

         
 Subsidiary
   
 Guarantor
   
 Non-Guarantor
             
   
Parent
   
Issuer
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
NET REVENUE
  $ -     $ 28,679     $ 81,876     $ 13,623     $ -     $ 124,178  
                                                 
OPERATING EXPENSES
                                               
Operating expenses
    -       25,448       60,427       12,764       -       98,639  
Depreciation and amortization
    -       3,183       10,056       36       -       13,275  
Provision for bad debts
    -       1,297       5,781       599       -       7,677  
Loss (gain) on sale of equipment
    -       72       32       -       -       104  
Severance costs
    -       82       50       -       -       132  
Total operating expenses
    -       30,082       76,346       13,399       -       119,827  
                                                 
INCOME (LOSS) FROM OPERATIONS
    -       (1,403 )     5,530       224       -       4,351  
                                                 
OTHER EXPENSES
                                               
Interest expense
    -       4,118       5,846       3       -       9,967  
Total other expenses
    -       4,118       5,846       3       -       9,967  
                                                 
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF JOINT VENTURES
    -       (5,521 )     (316 )     221       -       (5,616 )
Provision for income taxes
    -       (19 )     (313 )     (2 )     -       (334 )
Equity in earnings (losses) of consolidated subsidiaries
    (4,111 )     1,429       197               2,485       -  
Equity in earnings of joint ventures
    -       -       1,861       -       -       1,861  
NET INCOME (LOSS)
    (4,111 )     (4,111 )     1,429       219       2,485       (4,089 )
Net income attributable to noncontrolling interests
    -       -       -       22       -       22  
                                                 
NET INCOME (LOSS) ATTRIBUTABLE TO RADNET, INC. COMMON STOCKHOLDERS
  $ (4,111 )   $ (4,111 )   $ 1,429     $ 197     $ 2,485     $ (4,111 )




 
14

 

RADNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended  March 31, 2011
(in thousands)
(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
 
Parent
   
Subsidiary
Issuer
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
Net income (loss)
  $ (876 )   $ (876 )