Medical Resources to post massive loss

Imaging services provider Medical Resources is showing no signs of pulling out of its tailspin. Things went from bad to worse on May 15, when the Hackensack, NJ, company announced that it is planning to report fourth-quarter financial results that will include a net loss between $45 million and $50 million. In addition, the company may be removed from the NASDAQ stock exchange, and the firm is technically in noncompliance with provisions in some of its senior debt.

Medical Resources said the massive loss was due to a number of one-time charges and reserve adjustments. For example, the company said that it is taking a provision for doubtful accounts of about $15 million, a $13 million write-down of goodwill, and other charges totaling $10 million. Medical Resources said it expects fourth-quarter revenues to be about $54 million.

The firm’s results for 1997 should be a bit better, but not much, as Medical Resources expects to post a net loss of $25 million to $30 million. The company will also post a net loss for its first quarter of 1998, the result of $3.5 million to $4 million in one-time charges.

Medical Resources executives said the charges were due to poor cash collection practices and to a number of underperforming imaging centers that will either be sold off or closed if they can’t be returned to profitability. Medical Resources president and CEO Duane Montopoli said the company is taking corrective action to improve operating performance and avoid a repeat of the charges.

Regarding the NASDAQ listing, Medical Resources reported that its failure to file a timely Form 10-K for 1997 resulted in a hearing before the stock exchange’s listing qualifications panel on May 14. The company said it should hear from the panel shortly.

Finally, Medical Resources said that its large 1997 loss and its failure to file the Form 10-K meant that it was in noncompliance with some covenants in its unsecured senior notes. The company is in discussions with its debtors regarding the issue, but, in the absence of an amendment or waiver on the covenants, Medical Resources’ auditor has informed the company that its report on its 1997 financial statements will include a modification regarding the company’s ability to continue as a going concern.

The bad news hammered Medical Resources’ shares on May 18, the first trading day after it was announced. The company’s shares fell 31% to close at $3.03 a share.