USDL turns in profitable quarter after delay in reporting results

Company runs afoul of NASDAQ listing requirements

Shares in imaging services provider U.S. Diagnostic of West Palm Beach, FL, took a tumble this month after it delayed the release of its first-quarter financial results and announced that it had been notified that it did not comply with listing requirements on the NASDAQ stock exchange. USDL's stock recovered somewhat once the first-quarter results were released, however, and USDL executives say they are working to resolve the listing-requirements issue.

USDL's stock fell 25% to close at $6 a share on May 16, the day after it reported the NASDAQ notification and the request for a filing extension. The quarterly filing delay was related to the process of USDL auditing and restating its 1996 financial reports, according to president and CEO Joseph Paul.

"We had to restate our 1996 10-Qs," he said. "Part of the delay in filing the 1997 10-Q was that we had to file the 1996 first-quarter report before we could do the 1997 report."

Adding to shareholder anxiety, USDL said it had been told by NASDAQ that it did not comply with the exchange's net tangible asset requirements for the NASDAQ National Market System.

Paul said the notification was not a sign of financial distress at the company. USDL's current deficit in net tangible assets is uniform with many operations that are aggressively involved in mergers and acquisitions, he said. Moreover, NASDAQ seems to recognize that a high level of good will (or excess of prices paid over the value of tangible assets purchased) does not necessarily indicate financial trouble.

"In this industry, what you are buying is cash flow. We spent about $200 million in cash and stock in 1996 to buy companies that had net assets of about $50 million. That created approximately $150 million of good will," he told SCAN. "On our balance sheet, we have approximately $137 million in shareholders' equity. We have $157 million in good will. That creates the $20 million negative."

Shareholder concerns were assuaged somewhat once USDL released its 1997 first-quarter (end-March) results on May 20. Net revenues for the first quarter were $52.5 million, quadruple the level of $12.6 million in the same quarter of 1996. First-quarter net income was $2 million, which doubled last year's $1 million for the first quarter. The company's stock subsequently rebounded somewhat and closed at $7.25 on May 21.

USDL is getting back on its feet after a turbulent first five months of 1997, Paul said. While the firm won't likely approach the stock market for funding this year, financing is available that should enable USDL to add another 25 to 50 imaging centers over the remainder of 1997 to its current 120-center network.

USDL established a $50 million credit facility with DVI of Doylestown, PA, in February for use in acquisitions. The company is arranging for bank financing to add to this pool, he said.