Maxum IPO registration reveals mobile losses

Mobile imaging provider Maxum Health filed a registration statementwith the Securities and Exchange Commission last month for aninitial public offering of common stock. Maxum intends to sell1.5 million shares at a proposed maximum price of $13 per share,according to the registration statement.

Dallas-based Maxum will be listed on the American Stock Exchangewith the symbol MXH if the offering is concluded. Shareholders,including brokerage firm Merrill Lynch and Maxum management, willretain about 46% of company equity following the IPO.

Funds will be used to pay off debt and redeem $3.4 millionof preferred stock. The debt to be repaid includes an estimated$2.4 million expected to be borrowed prior to the IPO closingunder a $4.5 million interim credit facility with Merrill LynchInterfunding (MLIF). The facility was set up recently for usein acquisition of equipment, the company said.

Maxum, formerly VHA Diagnostic Services, has a large debt loadthat must be trimmed so the company can borrow more funds forfuture equipment purchases. As of the end of June, Maxum had abouta $3 million deficiency of stockholders' equity, with assets of$42 million and total liabilities of $45 million.

Maxum's fleet consists predominantly of magnetic resonanceimaging systems. The company runs 41 MRI units, three computedtomography scanners and five lithotripters. Primary suppliersare GE Medical Systems and Toshiba (formerly Diasonics MRI). Itserves 150 hospitals in 22 states. This hospital base has been"significantly expanded" beyond Voluntary Hospital Groupof America members since Maxum was spun off from VHA two yearsago (SCAN 7/19/89), according to the statement.

Maxum/VHA Diagnostic Services had operating losses every yearsince its inception, but the red ink increased substantiallyfollowing Maxum's sale by VHA. Maxum's net loss of $4.6 millionin fiscal 1989 (end-December) decreased slightly to $4.4 millionlast year. The firm's net loss of $1 million for the first halfof this year was an improvement over its $1.3 million loss inthe same period of 1990 (see graphs).

The mobile firm had defaulted on certain provisions of itsloan agreements with MLIF after its acquisition from VHA. TheMerrill Lynch unit changed the provisions to retroactively eliminatethe default, however.

Most of Maxum's revenue has been generated through fee-per-serviceagreements with its hospital clients. The company has been shiftingits strategic focus over the past year to provide services directlyto physicians, the statement said.

While selling imaging services directly to doctors offers theopportunity of greater revenues, this tactic also poses regulatoryrisks. Part of the strategy involves Maxum entering into morelimited partnerships with referring physicians, which risks conflictwith Medicare antifraud and abuse rules.

Maxum doesn't believe it is in violation of the Congressionalantifraud statute. The firm does, however, consider it likelythat its current partnerships will not qualify under the Departmentof Health and Human Services safe harbor rules (see story, pageone). This means that the partnerships would be subject to investigationby HHS, but not that they would be found guilty of violating thelaw, the statement said.

Only five of Maxum's 49 existing projects involve physiciansas investing partners, but the firm intends to increase that number.Maxum's partnership contracts have buy-out provisions for thedoctors if violation of the antifraud law is proven. These purchaseswould have cost the company a maximum of $730,000 if the buyoutprovisions had been exercised as of the end of June.

Maxum is involved with only one fixed-site installation, anMRI joint venture in Maine with a hospital and radiology group.As its mobile routes gain sufficient patient volume, Maxum intendsto convert more fee-for-service hospital arrangements into fixed-siteoperations, the company said.

BRIEFLY NOTED:

• Imatron's computed tomography cooperation agreement withSiemens is paying off in spades. The high-end CT developer reportedits first quarter of profitable operations last week. Imatron'srevenues doubled in the second quarter of 1991 (end-June) to $5.5million, from $2.8 million in the same period of last year. Thefirm squeaked out a net profit of $28,000 in the last quarter,compared to a loss of $1.7 million in the second quarter of 1990.

The Siemens licensing and development agreement, signed inMarch, provided Imatron with an initial $4 million payment, whichwas recorded in the first quarter of the year. The agreement willhave a favorable impact on financial results for the next fewyears, Imatron said.