SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 April 30, 1997
[ ] 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 0-27568
PhyMatrix Corp.
(Exact name of registrant as specified in its charter)
Delaware 65-0617076
(State of incorporation) (I.R.S. Employer Identification No.)
Phillips Point, Suite 1000E
777 S. Flagler Drive, West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 655-3500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities 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 [ ]
On June 6, 1997, the number of outstanding shares of the registrant's
Common Stock, par value $0.01 per share, was 22,977,720.
<PAGE>
PHYMATRIX CORP.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets -- April 30, 1997 (unaudited) and January 31, 1997 3
Consolidated Statements of Operations (unaudited) - Three Months Ended April 30, 1997 4
and 1996
Consolidated Statements of Cash Flows (unaudited) - Three Months Ended April 30, 1997 5
and 1996
Notes to Consolidated Financial Statements (unaudited) - Three Months Ended April 30, 1997 6-8
and 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Information 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 13
</TABLE>
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
PHYMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
April 30, January 31,
1997 1997
------------ ------------
(unaudited)
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ASSETS
Current assets
Cash and cash equivalents $ 73,660,490 $ 79,893,679
Receivables:
Accounts receivable, net 42,010,938 35,846,268
Other receivables 3,139,984 2,318,395
Notes receivable 12,962,126 10,125,000
Prepaid expenses and other current assets 4,891,023 3,680,709
------------ ------------
Total current assets 136,664,561 131,864,051
Property, plant and equipment, net 37,293,554 38,666,523
Notes receivable 7,568,700 4,938,700
Goodwill, net 70,063,915 67,169,274
Management service agreements, net 40,751,613 40,196,102
Investment in affiliates 3,450,955 3,399,859
Other assets (including restricted cash) 11,890,684 11,889,338
------------ ------------
Total assets $307,683,982 $298,123,847
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt and capital leases $ 3,652,226 $ 3,745,500
Accounts payable 9,632,044 7,728,234
Accrued compensation 1,085,485 1,480,250
Accrued liabilities 15,596,999 11,444,940
------------ ------------
Total current liabilities 29,966,754 24,398,924
Long-term debt and capital leases, less current portion 6,851,838 7,676,950
Convertible subordinated debentures 100,000,000 100,000,000
Other long term liabilities 14,280,037 14,004,143
Deferred tax liability 199,544 1,354,182
Minority interest 1,819,993 1,798,321
------------ ------------
Total liabilities 153,118,166 149,232,520
Commitments and contingencies
Shareholders' equity:
Common Stock, par value $.01; 40,000,000 shares authorized;
22,666,784 and 22,421,033 shares issued and outstanding
at April 30, 1997 and January 31, 1997, respectively 226,667 224,210
Additional paid in capital 150,431,585 149,329,506
Retained earnings (deficit) 3,907,564 (662,389)
------------ ------------
Total shareholders' equity 154,565,816 148,891,327
------------ ------------
Total liabilities and shareholders' equity $307,683,982 $298,123,847
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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PHYMATRIX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
Three Three
Months Months
Ended Ended
April 30, April 30,
1997 1996
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(unaudited) (unaudited)
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Net revenue from services $34,494,901 $20,052,278
Net revenue from management service agreements 35,662,955 17,154,816
----------- -----------
Total revenue 70,157,856 37,207,094
Operating costs and administrative expenses:
Cost of affiliated physician management services 16,976,863 8,533,111
Salaries, wages and benefits 16,351,768 11,659,915
Professional fees 1,460,587 901,598
Supplies 8,896,305 5,482,904
Utilities 933,964 584,605
Depreciation and amortization 2,171,871 1,592,711
Rent 3,072,783 1,706,075
Other 13,684,526 2,922,968
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Total operating costs and
administrative expenses 63,548,667 33,383,887
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Interest expense, net 656,467 40,991
Interest expense shareholder - 228,480
Income from investment in affiliates (217,877) (141,947)
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438,590 127,524
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Income before provision for income taxes 6,170,599 3,695,683
Income tax expense 2,244,970 1,404,025
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Net income $ 3,925,629 $ 2,291,658
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Net income per weighted average share $ 0.17 $ 0.11
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Weighted average number of shares outstanding 23,708,982 21,529,950
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</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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PHYMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
Three Three
Months Months
Ending Ending
April 30, April 30,
1997 1996
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(unaudited) (unaudited)
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Cash flows from operating activities:
Net income $ 3,925,629 $ 2,291,658
Noncash items included in net income:
Depreciation and amortization 2,171,871 1,592,711
Other (730,922) (15,245)
Changes in receivables (4,957,361) (3,214,260)
Changes in accounts payable and accrued liabilities 3,772,297 (1,141,673)
Changes in other assets (1,940,709) (248,777)
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Net cash provided (used) by operating activities 2,240,805 (735,586)
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Cash flows from investing activities:
Capital expenditures (194,482) (682,709)
Sale of assets 1,490,000 -
Advances under notes receivable (5,467,126) -
Other assets - (84,285)
Acquisitions, net of cash acquired (3,750,688) (2,738,114)
----------- -----------
Net cash used by investing activities (7,922,296) (3,505,108)
----------- -----------
Cash flows from financing activities:
Repayment to shareholder - (3,836,405)
Proceeds from issuance of common stock 38,397 -
Release of cash collateral 480,182 -
Offering costs and other assets (151,891) (929,409)
Repayment of debt (918,386) (2,964,938)
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Net cash used by financing activities (551,698) (7,730,752)
----------- -----------
Decrease in cash and cash equivalents (6,233,189) (11,971,446)
Cash and cash equivalents, beginning of period 79,893,679 46,113,619
----------- -----------
Cash and cash equivalents, end of period $73,660,490 $34,142,173
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended April 30, 1997 and 1996 (Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited interim financial statements include the
accounts of PhyMatrix Corp. ("the Company"). These interim financial statements
have been prepared in accordance with generally accepted accounting principles
and the requirements of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is management's opinion that the accompanying
interim financial statements reflect all adjustments (which are normal and
recurring) necessary for a fair presentation of the results for the interim
periods. These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 31, 1997. Operating
results for the three months ended April 30, 1997 are not necessarily indicative
of results that may be expected for the year.
2. ACQUISITIONS AND RECENT DEVELOPMENTS
During February 1997, the Company purchased the stock of a six
physician practice pursuant to a merger and entered into a 40-year management
agreement with the practice in exchange for 159,312 shares of Common Stock of
the Company having a value of approximately $2,440,000. The transaction has been
accounted for using the pooling-of-interests method of accounting.
During February 1997, the Company purchased the assets of and entered
into a 40-year management agreement with five physicians in Utah. The purchase
price was $2,498,148. Of such purchase price, $1,378,148 was paid in cash and
75,293 shares of Common Stock of the Company were issued having a value of
$1,120,000. The purchase price has been allocated to the assets at their fair
market value, including management service agreements of $1,499,013. The
resulting intangible is being amortized over 40 years.
During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $2,966,058. Of such purchase price,
$673,211 was paid in cash and 180,717 shares of Common Stock of the Company were
issued during May 1997 having a value of $2,292,847. There is also a contingent
payment up to a maximum of $2,000,000 based on the acquired entities' earnings
before taxes during the next three years which will be paid in cash and/or
Common Stock of the Company. The purchase price was allocated to management
service agreements and is being amortized over 30 years.
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PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended April 30, 1997 and 1996 (Unaudited)
During the three months ended April 30, 1997 and 1996, the Company
acquired the assets and/or stock and assumed certain liabilities of various
physician practices and medical support services companies. The transactions had
the following non-cash impact on the balance sheets of the Company as of the
indicated dates:
April 30,
-----------------------------------------
1997 1996
---------------- ----------------
Current assets $1,374,970 $ --
Property, plant and equipment 251,805 693,220
Intangibles 4,510,275 3,038,394
Other noncurrent assets 353,723 --
Current liabilities (974,168) --
Debt -- (643,500)
Noncurrent liabilities -- (350,000)
Equity (1,765,917) --
During March 1997, the Company signed a letter of intent to merge with
Clinical Studies, Ltd. ("CSL"). CSL is one of the largest site management
organizations ("SMOs") in the country. SMOs are management service companies
that organize and manage multisite clinical investigators. CSL owns and operates
19 Phase I-IV research centers and is dedicated to the rapid enrollment of
quality volunteers for investigational drug research in multiple therapeutic
areas such as central nervous system, gerontology, women's health and
endocrinology. The merger is subject to the satisfaction of various conditions,
including the treatment of the merger for accounting purposes as a pooling of
interests.
During April 1997, the Company signed a letter of intent with Beth
Israel Hospital to form an MSO to provide management services to the medical
community in the greater metropolitan New York area. The letter of intent
contemplates that the Company will acquire and manage the physician practice
management operations of Beth Israel Health Care System, which consists of
approximately 130 physicians with more than 20 primary and specialty medical
offices located throughout New York City and Rockland and Westchester counties.
While the Company intends to pursue the consummation of the transactions
described in these letters of intent, there can be no assurance that these
transactions will be consummated.
3. NET INCOME PER SHARE
Net income per common share is based upon the weighted average number
of common shares outstanding (including stock required to be issued in the
future pursuant to acquisition agreements) during the period. For the three
months ended April 30, 1997 and 1996, the weighted average number of common
shares outstanding were 23,708,982 and 21,529,950, respectively. When dilutive,
stock options (less the number of treasury shares assumed to be purchased from
the proceeds) are included in the calculation of the weighted average number of
common shares outstanding. For the three months ended April 30, 1997, conversion
of the 6-3/4% Convertible Subordinated Debentures issued in June 1996, is not
assumed because the effect is anti-dilutive.
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PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended April 30, 1997 and 1996 (Unaudited)
4. RATIO OF EARNINGS TO FIXED CHARGES
For the three months ended April 30, 1997, the ratio of earnings to
fixed charges was 2.94. For purposes of computing the ratio of earnings to fixed
charges, earnings represent income from operations before minority interest and
income taxes, plus fixed charges. Earnings also includes the equity in
less-than-fifty-percent-owned investees only to the extent of distributions.
Fixed charges include interest, amortization of financing costs and the portion
of operating rental expense which management believes is representative of the
interest component of the rental expense.
5. SUBSEQUENT EVENTS
During June 1997, the Company purchased the assets of and assumed
certain liabilities of two outpatient diagnostic imaging centers located in
Florida. The base purchase price was $12,000,000 payable in shares of Common
Stock of the Company.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company is a multispecialty management company that provides
management services to the medical community. The Company also develops medical
malls, medical office buildings, and health parks, both for its own account and
for leading hospitals and health systems. The Company's primary strategy is to
develop management networks in specific geographic locations by affiliating with
physicians, medical providers and medical networks. The Company affiliates with
physicians by acquiring their practices and entering into long-term management
agreements with the acquired practices and through the management of independent
physician associations ("IPAs") and specialty care physician networks by
management service organizations ("MSOs") in which the Company has ownership
interests. Where appropriate, the Company supports its affiliated physicians
with related diagnostic and therapeutic medical support services. The Company's
medical support services include radiation therapy, diagnostic imaging, infusion
therapy, home health care, lithotripsy services and ambulatory surgery. Since
its first acquisition in September 1994, the Company has acquired the practices
of and entered into long-term agreements to affiliate with 300 physicians; has
obtained interests in MSOs in Connecticut, Georgia, New Jersey, New York and
Florida that provide management services to IPAs composed of over 3,700
multispecialty physicians; purchased a company that provides contract management
services to approximately 2,400 physicians in specialty care networks; and
acquired several medical support services companies and a medical facility
development company.
In January 1996, the Company changed its fiscal year end from December
31 to January 31.
Acquisitions and Recent Developments
During February 1997, the Company purchased the stock of a six
physician practice pursuant to a merger and entered into a 40-year management
agreement with the practice in exchange for 159,312 shares of Common Stock of
the Company having a value of approximately $2,440,000. The transaction has been
accounted for using the pooling-of-interests method of accounting.
During February 1997, the Company purchased the assets of and entered
into a 40-year management agreement with five physicians in Utah. The purchase
price was $2,498,148. Of such purchase price, $1,378,148 was paid in cash and
75,293 shares of Common Stock of the Company were issued having a value of
$1,120,000. The purchase price has been allocated to the assets at their fair
market value, including management service agreements of $1,499,013. The
resulting intangible is being amortized over 40 years.
During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $2,966,058. Of such purchase price,
$673,211 was paid in cash and 180,717 shares of Common Stock of the Company were
issued during May having a value of $2,292,847. There is also a contingent
payment up to a maximum of $2,000,000 based on the acquired entities' earnings
before taxes during the next three years which will be paid in cash and/or
Common Stock of the Company. The purchase price was allocated to management
service agreements and is being amortized over 30 years.
During March 1997, the Company signed a letter of intent to merge with
Clinical Studies, Ltd. ("CSL"). CSL is one of the largest site management
organizations ("SMOs") in the country. SMOs are management service companies
that organize and manage multisite clinical investigators. CSL owns and operates
19 Phase I-IV research centers and is dedicated to the rapid enrollment of
quality volunteers for investigational drug research in multiple therapeutic
areas such as central nervous system, gerontology, women's health and
endocrinology. The merger is subject to the satisfaction of various conditions,
including the treatment of the merger for accounting purposes as a pooling of
interests.
During April 1997, the Company signed a letter of intent with Beth
Israel Hospital to form an MSO to provide management services to the medical
community in the greater metropolitan New York area. The letter of intent
contemplates that the Company will acquire and manage the physician practice
management operations of Beth Israel Health Care System, which consists of
approximately 130 physicians with more than 20 primary and specialty medical
offices located throughout New York City and Rockland and Westchester counties.
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<PAGE>
Accounting Treatment
The terms of the Company's relationships with its affiliated physicians
are set forth in various asset and stock purchase agreements, management service
agreements, and employment and consulting agreements. Through the asset and/or
stock purchase agreement, the Company acquires the equipment, furniture,
fixtures, supplies and, in certain instances, service agreements, of a physician
practice at the fair market value of the assets. The accounts receivable are
typically purchased at the net realizable value. The purchase price of the
practice generally consists of cash, notes and/or Common Stock of the Company
and the assumption of certain debt, leases and other contracts necessary for the
operation of the practice. The management services or employment agreements
delineate the responsibilities and obligations of each party.
Net revenue from management service agreements include the revenues
generated by the physician practices. The Company is responsible and at risk for
the operating costs of the physician practices. Expenses include the
reimbursement of all medical practice operating costs and all payments to
physicians (which are reflected as cost of affiliated physician management
services) as required under the various management agreements. For providing
services under management services agreements entered into prior to April 30,
1996, physicians generally received a fixed percentage of net revenue of the
practice. "Net revenues" is defined as all revenue computed on an accrual basis
generated by or on behalf of the practice after taking into account certain
contractual adjustments or allowances. The revenue is generated from
professional medical services furnished to patients by physicians or other
clinicians under physician supervision. In several of the practices, the Company
has guaranteed that the net revenues of the practice will not decrease below the
net revenues that existed immediately prior to the agreement with the Company.
Under management services agreements entered into after April 30, 1996, the
physicians receive a portion of the operating income of the practice which
amounts vary depending on the profitability of the practice. Net revenues under
management services agreements for the three months ended April 30, 1997, were
$35.7 million.
Results of Operations
Three Months Ended April 30, 1997 Compared to Three Months Ended April 30, 1996
The following discussion reviews the results of operations for the
three months ended April 30, 1997 (the "1997 Quarter") compared to the three
months ended April 30, 1996 (the "1996 Quarter"), respectively.
Revenues
The Company derives revenues from health care services and medical
facility development services. Within the health care segment, the Company
distinguishes between revenues from cancer services, noncancer physician
services and other medical support services. Cancer services include physician
practice management services to oncology practices and certain medical support
services, including radiation therapy, diagnostic imaging and infusion therapy.
Noncancer physician services include physician practice management services to
all practices managed by the Company other than oncology practices and
administrative services to health plans which include reviewing, processing, and
paying claims and subcontracting with specialty care physicians to provide
covered services. Other medical support services include home health care
services, lithotripsy, various health care management services, and ambulatory
surgery.
Net revenues were $70.2 million for the 1997 Quarter. Of this amount,
$25.5 million or 36.3% of such revenues was attributable to cancer services;
$32.0 million or 45.6% was related to noncancer physician services; $7.4 million
or 10.6% of such revenues was attributable to other medical support services;
and $5.3 million or 7.5% related to medical facility development.
Net revenues were $37.2 million for the 1996 Quarter. Such revenues
consisted of $21.1 million or 56.8% related to cancer services; $7.2 million or
19.4% related to noncancer physician services; $5.2 million or 13.9% related to
other medical support services; and $3.7 million or 9.9% related to medical
facility development.
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Expenses
The Company's cost of affiliated physician management services was
$17.0 million or 47.6% of net revenue from management services agreements during
the 1997 Quarter. The cost of affiliated physician management services was $8.5
million or 49.7% of net revenue from management services agreements during the
1996 Quarter. Net revenue for the physician practices managed by the Company was
$35.7 million during the 1997 Quarter and $17.2 million during the 1996 Quarter.
The cost of affiliated physician management services as a percentage of net
revenue from management services varies based upon the type of physician
practices.
The Company's salaries, wages, and benefits increased by $4.7 million
from $11.7 million or 31.3% of net revenues during the 1996 Quarter to $16.4
million or 23.3% of net revenues during the 1997 Quarter. The decrease as a
percentage of net revenues is primarily attributable to the fact that since the
Company's commencement of operations during the third quarter of 1994, it has
been able to spread its salaries, wages, and benefits over a rapidly expanding
revenue base.
The Company's supplies expense increased by $3.4 million from $5.5
million or 14.7% of net revenues during the 1996 Quarter to $8.9 million or
12.7% of net revenues during the 1997 Quarter. The increase in supplies expense
is primarily a result of the acquisition of additional physician practices. The
supplies expense as a percentage of net revenues will vary based upon the type
of physician practices.
The Company's depreciation and amortization expense increased by $0.6
million from $1.6 million or 4.3% of net revenues during the 1996 Quarter to
$2.2 million or 3.1% of net revenues during the 1997 Quarter. The increase is
primarily a result of the acquisitions completed after the 1996 Quarter and the
allocation of the purchase prices as required per purchase accounting. During
the 1997 Quarter the Company sold the assets of an entity that it acquired in
March 1995 and subsequently closed. The sale of the assets resulted in a gain of
$0.7 million. In addition, the Company recorded nonrecurring charges of $0.4
million during the 1997 Quarter. These nonrecurring items have been included in
other expenses on the statement of operations.
The Company's rent expense increased by $1.4 million from $1.7 million
or 4.6% of net revenues during the 1996 Quarter to $3.1 million or 4.4% of net
revenues during the 1997 Quarter. Rent expense as a percentage of net revenue
will vary based on the size of each of the affiliated practice offices, the
number of satellite offices and the current market rental rate for medical
office space in a particular geographic market. The Company's net interest
expense increased by $0.4 million from $0.3 million or 1% of net revenues during
the 1996 Quarter to $0.7 million or 1% of net revenues during the 1997 Quarter.
Medical Facility Development
The Company, through its investment in DASCO, provides medical facility
development services to related and unrelated third parties in connection with
the establishment of health parks, medical malls and medical office buildings.
The Company believes that the development of such facilities, in certain
markets, will aid in the integration of its affiliated physicians and medical
support services and will provide future opportunities to affiliate with
physicians and acquire future physician practices or support services. Further,
the Company believes that the development of health parks, medical malls and
medical office buildings in certain markets will aid in the integration of its
affiliated physicians and medical support services.
The Company derives its medical facility development service revenues
from the provision of a variety of services. In rendering such services, the
Company generates income without bearing the costs of construction, expending
significant capital or incurring substantial indebtedness. Net revenues from
medical facility development are recognized at the time services are performed.
In some cases fees are earned upon the achievement of certain milestones in the
development process, including the receipt of a building permit and a
certificate of occupancy of the building. Unearned revenue relates to all fees
received in advance of services being completed on development projects.
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<PAGE>
The Company typically receives the following compensation for its
services: development fees (including management of land acquisition,
subdivision, zoning, surveying, site planning, permitting and building design),
general contracting management fees, leasing and marketing fees, project cost
savings income (based on the difference between total budgeted project costs and
actual costs) and consulting fees.
The amount of development fees and leasing and marketing fees are
stated in the development and marketing agreements. Those agreements also
provide the basis for payment of the fees. The financing fees and consulting
fees are generally not included in specific agreements but are negotiated and
disclosed in project pro formas provided to the owners of the buildings and
hospital clients. Specific agreements usually incorporate those pro formas and
provide that the projects will be developed in conformity therewith. General
contracting management fees and project cost savings income are included in
guaranteed maximum cost contracts entered into with the general contractor.
These contracts are usually approved by the owners which in many cases include
hospital clients and prospective tenants. During the 1997 Quarter, the Company's
medical facility development generated revenues of $5.3 million and pretax
income of $3.2 million.
Liquidity and Capital Resources
Cash provided by operating activities was $2.2 million for the 1997
Quarter. Cash used by operating activities was $0.7 million for the 1996
Quarter. During the 1997 Quarter, the cash provided by operating activities
resulted from the increased profitability of the Company's operations.
Cash used by investing activities was $7.9 million and $3.5 million for
the 1997 Quarter and 1996 Quarter, respectively. This primarily represents the
funds required by the Company for the acquisition of physician practices and
medical support services companies, along with the advances under notes
receivables of $5.5 million during the 1997 Quarter. In addition, during the
1997 Quarter, the Company sold one of its radiation therapy centers that had
been previously closed for $1.5 million.
Cash used by financing activities was $0.6 million for the 1997 Quarter
and primarily represented the repayment of debt of $0.9 million and the release
of restricted cash collateralizing debt of $0.5 million. Cash used by financing
activities was $7.7 million for the 1996 Quarter which primarily represented
$3.8 million of repayments to shareholder and the repayment of $2.9 million in
debt outstanding.
At April 30, 1997, the Company's principal sources of liquidity
consisted of working capital of $106.7 million which includes $73.7 million in
cash. The Company also has $29.9 million of current liabilities, including
approximately $3.7 million of indebtedness maturing before April 30, 1998.
During 1996, the Company purchased the stock of a company based in
Florida that provides the managed health care industry with assistance in
provider relations, utilization review and quality assurance. In conjunction
with this acquisition, the Company may be required to make a contingent payment
up to a maximum of $10 million based on the acquired company's earnings before
taxes during the next five years. The payment, if required, shall be paid in
cash and/or Common Stock of the Company.
In conjunction with certain of its acquisitions the Company has agreed
to make payments in shares of Common Stock of the Company which are generally
issued one year from the closing date of such acquisitions. The number of shares
to be issued are generally determined based upon the average price of the
Company's Common Stock during the five business days prior to the date of
issuance. As of April 30, 1997 the Company had committed to issue $11.1 million
of Common Stock of the Company using the methodology discussed above.
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<PAGE>
The Company's acquisition and expansion programs will require
substantial capital resources. In addition, the operation of physician groups,
integrated networks and related medical support services companies, and the
development and implementation of the Company's management information systems,
will require ongoing capital expenditures. The Company expects that its capital
needs over the next several years will substantially exceed capital generated
from operations. To finance its capital needs, the Company plans both to incur
indebtedness and to issue, from time to time, additional debt or equity
securities, including Common Stock or convertible notes, in connection with its
acquisitions and affiliations.
The Company expects that the existing working capital of $106.7 million
which includes cash of $73.7 million and cash generated from operations and
amounts to be made available under an acquisition/working capital line for which
the Company is in the process of obtaining a commitment from a bank will be
adequate to satisfy the Company's cash requirements for the next 12 months.
However, there can be no assurance that the Company will not be required to seek
additional financing during this period. The failure to raise the funds
necessary to finance its future cash requirements would adversely affect the
Company's ability to pursue its strategy and could adversely affect its results
of operations for future periods.
Factors to be Considered
The part of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements which involve risks and
uncertainties. Readers should refer to a discussion under "Factors to be
Considered" contained in Part I, Item 1 of the Company's Annual Report on Form
10-K for the year ended January 31, 1997 concerning certain factors that could
cause the Company's actual results to differ materially from the results
anticipated in such forward-looking statements. This discussion is hereby
incorporated by reference into this Quarterly Report.
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", which is effective for fiscal year 1997. SFAS No. 128 is designed to
improve the EPS information provided in financial statements by simplifying the
existing computational guidelines, revising the disclosure requirements and
increasing the comparability of EPS data on an international basis. The Company
will implement the new Standard in its fiscal year ending January 31, 1998.
Management believes that the Company's adoption of this Standard, when
effective, will not have a significant impact on the Company's financial
statements.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements 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, on the 13th day of June, 1997.
PHYMATRIX CORP.
By: /s/ Frederick R. Leathers
--------------------------
Chief Financial Officer, Treasurer
and Principal Accounting Officer
-14-
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