SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-10701
PHYMED, INC.
(Name of small business issuer in its charter)
Oklahoma, USA 73-1457920
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9603 White Rock Trail, Suite 100, Dallas, Texas 75238
(Address of principal executive offices)
(214) 340-9912
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 No X
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,783,697 shares of Common
Stock, $.01 par value, as of April 1, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
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INDEX
PART I - FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999 (unaudited) 3
Consolidated Statements of Operations for the three and nine months 4
ended September 30, 1999 and 1998 (unaudited)
Consolidated Statement of Changes in Shareholders' Deficit for the 6
nine months ended September 30, 1999 (unaudited)
Consolidated Statements of Cash Flows for the nine months 7
September 30, 1999 and 1998(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition 8
or Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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2
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PHYMED, INC. and Subsidiary
CONSOLIDATED BALANCE SHEETS
September 30
1999
------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 262,033
Accounts receivable-trade, less allowance for
doubtful accounts and contractual allowances 1,525,423
Receivable - related party 31,955
-----------
Total Current Assets 1,819,411
PROPERTY AND EQUIPMENT
Clinical Equipment 1,809,371
Computer Equipment 449,141
Office Furniture & Fixtures 137,860
Leasehold Improvements 400,112
-----------
2,796,484
Less: Accumulated Depreciation (2,095,145)
-----------
Total Fixed Assets 701,339
OTHER ASSETS
Other 174,154
-----------
Total Other Assets 174,154
-----------
TOTAL ASSETS $ 2,694,904
===========
3
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PHYMED, INC. and Subsidiary
CONSOLIDATED BALANCE SHEETS-CONTINUED
LIABILITIES AND SHAREHOLDERS EQUITY
September 30
1999
------------
(Unaudited)
CURRENT LIABILITIES
Current muturities of long-term debt $ 409,547
Accounts payable trade 846,490
Due to Siemens 1,512,374
Short-term notes payable 565,000
Accrued expenses 186,954
Deferred income tax liability 108,747
-----------
Total current liabilities 3,629,112
LONG-TERM LIABILITIES
Long-term debt, less current maturities 265,034
Deferred rent 34,383
-----------
Total Liabilities 3,928,529
SHAREHOLDERS' EQUITY
Common stock - $.01 par value per share post reverse split;
authorized, 50,000,000 shares; issued and outstanding
8,783,697 following reverse stock split 87,837
Series "A" nonvoting convertible preferred
stock, $1 par value per share; issued and
outstanding, 135139 shares 135,139
Additional paid-in capital 327,593
Unearned ESOP compensation (220,449)
Retained earnings (1,563,745)
-----------
Total shareholders' equity (1,233,625)
-----------
$ 2,694,904
===========
4
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PHYMED INC. and Subsidiary
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
Three Months Ended September 30 Nine Months Ended September 30
Revised Revised
1999 1998 1999 1998
----------------------------------------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Patient Revenue $ 989,097 $ 901,820 $ 3,101,131 $ 2,510,721
Operating expenses (832,493) (773,658) (2,397,038) (2,337,563)
-------------------------- ----------- -----------
Operating profit 156,604 173,158 704,093 173,158
Other income (expenses)
Depreciation (63,072) (199,303) (275,201) (430,373)
Interest expense (49,293) (42,900) (118,187) (171,744)
Factoring fees (15,572) (49,733)
Miscellaneous income 35 (4,343)
-------------------------- ----------- -----------
(112,365) (257,740) (393,388) (656,193)
Net earnings before
income taxes 44,239 (84,582) 310,705 (483,035)
Deferred income tax expense (benefit) (15,484) 4,681 (108,747) 40,681
-------------------------- ----------- -----------
NET EARNINGS $ 28,755 ($ 79,901) $ 201,958 ($ 442,354)
========================== =========== ===========
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<CAPTION>
PHYMED, INC. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(Unaudited)
Retained
Common Stock Additional Unearned Earnings
------------------------- Preferred Paid-in ESOP (Accumulated
Shares Amount Stock Capital Compensation Deficit) Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 7,843,097 $ 78,431 $ 135,139 $ 999 $ (220,449) $(1,765,703) $(1,771,583)
Shares issued for services
rendered 940,600 9,406 326,594 $ 336,000
Net income 201,958 201,958
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 8,783,697 $ 87,837 $ 135,139 $ 327,593 ($ 220,449) ($1,563,745) ($1,233,625)
=========== =========== =========== =========== =========== =========== ===========
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<CAPTION>
PHYMED INC. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30
------------------------------
1999 Revised 1998
--------- ---------
OPERATING ACTIVITIES: (Unaudited) (unaudited)
<S> <C> <C>
Net Income $ 201,958 $(442,354)
Adjustments to reconcile Net Income to
net cash provided by operating activities:
Depreciation & Amortization 130,675 430,373
Amoritization of unearned ESOP compensation 101,503
Deferred income tax 108,747 (48,611)
Changes in operating assets and liabilities:
Receivables (390,681) 295,312
Prepaid expenses and other current assets (287,082) (40,329)
Other assets
Accounts payable and other current liabilities 711,208 579,872
--------- ---------
Net Cash provided by Operating Activities 474,825 875,766
INVESTING ACTIVITIES:
Purchase of property assets (264,284) (359,354)
Disposition of property assets 144,497
Merger 116
--------- ---------
Net Cash provided by Investing Activities (119,787) (359,238)
FINANCING ACTIVITIES:
Issuance of common stock for services rendered 336,000
Repayment of Factoring Company (281,919) (350,321)
Proceeds from Debt 75,442
Repayment of Debt (203,095) (189,186)
--------- ---------
Net Cash Used by Financing Activities (73,572) (539,507)
--------- ---------
(22,979)
Net cash increase (decrease) for period 281,466 (22,979)
Cash at beginning of period (19,433) 37,233
--------- ---------
Cash at end of period $ 262,033 $ 14,254
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Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation
(a) Plan of Operation.
Not applicable.
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 compared with Three Months Ended September
30, 1998
Net patient revenue increased $87,277 or 9.7% to 989,097 for the three
months ended September 30, 1999 from $901,820 for the same period in 1998 (the
net revenues for this period 1998 have been reduced by $118,753 to reflect
additional contractual allowances determined by the annual audit). The net
patient revenue declined in this quarter as compared to the second quarter of
1999. The removal of the Siemens 1.5 MRI from the PHYMED - Dallas in August
resulted in a decrease of the number of MRI procedures performed in the quarter
to 524 compared to 719 in the second quarter of 1999 (with the opening of PHYMED
- - HILLCREST in October 1999 the MRI procedures increased to 893 in the 4th
Quarter).
Operating expenses increased by $58,835 or 7.6% to $832,493 for the
three months ended September 30, 1999 from $773,658 for the same period in 1998.
Operating profit decreased by $16,554 or 9.6% to $156,604 for the three
months ended September 30, 1999 from $173,158 for the same period in 1998.
Other expenses decreased by $145,375 or 56% to $112,365 for the three
months ended September 30, 1999 from $257,740 for the same period in 1998 due
primarily to decreased interest and elimination of factoring costs.
The Registrant had a net profit of $28,755 for the three months ended
September 30, 1999 as compared to a net loss ($79,901) for the same period in
1998.
8
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Nine Months Ended September 30, 1999 compared with nine Months Ended September
30, 1998
Net patient revenue increased by $590,410 or 23.5% to $3,101,131 for
the nine months ended September 30, 1999 from $2,510,721 for the same period in
1998 (the net revenues for this period 1998 have been reduced by $370,990 to
reflect additional contractual allowances determined by the annual audit). This
increase in net patient revenue was due primarily to the new radiological
professional services contract effective December 1, 1998 and to the newly
formed capitated services subsidiary's net revenue.
Operating expenses increased by $59,475 or 2.5% to $2,397,038 for the
nine months ended September 30, 1999 from $2,337,563 for the same period in
1998.
Operating profit increased $530,935 to $704,093 for the nine months
ended September 30, 1999 from $173,158 for the same period in 1998.
Other expenses decreased by $262,805 or 40% to $393,388 for the nine
months ended September 30, 1999 from $656,193 for the same period in 1998 due
primarily to decreased interest and elimination of factoring costs.
The Registrant had a net profit of $201,958 for the nine months ended
September 30, 1999 as compared to a net loss ($442,354) for the same period in
1998.
LIQUIDITY AND CAPITAL RESOURCES
In July 1999 the Registrant formed PHYMED PRIVATE PARTNERS L.L.C. (A
Nevada limited liability corporation) for the purpose of raising $220,000 in the
form of eleven $20,000 units consisting a five-year note and a 5,000 warrant to
purchase PHYMED, INC. common stock for $0.50 per share. The placement was fully
subscribed. The net proceeds were used to purchase certificates of deposit,
which then was used to collateralize $198,000 in loans to the Registrant
In September 1999 the Registrant formed PHYMED Diagnostic Imaging
Center-Hillcrest, Inc., (PHYMED-Hillcrest) a wholly owned subsidiary for the
purpose of leasing an existing diagnostic imaging center located approximately 6
miles from the White Rock center. The Center provides MRI, CAT scan, radiology
and ultrasound services to referring physicians.
9
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On September 8, 1999 Registrant entered into a five-year lease for
approximately 8,000 square feet of space with an annual lease obligation of
$165,000 to be occupied by PHYMED - Hillcrest that had previously been operated
as imaging center at 12840 Hillcrest Road, in Dallas, Texas.
On September 9, 1999 the Registrant borrowed $335,000 from an
individual for one year with the accounts receivable of its subsidiaries pledged
as collateral. The proceeds were used to provide working capital to open the
PHYMED - Hillcrest imaging center, to retire the remaining balance of due the
factoring organization and to reduce accounts payable.
Also in September 1999 the Registrant formed PHYMED Diagnostic Imaging
Center-Duncanville, Inc., (PHYMED-Duncanville) a wholly owned subsidiary for the
purpose of acquiring an existing diagnostic center located in the Dallas suburb
of Duncanville located approximately 20 miles from the White Rock Center. The
imaging center ceased operations December 1999. The seller was unable to provide
an acceptable real estate lease and the Registrant terminated the purchase
agreement.
In December 1999 a joint venture formed by the Registrant and an
equipment leasing company repurchased the Siemens MRI from Siemens Credit
Corporation for $600,000. The MRI is to be operated for the joint venture by
PHYMED Contracted Services Corporation in the White Rock imaging center. The
purchase price is a direct offset to the balance due Siemens Credit Corporation
as described in the paragraph above.
The real estate lease related to the premises occupied by the
Registrant and its subsidiary PHYMED - Dallas on White Rock Trail is in default
and in arrears approximately $125,000 at September 30, 1999
The Registrant is currently negotiating with a financial institution to
arrange new financing of accounts receivable on terms more favorable to the
Registrant. There is no assurance that any refinancing will take place or that
it will be on terms favorable to the Registrant
Management is developing a refinancing plan that it believes will allow
the Company to increase its financial strength; grow through acquisitions; and
increase same store sales. However, there is no assurance the Company will be
able to accomplish any of this, or do so profitably.
10
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
At September 30, 1999, PHYMED Diagnostic Imaging Center - Dallas, Inc.
(a subsidiary of the Registrant) was a party to the following pending legal
proceeding.
On December 7, 1998 Siemens Credit Corporation through its attorney
demanded full payment on a delinquent equipment lease and a related promissory
note on which the majority shareholders of the Registrant are guarantors. On
January 20, 1999 both the lease and promissory notes were accelerated and
Siemens filed suit in the Federal Court in Northern District of Texas for
collection of both the lease and promissory note.
On July 30, 1999 Siemens gave notice to remove the MRI related to the
lease, which was accomplished in August 1999. In December 1999 a joint venture
between the Registrant and equipment leasing company purchased the MRI from
Siemens Credit Corporation for $600,000 (see Item 2(b) above, under "Liquidity
and Capital Resources).
Management is continuing to negotiate a settlement with Siemens that
would be satisfactory to both parties. The consolidated balance sheet reflects
as a current liability the amount due from the subsidiary to Siemens under the
lease agreement.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
The defaulted balance of the Siemens Credit Corporation (see Item 1.
Legal Proceedings) equipment lease and related promissory note was $1,664,246 at
September 30, 1999. As a result of the subsequent sale of the collateral, the
defaulted balance at December 31, 1999 was $1,056,871.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable.
11
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.7 Equipment Lease Agreement, effective July 11, 1995, between
Siemens Credit Corporation and Phy.Med., Inc. (Exhibit
10.7)***
10.8 Promissory Note of Phy.Med., Inc. (undated) to Siemens Credit
Corporation in the principal amount of $175,000 (Exhibit
10.8)***
10.9 (Real Estate) Lease Agreement made and entered in as of March
15, 1996, between Cocanougher Feed Co., Inc. d/b/a Cocanougher
Asset Management, ("Lessor"), and PhyMed, Inc., d/b/a PhyMed
Diagnostic Imaging Center ("Lessee") (Exhibit 10.9)***
10.25 Office Lease Agreement made and entered in as of September 8,
1999, between AETNA Life Insurance Company (Lessor) and
Registrant *
27 Financial Data Schedule
*** Incorporated by reference to the exhibit number set forth in
parentheses, which exhibit was filed by the Registrant's Form 10-QSB for the
quarter ended June 30, 1998. The Form 10-QSB was filed December 3, 1998
* Incorporated by reference to the exhibit number set forth in
parentheses, which exhibit was filed by the Registrant's Form 10-KSB for the
year ended December 31, 1998. The Form 10-KSB was filed March 6, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PHYMED, INC.
Registrant
Date: April 10, 2000 BY: /s/ George C. Barker
-----------------------
George C. Barker
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
13
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INDEX OF EXHIBITS
Exhibit No. Description
10.7 Equipment Lease Agreement, effective July 11, 1995, between Siemens
Credit Corporation and Phy.Med., Inc. (Exhibit 10.7)***
10.8 Promissory Note of Phy.Med., Inc. (undated) to Siemens Credit
Corporation in the principal amount of $175,000 (Exhibit 10.8)***
10.9 (Real Estate) Lease Agreement made and entered in as of March 15, 1996,
between Cocanougher Feed Co., Inc. d/b/a Cocanougher Asset Management,
("Lessor"), and PhyMed, Inc., d/b/a PhyMed Diagnostic Imaging Center
("Lessee") (Exhibit 10.9)***
10.25 Office Lease Agreement made and entered in as of September 8, 1999,
between AETNA Life Insurance Company (Lessor) and Registrant *
27 Financial Data Schedule
*** Incorporated by reference to the exhibit number set forth in
parentheses, which exhibit was filed by the Registrant's Form 10-QSB for the
quarter ended June 30, 1998. The Form 10-QSB was filed December 3, 1998
* Incorporated by reference to the exhibit number set forth in
parentheses, which exhibit was filed by the Registrant's Form 10-KSB for the
year ended December 31, 1998. The Form 10-KSB was filed March 6, 2000
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000353904
<NAME> PHYMED, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,939,896
<ALLOWANCES> 1,410,919
<INVENTORY> 0
<CURRENT-ASSETS> 1,819,411
<PP&E> 2,796,484
<DEPRECIATION> 2,095,145
<TOTAL-ASSETS> 2,694,904
<CURRENT-LIABILITIES> 3,629,112
<BONDS> 265,034
0
135,139
<COMMON> 87,837
<OTHER-SE> (1,456,601)
<TOTAL-LIABILITY-AND-EQUITY> 2,694,904
<SALES> 989,097
<TOTAL-REVENUES> 989,097
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 832,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,293
<INCOME-PRETAX> 44,239
<INCOME-TAX> 15,484
<INCOME-CONTINUING> 28,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,755
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
