UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended April 30, 1996 Commission File Number 0-19019
PRIMEDEX HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 13-3326724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1516 Cotner Avenue
Los Angeles, California 90025
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (310) 478-7808
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and 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
Number of shares outstanding of the issuer's common stock as of July 2, 1996 was
38,930,760 [excluding 1,300,000 treasury shares].
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
[UNAUDITED]
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<TABLE>
April 30, October 31,
<S> <C> <C>
19 9 6 1 9 9 5
Assests:
Current Assets:
Cash and Cash Equivalents $1,104,187 $ 3,928,832
Marketable Security -- 1,956,707
Accounts Receivable - Net 18,162,629 16,011,324
Accrued Revenue 245,944 304,871
Due from Related Party 514,167 87,500
Other 272,358 264,452
---------- -----------
Total Current Assets 20,299,285 22,553,686
---------- -----------
Property, Plant and Equipment - Net 16,494,477 17,270,032
---------- -----------
Other Assets:
Accounts Receivable - Net 6,206,555 5,653,654
Due from Related Parties 2,411,904 2,697,437
Goodwill - Net 18,114,359 15,382,944
Equity in Investee 4,100,000 --
Other 4,679,607 3,201,951
---------- -----------
Total Other Assets 35,512,425 26,935,986
---------- -----------
Total Assets $72,306,187 $66,759,704
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
1
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
[UNAUDITED]
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<TABLE>
April 30, October 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Liabilities and Stockholder's Equity [Deficit]:
Current Liabilities:
Accounts Payable $2,852,783 $ 1,918,337
Accrued Expenses - Current 4,122,341 4,182,150
Notes and Leases Payable - Current 6,436,299 17,565,435
Accrued Estimated Closing Costs - Current 255,912 487,447
Accrued Restructuring Costs 1,050,000 1,250,000
Other 1,365,866 1,487,755
---------- -----------
Total Current Liabilities 16,083,201 26,891,124
---------- -----------
Long-Term Liabilities:
Subordinated Debentures Payable 25,841,000 25,841,000
Notes and Leases Payable 43,529,225 26,741,081
Accrued Estimated Closing Costs -- 243,723
Accrued Expenses 1,509,656 1,261,899
---------- -----------
Total Long-Term Liabilities 70,879,881 54,087,703
---------- -----------
Commitments and Contingencies -- --
---------- -----------
Minority Interest 1,131,212 1,023,343
---------- -----------
Stockholder's Equity [Deficit]:
Common Stock - $.01 Par Value, 100,000,000 Shares Authorized; 40,230,760 and
40,230,760 Shares Issued; 38,930,760 and 40,230,760 Shares Outstanding at
April 30,
1996 and October 31, 1995, Respectively 402,307 402,307
Paid-in Capital 99,399,165 99,399,165
Retained Earnings [Deficit] (115,107,852)(115,043,938)
Totals (15,306,380) (15,242,466)
Less: Treasury Stock (481,727) --
---------- -----------
Total Stockholder's Equity [Deficit] (15,788,107) (15,242,466)
----------- -----------
Total Liabilities and Stockholder's Equity [Deficit] $72,306,187 $66,759,704
See Notes to Consolidated Financial Statements.
</TABLE>
2
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended Six months ended
April 30, April 30,
--------- ---------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
<S> <C> <C> <C> <C>
------- ------- ------- -------
Revenue:
Revenue $27,115,955 $21,609,046 $52,875,075 $42,869,684
Less: Allowances 13,661,698 9,269,172 25,581,367 18,803,235
---------- ----------- ---------- -----------
Net Revenue 13,454,257 12,339,874 27,293,708 24,066,449
---------- ----------- ---------- -----------
Operating Expenses:
Operating Expenses 10,541,040 10,306,003 21,912,907 21,296,415
Depreciation and Amortization 1,301,852 2,494,350 2,471,783 4,646,128
Provision for Bad Debts 329,780 819,835 643,139 1,626,521
---------- ----------- ---------- -----------
Total Operating Expenses 12,172,672 13,620,188 25,027,829 27,569,064
---------- ----------- ---------- -----------
Income [Loss] from Operations 1,281,585 (1,280,314) 2,265,879 (3,502,615)
---------- ----------- ---------- -----------
Other [Expenses] and Revenue:
Interest Expense (1,677,942) (1,421,134) (3,327,108) (2,887,413)
Interest Income 79,420 50,109 189,170 138,326
Other Income 671,070 714,618 949,664 1,074,963
---------- ----------- ---------- -----------
Total Other [Expenses] (927,452) (656,407) (2,188,274) (1,674,124)
---------- ----------- ---------- -----------
Income [Loss] Before Income Taxes,
Minority Interest in [Income]
Loss of Subsidiaries and
Extraordinary Item 354,133 (1,936,721) 77,605 (5,176,739)
Provision for Income Taxes -- -- -- --
Minority Interest in [Income]
Loss of Subsidiaries (254,103) (18,019) (322,869) (14,298)
---------- ----------- ---------- -----------
Income [Loss] Before
Extraordinary Item 100,030 (1,954,740) (245,264) (5,191,037)
Extraordinary Item - Gain
from Settlement and Debt -- -- 181,350 --
---------- ----------- ---------- -----------
Net Income [Loss] $ 100,030 $(1,954,740) $ (63,914) $(5,191,037)
========== =========== ========== ===========
Income [Loss] Per Share:
Loss Before Extraordinary Item -- (.05) (.01) (.13)
Extraordinary Item -- -- .01 --
---------- ----------- ---------- -----------
Net Income [Loss] Per Share $ -- $ (.05) $ -- $ (.13)
========== =========== ========== ===========
Weighted Average Shares
Outstanding 37,309,393 40,026,510 39,424,627 40,026,510
========== =========== ========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
3
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
[UNAUDITED]
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<TABLE>
Total
Common Stock Retained Stockholder's
Number of Par Value Treasury Paid-in Earnings Equity
Shares Amount Stock Capital [Deficit] [Deficit]
<S> <C> <C> <C> <C> <C> <C>
November 1, 1995 40,230,760 $ 402,307 $ -- $99,399,165 $(115,043,938$(15,242,466)
Purchase of Treasury Stock (1,300,000) -- (481,727) -- -- (481,727)
Net [Loss] for the Six Months Ended
April 30, 1996 -- -- -- -- (63,914) (63,914)
----------- ----------- ----------- ---------- ------------ -----------
Balance - April 30, 1996 [Unaudited]38,930,760 $ 402,307 $ (481,727) $99,399,165 $(115,107,852$(15,788,107)
========== =========== =========== =========== =========================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Six months ended
April 30,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Cash [Used for] Provided by Continuing Operations $(1,092,563) $ 4,045,914
Cash [Used] for Discontinued Operations (475,258) (2,762,371)
---------- -----------
Net Cash - Operating Activities (1,567,821) 1,283,543
---------- -----------
Investing Activities:
Acquisitions - Net of Cash Acquired (500,000) (1,076,096)
Purchase of Property, Plant and Equipment (198,607) (106,769)
Payments to Care Advantage -- (1,443,780)
Purchase of 2% Increase in Management Fee (1,100,000) --
Proceeds - Sale of Equipment 245,000 3,125
Proceeds - Sale of Marketable Security 1,998,458 --
Sale of ImmunoTherapeutics 143,750 --
---------- -----------
Net Cash - Investing Activities 588,601 (2,623,520)
--------- -----------
Financing Activities:
Principal Payments on Capital Leases and Notes Payable (4,095,821) (3,128,114)
Proceeds from Short-Term Borrowings on Notes Payable 2,947,123 1,814,845
Payment on Stockholder Notes Payable -- (500,000)
Joint Venture Distribution (215,000) --
Payment of Equity --(7,000)
Purchase of Treasury Stock (481,727) --
Net Cash - Financing Activities (1,845,425) (1,820,269)
---------- -----------
Net [Decrease] in Cash and Cash Equivalents (2,824,645) (3,160,246)
Cash and Cash Equivalents - Beginning of Periods 3,928,832 5,649,230
---------- -----------
Cash and Cash Equivalents - End of Periods $1,104,187 $ 2,488,984
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $2,679,364 $ 3,043,755
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Radnet subsidiary entered into capital leases of approximately $413,579
and $575,000 for the six months ended April 30, 1996 and 1995, respectively.
During the six months ended April 30, 1996, the Company acquired all of the
outstanding capital stock of Future Diagnostics, Inc. for $3,220,000 consisting
of notes payable and assumed liabilities resulting in goodwill of approximately
$3,220,000. In addition, the Company acquired a 31% interest in Diagnostic
Imaging Services, Inc. ["DIS"] for $4,000,000 and the establishment of a
$1,000,000 interest-bearing credit facility for DIS.
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]
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[1] Summary of Significant Accounting Policies
Significant accounting policies of Primedex Health Systems, Inc. and affiliates
are set forth in the Company's Form 10-K for the year ended October 31, 1995 as
filed with the Securities and Exchange Commission.
[2] Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles for complete financial
statements; however, in the opinion of the management of the Company, all
adjustments consisting of normal recurring adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods ended April 30, 1996 and 1995 have been made. The results of
operations for any interim period are not necessarily indicative of the results
for the full year. These interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Registrant's annual report on Form 10-K for the fiscal year
ended October 31, 1995.
[3] Goodwill
The Company's goodwill as of April 30, 1996 is shown net of accumulated
amortization of approximately $1,450,110 for the Radnet and Future Diagnostics
subsidiaries. In October 1995, the Company recognized an impairment loss on
long-lived assets and the majority of the Company's goodwill was written off.
For this reason, amortization expense for the six months ended April 30, 1996
was approximately $489,112 compared to $2,059,715 for the six months ended April
30, 1995.
[4] Transactions with Related Parties
In April 1996, the Company renegotiated the existing management and service
agreement with Beverly Radiology Medical Group, Inc. ["BRMG"]. BRMG is owned by
an officer/stockholder of the Company and provides medical services and
supervision at several of the Company's wholly-owned imaging centers. The
Company's management fee will increase from 79% to 81% of Practice Billing
Receipts in consideration for which the Company paid $1,100,000 to BRMG, which
amount is being amortized over the approximate six year remaining term of the
agreement. The $1,100,000 amount was arrived at by negotiation between the
parties based upon the discounted value of the estimated additional benefit to
the Company over the remaining term of the agreement taking into account recent
past and future estimated Practice Billing Receipts at the imaging centers
managed by BRMG. At the same time, the officer/stockholder purchased the
interest of his partner in BRMG for $1,100,000. The partner who is an employee
of the Company repaid a $1,400,000 note due to the Company and renegotiated his
employment contract for a reduction in his time commitment and duties to the
Company with a commensurate reduction in his compensation and an extension of
his employment contract.
During the six months ended April 30, 1996, $25,000 was repaid to the Company
against an $87,500 loan made to an officer/stockholder in fiscal 1995 reducing
the balance due to $62,500 at April 30, 1996. The Company loaned $200,000 to
Diagnostic Imaging Services, Inc. ["DIS"] in the second quarter of fiscal 1996.
The loan is short-term and will accrue interest at 10%. In addition, as part of
the Diagnostic Imaging Services, Inc. investment in the second quarter of 1996
[see Acquisitions], the Company set up a five-year, 10% revolving loan for DIS
with a maximum borrowing base of $1,000,000. As of April 30, 1996, DIS borrowed
the full $1,000,000 under this line. The Company accrued management fee income
related to the DIS transaction of approximately $200,000 for the months of March
and April 1996.
6
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2
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[5] Litigation
The Company is a defendant in a class action pending in the United States
District Court for the District of New Jersey entitled "In re Hibbard Brown &
Company Securities Litigation" [No. 93 CV 1150] pursuant to a Second Amended and
Consolidated Class Action Complaint [the "Second Consolidated Complaint"].
In the Second Consolidated Complaint, the plaintiff identified certain "control"
companies including among others, the Company, two publicly owned corporations
in which the Company previously owned equity interests, namely
ImmunoTherapeutics, Inc. and Digital Products Corporation, and another publicly
owned corporation, Site-Based Media, Inc. ["Site"], and alleged that the
defendants [including the Company, the Company's former principal stockholder,
an entity allegedly controlled by such principal stockholder, the underwriter of
the Company's December 1992 and June 1993 public offerings, such underwriter's
parent company, such parent company's chairman and president, an individual,
another broker-dealer and its president and Site] violated the federal
securities laws and the Racketeer Influenced Corrupt Organizations ["RICO"] Act
by initiating and/or joining in a conspiracy and course of conduct designed to
manipulate and artificially inflate the market prices of the stocks of the
various "control" companies in order to permit the defendants to sell "large"
amounts of the "control" companies' securities to the public at manipulated
prices and reap "huge" profits. The Second Consolidated Complaint claims damages
as well as punitive damages [including the trebling of damages pursuant to the
RICO statute], interest, attorney's fees and costs, all of which are unspecified
in amount.
Management has contended that the Company was not a party to any conspiracy and
did not engage in the illegal course of conduct alleged in the Second
Consolidated Complaint. Although management believes this lawsuit is totally
without merit with regard to the Company, the Company has incurred significant
amounts of legal expense in defending against this lawsuit and would have been
required to expend significant additional amounts to continue the defense
through trial. Therefore, in order to avoid further expense, the loss of
executive time and inconvenience and to dispose of this expensive, burdensome
and protracted litigation, on February 29, 1996 the Company through its
attorneys executed a settlement Memorandum with the Class Action Plaintiffs
[executed by counsel for the Class Action Plaintiffs]. Pursuant to the
Settlement Memorandum, and in full settlement of the class action with regard to
the Company, its officers, directors, employees and agents [excluding
allegations against such persons, if any, when operating not in such capacities
but in some other capacity in connection with the conspiracy theory of the
Second Consolidated Complaint], the Company agreed to pay the sum of $240,000
into an escrow fund for the benefit of the certified class [of which $40,000
would be held in a separate escrow to cover attorney's costs, if required, in
connection with possible future depositions of the Company's officers, directors
and previously subpoenaed former officers or directors or employees]. Any amount
not so expended will be returned to the main escrow fund. The Company paid the
$240,000 into the escrow fund on March 5, 1996. A Settlement Agreement
reflecting the terms of the Settlement Memorandum was granted preliminary Court
approval in April 1996. The Settlement Agreement will be submitted to members of
the class who will be provided with an opportunity to accept or reject same at a
Court hearing to be held at a future date. No assurances can be given that the
settlement will be approved by the class members or will obtain final Court
approval.
The Company had previously announced that the Los Angeles District Attorney's
office was conducting an investigation related to the Company and its
subsidiaries and had conducted a search of the premises of the Company and its
Primedex and Radnet subsidiaries pursuant to a sealed affidavit which management
has been unable to examine but which the Company was advised, alleged violations
of California penal laws concerning securities and tax fraud, grand theft and
criminal conspiracy. On March 19, 1996, the Company issued a press release
announcing that although the Los Angeles District Attorney's Office was
investigating the activities of certain individuals who had been part of
management of the Company's Primedex Corporation subsidiary through fiscal 1993,
the District Attorney's Office had confirmed that it was not investigating any
members of current management or the present business activities of Primedex
Health Systems, Inc. or those of its operating subsidiaries including Radnet
[The Primedex Corporation subsidiary, acquired by the Company in February 1992,
subsequently ceased all business operations]. The Workers' Compensation Fraud
Division of the Los Angeles District Attorney's Office approved the text of the
Company's press release.
7
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3
- ------------------------------------------------------------------------------
[5] Litigation [Continued]
On May 31, 1996, the District Attorney's Office announced that a Los Angeles
Grand Jury had issued a two count indictment against three individuals formerly
associated with the Primedex Corporation subsidiary. The three individuals under
indictment are David G. Gardner, former president of the Primedex Corporation
subsidiary and a former director of the Company, Vincent A. Punturere, a former
vice president and medical director of the Primedex Corporation subsidiary and
Stanley Goldblum, a former consultant to the subsidiary. None of the three
individuals have any present employment or consulting positions with the
Company. Count One of the indictment accuses the three individuals between
October 8, 1987 and November 30, 1995 of conspiring to commit insurance fraud,
securities fraud and of conspiring to cheat and defraud others of property.
Count Two of the indictment accuse the three individuals of actions between
December 8, 1987 and January 21, 1993 allegedly constituting the crime of
securities fraud. Management believes that the indictment marks the culmination
of the above described investigation of the District Attorney's Office.
[6] Discontinued Operations - Primedex Subsidiary
In the second quarter of fiscal 1996, the Company settled its outstanding
obligation with Primedex Corporation's primary building lessor for $140,000.
Approximately $255,912 remains on the Company's books for estimated closing
costs as of April 30, 1996.
[7] ImmunoTherapeutics Stock ["ITI"]
In November of 1995, the Company's investment in ITI representing 1,150,001
shares with a book value of $-0- was sold for $143,750. The investment was
originally purchased in 1991 and the majority of the shares were sold in fiscal
1994.
[8] Acquisitions
Effective November 1, 1995, the Company acquired most of the assets of Future
Diagnostics, Inc. ["FDI"] by purchasing 100% of its outstanding stock for
approximately $3.2 million consisting of notes and assumed liabilities. Founded
in 1989, FDI is a leading Radiology management services organization providing
network development and management along with diagnostic imaging cost
containment and utilization review services.
For the six months ended April 30, 1996, FDI generated approximately $4,047,429
million in net revenue and generated approximately $228,983 in net income.
On March 25, 1996, the Company purchased 2,747,493 shares of common stock of
Diagnostic Imaging Services, Inc. ["DIS"] together with a five year warrant to
acquire an additional 1,521,739 shares [the "Warrant Shares"] at $1.60 per share
for $3,000,000 and extended a five year revolving $1,000,000 loan to DIS. The
purchase, together with a separate purchase of 730,768 DIS shares for $1,000,000
from DVI Financial Services, Inc. ["DVI"] makes Primedex the largest single
shareholder of DIS, owning approximately 31% of the outstanding shares
[excluding Warrant Shares]. The Company borrowed an aggregate $4,500,000 from
DVI of which $4,000,000 was applied directly to such stock and warrant purchases
and $500,000 was applied [together with an additional $500,000 from the
Company's working capital] to the funding of the $1,000,000 revolving loan. DIS
currently owns and operates 10 imaging centers providing high quality diagnostic
imaging services located in the Los Angeles and San Diego area as well as 15
ultrasound laboratories located in hospitals, 13 mobile ultrasound units
servicing hospitals and office buildings and one mobile MRI servicing a single
hospital at various sites throughout southern California. DIS also operates a
cancer care therapy center in Temecula, California. As of April 30, 1996, the
investment is recorded on the Company's books at $4,000,000 with an additional
$1,000,000 related party loan receivable.
8
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #4
- ------------------------------------------------------------------------------
[8] Acquisitions [Continued]
On June 4, 1996, subsequent to the quarter's end, the Company agreed to purchase
additional common stock in Diagnostic Imaging Services, Inc. increasing its
total ownership to approximately 53% [excluding the Warrant Shares]. Primedex
reached an agreement in principle to acquire all of the approximate 2.5 million
common shares of DIS owned by Norman Hames, president of DIS as well as his
options to purchase up to 507,737 shares of DIS common stock at various prices.
Mr. Hames will receive in exchange $1.00 for each common share sold, paid in the
form of a Primedex five year interest only promissory note, plus a five year
option to acquire up to 3 million shares of Primedex common stock at $.60 per
share.
[9] Notes Payable
[A] Note Payable - A note payable with remaining aggregate payments of
approximately $946,000 was settled for $765,000 in February of 1996 resulting in
a gain on early extinguishment of debt of approximately $181,000.
[B] Coast Fed Business Credit - The Company re-negotiated its terms and interest
rate on its line of credit with Coast Fed reducing its interest rate to prime
plus 3% from prime plus 4%.
[C] DVI Business Credit - The Company re-negotiated the interest rate on its
line of credit with DVI reducing its rate to prime plus 3-1/2% from prime plus
4-1/2%.
The Company entered into an additional line of credit with DVI which is
accessible for the lesser of 80% of the eligible accounts receivable of FDI,
$1,000,000 or the prior 60 days collections of this subsidiary.
As of April 30, 1996, the Company had borrowed $-0- under this line.
In March 1996, the line of credit agreement with DVI was amended so that the
Company could borrow up to an additional $1,500,000 over and above its eligible
borrowings under the two existing lines of credit which are collateralized by
the RadnetSub and FDI receivables. Approximately $1,000,000 is secured by an
additional 5% of the eligible accounts receivable and the balance is unsecured.
As of April 30, 1996, $-0- has been borrowed under this additional line.
. . . . . . . . . . . . . . . . . .
9
<PAGE>
Item 2:
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Background
Primedex Health Systems, Inc. ["PHS"] [formerly CCC Franchising Corp.] was
incorporated on October 21, 1985. On November 1, 1990, the Company acquired a
51% interest in Viromedics, Inc. ["VMI"] for $700,000. On February 18, 1992,
Future Medical Products ["FMP"], the parent corporation of VMI, exercised its
right to repurchase one-half of the VMI stock from PHS at a price of $700,000.
The Company owns approximately 19% of VMI's outstanding capital stock as of
April 30, 1996, which is accounted for using the cost method at $-0-.
During fiscal 1992, the Company purchased approximately 90% of the common stock
of ImmunoTherapeutic, Inc. ["ITI"]. At October 31, 1995, the Company owned
approximately 19% of ITI and accounted for this investment using the cost method
which was $-0-. In November of 1995, the investment was sold for $143,750
resulting in a gain on the Company's books recorded in the first quarter of
fiscal 1996.
As of January 31, 1992, the Company's wholly-owned subsidiary, CCC Franchising
Corp. I, entered into an asset purchase agreement with Primedex Corporation
["Primedex"] pursuant to which it purchased substantially all of Primedex's
assets subject to certain liabilities for approximately $46,250,000 in cash and
common stock. On July 29, 1993, the Company announced its plans to restructure
its Primedex subsidiary and to wind down its involvement in the California
workers' compensation industry. Accordingly, the operating results of this
subsidiary were classified as a discontinued operation and the appropriate prior
period amounts have been restated. Effective August 1, 1995, substantially all
of the assets of Primedex were sold to an unrelated party for approximately
$9,448,000. The sale resulted in a loss of approximately $3,800,000.
As of April 30, 1992, the Company's wholly-owned subsidiary, CCC Franchising
Corp. II, entered into a purchase agreement with Radnet Management, Inc. and
certain related companies ["Radnet"] pursuant to which it acquired the business
and assets subject to certain liabilities of Radnet for approximately
$66,000,000 in cash and common stock. The statement of operations and cash flows
for the six months ended April 30, 1996 and 1995 include the operations and cash
transactions of Radnet.
On December 31, 1993, the Company acquired Advantage Health Systems, Inc.
["AHS"], a newly organized corporation formed to provide medical and surgical
utilization review for major providers of health insurance, for $6,000,000 in
cash. On August 26, 1994, the Company announced a plan to spin-off its
subsidiary, Care Advantage, Inc. ["CareAd"], which owned AHS. The spin-off was
effectuated in fiscal 1994. The operations of this subsidiary are classified as
a discontinued line of business.
Effective November 1, 1995, the Company acquired most of the assets of Future
Diagnostics, Inc. by purchasing 100% of its outstanding stock for approximately
$3.2 million consisting of notes and assumed liabilities. The statement of
operations and cash flows for the six months ended April 30, 1996 include the
operations and cash transactions of Future Diagnostics, Inc. Founded in 1989,
FDI is a leading radiology management services organization providing network
development and management along with diagnostic imaging cost containment and
utilization review services.
On March 25, 1996, the Company acquired approximately 31% [excluding the Warrant
Shares] of Diagnostic Imaging Services, Inc. for $4,000,000 and the
establishment of a $1,000,000 revolving loan with DIS. DIS currently owns and
operates 10 imaging centers in the Los Angeles and San Diego area as well as 15
ultrasound laboratories located in hospitals, 13 mobile ultrasound units
servicing hospitals and office buildings and one mobile MRI servicing a single
hospital throughout southern California. DIS also operates a cancer care therapy
center in Temecula, California. In June 1996, the Company agreed to purchase
additional stock from the president of DIS bringing its total ownership to 53%
[excluding the Warrant Shares].
10
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
The following discussion relates to the continuing activities of Primedex Health
Systems, Inc.
Results of Operations
The discussion of the results of continuing operations includes Radnet and
Future Diagnostics, Inc. ["FDI"] for the six months ended April 30, 1996. The
discussion of the results of continuing operations includes Radnet for the six
months ended April 30, 1995.
For the six months ended April 30, 1996, the Company had consolidated income
from operations of $2,265,879 compared to the six months ended April 30, 1995
where the Company had a consolidated operating [loss] of $(3,502,615). One
reason for the operating income increase was the reduction in depreciation and
amortization expense [with the implementation of FASB 121 in fiscal 1995] from
$4,646,128 to $2,471,783 in the six month periods ended April 30, 1995 and 1996,
respectively. Radnet realized operating income of $3,203,664 for the six months
ended April 30, 1996 compared to an operating [loss] of $(1,938,000) for the six
months ended April 30, 1995. Future Diagnostics, Inc. realized operating income
of $252,811 for the six months ended April 30, 1996. For the six months ended
April 30, 1996 and 1995, Radnet realized net revenues of $23,246,279 and
$24,066,000, respectively. FDI, acquired November 1995, realized net revenues of
$4,047,429 for the six months ended April 30, 1996. For the six months ended
April 30, 1996, operating expenses totaled $25,027,829 of which $20,513,429 was
incurred by the Radnet operation, $3,301,704 was incurred by FDI, and $1,212,696
was incurred by PHS, the parent company.
Operating expenses of Radnet consisted primarily of wages and compensation of
$9,137,955, depreciation and amortization of $2,224,758 and other general and
administrative expenses of $9,150,716. Operating expenses of FDI consisted
primarily of radiology site costs of approximately $2,365,863, salaries and
wages of $554,746, depreciation and amortization of $97,752, and other general
and administrative expenses of $283,343. PHS's operating expenses included
$521,696 in salaries and compensation, depreciation and amortization of
$149,273, and $541,727 in other general and administrative expenses.
For the six months ended April 30, 1996 and 1995, interest income was $189,170
and $138,326, respectively. For the six months ended April 30, 1996 and 1995,
interest expense was $3,327,108 and $2,887,413, respectively. Interest of
approximately $310,000 was reclassified from interest expense of the continuing
operations and was allocated to accrued estimated closing costs for the six
months ended April 30, 1995. Interest expense of Radnet was primarily
attributable to equipment financing and lines of credit charges. Interest
expense of PHS was primarily attributable to its outstanding debentures.
For the six months ended April 30, 1996 and 1995, the Company had net losses
from continuing operations of $(63,914) and $(5,191,037), respectively.
11
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Liquidity and Capital Resources
Cash decreased for the six months ended April 30, 1996 and 1995 by $2,824,645
and $3,160,246, respectively. Cash generated in investing activities for the six
months ended April 30, 1996 was $588,601. In March of 1996, the Company
converted its marketable securities into cash. Cash utilized for investing
activities for the six months ended April 30, 1995 was $2,623,520. For the six
months ended April 30, 1996, the Company acquired Future Diagnostics, Inc. and a
31% interest in Diagnostic Imaging Services, Inc. For the six months ended April
30, 1995, the Company acquired the remaining interests in Lancaster Radiology
Medical Group, Antelope Valley MRI and Santa Clarita Imaging Center. In
addition, the Company acquired Women's Diagnostics Medical Group and merged its
operation with the Tower division in fiscal 1995. Also, in the six months ended
April 30, 1995, the Company advanced $1,443,780 to Care Advantage. Cash utilized
for financing activities for the six months ended April 30, 1996 and 1995 was
$1,845,425 and $1,820,269, respectively. For the six months ended April 30,
1996, $4,095,821 was made in debt and lease payments, $2,947,123 was advanced
from short-term borrowings, $481,727 was used to purchase treasury stock and
$215,000 was distributed to joint venture partners. For the six months ended
April 30, 1995, $3,128,114 was made in debt and lease payments, $1,814,845 was
advanced from short-term borrowings and the Company paid $500,000 on a
stockholder note payable.
At April 30, 1996, the Company had net working capital of $4,216,084 as compared
to a working capital deficit of $1,184,067 at April 30, 1995, an increase of
$5,400,151. The primary reasons for the improvement in net working capital from
April 30, 1995 and October 31, 1995 is the reclassification of the Company's
lines of credit as long-term given one line is due in December 1997 and the
other in December 1998, as well as an agreement with an outside lender to
restructure its debt with the Company subject to the completion of the
definitive legal documents. Under the agreement, the Company would make the
payment for accrued default interest on August 1, 1996, and begin making
scheduled payments on the remaining principal balance on September 1, 1996. As
of April 30, 1996 and 1995, an aggregate $8,900,000 and $5,850,000,
respectively, was due under the Company's external credit lines.
The Company's future payments for debt and equipment under capital lease for the
next five years will be approximately $11,500,000, $9,450,000, $14,340,000,
$5,600,000 and $4,350,000, respectively. The April 30, 1996 lines of credit
balances aggregated approximately $8,900,000. Interest expense, exclusive of
lines of credit charges, for the next five years, in addition to the above
payments will be approximately $4,265,000, $2,330,000, $1,625,000, $1,000,000
and $625,000, respectively. In addition, Radnet and FDI have non-cancellable
operating leases for use of their facilities and certain medical equipment which
will average approximately $3,160,000 in annual payments over the next five
years. The Company has committed to expenditures of at least $1,250,000 over the
next year to develop a centralized scheduling, transcription, billing and
collection system. The major supplier of equipment to the Company has agreed to
provide financing for substantially all of the project.
The Company acquired Future Diagnostics, Inc. in November 1995 for approximately
$3,200,000 in notes [approximately $2.2 million] and assumed assets and
liabilities [approximately $1 million]. The first three note payments
aggregating approximately $995,000 were paid in the six months ended April 30,
1996. Three quarterly payments of $50,000 are due in May, August and November of
1996, followed by eight quarterly payments of $75,000, four quarterly payments
of $100,000 and a final lump-sum payment of $200,000 on December 31, 1999.
The Company estimates interest payments on its bond debentures to be
approximately $2,583,500 for fiscal 1996. At present, the January, April and
July payments of approximately $646,025 each were already paid with the
remaining quarterly payment due on October 1, 1996.
12
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Liquidity and Capital Resources [Continued]
Radnet's working capital needs are currently provided under two lines of credit.
Under one agreement, due December 31, 1998, the Company may borrow the lesser of
75% to 80% of eligible accounts receivable, $7,000,000 or the prior 120-days'
cash collections. Borrowings under this line are repayable together, with
interest at an annual rate equal to the greater of (a) the bank's prime rate
plus 3%, or (b) 10%. The lender holds a first lien on substantially all of
Radnet's assets to secure repayment under this line of credit. At April 30,
1996, approximately $6,700,000 was outstanding under this line.
A second line of credit was obtained in December 1994, subsequent to the
acquisition of Tower Imaging Corporation. Under this agreement, due December
1997, the Company may borrow the lessor of 75% of the eligible accounts
receivable, $4,000,000, or the prior 120-days' cash collections. Borrowing under
this line are repayable with interest at an annual rate equal to the bank's
prime rate plus 3-1/2%. The credit line is collateralized by approximately 80%
of the Tower division's [Radnet Sub, Inc.] accounts receivable. At April 30,
1996, approximately $2,200,000 was outstanding under this line. FDI's working
capital needs will be provided under a third line of credit. The division will
be able to borrow the lesser of up to 80% of the net collectible value of its
eligible commercial insurance and worker's compensation receivables, $1,000,000,
or the prior 60-days' cash collections. As of April 30, 1996, $-0- has been
borrowed under this line. In March of 1996, the second and third lines of credit
were further amended so that the Company could borrow an additional $1,500,000
over and above its eligible borrowings under the two lines discussed above.
Approximately $1,000,000 of this line is secured by an additional 5% of the
eligible accounts receivable, while the remaining $500,000 of this line is
unsecured. As of April 30, 1996, $-0- had been borrowed under this additional
line.
In connection with ceasing operations at certain of the Radnet imaging centers,
lawsuits have been filed against the Radnet subsidiary by lessors of the
properties for past due rent, future rent and damages to the properties plus
other costs. The aggregate monthly rentals through the terms of each of the
related leases approximates $2,500,000. The Radnet subsidiary has and will
assert defenses to each of these lawsuits; however, no assurances can be given
that any of these suits will settle or as to the amount of damages, if any,
Radnet will incur. Radnet accrued approximately $1,500,000 for past due rent and
legal costs of which $450,000 of the reserve was utilized in the six months
ended April 30, 1996 for legal services and settlement costs.
On March 25, 1996, the Company purchased 2,747,493 shares of common stock of
Diagnostic Imaging Services, Inc. ["DIS"] together with a five year warrant to
acquire an additional 1,521,739 shares [the "Warrant Shares"] at $1.60 per share
for $3,000,000 and extended a five year revolving $1,000,000 loan to DIS. The
purchase, together with a separate purchase of 730,768 DIS shares for $1,000,000
from DVI Financial Services, Inc. ["DVI"] makes Primedex the largest single
shareholder of DIS, owning approximately 31% of the outstanding shares
[excluding the Warrant Shares]. The Company borrowed an aggregate $4,500,000
from DVI of which $4,000,000 was applied directly to such stock and warrant
purchases and $500,000 was applied [together with an additional $500,000 from
the Company's working capital] to the funding of the $1,000,000 revolving loan.
DIS currently owns and operates 10 imaging centers providing high quality
diagnostic imaging services located in the Los Angeles and San Diego area as
well as 15 ultrasound laboratories located in hospitals, 13 mobile ultrasound
units servicing hospitals and office buildings and one mobile MRI servicing a
single hospital at various sites throughout southern California. DIS also
operates a cancer care therapy center in Temecula, California. As of April 30,
1996, the investment is recorded on the Company's books at $4,000,000 with an
additional $1,000,000 related party loan receivable.
On June 4, 1996, subsequent to the quarter's end, the Company agreed to purchase
additional common stock in Diagnostic Imaging Services, Inc. increasing its
total ownership [excluding the Warrant Shares] to approximately 53%. Primedex
reached an agreement in principle to acquire all of the approximate 2.5 million
common shares of DIS owned by Norman Hames, president of DIS as well as his
options to purchase up to 507,737 shares of DIS common stock at various prices.
Mr. Hames will receive in exchange $1.00 for each common share sold, paid in the
form of a Primedex five year interest only promissory note, plus a five year
option to acquire up to 3 million shares of Primedex common stock at $.60 per
share.
13
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- ------------------------------------------------------------------------------
Item 1.
Legal Proceedings
The Company is a defendant in a class action pending in the United States
District Court for the District of New Jersey entitled "In re Hibbard Brown &
Company Securities Litigation" [No. 93 CV 1150] pursuant to a Second Amended and
Consolidated Class Action Complaint [the "Second Consolidated Complaint"].
In the Second Consolidated Complaint, the plaintiff identified certain "control"
companies including among others, the Company, two publicly owned corporations
in which the Company previously owned equity interests, namely
ImmunoTherapeutics, Inc. and Digital Products Corporation, and another publicly
owned corporation, Site-Based Media, Inc. ["Site"] and alleged that the
defendants [including the Company, the Company's former principal stockholder,
an entity allegedly controlled by such principal stockholder, the underwriter of
the Company's December 1992 and June 1993 public offerings, such underwriter's
parent company, such parent company's chairman and president, an individual,
another broker-dealer and its president and Site], violated the federal
securities laws and the Racketeer Influenced Corrupt organizations ["RICO"] Act
by initiating and/or joining in a conspiracy and course of conduct designed to
manipulate and artificially inflate the market prices of the stocks of the
various "control" companies in order to permit the defendants to sell "large"
amounts of the "control" companies' securities to the public at manipulated
prices and reap "huge" profits. The Second Consolidated Complaint claims damages
as well as punitive damages [including a trebling of damages pursuant to the
RICO statute], interest, attorneys' fees and costs, all of which are unspecified
in amount.
Management has contended that the Company was not a party to any conspiracy and
did not engage in the illegal course of conduct alleged in the Second
Consolidated Complaint. Although management believes this lawsuit is totally
without merit with regard to the Company, the Company has incurred significant
amounts of legal expense in defending against this lawsuit and would have been
required to expend significant additional amounts to continue the defense
through trial. Therefore, in order to avoid further expense, the loss of
executive time and inconvenience and to dispose of this expensive, burdensome
and protracted litigation, on February 29, 1996 the Company through its
attorneys executed a settlement Memorandum with the Class Action Plaintiffs
[executed by counsel for the Class Action Plaintiffs]. Pursuant to the
Settlement Memorandum, and in full settlement of the class action with regard to
the Company, its officers, directors, employees and agents [excluding
allegations against such persons, if any, when operating not in such capacities
but in some other capacity in connection with the conspiracy theory of the
Second Consolidated Complaint], the Company agreed to pay the sum of $240,000
into an escrow fund for the benefit of the certified class [of which $40,000
would be held in a separate escrow to cover attorney's costs, if required, in
connection with possible future depositions of the Company's officers, directors
and previously subpoenaed former officers or directors or employees]. Any amount
not so expended will be returned to the main escrow fund. The Company paid the
$240,000 into the escrow fund on March 5, 1996. A Settlement Agreement
reflecting the terms of the Settlement Memorandum was granted preliminary Court
approval in April 1996. The Settlement Agreement will be submitted to members of
the class who will be provided with an opportunity to accept or reject same at a
Court hearing to be held at a future date. No assurances can be given that the
settlement will be approved by the class members or will obtain final Court
approval.
14
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
ITEM 5 - OTHER INFORMATION
- ------------------------------------------------------------------------------
The Company had previously announced that the Los Angeles District Attorney's
office was conducting an investigation related to the Company and its
subsidiaries and had conducted a search of the premises of the Company and its
Primedex and Radnet subsidiaries pursuant to a sealed affidavit which management
has been unable to examine but which the Company was advised, alleged violations
of California penal laws concerning securities and tax fraud, grand theft and
criminal conspiracy. On March 19, 1996, the Company issued a press release
announcing that although the Los Angeles District Attorney's Office was
investigating the activities of certain individuals who had been part of
management of the Company's Primedex Corporation subsidiary through fiscal 1993,
the District Attorney's Office had confirmed that it was not investigating any
members of current management or the present business activities of Primedex
Health Systems, Inc. or those of its operating subsidiaries including Radnet
[The Primedex Corporation subsidiary, acquired by the Company in February 1992,
subsequently ceased all business operations]. The Workers' Compensation Fraud
Division of the Los Angeles District Attorney's Office approved the text of the
Company's press release.
On May 31, 1996, the District Attorney's Office announced that a Los Angeles
Grand Jury had issued a two count indictment against three individuals formerly
associated with the Primedex Corporation subsidiary. The three individuals under
indictment are David G. Gardner, former president of the Primedex Corporation
subsidiary and a former director of the Company, Vincent A. Punturere, a former
vice president and medical director of the Primedex Corporation subsidiary and
Stanley Goldblum, a former consultant to the subsidiary. None of the three
individuals have any present employment or consulting position with the Company.
Count One of the indictment accuses the three individuals between October 8,
1987 and November 30, 1995 of conspiring to commit insurance fraud, securities
fraud and of conspiring to cheat and defraud others of property. Count Two of
the indictment accuse the three individuals of actions between December 8, 1987
and January 21, 1993 allegedly constituting the crime of securities fraud.
Management believes that the indictment marks the culmination of the above
described investigation of the District Attorney's Office.
15
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
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.
Primedex Health Systems, Inc. and Affiliates
[Registrant]
July 11, 1996
By: /s/ Herm Rosenman
Herm Rosenman, President, Principal Executive
Officer and Director
By: /s/ Howard G. Berger
Howard G. Berger, M.D., Principal Financial
Officer and Director
16
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
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.
Primedex Health Systems, Inc. and Affiliates
[Registrant]
July 11, 1996
By:
Herm Rosenman, President, Principal Executive
Officer and Director
By:
Howard G. Berger, M.D., Principal Financial
Officer and Director
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATD STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 1,104,187
<SECURITIES> 0
<RECEIVABLES> 18,162,629
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,299,285
<PP&E> 16,494,477
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,306,187
<CURRENT-LIABILITIES> 16,083,201
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<COMMON> 402,307
<OTHER-SE> 15,385,800
<TOTAL-LIABILITY-AND-EQUITY> 72,306,187
<SALES> 25,115,955
<TOTAL-REVENUES> 25,115,955
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<TOTAL-COSTS> 12,172,672
<OTHER-EXPENSES> 1,006,872
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