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 January 31, 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 co(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 March 18, 1996
was 39,180,760.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, October 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,333,286 $ 3,928,832
Marketable Security 1,982,098 1,956,707
Accounts Receivable - Net 17,847,741 16,011,324
Accrued Revenue 209,880 304,871
Due from Related Party 62,500 87,500
Other 308,390 264,452
----------- -----------
Total Current Assets 21,743,895 22,553,686
----------- -----------
Property, Plant and Equipment - Net 16,629,661 17,270,032
----------- -----------
Other Assets:
Accounts Receivable - Net 5,985,087 5,653,654
Due from Related Parties 2,751,739 2,697,437
Goodwill - Net 18,358,916 15,382,944
Other 3,328,052 3,201,951
----------- -----------
Total Other Assets 30,423,794 26,935,986
----------- -----------
Total Assets $68,797,350 $66,759,704
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, October 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
Accounts Payable $ 3,375,858 $ 1,918,337
Accrued Expenses - Current 4,114,512 4,182,150
Notes and Leases Payable - Current 20,674,898 17,565,435
Accrued Estimated Closing Costs - Current 207,692 487,447
Accrued Restructuring Costs 1,190,000 1,250,000
Other 537,068 1,487,755
----------- -----------
Total Current Liabilities 30,100,028 26,891,124
----------- -----------
Long-Term Liabilities:
Subordinated Debentures Payable 25,841,000 25,841,000
Notes and Leases Payable 26,055,726 26,741,081
Accrued Estimated Closing Costs 93,312 243,723
Accrued Expenses 1,409,308 1,261,899
----------- -----------
Total Long-Term Liabilities 53,399,346 54,087,703
----------- -----------
Commitments and Contingencies -- --
----------- -----------
Minority Interest 1,042,109 1,023,343
----------- -----------
Stockholders' Equity [Deficit]:
Common Stock - $.01 Par Value, 100,000,000 Shares
Authorized; 40,230,760 and
40,230,760 Shares Issued; 39,180,760 and 40,230,760
Shares Outstanding at January 31,
1996 and October 31, 1995, Respectively 402,307 402,307
Paid-in Capital 99,399,165 99,399,165
Retained Earnings [Deficit] (115,207,882) (115,043,938)
------------ ------------
Totals (15,406,410) (15,242,466)
Less: Treasury Stock (337,723) --
----------- -----------
Total Stockholders' Equity [Deficit] (15,744,133) (15,242,466)
----------- -----------
Total Liabilities and Stockholders' Equity [Deficit] $68,797,350 $66,759,704
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Three months ended
January 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Revenue:
Revenue $25,759,120 $21,260,638
Less: Allowances 11,919,669 9,534,063
----------- -----------
Net Revenue 13,839,451 11,726,575
----------- -----------
Operating Expenses:
Operating Expenses 11,371,867 10,990,412
Depreciation and Amortization 1,169,931 2,151,778
Provision for Bad Debts 313,359 806,686
----------- -----------
Total Operating Expenses 12,855,157 13,948,876
----------- -----------
Income [Loss] from Operations 984,294 (2,222,301)
----------- -----------
Other [Expenses] and Revenue:
Interest Expense (1,649,166) (1,466,279)
Interest Income 109,750 88,217
Other Income 278,594 360,345
----------- -----------
Total Other [Expenses] (1,260,822) (1,017,717)
----------- -----------
[Loss] Before Income Taxes, Minority
Interest in [Income] Loss of Subsidiaries
and Extraordinary Item (276,528) (3,240,018)
Provision for Income Taxes -- --
Minority Interest in [Income] Loss of Subsidiaries (68,766) 3,721
----------- -----------
[Loss] Before Extraordinary Items (345,294) (3,236,297)
Extraordinary Item - Gain from Extinguishment of Debt 181,350 --
----------- -----------
Net [Loss] $ (163,944) $(3,236,297)
=========== ===========
[Loss] Per Share:
Loss Before Extraordinary Item $ (.01) (.08)
Extraordinary Item (.01) --
----------- -----------
Net [Loss] Per Share $ -- $ (.08)
=========== ===========
Weighted Average Common Shares Outstanding 39,729,021 40,026,510
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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<TABLE>
<CAPTION>
Total
Common Stock Retained Stockholders'
Number of Par Value Treasury Paid-in Earnings Equity
Shares Amount Stock Capital [Deficit] [Deficit]
<S> <C> <C> <C> <C> <C> <C>
Balance - November 1, 1995 40,230,760 $ 402,307 $ -- $99,399,165 $(115,043,938) $ (15,242,466)
Purchase of Treasury Stock (1,050,000) -- (337,723) -- -- (337,723)
Net [Loss] for the three
months
ended January 31, 1996 -- -- -- -- (163,944) (163,944)
---------- ------- -------- --------- ---------- ----------
Balance - January 31, 1996
[Unaudited] 39,180,760 402,307 $(337,723) $99,399,165 $(115,207,882) $ (15,744,133)
</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>
<CAPTION>
Three months ended
January 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Cash [Used for] Provided by Continuing Operations $(2,113,434) $ 1,361,089
Cash [Used] for Discontinued Operations (430,000) (1,495,909)
----------- -----------
Net Cash - Operating Activities (2,543,434) (134,820)
----------- -----------
Investing Activities:
Acquisitions - Net of Cash Acquired -- (1,051,096)
Purchase of Property, Plant and Equipment (85,513) (73,279)
Proceeds - Sale of Equipment 245,000 3,125
Sale of ImmunoTherapeutics 143,750 --
----------- -----------
Net Cash - Investing Activities 303,237 (1,121,250)
----------- -----------
Financing Activities:
Principal Payments on Capital Leases and Notes Payable (1,940,374) (1,799,561)
Proceeds from Short-Term Borrowings on Notes Payable 1,972,748 1,516,169
Payment on Stockholder Notes Payable -- (500,000)
Advances to CareAdvantage -- (504,316)
Joint Venture Distribution (50,000) --
Purchase of Treasury Stock (337,723) --
----------- -----------
Net Cash Financing Activities (355,349) (1,287,708)
----------- -----------
Net [Decrease] in Cash and Cash Equivalents (2,595,546) (2,543,778)
Cash and Cash Equivalents - Beginning of Years 3,928,832 5,649,230
----------- -----------
Cash and Cash Equivalents - End of Years $ 1,333,286 $ 3,105,452
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 1,360,997 $ 1,418,494
Income Taxes $ -- $ --
Supplemental Schedule of Non-Cash Investing and Financing
Activities: The Radnet subsidiary entered into capital
leases of approximately $575,000 during the three months
ended January 31, 1995.
During the three months ended January 31, 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.
</TABLE>
See Notes to Consolidated Financial Statements.
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 January 31, 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 January 31, 1996 is shown net of accumulated
amortization of approximately $1,205,554 for the Radnet and Future Diagnostic
subsidiaries. In October 1995, the Company recognized an impairment loss on
long-lived assets and the related goodwill and the majority of the Company's
goodwill was written off. Amortization expense for the three months ended
January 31, 1996 was approximately $244,556 compared to $823,816 for the three
months ended January 31, 1995.
[4] Due from Related Party
During the three months ended January 31, 1996, the Company loaned $50,000 to an
employee. In addition, $25,000 was repaid to the Company from an
officer/stockholder, reducing the balance due to $62,500 at January 31, 1996.
[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 a trebling of
6
<PAGE>
damages pursuant to the RICO statute], interest, attorneys' fees and costs, all
of which are unspecified in amount.
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2
- ------------------------------------------------------------------------------
[5] Litigation [Continued]
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 attorneys 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. The Settlement Memorandum
requires completion of a formal settlement agreement between the Company and the
class and presentation of same to the Court during the month of March 1996. In
the event the proposed settlement is approved by the Court, it 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 Court or by the class members.
'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 the Office of the Los Angeles District Attorney had confirmed
that it is not investigating current management or present business activities
of Primedex Health Systems, Inc. or those of its operating subsidiaries
including Radnet. The District Attorneys' office is continuing to investigate
the activities of certain individuals who were part of management of a Company
subsidiary, Primedex Corporation, prior to October 1993, That particular
subsidiary has 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.
[6] Discontinued Operations - Primedex Subsidiary
In the first quarter of fiscal 1996, the Company settled its outstanding
obligation with Primedex Corporation's primary building lessor for $140,000.
Approximately $301,000 remains on the Company's books for estimated closing
costs.
[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.
7
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3
- ------------------------------------------------------------------------------
[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 three months ended January 31, 1996, FDI generated approximately $1.9
million in net revenue and generated approximately $100,000 in net income.
[9] Refinancing
[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] 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%.
[C] The Company entered into a third line of credit with DVI which is accessible
for the lessor of 80% of the eligible accounts receivable of FDI, $1,000,000 or
the prior 60 days collections of this subsidiary. As of January 31, 1996, the
Company has borrowed $-0- under this line.
[D] 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%.
. . . . . . . . . . . . . . . . . . . .
8
<PAGE>
Item 2:
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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- ------------------------------------------------------------------------------
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 at January 31, 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 for the three months ended January
31, 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"] for approximately $46,250,000. On July 29, 1993, the Company
announced its plans to restructure its Primedex subsidiary and to wind down its
involvement in the California worker's 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"] for approximately $66,000,000. The
statement of operations and cash flows for the three months ended January 31,
1996 and 1995 reflect 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 owns AHS. The operations of
this subsidiary were classified as a discontinued line of business.
Effective November 1, 1995, the Company acquired most of the assets of Future
Diagnostic, Inc. 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.
The following discussion relates to the continuing activities of Primedex Health
Systems, Inc.
9
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Results of Operations
The discussion of the results of continuing operations includes Radnet and
Future Diagnostic, Inc. ["FDI"] for the three months ended January 31, 1996. The
discussion of the results of continuing operations includes Radnet for the three
months ended January 31, 1995.
For the three months ended January 31, 1996, the Company had operating income
from operations of $984,294. For the three months ended January 31, 1995, the
Company had an operating [loss] of approximately $(2,222,301). Radnet realized
an operating income of approximately $1,572,000 for the three months ended
January 31, 1996 compared to an operating [loss] of $(1,278,000) for the three
months ended January 31, 1995. Future Diagnostics, Inc. realized operating
income of approximately $103,000 for the three months ended January 31, 1996.
For the three months ended January 31, 1996 and 1995, Radnet realized net
revenues of approximately $12,000,000 and $11,700,000, respectively. FDI
realized net revenues of approximately $1,900,000 for the three months ended
January 31, 1996. For the three months ended Janaury 31, 1996, operating
expenses totaled $12,855,000 of which approximately $10,475,000 were incurred by
the Radnet operation, approximately $1,690,000 were incurred by FDI, and
approximately $690,000 were incurred by PHS, the parent company.
Operating expenses of Radnet consisted primarily of wages and compensation of
approximately $4,640,000, depreciation and amortization of approximately
$1,050,000 and other general and administrative expenses of approximately
$4,785,000. Operating expenses of FDI consisted primarily of radiology site
costs of approximately $1,245,000, salaries and wages of approximately $250,000,
depreciation and amortization of approximately $48,000, and other general and
administrative expenses of approximately $147,000. PHS's operating expenses
included approximately $240,000 in salaries and compensation, and approximately
$450,000 in other general and administrative expenses and amortization.
For the three months ended January 31, 1996 and 1995, interest income was
approximately $110,000 and $88,000, respectively. For the three months ended
January 31, 1996 and 1995, interest expense was approximately $1,650,000 and
$1,466,000, 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 three months ended January 31, 1995. Interest
expense of Radnet was primarily attributable to equipment financing and lines of
credit charges. Interest of PHS was primarily attributable to the bond
debentures.
For the three months ended January 31, 1996 and 1995, the Company had net losses
from continuing operations of $(163,944) and $(3,236,297), respectively.
10
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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- ------------------------------------------------------------------------------
Liquidity and Capital Resources
Cash decreased for the three months ended January 31, 1996 and 1995 by
$2,595,546 and $2,543,778, respectively. Cash utilized for investing activities
for the three months ended January 31,1996 and 1995 was $178,236 and $1,121,250,
respectively. For the three months ended January 31, 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. Cash utilized for financing activities for the three months ended
January 31, 1996 and 1995 was $17,626 and $1,282,708, respectively. For the
three months ended January 31, 1995, the Company paid $500,000 on a stockholder
note payable and advanced $504,316 to CareAdvantage. For the three months ended
January 31, 1996, approximately $1,940,374 was made in debt and lease payments
and approximately $1,972,748 was advanced from short-term borrowings.
At January 31, 1996, the Company had a net working capital deficit of $8,356,133
as compared to a working capital deficit of $1,362,144 at January 31, 1995, a
decrease of $6,994,009. A primary reason for the decease over this annual period
was the reclassification of approximately $5,200,000 of notes payable as current
debt on which the Company has suspended making payments and is in negotiation
with an outside lendor. In addition, $765,000 in notes payable was reclassified
as current because the Company is retiring the note in February 1996, generating
a gain on early extinguishment of approximately $181K. Also, the Company assumed
approximately $1 million in additional liabilities with the FDI acquisition in
November of 1995.
Radnet's future payments for debt and equipment under capital lease for the next
five years, assuming lines of credit are paid in the first year and not renewed,
will be approximately $24,400,000, $7,750,000, $7,500,000, $5,300,000 and
$3,400,000. The January 31, 1996 lines of credit balances are approximately
$7,950,000. Interest expense for the next five years, included in the above
payments will be approximately $3,900,000, $1,950,000, $1,400,000, $825,000 and
$550,000, respectively. In addition, Radnet and FDI have noncancelable operating
leases for use of its facilities and certain medical equipment which will
average approximately $3,330,000 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 two note payments aggregating
approximately $945,000 were paid in the three months ended January 31, 1996.
Four quarterly payments of $50,000 will commence February 29, 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 $2,584,100 for fiscal 1996. The January 1st payment of $646,025
was already paid, with remaining quarterly payments due on April 1, July 1 and
October 1, 1996.
11
<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 hold a first lien on substantially all of
Radnet's [Beverly Radiology's] assets to secure repayment under this line of
credit. At January 31, 1996, approximately $6,100,000 was outstanding under this
line. A second line of credit was obtained December 1997 subsequent to the
acquisition of Tower Imaging Corp. Under this agreement due in 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. Borrowings under this line
are repayable with interest at an annual rate of 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 January 31, 1996,
approximately $1,850,000 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 up to 80% of the net collectible value of its
eligible commercial insurance and workers's compensation receivables,
$1,000,000, or the prior 60-days' cash collections. As of January 31, 1996, $-0-
has been borrowed under this 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 $1,250,000 for past due rent and
legal costs of which $60,000 of the reserve was utilized in the three months
ended January 31, 1996 for legal services.
12
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
PART II - OTHER INFORMATION
- ------------------------------------------------------------------------------
Item 1. Legal Proceeding
Second Consolidated Class Action
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 attorneys 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. The Settlement Memorandum
requires completion of a formal settlement agreement between the Company and the
class and presentation of same to the Court during the month of March 1996. In
the event the proposed settlement is approved by the Court, it 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 Court or by the class members.
13
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
PART II - OTHER INFORMATION
- ------------------------------------------------------------------------------
Los Angeles District Attorney Investigation
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 the Office of the Los Angeles District Attorney had confirmed
that it is not investigating current management or present business activities
of Primedex Health Systems, Inc. or those of its operating subsidiaries
including Radnet. The District Attorneys' office is continuing to investigate
the activities of certain individuals who were part of management of a Company
subsidiary, Primedex Corporation, prior to October 1993, That particular
subsidiary has 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.
14
<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]
March 21, 1996 By:
Herm Rosenman, President, Principal Executive
Officer and Director
By:
Howard G. Berger, M.D. Principal Financial
Officer and Director
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]
March 21, 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
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the
consolidated balance sheet and the consolidated 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> JAN-31-1996
<CASH> 1,333,286
<SECURITIES> 1,982,098
<RECEIVABLES> 23,832,828
<ALLOWANCES> 11,919,669
<INVENTORY> 0
<CURRENT-ASSETS> 21,743,895
<PP&E> 16,629,661
<DEPRECIATION> 1,169,931
<TOTAL-ASSETS> 68,797,350
<CURRENT-LIABILITIES> 30,100,028
<BONDS> 0
0
0
<COMMON> 402,307
<OTHER-SE> (15,744,133)
<TOTAL-LIABILITY-AND-EQUITY> 68,797,350
<SALES> 25,759,120
<TOTAL-REVENUES> 13,839,451
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,260,822)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,649,166)
<INCOME-PRETAX> (276,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276,528)
<DISCONTINUED> (68,766)
<EXTRAORDINARY> 181,350
<CHANGES> 0
<NET-INCOME> (163,944)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
