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, 1997 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 No X
Number of shares outstanding of the issuer's common stock, as of July 31, 1997
was 38,607,260.
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
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January 31, October 31,
1 9 9 7 1 9 9 6
[Unaudited]
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 176,015 $ 151,870
Accounts Receivable - Net 18,373,172 19,751,419
Unbilled Receivables 799,577 532,138
Due from Related Party 101,340 100,333
Other 1,148,930 826,826
------------ ------------
Total Current Assets 20,599,034 21,362,586
------------ ------------
Property, Plant and Equipment - Net 39,006,661 38,737,846
------------ ------------
Other Assets:
Accounts Receivable - Net 5,717,847 6,104,012
Due from Related Parties 917,246 899,143
Goodwill - Net 28,597,056 31,821,606
Other 5,670,129 7,005,979
------------ ------------
Total Other Assets 40,902,278 45,830,740
------------ ------------
Total Assets $100,507,973 $105,931,172
============ ============
See Notes to Consolidated Financial Statements.
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1
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
January 31, October 31,
1 9 9 7 1 9 9 6
[Unaudited]
<S> <C> <C>
Liabilities and Stockholders' Deficit:
Current Liabilities:
Cash Overdraft $ 864,913 $ 250,792
Accounts Payable 7,468,036 5,743,410
Accrued Expenses - Current 7,284,276 7,619,634
Notes and Leases Payable - Current 27,727,168 28,200,547
Accrued Estimated Closing Costs - Current 144,080 157,092
Accrued Restructuring Costs 737,373 895,622
Due to Related Party 88,567 88,567
Other 1,049,719 1,033,571
------------ ------------
Total Current Liabilities 45,364,132 43,989,235
------------ ------------
Long-Term Liabilities:
Subordinated Debentures Payable 25,658,951 25,829,000
Notes and Leases Payable 58,460,520 57,199,989
Accrued Expenses 1,653,194 2,435,283
------------ ------------
Total Long-Term Liabilities 85,772,665 85,464,272
------------ ------------
Commitments and Contingencies -- --
------------ ------------
Minority Interest 1,253,345 1,338,979
------------ ------------
Stockholders' Deficit:
Common Stock - $.01 Par Value, 100,000,000 Shares
Authorized, 40,232,260 Shares Issued and 38,932,260
Shares Outstanding at January 31, 1997 and
October 31, 1996. 402,322 402,322
Paid-in Capital 99,411,150 99,411,150
Deferred Compensation - Net -- (788,025)
Retained Earnings [Deficit] (131,213,914) (123,405,034)
------------ ------------
Totals (31,400,442) (24,379,587)
Less: Treasury Stock - 1,300,000 Shares - At Cost (481,727) (481,727)
------------ ------------
Total Stockholders' Deficit (31,882,169) (24,861,314)
------------ ------------
Total Liabilities and Stockholders' Deficit $100,507,973 $105,931,172
============ ============
See Notes to Consolidated Financial Statements.
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2
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
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Three months ended
January 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Revenue:
Revenue $31,838,043 $25,759,120
Less: Allowances 14,200,921 11,919,669
----------- -----------
Net Revenue 17,637,122 13,839,451
----------- -----------
Operating Expenses:
Operating Expenses 14,927,388 11,371,867
Depreciation and Amortization 2,377,779 1,169,931
Provision for Bad Debts 572,542 313,359
Impairment Loss of Long-Lived Assets 4,953,783 --
----------- -----------
Total Operating Expenses 22,831,492 12,855,157
----------- -----------
[Loss] Income from Operations (5,194,370) 984,294
----------- -----------
Other [Expenses] and Revenue:
Interest Expense (2,660,008) (1,649,166)
Interest Income 53,056 109,750
Other Income [Expense] 134,933 278,594
----------- -----------
Total Other [Expenses] (2,472,019) (1,260,822)
----------- -----------
[Loss] Before Income Taxes, Minority Interest in
[Income] of Subsidiaries and Extraordinary Item (7,666,389) (276,528)
Provision for Income Taxes -- --
Minority Interest in [Income] of Subsidiaries (142,491) (68,766)
----------- -----------
[Loss] Before Extraordinary Item (7,808,880) (345,294)
Extraordinary Item - Gain from Extinguishment of Debt -- 181,350
----------- -----------
Net [Loss] $(7,808,880) $ (163,944)
=========== ===========
[Loss] Per Share:
Loss Before Extraordinary Item $ (.20) $ (.01)
Extraordinary Item -- (.01)
----------- -----------
Net [Loss] Per Share $ (.20) $ --
=========== ===========
Weighted Average Common Shares Outstanding 38,932,260 39,729,021
=========== ===========
See Notes to Consolidated Financial Statements.
3
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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Total
Common Stock Retained Stockholders'
Number of Par Value Treasury Paid-in Deferred Earnings Equity
Shares Amount Stock Capital Compensation [Deficit] [Deficit]
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - November 1,
1996 40,232,260 $402,322 $(481,727) 99,411,150 (788,025)$(123,405,034) (24,861,314)
Amortization of Deferred
Compensation -- -- -- -- 5,752 -- 5,752
Elimination of Deferred
Compensation based on
Discontinuance of Center -- -- -- -- 782,273 -- 782,273
Net [Loss] for the three
months ended January 31,
1997 -- -- -- -- -- (7,808,880) (7,808,880)
-------- -------- ------- --------- --------- ---------- ----------
Balance - January 31, 1997
[Unaudited] 40,232,260 $402,322 $(481,727) 99,411,150 -- $(131,213,914) (31,882,169)
=========== ====== ========= ============= ==== ============= ===========
See Notes to Consolidated Financial Statements.
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4
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
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Three months ended
January 31,
1 9 9 7 1 9 9 6
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<S> <C> <C>
Cash Provided by [Used for] Continuing Operations $ 1,467,992 $(2,113,434)
Cash [Used for] Discontinued Operations (13,011) (430,000)
----------- -----------
Net Cash - Operating Activities 1,454,981 (2,543,434)
----------- -----------
Investing Activities:
Acquisitions - Net of Cash Acquired (66,936) --
Purchase of Property, Plant and Equipment (384,191) (85,513)
Proceeds - Sale of Equipment -- 245,000
Sale of ImmunoTherapeutics -- 143,750
----------- -----------
Net Cash - Investing Activities (451,127) 303,237
----------- -----------
Financing Activities:
Cash Overdraft 614,121 --
Principal Payments on Capital Leases and Notes Payable (1,816,317) (1,940,374)
Proceeds from Short-Term Borrowings on Notes Payable 620,661 1,972,748
Joint Venture Distribution (228,125) (50,000)
Purchase of Treasury Stock -- (337,723)
Purchase of Treasury Bonds (170,049) --
----------- -----------
Net Cash - Financing Activities (979,709) (355,349)
----------- -----------
Net Increase [Decrease] in Cash and Cash Equivalents 24,145 (2,595,546)
Cash and Cash Equivalents - Beginning of Periods 151,870 3,928,832
----------- -----------
Cash and Cash Equivalents - End of Periods $ 176,015 $ 1,333,286
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest $ 3,094,802 $ 1,360,997
Income Taxes $ -- $ --
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company entered into capital leases of approximately $1,694,251 and
$575,000 for the three months ended January 31, 1997 and 1996, respectively. The
Company acquired approximately $1,046,482 in net assets related to notes payable
from DIS previously held in assets held for divestiture with a net book value of
$0.
During the three months ended January 31, 1997, the Company wrote-off
$1,512,557 in net property and equipment, $2,875,293 in net goodwill and
$782,273 in deferred compensation related to the future Parkside closure.
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.
See Notes to Consolidated Financial Statements.
5
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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, 1996 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, 1997 and 1996 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, 1996.
[3] Goodwill
The Company's goodwill as of January 31, 1997 is shown net of accumulated
amortization of $3,238,750. In December 1996, the Company recognized a loss on
disposal of the Company's Parkside facility and approximately $2,875,000 of
related net goodwill was written off. Amortization expense for the three months
ended January 31, 1997 was $417,526 compared to $244,556 for the three months
ended January 31, 1996.
[4] Due to/from Related Party
The Company owes Norman Hames, C.O.O., approximately $90,000, without interest,
for prior loans made by him to the Company's DIS subsidiary. The amount will be
repaid within the fiscal year.
During fiscal 1996, the Company loaned $100,000 to a prior employee of the
Company which will be repaid with 4% interest within two years.
The Company has a $1,000,000 loan receivable due from its President and C.E.O.
in February 1998 discounted at 8%.
[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]. The Company entered into a
preliminary settlement with the plaintiff class in the lawsuit by the payment of
$240,000 in April 1996. Although the settlement between the Company and the
plaintiff class was granted preliminary court approval in April 1996, the
settlement is subject to final approval by the class and to final court approval
which has not yet been obtained. Management expects there will be no additional
costs to settle the case beyond the $240,000. The lawsuit continues with respect
to the other defendants. The Company remains convinced that it has not engaged
in any inappropriate conduct in this matter.
6
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2
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[5] Litigation [Continued]
On June 4, 1997, the Company was served with a complaint entitled Gerald E.
Dalrymple, M.D. and Gerald E. Dalrymple, M.D., Inc., a California professional
corp. v. Primedex Health Systems, Inc., Diagnostic Imaging Services, Inc. and
Diagnostic Health Services, Inc. filed in the Los Angeles Superior Court. The
complaint alleges that the Company failed to properly pay to the plaintiff fees
for performing professional services to which he was entitled as well as damages
for violation of the implied covenant of good faith and fair dealing, fraud,
conversion, breach of fiduciary duty, interference with existing and prospective
business advantage, negligent and intentional infliction of emotional distress
and defamation and seeks damages for an unspecified amount in excess of $25,000.
The complaint also alleges that by virtue of the investment by PHS in the
Company and the sale of four of the Company's imaging centers and its ultrasound
business to Diagnostic Health Services, Inc., that the Company has thereby
effected either a reorganization, consolidation, merger or transfer of all or
substantially all of its assets to another entity thereby permitting plaintiff
to convert a warrant for 319,488 shares of the Company's Common Stock
exercisable at $.01 per share which plaintiff received in connection with the
Company's acquisition of its Santa Monica facility to either $1,000,000 cash or
stock with a market value of $1,000,000 at the election of the Company. The
Company denies each and every allegation and intends to vigorously defend
against the legal action.
[6] Discontinued Operations - Primedex Subsidiary
As of January 31, 1997, the Company has approximately $144,000 on its books for
estimated closing costs related to its discontinued Primedex subsidiary.
[7] Acquisitions and Divestitures
As a result of a continuing deteriorating business climate and other business
reasons at DIS's Santa Monica ["Parkside"] facility, on June 25, 1997, the
Company tentatively determined to close substantially all of its operations at
the facility on or about August 29, 1997. While the Company is considering
alternatives to closing the center it is likely none will be found. Due to this
decision, the Company recognized a loss in December 1996 of approximately
$4,950,000; approximately $3,425,000 was recognized by DIS and approximately
$1,525,000 was recognized by PHS with the write-off of related acquisition
goodwill, and the reclassification of net assets related to the center as held
for divestiture. Net assets held for divestiture are presented at carrying value
which approximates fair value less costs to sell.
Effective January 1, 1997, the Company's DIS subsidiary opened its Scripps Chula
Vista MRI L.P. ["SCV"] servicing patients in San Diego. SCV is a joint venture
between the Company and Scripps Health.
[8] Capital Transactions
During the three months ended January 31, 1997, the Company purchased an
additional 72,500 shares of DIS common stock for approximately $67,000.
Subsequent to the quarter's end, as of July 31, 1997, the Company has purchased
an additional 1,083,163 shares of DIS common stock for cash of approximately
$1,400,000 increasing its total ownership to 7,885,970 shares, or approximately
69%.
During the three months ended January 31, 1997, the Company purchased 323,000 of
its subordinated bond debentures for cash of approximately $170,000. The bonds
have not been retired but will be by year-end. Subsequent to the quarter's end,
the Company has purchased an additional 136,000 of its subordinated bond
debentures for cash of approximately $90,000.
Subsequent to the quarter's end, the Company has purchased an additional 325,000
shares of its PHS common stock for cash of approximately $133,000.
7
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3
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[9] Subsequent Events
Effective March 1, 1997, subsequent to quarter-end, DIS sold substantially all
of the assets of its ultrasound division for approximately $9 million and sold
substantially all of the assets of four of its hospital-based MRI facilities for
approximately $16 million. The total proceeds of $25 million include a
non-interest bearing receivable in the amount of $1.5 million to be received in
three annual installments of $500,000 beginning in 1998 and approximately $2
million in ten-year covenants not-to-compete. Of the cash proceeds, $7.6 million
was used to pay off existing DIS debt. The Company estimates its gain to be
approximately $4.9 million on the sale.
In March 1997, subsequent to quarter-end, Radnet acquired 100% of the
outstanding shares of Woodward Park Imaging, Inc. in Fresno for $200,000
including assumed liabilities.
In late April 1997, Radnet opened Oxnard Imaging, a start-up operation in
Ventura County.
. . . . . . . . . . .
8
<PAGE>
Item 2:
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Background
Primedex Health Systems, Inc. ["PHS"] 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 January 31, 1997, 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"]. 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.
As of January 31, 1992, the Company entered into an asset purchase agreement
with Primedex Corporation ["PC"] 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 workers' compensation industry.
Accordingly, the operating results of this subsidiary were classified as a
discontinued operation and the appropriate prior period amounts were 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 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, 1997 and 1996 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
Diagnostics, 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 statement of operations and cash flows for the
three months ended January 31, 1997 and 1996 reflect the operations and cash
transactions of FDI.
9
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Background [Continued]
On March 25, 1996, the Company purchased 3,478,261 shares, or approximately 31%,
of Diagnostic Imaging Services, Inc. ["DIS"] for $4,000,000 and acquired a
five-year warrant to purchase an additional 1,521,739 shares of DIS stock at
$1.60 per share. The $4 million was borrowed by the Company from a primary
lending source. In addition, the Company established a five-year $1 million
revolving line with DIS. During the four month period ended July 31, 1996, the
investment yielded a loss to the Company of $313,649. Effective August 1, 1996,
the Company issued a five-year promissory note for $3,252,046 and five-year
warrants to purchase approximately 4,000,000 shares of PHS common stock at $.60
per share, to acquire an additional 3,252,046 shares of DIS common stock. The
purchase made PHS the majority shareholder in DIS with approximately 59%
ownership. In December 1996, an additional 72,500 shares of DIS common stock
were acquired. In connection with the acquisitions, goodwill of $7,260,156 was
recorded of which approximately $1,555,000 was written-off with the pending
closure of Parkside [see "Note 7"]. The statements of operations and cash flows
for the three months ended January 31, 1997 reflect the operations and cash
transactions with DIS.
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, PHS,
Future Diagnostics, Inc. ["FDI"] and Diagnostic Imaging Services, Inc. ["DIS"]
for the three months ended January 31, 1997. The discussion of the results of
continuing operations includes Radnet, PHS and FDI for the three months ended
January 31, 1996.
For the three months ended January 31, 1997, the Company had an operating loss
from operations of approximately $240,000. For the three months ended January
31, 1996, the Company had operating income of approximately $985,000.
The Company realized net revenues of approximately $17,635,000 and $13,840,000
for the three months ended January 31, 1997 and 1996, respectively. During the
three months ended January 31, 1997, Radnet realized net revenues of
approximately $10,725,000, FDI realized net revenues of approximately $1,610,000
and DIS realized net revenues of approximately $5,300,000. For the three months
ended January 31, 1996, Radnet realized net revenues of approximately
$11,940,000 and FDI realized net revenues of approximately $1,900,000. The
increases in net revenues were primarily attributable to the new DIS subsidiary.
The Company incurred operating expenses of approximately $22,831,000 and
$12,855,000 for the three months ended January 31, 1997 and 1996, respectively.
During the three months ended January 31, 1997, Radnet had operating expenses of
approximately $10,345,000, PHS had operating expenses of approximately
$2,199,000, FDI had operating expenses of approximately $1,360,000 and DIS had
operating expenses of approximately $8,927,000. During the three months ended
January 31, 1996, Radnet had operating expenses of approximately $10,475,000,
FDI had operating expenses of approximately $1,690,000 and PHS had operating
expenses of approximately $690,000.
For the three months ended January 31, 1997, the Company's total operating
expenses consisted of approximately $6,785,000 in salaries and reading fees,
$910,000 in radiology site costs, $1,540,000 in building and equipment rent,
$2,375,000 in depreciation and amortization, $570,000 in provisions for bad
debt, $5,695,000 of other general and administrative expenses and $4,950,000
attributable to the recognition of an impairment loss, pursuant to FASB 121, for
the writedown of related property, plant and equipment, goodwill, deferred
compensation and other intangible assets. For the three months ended January 31,
1996, the Company's total operating expenses consisted of approximately
$5,130,000 in salaries and reading fees, $1,245,000 in radiology site costs,
$1,045,000 in rent expenditures, $1,170,000 in depreciation and amortization,
$310,000 in provisions for bad debt and $3,955,000 in other general and
administrative expenses. The increases in 1997 operating expenses were primarily
due to the new DIS subsidiary.
10
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Results of Operations [Continued]
For the three months ended January 31, 1997 and 1996, interest income was
approximately $53,000 and $110,000, respectively. For the three months ended
January 31, 1997 and 1996, interest expense was approximately $2,660,000 and
$1,650,000, respectively. Increases in interest expense were primarily
attributable to the new DIS subsidiary, new notes and capital leases, and the
increase in lines of credit balances from approximately $7,950,000 in January
1996 to approximately $14,650,000 in January 1997. DIS had approximately
$3,910,000 outstanding under its line of credit as of January 31, 1997.
For the three months ended January 31, 1997, the Company incurred a disposal
loss related to its DIS subsidiary's Parkside facility of approximately
$950,000.
For the three months ended January 31, 1997 and 1996, other income was
approximately $135,000 and $460,000, respectively. In the first quarter of 1996,
PHS had a gain on the sale of ImmunoTherapeutics stock of approximately $144,000
an extraordinary gain on early extinguishment of debt of approximately $180,000.
For the three months ended January 31, 1997 and 1996, the Company had net losses
from continuing operations of $(7,808,880) and $(163,944), respectively.
Liquidity and Capital Resources
Cash increased for the three months ended January 31, 1997 by $24,145. Cash
decreased for the three months ended January 31, 1996 by $2,595,546.
Cash utilized for investing activities for the three months ended January 31,
1997 was $451,127. Cash generated from investing activities for the three months
ended January 31, 1996 was $303,237. For the three months ended January 31, 1997
and 1996, the Company purchased property and equipment of approximately $385,000
and $85,000, respectively. For the three months ended January 31, 1996, the
Company generated cash from the sale of equipment and the sale of
ImmunoTherapeutics, Inc. of approximately $390,000.
Cash utilized for financing activities for the three months ended January 31,
1997 and 1996 was $979,709 and $355,349, respectively. The 1997 increase was
primarily due to decreases in borrowings from external lines of credit. For the
three months ended January 31, 1997 and 1996, the Company had proceeds from
short-term borrowings and cash overdrafts of approximately $1,235,000 and
$1,975,000, respectively.
At January 31, 1997, the Company had a net working capital deficit of
$24,765,098 as compared to a working capital deficit of $22,626,649 at October
31, 1996, a decrease of $2,138,449. A primary reason for the decrease in working
capital was the increase in accounts payable and cash overdrafts. Included in
current liabilities as of January 31, 1997 are approximately $14,650,000 for the
Company's three lines of credit.
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]
The Company's working capital needs are currently provided under three lines of
credit. Under one agreement, due December 31, 1998, the Company may borrow the
lesser of 75% to 80% of eligible accounts receivable, $10,000,000 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] and FDI's assets to secure repayment under this
line of credit. The President and CEO of PHS has personally guaranteed
$3,000,000 of the loans. In addition, the credit line is collateralized by a
$5,000,000 life insurance policy on the president and CEO of PHS. At January 31,
1997, approximately $8,390,000 was outstanding under this line. Under a second
line of credit 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 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, 1997, approximately $2,350,000 was outstanding under
this line.
Under the third line of credit, the Company may borrow the lesser of $4,000,000
or approximately 53% of DIS's eligible accounts receivable. At January 31, 1997,
approximately $3,910,000 was outstanding under this line. The line originally
due June 1997 was extended on a month-to-month basis by DVI Business Credit as
long as interest payments are made and collateral is sufficient.
The Company'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 $34,125,000, $18,195,000, $16,365,000,
$17,645,000 and $14,130,000, respectively. The January 31, 1997 lines of credit
balances were approximately $14,650,000. Interest expense [excluding line of
credit interest] for the next five years, included in the above payments, will
be approximately $6,395,000, $4,765,000, $3,560,000, $2,285,000 and $995,000,
respectively. In addition, the Company has non-cancelable operating leases for
use of its facilities and certain medical equipment which will average
approximately $4,070,000 in annual payments over the next five years.
The Company estimates interest payments on its bond debentures to be
approximately $2,582,900 for fiscal 1997. The January, April and July payments
were paid on time with the remaining quarterly payment due on October 1, 1997.
As of January 31, 1997, approximately $737,000 remains on the Company's books
for estimated legal and settlement costs related to leases for two closed
centers. One center's outstanding obligation with its building lessor was
settled in fiscal 1996 for $950,000 of which approximately $237,000 remains to
be paid as of January 31, 1997. The other closed site's legal and settlement
costs are estimated to be approximately $500,000.
12
<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]
August 18, 1997 By: /s/Howard G. Berger, M.D.
--------------------------
Howard G. Berger, M.D., President,
Treasurer and Principal Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations filed
as part of the quarterly report on Form 10-Q and is qualified in its entirety
by reference to such quarterly report on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> oct-31-1997
<PERIOD-END> jan-31-1997
<CASH> 176,015
<SECURITIES> 0
<RECEIVABLES> 18,373,172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,599,034
<PP&E> 39,006,661
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,507,973
<CURRENT-LIABILITIES> 45,364,132
<BONDS> 0
0
0
<COMMON> 402,322
<OTHER-SE> (32,284,491)
<TOTAL-LIABILITY-AND-EQUITY> 100,507,973
<SALES> 31,838,043
<TOTAL-REVENUES> 31,838,043
<CGS> 0
<TOTAL-COSTS> 22,831,492
<OTHER-EXPENSES> (187,989)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,660,008
<INCOME-PRETAX> 7,808,880
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,808,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,808,880
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
