FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended April 30, 1997 Commission File Number 0-19019
PRIMEDEX HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in 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
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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 October 17, 1997
was 38,607,260 (excluding treasury shares).
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by the Registrant without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Registrant believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Registrant's latest Annual Report on Form 10-K.
In the opinion of the Registrant, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of the
Registrant as of April 30, 1997, and the results of its operations and changes
in its cash flows for the six months ended April 30, 1997 and 1996, have been
made. The results of operations for such interim periods are not necessarily
indicative of the results to be expected for the entire year.
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
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April 30, October 31,
1 9 9 7 1 9 9 6
(Unaudited)
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Assets:
Current Assets:
Cash and Cash Equivalents $ 658,287 $ 151,870
Accounts Receivable - Net 17,642,318 19,751,419
Unbilled Receivables 949,024 532,138
Due from DHS - Current 618,487 --
Due from Related Party 102,357 100,333
Other 1,638,774 826,826
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Total Current Assets 21,609,247 21,362,586
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Property, Plant and Equipment - Net 31,283,084 38,737,846
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Other Assets:
Accounts Receivable - Net 5,769,061 6,104,012
Due from Related Parties 935,714 899,143
Due from DHS - Long-Term 585,820 --
Goodwill - Net 21,756,565 31,821,606
Other 4,917,086 7,005,979
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Total Other Assets 33,964,246 45,830,740
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Total Assets $ 86,856,577 $ 105,931,172
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</TABLE>
See Notes to Consolidated Financial Statements.
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
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April 30, October 31,
1 9 9 7 1 9 9 6
(Unaudited)
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Liabilities and Stockholders' Deficit:
Current Liabilities:
Cash Overdraft $ 1,341,441 $ 250,792
Accounts Payable 6,199,471 5,743,410
Accrued Expenses - Current 7,035,035 7,619,634
Notes and Leases Payable - Current 17,952,503 28,200,547
Accrued Estimated Closing Costs - Current 118,699 157,092
Accrued Restructuring Costs 500,000 895,622
Deferred Revenue-Covenant-not-to Compete - Current 200,000 --
Due to Related Party 83,567 88,567
Other 822,618 1,033,571
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Total Current Liabilities 34,253,334 43,989,235
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Long-Term Liabilities:
Subordinated Debentures Payable 25,569,447 25,829,000
Notes and Leases Payable 51,985,208 57,199,989
Deferred Revenue - Covenant-not-to Compete 1,766,666 --
Accrued Expenses 564,047 2,435,283
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Total Long-Term Liabilities 79,885,368 85,464,272
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Commitments and Contingencies -- --
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Minority Interest 1,468,573 1,338,979
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Stockholders' Deficit:
Common Stock - $.01 Par Value, 100,000,000 Shares
Authorized; 40,232,260 Shares Issued and 38,932,260
Shares Outstanding at April 30, 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) (128,082,443) (123,405,034)
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Totals (28,268,971) (24,379,587)
Less: Treasury Stock - 1,300,000 Shares - At Cost (481,727) (481,727)
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Total Stockholders' Deficit (28,750,698) (24,861,314)
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Total Liabilities and Stockholders' Deficit $ 86,856,577 $ 105,931,172
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</TABLE>
See Notes to Consolidated Financial Statements.
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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 Six months ended
April 30, April 30,
--------- ---------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- ------- -------
Revenue:
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Revenue $ 33,125,252 $ 27,115,955 $ 64,963,295 $ 52,875,075
Less: Allowances 15,683,201 13,661,698 29,884,122 25,581,367
-------------- ------------- -------------- --------------
Net Revenue 17,442,051 13,454,257 35,079,173 27,293,708
-------------- ------------- -------------- --------------
Operating Expenses:
Operating Expenses 14,794,923 10,541,040 29,722,311 21,912,907
Depreciation and Amortization 2,166,007 1,301,852 4,543,786 2,471,783
Provision for Bad Debts 645,743 329,780 1,218,285 643,139
Impairment Loss of Long-Lived
Assets -- -- 4,953,783 --
-------------- ------------- -------------- --------------
Total Operating Expenses 17,606,673 12,172,672 40,438,165 25,027,829
-------------- ------------- -------------- --------------
(Loss) Income from Operations (164,622) 1,281,585 (5,358,992) 2,265,879
-------------- ------------- -------------- --------------
Other (Expenses) Revenue:
Interest Expense (2,361,730) (1,677,942) (5,021,738) (3,327,108)
Interest Income 178,497 79,420 231,553 189,170
Other Income 50,722 671,070 185,655 949,664
-------------- ------------- -------------- --------------
Total Other (Expenses) (2,132,511) (927,452) (4,604,530) (2,188,274)
-------------- ------------- -------------- --------------
(Loss) Income Before Income Taxes,
Minority Interest in (Income)
of Subsidiaries and
Extraordinary Item (2,297,133) 354,133 (9,963,522) 77,605
Provision for Income Taxes -- -- -- --
Minority Interest in (Income)
of Subsidiaries (165,228) (254,103) (307,719) (322,869)
-------------- ------------- -------------- --------------
(Loss) Income Before
Extraordinary Item (2,462,361) 100,030 (10,271,241) (245,264)
Extraordinary Item - Gain from
Sale or Settlement of Debt 5,593,832 -- 5,593,832 181,350
-------------- ------------- -------------- --------------
Net Income (Loss) $ 3,131,471 $ 100,030 $ (4,677,409) $ (63,914)
============== ============= ============== ==============
Income (Loss) Per Share:
Loss Before Extraordinary Item $ (.06) $ -- $ (.26) $ (.01)
Extraordinary Item .14 -- .14 .01
-------------- ------------- -------------- --------------
Net (Loss) Income Per Share $ .08 $ -- $ (.12) $ --
============== ============= ============== ==============
Weighted Average Common
Shares Outstanding 38,932,260 37,309,393 38,932,260 39,424,627
============== ============= ============== ==============
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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Common Stock Retained Total
Number of Par Value Treasury Paid-in Deferred Earnings Stockholders'
Shares Amount Stock Capital Compensation (Deficit) Deficit
Balance - November 1,
<S> <C> <C> <C> <C> <C> <C> <C>
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 six months
ended April 30, 1997 -- -- -- -- -- (4,677,409) (4,677,409)
--------- --------- -------- --------- ----------- ------------ ------------
Balance - April 30, 1997
(Unaudited) 40,232,260 $ 402,322 $(481,727) $99,411,150 $ -- $(128,082,443) $(28,750,698)
========== ========= ========= =========== =========== ============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six months ended
April 30,
1 9 9 7 1 9 9 6
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Cash (Used for) Provided by Continuing Operations $ (1,366,424) $ (1,092,563)
Cash (Used for) Discontinued Operations (38,393) (475,258)
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Net Cash - Operating Activities (1,404,817) (1,567,821)
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Investing Activities:
Acquisitions - Net of Cash Acquired (263,811) (500,000)
Purchase of Property, Plant and Equipment (996,939) (198,607)
Purchase of 2% Increase in Management Fee -- (1,100,000)
Proceeds - Sale of Centers or Equipment 15,972,720 245,000
Proceeds - Sale of Marketable Security -- 1,998,458
Sale of ImmunoTherapeutics -- 143,750
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Net Cash - Investing Activities 14,711,970 588,601
-------------- --------------
Financing Activities:
Cash Overdraft 1,090,649 --
Principal Payments on Capital Leases and Notes Payable (13,973,707) (4,095,821)
Proceeds from Short-Term Borrowings on Notes Payable 525,000 2,947,123
Joint Venture Distributions (178,125) (215,000)
Receipts from Related Parties (5,000) --
Purchase of Treasury Bonds (259,553) --
Purchase of Treasury Stock -- (481,727)
-------------- --------------
Net Cash - Financing Activities (12,800,736) (1,845,425)
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 506,417 (2,824,645)
Cash and Cash Equivalents - Beginning of Periods 151,870 3,928,832
-------------- --------------
Cash and Cash Equivalents - End of Periods $ 658,287 $ 1,104,187
============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 5,309,364 $ 2,679,364
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company entered into net capital leases of approximately $1,985,000 and
$415,000 during the periods ended April 30, 1997 and 1996, respectively. During
the six months ended April 30, 1997, the Company acquired approximately
$1,050,000 in net assets and related notes payable from DIS previously held in
assets held for divestiture with a net book value of $-0-.
During the six months ended April 30, 1997, the Company's DIS subsidiary
wrote-off approximately $1,515,000 in net property and equipment, approximately
$2,875,000 in net goodwill and approximately $785,000 in deferred compensation
related to the Parkside closure. The Company recorded an impairment loss related
to Parkside of approximately $4,950,000 in December 1996.
During the six months ended April 30, 1997, the Company acquired the assets
and related liabilities of Woodward Park Imaging Center in Fresno, California
for approximately $200,000 in notes payable and assumed assets and liabilities
resulting in goodwill of approximately $90,000. In the acquisition, the Company
recorded approximately $2,075,000 in net property and equipment, approximately
$725,000 in other receivables and approximately $2,600,000 in notes payable and
capital leases and $300,000 in accrued expenses.
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.
Effective March 1, 1997, the Company realized a gain of approximately $5,600,000
related to the sale of four of DIS's hospital-based MRI facilities and its
Ultrasound Division. The Company received cash proceeds related to the sale of
approximately $16,000,000 (including $2,000,000 in covenants not-to-compete) and
wrote-off approximately $9,275,000 in net property, plant and equipment,
approximately $6,800,000 in net goodwill, approximately $650,000 in other assets
and approximately $7,525,000 in notes payable and capital leases.
During the six months ended April 30, 1997, the Company also recognized
purchase discount income related to film purchases (offset against operating
expenses) of approximately $585,000 during the period ended April 30, 1997.
See Notes to Consolidated Financial Statements.
<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, 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 April 30, 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 April 30, 1997 is shown net of accumulated
amortization of approximately $2,800,000. Amortization expense for the six
months ended April 30, 1997 and 1996 was approximately $750,000 and $490,000,
respectively. The 1997 increase was primarily due to the acquisition of
Diagnostic Imaging Services, Inc..
(4) Due from Related Party
The Company owes Norman Hames, C.O.O., approximately $84,000, 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.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), Sheet #2
- -------------------------------------------------------------------------------
(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
Company 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 April 30, 1997, the Company has approximately $120,000 on its books for
estimated closing costs related to its discontinued Primedex subsidiary. This
liability will be paid in full by fiscal year-end 1997.
(7) Acquisitions, Sales 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 determined to close substantially all of its operations at the facility
on or about August 29, 1997. Due to this decision, the Company recognized a loss
in December 1996 of approximately $4,950,000. In May and August of 1997, the
Company sold most of the assets remaining with the facility for approximately
$465,000 to two outside parties; in addition, one of the parties also assumed
the center's building lease and its obligations due in the future.
Effective January 1, 1997, the Company's DIS subsidiary opened its Scripps Chula
Vista MRI L.P. ("SCV") servicing patients in San Diego. The Company and Scripps
Health are equal partners with the Company serving as managing partner.
Effective March 1, 1997, the Company sold the assets and related liabilities of
four of DIS's hospital-based MRI facilities and DIS's Ultrasound Division to
Diagnostic Health Services, Inc. ("DHS") for approximately $16,000,000 in cash
including $2,000,000 in ten-year covenants not-to-compete. The covenants
not-to-compete were split equally between PHS and DIS and are classified as
"Deferred Revenue" on the Company's balance sheet. The Company recognized a gain
on the sale of approximately $5,600,000 which included the write-off of
approximately $2,660,000 of net acquisition goodwill. In addition, a discounted
receivable of approximately $1,190,000 was set-up on the Company's books for
post-closing payments of $500,000 each to be made by DHS to DIS on the first,
second and third anniversaries of the closing date. There is also an option to
receive these "post-closing payments" in the form of DHS common stock valued at
the mean average of the reported closing price of such common stock as reported
on the NASDAQ National Market for the five consecutive trading days ending on
the third day immediately prior to the closing date ("the Agreed Value").
Effective March 1, 1997, the Company acquired the assets and related liabilities
of Woodward Park Imaging Center ("Woodward Park") in Fresno, California for
approximately $200,000 in notes payable and assumed assets and liabilities
resulting in goodwill of approximately $90,000. Woodward Park is a full service
multi-modality imaging center providing MRI, CT, mammography, ultrasound and
general diagnostic radiology services.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), Sheet #3
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(8) Capital Transactions
During the six months ended April 30, 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 September 30, 1997, the Company has purchased an additional
1,123,163 shares of DIS common stock for cash of approximately $1,445,000
increasing its total ownership to 7,901,970 shares, or approximately 69%.
During the six months ended April 30, 1997, the Company repurchased 459,000 of
its subordinated bond debentures for cash of approximately $260,000. These bonds
were retired in August 1997 and resulted in a gain on early extinguishment of
debt of approximately $200,000. Subsequent to the quarter's end, during October
1997, the Company repurchased an additional 2,397,000 of its subordinated bond
debentures for cash of approximately $1,690,000. When the bonds are retired, the
Company should recognize an additional gain from early extinguishment of debt of
approximately $705,000 while reducing quarterly interest payments to
approximately $575,000.
Subsequent to the quarter's end, as of September 30, 1997, the Company
repurchased an additional 325,000 shares of its PHS common stock for cash of
approximately $133,000.
(9) Subsequent Events
In April 1997, Radnet opened Oxnard Imaging, a start-up operation in Ventura
County.
Effective September 3, 1997, the Company sold 100% of the outstanding capital
stock of its FDI wholly-owned subsidiary to Preferred Health Management, Inc.
("PHM") for $13,500,000 paid as follows: approximately $9,760,000 in cash;
$2,000,000 in a promissory note bearing interest at 10% with $1,000,000 due on
the first anniversary of the Closing Date and the remaining principal due on the
second anniversary of the Closing Date; the assumption of PHS's original
November 1995 acquisition note payable with a remaining principal balance of
approximately $900,000; and the assumption of other liabilities of approximately
$840,000. The Company should realize a gain of approximately $12 to $13 million
with the sale.
. . . . . . . . . .
<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 April 30, 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 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 six months ended
April 30, 1997 and 1996 include the operations and cash transactions of Radnet.
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. The statement of operations and
cash flows for the six months ended April 30, 1997 and 1996 reflect the
operations and cash transactions of FDI. Effective September 3, 1997, the
Company sold 100% of the outstanding capital stock of its wholly-owned
subsidiary FDI for $13,500,000.
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. 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 the six
months ended April 30, 1997, 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 $4,300,000 was written-off with the closure of
Parkside and the sale to Diagnostic Health Services, Inc. ("DHS") (see Note 7).
The statements of operations and cash flows for the six months ended April 30,
1997 reflect the operations and cash transactions with DIS. The statements of
operations and cash flows for the six months ended April 30, 1996 reflect only
the original investment with DIS.
The following discussion relates to the continuing activities of Primedex Health
Systems, Inc.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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, PHS, FDI
and DIS for the six months ended April 30, 1997. The discussion of the results
of continuing operations includes Radnet, PHS and FDI for the six months ended
April 30, 1996.
For the six months ended April 30, 1997, the Company had an operating loss from
operations of approximately $5,360,000. For the six months ended April 30, 1996,
the Company had operating income from operations of approximately $2,265,000.
The decrease was primarily attributable to an impairment loss related to the
closure of Parkside (see Note 7) of approximately $4,950,000 recognized in
December 1996 and other DIS operating losses of approximately $425,000. In
addition, Radnet's net revenues decreased approximately 7.5% due to a reduction
in gross revenues as well as decreases in reimbursement for Blue Shield,
contract and fee for service payors. Provisions for bad debt increased from
approximately $650,000 to $1,200,000 for the six months ended April 30, 1996 and
1997, respectively.
The Company realized net revenues of approximately $35,075,000 and $27,300,000
for the six months ended April 30, 1997 and 1996, respectively. The increase was
primarily attributable to the acquisition of DIS which had approximately
$9,350,000 of net revenue for the six months ended April 30, 1997.
The Company incurred operating expenses of approximately $40,450,000 and
$25,025,000 for the six months ended April 30, 1997 and 1996, respectively. In
addition to the Parkside impairment loss and provisions for bad debt, 1997
operating expenses increased due to the acquisition of DIS which had
approximately $9,500,000 in expenditures.
For the six months ended April 30, 1997 and 1996, the Company's expenditures for
salaries and reading fees was approximately $13,000,000 and $10,200,000,
respectively. DIS had approximately $3,500,000 in salaries and reading fees for
the six months ended April 30, 1997. Radnet and PHS had overall decreases in
salaries and reading fees of approximately $700,000 in 1997. For the six months
ended April 30, 1997 and 1996, the Company's expenditures for vendor site costs
were $2,150,000 and $2,350,000, respectively. For the six months ended April 30,
1997 and 1996, rent and other general and administrative expenses were
$14,550,000 and $9,350,000, respectively. DIS had approximately $4,325,000 in
rent and other general and administrative expenses. Radnet's general and
administrative expenses increased approximately $875,000 during the six months
ended April 30, 1997 primarily due to rising outside professional fees,
accounting and legal costs.
For the six months ended April 30, 1997 and 1996, interest income was
approximately $230,000 and $190,000, respectively. The majority of 1997 interest
income was related to related party note receivables and the sale to DHS (see
Note 7). For the six months ended April 30, 1997 and 1996, interest expense was
approximately $5,025,000 and $3,325,000, respectively. Interest expense
increases in 1997 were primarily due to higher average line of credit balances
during the period as well as the acquisition of DIS which incurred approximately
$1,450,000 in interest charges.
For the six months ended April 30, 1997, the Company realized an extraordinary
gain from the sale to DHS (see Note 7) of approximately $5,600,000. For the six
months ended April 30, 1996, the Company realized an extraordinary gain from
early extinguishment of debt of approximately $180,000.
For the six months ended April 30, 1997 and 1996, the Company had net losses
from operations of approximately $4,675,000 and $65,000, respectively
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Liquidity and Capital Resources
Cash increased for the six months ended April 30, 1997 by approximately
$500,000. Cash decreased for the six months ended April 30, 1996 by
approximately $2,800,000.
Cash generated from investing activities for the six months ended April 30, 1997
and 1996 was approximately $14,700,000 and $600,000, respectively. In 1997, the
Company sold four of DIS's hospital-based MRI sites and its Ultrasound Division
for approximately $16,000,000 in cash.
Cash utilized for financing activities for the six months ended April 30, 1997
and 1996 was approximately $12,800,000 and $1,850,000, respectively. With the
proceeds from the sale to DHS (see Note 7), the Company reduced its outstanding
lines of credit obligations by approximately $9,000,000 in addition to other
notes payable and capital lease principal reductions of approximately
$5,000,000.
At April 30, 1997, the Company had a net working capital deficit of $12,644,087
as compared to a working capital deficit of $22,626,649 at October 31, 1996, an
increase of $9,982,562. The primary reason for the increase was due to the sale
to DHS (see Note 7) and its $16,000,000 cash infusion.
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 holds 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 C.E.O. 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 C.E.O. of PHS. At April
30, 1997, approximately $2,650,000 was outstanding under this line.
Under a second line of credit due December 1997, the Company may borrow the
lesser of 75% of the eligible accounts receivable, $4,000,000 or the prior
120-days' cash collections. Borrowings under this line are repayable together
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. As of April 30, 1997, approximately $2,900,000 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 April 30, 1997,
approximately $85,000 was outstanding under this line. This line, originally due
June 1997, was extended on a month-to-month basis and was closed at the
Company's request in September 1997.
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 $23,600,000, $17,200,000, $15,200,000,
$15,100,000 and $10,800,000, respectively. The April 30, 1997 lines of credit
balances were approximately $5,635,000. Interest expense (excluding line of
credit and bond debenture interest) for the next five years, included in the
above payments, will be approximately $5,600,000, $4,100,000, $3,000,000,
$1,850,000 and $800,000, respectively. In addition, the Company has
non-cancelable operating leases for use of its facilities and certain medical
equipment which will average approximately $3,300,000 in annual payments over
the next five years.
As of April 30, 1997, approximately $500,000 remains on the Company's books for
estimated legal and settlement costs related to a building lease for one closed
center.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 5: Other Information
On March 21, 1997, effective March 1, 1997, the Registrant's subsidiary,
Diagnostic Imaging Services, Inc., entered into an agreement with Diagnostic
Health Services, Inc. ("DHS") whereby the subsidiary sold the assets and related
liabilities of its ultrasound business (13 mobile ultrasound units together with
15 ultrasound laboratories) for Eight Million Five Hundred Thousand Dollars,
comprised of approximately Seven Million Dollars cash with the balance
consisting of the assumption of liabilities. Net annual revenues from those
operations have been approximately Four Million Dollars.
On April 17, 1997, effective March 1, 1997, the Registrant's subsidiary,
Diagnostic Imaging Services, Inc., concluded the sale of its wholly-owned
subsidiary, which owned and operated four magnetic resonance imaging centers
located on or adjacent to hospital sites in the Los Angeles area, for Sixteen
Million Dollars (including the assumption of approximately Six Million Dollars
of debt to DHS). The four centers formerly provided approximately 6.5 Million
Dollars of net annual revenue to the subsidiary.
On April 18, 1997, the Registrant borrowed $5,500,000 from Diagnostic Imaging
Services, Inc. (of which approximately 69% of the outstanding common stock is
owned by the Registrant). The principal is due and payable on or before March
31, 1998 with monthly interest at 10%.
On September 8, 1997, effective September 3, 1997, the Registrant sold its
Future Diagnostics, Inc. ("FDI") subsidiary to Preferred Health Management,
Inc., an unrelated party, for $13,500,000 payable $9,761,853 cash, a two-year
$2,000,000 promissory note bearing interest at 10% per annum with a $1,000,000
principal payment due in one year, and the balance of the purchase price
consisting of the assumption of certain outstanding liabilities connected with
the subsidiary's assets. The promissory note is secured by the subsidiary's
accounts receivable. FDI arranges for the provision of diagnostic imaging
services through a network of contracted imaging centers, which in turn provide
imaging services to insurance companies, health plans and other health care
payers. Registrant retained the portion of FDI's business related to radiology
management services ("Radnet Managed Imaging Services, Inc." or "RMIS"), and in
particular physician utilization review, which is in keeping with Registrant's
intent to concentrate on the development and expansion of its core business of
radiology practice management, information management systems and utilization
review/management. For further information, see Registrant's Form 8-K for the
event of September 8, 1997.
Item 6: Exhibits and Reports on Form 8-K
(b) On September 18, 1997, the Registrant filed its report on Form 8-K
containing information under Item 2 of such report pertaining to the FDI
transaction reported in Item 5 herein above.
<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)
October 23, 1997 By:/s/ Howard Berger
Howard Berger, M.D., President, Principal
Executive Officer, Financial Officer and Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary 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-31-1997
<PERIOD-END> apr-30-1997
<CASH> 658,287
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<RECEIVABLES> 17,642,318
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0
0
<COMMON> 402,322
<OTHER-SE> (29,153,020)
<TOTAL-LIABILITY-AND-EQUITY> 86,856,577
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<OTHER-EXPENSES> 229,219
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