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 July 31, 1998 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
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 October 13, 1998
was 39,132,260 [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.
1
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
July 31, October 31,
1 9 9 8 1 9 9 7
[Unaudited]
Assets:
Current Assets:
Cash and Cash Equivalents $ 537,793 $ 129,517
Accounts Receivable - Net 17,585,674 16,933,340
Unbilled Receivables 182,940 693,847
Other Receivables - Current -- 2,390,755
Due from Related Party 1,139,242 55,568
Other 1,547,101 765,467
------------ ------------
Total Current Assets 20,992,750 20,968,494
------------ ------------
Property, Plant and Equipment - Net 31,779,904 33,401,161
------------ ------------
Other Assets:
Accounts Receivable - Net 6,362,546 5,810,814
Due from Related Parties -- 897,133
Other Receivables -- 899,896
Goodwill - Net 20,302,874 20,168,729
Other 3,448,311 4,193,696
------------ ------------
Total Other Assets 30,113,731 31,970,268
------------ ------------
Total Assets $ 82,886,385 $ 86,339,923
============ ============
See Notes to Consolidated Financial Statements.
2
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
July 31, October 31,
1 9 9 8 1 9 9 7
[Unaudited]
Liabilities and Stockholders' Deficit:
Current Liabilities:
Cash Overdraft $ 2,096,517 $ 319,481
Accounts Payable 4,806,442 4,010,861
Accrued Expenses 4,953,767 5,270,787
Accrued Expenses - Professional Fees 1,617,069 1,596,916
Notes and Leases Payable 26,189,213 20,341,372
Accrued Restructuring Costs 105,000 1,062,026
Deferred Revenue 200,000 200,000
Other 682,206 194,084
------------ ------------
Total Current Liabilities 40,650,214 32,995,527
------------ ------------
Long-Term Liabilities:
Subordinated Debentures Payable 20,718,000 22,923,000
Notes and Leases Payable 49,228,440 51,445,256
Deferred Revenue 1,516,666 1,666,666
Accrued Expenses 318,338 225,292
Accrued Expenses - Professional Fees 543,200 582,998
------------ ------------
Total Long-Term Liabilities 72,324,644 76,843,212
------------ ------------
Commitments and Contingencies -- --
------------ ------------
Minority Interest 931,755 1,430,788
------------ ------------
Stockholders' Deficit:
Common Stock - $.01 Par Value, 100,000,000
Shares Authorized; 40,757,260 and 40,432,260
Shares Issued; 39,132,260 and 38,807,260
Shares Outstanding at July 31, 1998 and
October 31, 1997, respectively 407,572 404,322
Paid-in Capital 99,491,650 99,434,150
Stock Subscription - Related Party (30,000) --
Retained Earnings [Deficit] (130,274,503) (124,153,129)
------------ ------------
Totals (30,405,281) (24,314,657)
Less: Treasury Stock - 1,625,000 Shares, At Cost (614,947) (614,947)
------------ ------------
Total Stockholders' Deficit (31,020,228) (24,929,604)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 82,886,385 $ 86,339,923
============ ============
See Notes to Consolidated Financial Statements.
3
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Three months ended Nine months ended
July 31, July 31,
-------- --------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
------- ------- ------- -------
Revenue:
<S> <C> <C> <C> <C>
Revenue $34,365,793 $34,214,509 $ 97,915,332 $ 99,177,804
Less: Allowances 18,392,208 16,752,840 51,982,235 46,636,962
----------- ----------- ------------ ------------
Net Revenue 15,973,585 17,461,669 45,933,097 52,540,842
----------- ----------- ------------ ------------
Operating Expenses:
Operating Expenses 12,877,801 15,092,655 37,894,776 44,814,966
Depreciation and Amortization 2,162,650 2,102,941 6,436,960 6,646,727
Provision for Bad Debts 557,904 683,567 1,571,623 1,901,852
Impairment Loss Long-Lived Assets -- -- -- 4,953,783
-------- ----------- ------------ ------------
Total Operating Expenses 15,598,355 17,879,163 45,903,359 58,317,328
----------- ----------- ------------ ------------
Income [Loss] from Operations 375,230 (417,494) 29,738 (5,776,486)
----------- ----------- ------------ ------------
Other [Expenses] and Revenue:
Interest Expense (2,389,833) (2,464,305) (6,931,284) (7,486,043)
Interest Income 22,600 66,451 190,268 298,004
Gain on Sale of Subsidiaries 873,942 -- 1,214,652 5,593,832
Other [Expense] Income (592,849) 2,486 (630,881) 188,141
----------- ----------- ------------ ------------
Total Other [Expenses] Revenue (2,086,140) (2,395,368) (6,157,245) (1,406,066)
----------- ----------- ------------ ------------
[Loss] Before Income Taxes,
Minority Interest in
Income of Subsidiaries,
Cumulative Effect of Change
in Accounting Principle
and Extraordinary Item (1,710,910) (2,812,862) (6,127,507) (7,182,552)
Provision for Income Taxes -- (34,000) -- (34,000)
Minority Interest in Income
of Subsidiaries (69,375) (142,569) (257,253) (450,288)
----------- ----------- ------------ ------------
[Loss] Before Extraordinary
Item and Cumulative Effect
of Change in Accounting
Principle - Forward $(1,780,285) $(2,989,431)$ (6,384,760) $ (7,666,840)
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Three months ended Nine months ended
July 31, July 31,
-------- --------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
------- ------- ------- -------
[Loss] Before Extraordinary
Item and Cumulative Effect
of Change in Accounting
<S> <C> <C> <C> <C>
Principle - Forwarded $(1,780,285) $(2,989,431)$ (6,384,760) $ (7,666,840)
Extraordinary Item-Gain from
Early Extinguishment of Debt
[Net of Income Taxes of $-0- for
the nine months ended July 31,
1998 and 1997, respectively] 80,795 199,447 1,042,680 199,447
----------- ----------- ------------ ------------
[Loss] Before Cumulative
Effect of Change in
Accounting Principle (1,699,490) (2,789,984) (5,342,080) (7,467,393)
Cumulative Effect of Change
in Accounting Principle [Net
of Income Taxes of $-0- for the
nine months ended July 31,
1998 and 1997, respectively] -- -- (779,294) --
----------- ----------- ------------ ------------
Net [Loss] $(1,699,490) $(2,789,984)$ (6,121,374) $ (7,467,393)
=========== =========== ============ ============
Basis EPS:
[Loss] Before Extraordinary Item
and Change in Accounting
Principle $ (.04) $ (.08)$ (.16) $ (.20)
Extraordinary Item -- .01 .03 .01
Change in Accounting Principle -
Write-off of Costs of Start-up
Activities -- -- (.02) --
----------- ----------- ------------ ------------
Net [Loss] $ (.04) $ (.07)$ (.15) $ (.19)
=========== =========== ============ ============
[Loss] Available to Common
Shareholders and Assumed
Conversions $(1,699,490) $(2,789,984)$ (6,121,374) $ (7,467,393)
=========== =========== ============ ============
Diluted EPS:
[Loss] Before Extraordinary Item
and Change in Accounting
Principle $ (.04) $ (.08)$ (.16) $ (.20)
Extraordinary Item -- .01 .03 .01
Change in Accounting Principle -
Write-off of Costs of Start-up
Activities -- -- (.02) --
----------- ----------- ------------ ------------
Net [Loss] Available to Common
Shareholders $ (.04) $ (.07)$ (.15) $ (.19)
=========== =========== ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
- ------------------------------------------------------------------------------
<TABLE>
Common Stock Retained Stock Total
Number Par Value Treasury Paid-in Earnings Subscription Stockholders'
of Shares Amount Stock Capital [Deficit] Related Party [Deficit]
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - November 1, 1997 40,432,260 $ 404,322 $(614,947) $99,434,150 $(124,153,129) $ -- $(24,929,604)
Issuance of Common Stock 325,000 3,250 -- 57,500 -- -- 60,750
Common Stock Subscribed -- -- -- -- -- (30,000) (30,000)
Net Loss for the nine months
ended July 31, 1998 -- -- -- -- (6,121,374) -- (6,121,374)
---------- --------- --------- ---------- ------------- ---------- -----------
Balance - July 31, 1998
[Unaudited] 40,757,260 $ 407,572 $(614,947) $99,491,650 $(130,274,503) $ (30,000) $(31,020,228)
========== ========= ========= =========== ============= ========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Nine months ended
July 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Cash [Used for] Provided by Continuing Operations $ (3,001,550) $ (2,486,087)
Cash [Used] for Discontinued Operations -- (55,963)
------------ ------------
Net Cash - Operating Activities (3,001,550) (2,542,050)
------------- ------------
Investing Activities:
Acquisitions - Net of Cash Acquired (1,718,120) (1,697,984)
Purchase of Property and Equipment (1,648,267) (1,831,723)
Proceeds - Sale of Centers or Equipment 685,038 16,037,720
Proceeds - Notes Receivable 2,059,179 --
Proceeds - Sale of Marketable Security 3,082,627 --
Proceeds - Partnership Dissolution 94,515 --
Loans to Related Parties (125,000) (110,000)
------------ ------------
Net Cash - Investing Activities 2,429,972 12,398,013
------------ ------------
Financing Activities:
Cash Overdraft 1,777,036 1,044,973
Principal Payments on Capital Leases and Notes Payable (7,760,497) (11,208,231)
Proceeds from Short-Term Borrowings on Notes Payable 8,342,508 1,489,318
Joint Venture Distributions -- (228,125)
Joint Venture Proceeds 75,000 --
Payments to Related Parties -- (88,567)
Repurchase of Bond Debentures (1,484,943) (259,553)
Purchase of Treasury Stock -- (133,220)
Proceeds from the Issuance of Common Stock 30,750 --
------------ ------------
Net Cash - Financing Activities 979,854 (9,383,405)
------------ ------------
Net Increase in Cash and Cash Equivalents 408,276 472,558
Cash and Cash Equivalents - Beginning of Periods 129,517 151,870
------------ ------------
Cash and Cash Equivalents - End of Periods $ 537,793 $ 624,428
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 6,993,063 $ 7,713,586
Income Taxes $ -- $ --
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company entered into net capital leases or financed equipment through notes
payable for approximately $3,655,000 and $3,500,000 during the nine months ended
July 31, 1998 and 1997, respectively. During the nine months ended July 31,
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 nine months ended July 31, 1998, the Company issued 300,000 shares of
common stock and recorded $30,000 as due from related parties.
During the nine months ended July 31, 1998, the Company wrote-off approximately
$1,565,000 in net property and equipment, approximately $285,000 in net accounts
receivable, approximately $735,000 in net goodwill, approximately $19,000 in
noncurrent assets, approximately $865,000 in note and capital lease obligations,
approximately $160,000 in other current liabilities and approximately $398,000
of minority interest related to the sale of Scripps Chula Vista effective
January 1, 1998. As consideration, the Company received 127,250 shares of DHS
common stock which was sold on May 15, 1998 resulting in a gain of approximately
$53,000 on the sale.
During the nine months ended July 31, 1998, the Company dissolved its
partnership between La Habra Imaging Group II and Friendly Hills Healthcare
Network, Inc. ["Friendly Hills"] effective December 31, 1997. Upon the
dissolution, the Company wrote-off approximately $270,000 of Friendly Hills
accounts receivable, approximately $365,000 in net property, approximately
$155,000 of accrued expenses and approximately $435,000 in minority interest.
The partnership dissolution resulted in a gain of approximately $48,000.
During the nine months ended July 31, 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 nine months ended July 31, 1997, the Company acquired the assets and
related liabilities of Woodward Park Imaging Center in Fresno, California for
approximately $200,000 in notes and assumed 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, approximately $2,600,000 in notes and capital leases and
approximately $300,000 in accrued expenses. During the nine months ended July
31,1998, the Company wrote-off a portion of the accrued expenses and goodwill
originally recorded and recognized a gain on early extinguishment of debt of
approximately $193,000.
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. As a result of the sale, the Company wrote-off
approximately $9,300,000 in net property, plant and equipment, approximately
$6,800,000 in net goodwill, approximately $600,000 in other assets and
approximately $7,525,000 in notes payable and capital leases.
See Notes to Consolidated Financial Statements.
8
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
- ------------------------------------------------------------------------------
Supplemental Schedule of Non-Cash Investing and Financing Activities
[Continued]:
During the nine months ended July 31, 1997, the Company acquired the assets of
Las Posas Medical Imaging for $35,000 and relocated DIS's Camarillo facility to
its location.
During the nine months ended July 31, 1998, the Company received medical
equipment of approximately $730,000 in lieu of cash rebates for Fuji medical
film purchases. During the nine months ended July 31, 1998 and 1997, the Company
recognized purchase discount income related to film purchases (offset against
operating expenses) of approximately $710,000 and $760,000, respectively.
During the nine months ended July 31, 1998, the Company issued notes payable for
approximately $325,000 to acquire approximately 265,000 shares of DIS common
stock.
During the nine months ended July 31, 1998, the Company capitalized accrued
maintenance charges of approximately $665,000 as notes payable.
See Notes to Consolidated Financial Statements.
9
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]
- ------------------------------------------------------------------------------
[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, 1997 as
filed with the Securities and Exchange Commission.
During the nine months ended July 31, 1998, the Company adopted Statement of
Position ["SOP"] No. 98-5, "Reporting on the Costs of Start-Up Activities." As a
result of the decision, the Company reduced historical net organizational costs
and capitalized fees by approximately $780,000. The effect of this change was to
decrease net income for the nine months ended July 31, 1998 by $.02 per share.
[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 July 31, 1998 and 1997 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, 1997.
[3] Goodwill
The Company's goodwill as of July 31, 1998 is shown net of accumulated
amortization of approximately $4,200,000. Amortization expense for the nine
months ended July 31, 1998 and 1997 was approximately $1,085,000 and $1,075,000,
respectively.
During the nine months ended July 31, 1998, the Company wrote-off approximately
$778,000 of DIS acquisition goodwill and approximately $43,000 of related
accumulated amortization with the sale of Scripps Chula Vista. In addition, the
Company wrote-off approximately $92,000 of Woodward Park acquisition goodwill
and approximately $4,000 of related accumulated amortization. At the time of the
acquisition, unrealized liabilities [written off in January 1998] were recorded
creating the goodwill.
The Company amortizes goodwill over the lesser of 20 years or the estimated
useful life of the assets.
[4] Due To/From Related Party
The Company has a $1,000,000 loan receivable due from its President and C.E.O.
in February 1999 discounted at 8%. For the nine months ended July 31, 1998, the
Company recorded interest income on the note of approximately $60,000.
As of October 31, 1997, the Company advanced $30,000 to an officer of the
Company, at no interest, which will repaid within the next year. During the nine
months ended July 31, 1998, the Company advanced an additional $25,000 to the
officer with the same terms.
10
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2
- ------------------------------------------------------------------------------
[4] Due To/From Related Party [Continued]
As of October 31, 1997, the Company loaned another officer of the Company
$25,000, with interest at 6%. During the nine months ended July 31, 1998, the
Company loaned an additional $180,000 to this officer. In February 1998, the
officer renegotiated and terminated his contract with the Company and used his
net severance to repay $50,000 of the prior loans made to him by the Company
[including the 1997 loan]. The remaining $155,000 of loans due to the Company
are to be repaid in five years with interest at 6.5%; $30,000 of these loans
were used to purchase stock from the Company using his available options and are
classified as "Stock Subscription - Related Party" in the financial statements.
As part of the contract renegotiation, the individual was retained as legal
consultant to the Company to be paid $50,000 per year for five years.
[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.
On June 5, 1998, the Company's subsidiary, Diagnostic Imaging Services, Inc.
["DIS"] was served with a demand for arbitration before the American Arbitration
Association in Wilmington, Delaware by Sterling Diagnostic Imaging, Inc.
["Sterling"] seeking $5,000,000 for an alleged breach of contract to purchase
film. DIS denies it has any obligation to purchase film from Sterling and
intends to vigorously defend the claim. Sterling claims to be an assignee of a
film contract allegedly entered into between DIS and DuPont. The arbitration
only recently commenced and it is too soon to form an opinion as to the probable
result.
The Company is currently party to other litigation, none of which is deemed
material by nature.
[6] Acquisitions, Sales and Divestitures
In February 1998, the Company dissolved its partnership between La Habra Imaging
Group II and Friendly Hills Healthcare Network, Inc. ["Friendly Hills"]
effective December 31, 1997. Upon the dissolution, the Company wrote-off
approximately $270,000 of Friendly Hills accounts receivable, approximately
$365,000 in net property, approximately $155,000 of accrued expenses and
approximately $435,000 in minority interest. The Company received approximately
$95,000 from Friendly Hills as part of the final dissolution. The Company
recognized a gain of approximately $48,000 on the dissolution and continues to
operate the now wholly-owned La Habra center. As part of the dissolution,
Friendly Hills acquired the modular building utilized by the center. The Company
entered into a five-year lease with Friendly Hills with an initial base rent of
$3,034 per month.
In March 1998, effective January 1, 1998, the Company's DIS subsidiary sold its
share of Scripps Chula Vista MRI L.P. ["SCV"] to Diagnostic Health Services,
Inc. ["DHS"] for 127,250 shares of DHS stock. As of the transaction date, the
shares were valued at $1,431,563 and subsequently sold on May 15, 1998 for
approximately $1,230,000. Due to the sale the Company wrote-off approximately
$735,000 of net acquisition goodwill. The net sale resulted in a gain of
approximately $53,000.
11
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3
- ------------------------------------------------------------------------------
[6] Acquisitions, Sales and Divestitures [Continued]
In May 1998, the Company exercised its option to received the $1.5 million in
post-closing payments related to the sale of DIS's MRI facilities to DHS in the
form of common stock of DHS. The Company received 200,000 shares of DHS stock
and sold the shares for $1,849,936 on May 8, 1998. The transaction resulted in a
gain of approximately $496,000.
In June 1998, the Company received additional proceeds from Preferred Health
Management, Inc. ["PHM"] related to the sale of FDI by agreeing to an IRS
Section 338 (h)(10) Election for "Corporations Making Qualified Stock
Purchases". As part of the transaction, the Company made its final sale
reconciling adjustments and recorded an additional loss of approximately $44,000
increasing its liability due to PHM to approximately $194,000. PHM agreed to pay
the Company approximately $596,000 for the Section 338 (h)(10) Election and
forwarded proceeds [net of liabilities due PHM] of approximately $402,000 to the
Company on June 15, 1998. The Company recognized a gain on the transaction of
approximately $596,000.
During the nine months ended July 31, 1998, the Company purchased an additional
1,768,374 shares of DIS common stock for approximately $2,040,000 in cash and
notes payable. Subsequent to the quarter's end, as of October 13, 1998, the
Company has purchased an additional 20,000 shares of DIS common stock for
approximately $21,000 increasing its total ownership to 9,788,344 shares, or
approximately 87% [excluding treasury shares].
[7] Capital Transactions
During the nine months ended July 31, 1998, the Company repurchased 2,205,000 of
its subordinated bond debentures for cash of approximately $1,485,000. These
bonds were retired and resulted in a gain on early extinguishment of debt of
approximately $720,000 while reducing quarterly interest payments to
approximately $518,000.
On December 4, 1997, a previous employee of the Company exercised his options
for 25,000 shares of the Company's common stock for $.23 per share, or $5,750.
During the nine months ended July 31, 1998, a previous officer of the Company,
who had existing options for 200,000 shares of the Company's common stock, was
granted options for an additional 100,000 shares as part of his contract buyout
and renegotiation. On January 20, 1998, the officer exercised all of his options
for 300,000 shares of the Company's common stock for approximately $.183 per
share, or $55,000. The officer was loaned the entire $55,000 of which $25,000
was repaid in February 1998 with the remainder to be repaid in five years at
6.5% interest. In addition, the Company entered into an agreement with the
former officer whereby the Company agreed to purchase from him up to 600,000
shares of the Company's common stock owned by him at a price of $.40 per share,
in minimum increments of 100,000 shares, upon his election anytime subsequent to
December 31, 1998 and prior to February 28, 2003.
12
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #4
- ------------------------------------------------------------------------------
[8] [Loss] Income Per Share
Average common shares outstanding for the three month periods ending July 31,
1998 and 1997 are 39,132,260 and 38,652,864, respectively, and 39,040,992 and
38,837,499 for the nine month periods ending July 31, 1998 and 1997,
respectively.
Stock options and purchase warrants outstanding at July 31, 1998 and 1997 of
11,879,175 and 12,009,175, respectively, to purchase shares of common stock were
not included because the options and warrants were anti-dilutive, however, the
options and warrants could be dilutive in the future.
Additionally, at July 31, 1998 and 1997, convertible subordinated debentures to
acquire 20,912 and 25,829 shares of common stock were not included because they
were anti-dilutive, however, the debentures could be dilutive in the future.
. . . . . . . .
13
<PAGE>
Item 2:
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Background
Primedex Health Systems, Inc. ["PHS"] 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 July 31, 1998, which is accounted for
using the cost method at $-0-.
On 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 nine months
ended July 31, 1998 and 1997 include the operations and cash transactions of
Radnet.
Effective November 1, 1995, the Company formed Radnet Managed Imaging Services,
Inc. ["RMIS"] which 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. The statement of operations
and cash flows for the nine months ended July 31, 1997 reflect the operations
and cash transactions of FDI. Effective September 3, 1997, 100% of the
outstanding capital stock of FDI was sold to Preferred Health Management, Inc.
["PHM"] for $13,500,000 in cash, notes and assumed liabilities. The Company
continues to operate RMIS which provides utilization review services. The
statements of operations and cash flows for the nine months ended July 31, 1998
and 1997 reflect the overhead costs and cash transactions of RMIS.
In March of 1996, the Company purchased 3,478,261 shares, or approximately 31%,
of Diagnostic Imaging Services, Inc. ["DIS"] for $4,000,000 with a five-year
warrant to acquire 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 $3,272,046 and five-year warrants to purchase
approximately 4,000,000 shares of PHS common stock at $.60 per share, to acquire
an additional 3,228,046 shares of DIS common stock. The purchase made PHS the
majority shareholder in DIS with approximately 59% ownership.
In subsequent purchases through October 13, 1998, the Company acquired an
additional 3,082,037 shares of DIS stock from various related and unrelated
parties for approximately $3,700,000 in cash and notes payable increasing its
ownership in DIS to approximately 87% [excluding treasury shares]. The
statements of operations and cash flows for the nine months ended July 31, 1998
and 1997 reflect the operations and cash transactions with DIS.
Effective March 1, 1997, the Company sold the assets and related liabilities of
four of DIS's hospital-based MRI facilities and its ultrasound division to
Diagnostic Health Services, Inc. ["DHS"] for $15,972,720 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 financial statements. 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 [utilizing a 11.75% interest rate] was recorded 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 sale closing date. The
Company exercised its option to receive these payments in the form of 200,000
shares of DHS common stock which at the time of transaction equaled the value of
the mean average of the reported closing price of the 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"]. On May
8, 1998, the Company sold the shares for $1,849,936 and recognized a gain of
approximately $496,000.
14
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Background [Continued]
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 decided to close substantially all of its operations at the facility on
or about August 29, 1997. Due to this decision, the Company recognized an
impairment loss of approximately $4,550,000 [net of final $400,000 fiscal 1997
sale payment] which included the write-off of approximately $1,530,000 of net
acquisition goodwill. In May 1997, the Company sold the facility's MRI for
$65,000 to an unrelated party; in August 1997, the Company's remaining Parkside
assets were sold for approximately $400,000 to another party who also assumed
the center's building lease. The Company still operates a separate entity,
Parkside Radiology Women's Center ["Parkside Womens"], which provides
ultrasound, mammography, stereotactic breast biopsy and bone densitometry
services.
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 were equal partners with the Company serving as managing partner. In
March 1998, effective January 1, 1998, the Company's DIS subsidiary sold its
share of SCV to DHS for 127,250 shares of DHS stock. As of the transaction date,
the shares were valued at $1,431,563 and on May 15, 1998, the Company sold the
shares for approximately $1,230,000. The net gain on the sale of SCV was
approximately $53,000 which included the write-off of approximately $735,000 of
net acquisition goodwill.
Effective March 1, 1997, the Company acquired the assets and related liabilities
of Woodward Park Imaging Center ["WWP"] in Fresno, California for approximately
$200,000 in notes payable and assumed assets and liabilities resulting in
goodwill of approximately $90,000 [which was written-off in during fiscal 1998].
WWP is a full service multi-modality imaging center providing MRI, CT,
mammography, ultrasound and general diagnostic radiology services.
During the year ended October 31, 1997, the Company acquired the assets of Las
Posas Medical Imaging for $35,000 in cash and relocated DIS's Camarillo facility
to its location. No goodwill was recorded in the transaction.
In February 1998, the Company dissolved its partnership between La Habra Imaging
Group II and Friendly Hills Healthcare Network, Inc. ["Friendly Hills"]
effective December 31, 1997. Upon the dissolution, the Company wrote-off
approximately $270,000 of Friendly Hills accounts receivable, approximately
$365,000 in net property, approximately $155,000 of accrued expenses and
approximately $435,000 in minority interest. The Company received cash of
approximately $95,000 from Friendly Hills upon the dissolution and recognized a
gain of approximately $48,000. As part of the dissolution, Friendly Hills
acquired the modular building utilized by the center. The Company entered into a
five-year building lease with Friendly Hills with an initial base rent of $3,034
per month.
In April 1997, the Company opened Oxnard Imaging, a start-up operation in
Ventura County.
15
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Forward Looking Information
The forward-looking statements herein are based on current expectations that
involve a number of risks and uncertainties. Such forward-looking statements are
based on assumptions that the Company will have adequate financial resources to
fund the development and operation of its business, and there will be no
material adverse change in the Company's operations or business. The foregoing
assumption are based on judgment with respect to, among other things,
information available to the Company, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. There are a
number of other risks presented by the Company's business and operations which
could cause the Company's financial performance to vary markedly from prior
results or results contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and periodic
revisions must be made to reflect actual conditions and business developments,
the impact of which may cause the Company to alter its capital investment and
other expenditures, which may also adversely affect the Company's results of
operations. In light of significant uncertainties inherent in forward-looking
information included in the Quarterly Report of Form 10-Q, the inclusion of such
information should not be regarded as a presentation by the Company or any other
person that the Company's objectives or plans will be achieved.
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,
RMIS and DIS for the nine months ended July 31, 1998. The discussion of the
results of continuing operations includes Radnet, PHS, RMIS, FDI and DIS for the
nine months ended July 31, 1997.
During the nine months ended July 31, 1998, the Company had income from
operations of approximately $30,000. During the nine months ended July 31, 1997,
the Company had a loss from operations of approximately $5,775,000. The 1997
loss was primarily attributable to an impairment loss related to the closure of
Parkside of approximately $4,950,000 recognized in December 1996.
The Company realized net revenues of approximately $46,000,000 and $52,500,000
during the nine months ended July 31, 1998 and 1997, respectively. Including
provisions for bad debts, the Company realized net revenues of approximately
$44,350,000 and $50,650,000 during the nine months ended July 31, 1998 and 1997,
respectively. Radnet realized net revenues, less provisions for bad debt, of
approximately $36,300,000 and $31,900,000 during the nine months ended July 31,
1998 and 1997, respectively. The primary reasons for the increase in net revenue
was due to the addition of new centers at Woodward Park [March 1997], Oxnard
Imaging [March 1997] and University Imaging [August 1997], and the addition of
equipment including, but not limited to, an MRI at Stockton [March 1998] and
Oxnard [March 1998] and a CT at Vacaville [November 1997]. FDI realized net
revenues of approximately $6,200,000 during the nine months ended July 31, 1997;
FDI was sold effective November 1, 1997. DIS realized net revenues of
approximately $7,835,000 and $12,425,000 during the nine months ended July 31,
1998 and 1997, respectively. Effective March 1, 1998, DIS sold its ultrasound
division and four of its hospital-based MRI facilities to DHS, and effective
January 1, 1998, DIS sold its share of SCV to DHS. During the nine months ended
July 31, 1997, approximately $3,950,000 of net revenue was generated by these
sold sites. PHS realized net revenues related to billing services of
approximately $215,000 and $125,000 during the nine months ended July 31, 1998
and 1997, respectively. Effective August 1, 1998, DHS terminated its billing
service contract with PHS and moved the operation in house.
16
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Results of Operations [Continued]
During the nine months ended July 31, 1998 and 1997, the Company incurred
operating expenses of approximately $45,900,000 and $58,300,000, respectively.
The primary reason for the decrease in 1998 operating expenses is due to the
sale of FDI effective November 1, 1997 and the sales of DIS's ultrasound
division and five of its hospital-based MRI facilities during fiscal 1997 and
early fiscal 1998, as well as the recognition of an impairment loss related to
the closure of Parkside in December 1996.
During the nine months ended July 31, 1998 and 1997, the Company's operating
expenses consisted of approximately $19,435,000 and $19,775,000, respectively,
in salaries and reading fees, approximately $4,000,000 and $4,550,000,
respectively, in building and equipment rentals, approximately $14,460,000 and
$16,750,000, respectively, in general and administrative expenditures,
approximately $6,435,000 and $6,650,000, respectively, in depreciation and
amortization and approximately $1,570,000 and $1,900,000, respectively, in
provisions for bad debt. In addition, during the nine months ended July 31,
1997, the Company's operating expenses consisted of approximately $3,725,000 for
vendor site costs and approximately $4,950,000 in impairment losses.
During the nine months ended July 31, 1998 and 1997, Radnet incurred operating
expenses of approximately $34,915,000 and $33,400,000, respectively, RMIS and
FDI incurred operating expenses of approximately $260,000 and $5,100,000,
respectively, PHS incurred operating expenses of approximately $1,875,000 and
$1,950,000, respectively, and DIS incurred operating expenses of approximately
$8,850,000 and $17,850,000 [including a $4,950,000 impairment loss].
During the nine months ended July 31, 1998 and 1997, interest income was
approximately $190,000 and $300,000, respectively. Interest income consisted
primarily of imputed interest income on notes receivable due from PHM, DHS and
related parties. During the nine months ended July 31, 1998 and 1997, interest
expense was approximately $6,930,000 and $7,500,000, respectively. Interest
expense is primarily from notes payable and capital lease obligations, lines of
credit and outstanding bond debentures.
During the nine months ended July 31, 1998 and 1997, the Company recognized
gains from sales of divisions or subsidiaries of approximately $1,215,000 and
$5,600,000, respectively. During the nine months ended July 31, 1998, the
Company realized a gain of approximately $595,000 for agreeing to an IRS Section
338 (h)(10) Election as part of the FDI sale transaction, a final FDI sale
reconciling adjustment gain of approximately $70,000, a gain on the conversion
of DHS's note receivable into common stock [and subsequent sale] of
approximately $495,000, and a gain from the sale of SCV of approximately
$55,000. During the nine months ended July 31, 1997, the Company realized a gain
from the sale to DHS of approximately $5,600,000.
During the nine months ended July 31, 1998, the Company recognized other expense
of approximately $630,000. Other expense consisted primarily of debt
restructuring costs [net of other income] associated with the refinancing of the
majority of the Company's outstanding notes and capital lease obligations
reducing future interest rates and extending payment terms to six years. During
the nine months ended July 31, 1997, the Company recognized other income of
approximately $200,000. Other income consists primarily of sublease rental
income and professional fee income.
During the nine months ended July 31, 1998 and 1997, the Company realized an
extraordinary gain from early extinguishment of debt of approximately $1,040,000
and $200,000, respectively. The gains were primarily from the repurchase of
outstanding bond debentures at a discount.
17
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Results of Operations [Continued]
During the nine months ended July 31, 1998, the Company adopted the Statement of
Position ["SOP"] No. 98-5 regarding the "Reporting on the Costs of Start-Up
Activities" and the expenditure of these costs as they are incurred. As a result
of this decision, the Company wrote-off approximately $780,000 of historical net
organizational costs and capitalized fees in January 1998.
During the nine months ended July 31, 1998 and 1997, the Company had net losses
of approximately $6,120,000 and $7,465,000, respectively
Liquidity and Capital Resources
Cash increased for the nine months ended July 31, 1998 and 1997 by approximately
$410,000 and $475,000, respectively.
Cash generated from investing activities for the nine months ended July 31, 1998
and 1997 was approximately $2,425,000 and $12,400,000, respectively. During the
nine months ended July 31, 1998, the Company received additional proceeds from
the sale of FDI of approximately $665,000, received proceeds from the sale of
equipment of approximately $20,000, loaned approximately $125,000 to related
parties, received approximately $95,000 from the dissolution of the La Habra
partnership, received proceeds from the sale of stock received in the SCV sale
transaction for approximately $1,230,000, acquired DIS stock for approximately
$1,720,000, received approximately $1,850,000 from the sale of stock received in
the conversion of DHS's post-closing note receivable into common stock, received
approximately $2,060,000 from the acceleration of PHM's post-closing sale note
receivable, and purchased approximately $1,650,000 in property and equipment.
During the nine months ended July 31, 1997, the Company sold four of DIS's
hospital-based MRI sites and its Ultrasound Division for approximately
$15,975,000 in cash, sold medical equipment for approximately $65,000, acquired
DIS stock for approximately $1,465,000, acquired Las Posas Medical Imaging for
$35,000, purchased additional units in Temecula Valley Imaging ["TVIC"] for
approximately $200,000, loaned approximately $110,000 to related parties and
purchased approximately $1,830,000 of property and equipment.
Cash generated from financing activities for the nine months ended July 31, 1998
was approximately $980,000. Cash utilized for financing activities for the nine
months ended July 31, 1997 was approximately $9,380,000. During the nine months
ended July 31, 1998, the Company increased its cash overdraft approximately
$1,780,000, borrowed approximately $5,360,000 from existing lines of credit,
received additional working capital loans [collateralized by existing equipment]
$2,980,000, received joint venture proceeds of $75,000, received proceeds from
the issuance of common stock of approximately $30,000, made principal payments
on notes payable and capital lease obligations of approximately $7,760,000 and
repurchased bond debentures for approximately $1,485,000. During the nine months
ended July 31, 1997, the Company increased its cash overdraft approximately
$1,050,000, borrowed approximately $465,000 from existing lines of credit,
received additional working capital loans from DVI [collateralized by existing
equipment] of approximately $1,025,000, made principal payments on notes payable
and capital lease obligations of approximately $11,210,000, repurchased bond
debentures for approximately $260,000, purchased treasury stock for
approximately $135,000, distributed joint venture income of approximately
$225,000 and repaid related parties approximately $90,000.
At July 31, 1998, the Company had a net working capital deficit of $19,657,464
as compared to a working capital deficit of $12,027,033 at October 31, 1997, a
decrease of $7,630,431. The decrease from year end is primarily attributable to
increased borrowings from the Company's existing lines of credit and cash
overdrafts which are classified as current liabilities on the Company's
financial statements.
18
<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 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, $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] 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 July 31, 1998,
approximately $9,570,000 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, $5,000,000 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
President and C.E.O. of PHS has personally guaranteed $1,000,000 of the loans.
The credit line is collateralized by approximately 80% of the Tower division's
[Radnet Sub, Inc.] accounts receivable. As of July 31, 1998, approximately
$3,470,000 was outstanding under this line.
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 $31,700,000, $15,950,000, $14,900,000,
$12,200,000 and $11,100,000, respectively. The July 31, 1998 lines of credit
balances were approximately $13,040,000. Interest expense [excluding line of
credit and bond debenture interest] for the next five years, included in the
above payments, will be approximately $5,500,000, $4,000,000, $2,850,000,
$1,780,000 and $980,000, respectively. In addition, the Company has
non-cancelable operating leases for use of its facilities and certain medical
equipment which will average approximately $2,950,000 in annual payments over
the next five years.
As of July 31, 1998, approximately $105,000 remains on the Company's books for
accrued restructuring costs associated with the buyout and renegotiation of
employment contracts.
At three of the Company's Tower locations [120 East, 444 San Vicente and 1
West/Womens], the Company's leases expire at various times beginning in January
1999. Due to this, the Company has entered into a new lease agreement for nearby
space in Beverly Hills ["Wilshire"] and will consolidate the assets and business
of these three Tower locations to the new space during fiscal 1999. The Company
cannot predict whether the move will negatively impact the volume of business
previously obtained from these three centers, but the new site will reduce
respective average building rental disbursements by approximately $1,015,000 per
year [including note payment disbursements assumed upon the acquisition of Tower
in October 1994]. For the nine months ended July 31, 1998, the combined net
revenue for these three sites was approximately $9,500,000. One of the Company's
primary lendors has agreed to lend the Company up to $6,000,000 for new
equipment and leasehold improvements for the site.
19
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
PART II - OTHER INFORMATION
- ------------------------------------------------------------------------------
Item 1: Legal Proceedings
On June 5, 1998, the Company's subsidiary, Diagnostic Imaging Services, Inc.
["DIS"] was served with a demand for arbitration before the American Arbitration
Association in Wilmington, Delaware by Sterling Diagnostic Imaging, Inc.
["Sterling"] seeking $5,000,000 for an alleged breach of contract to purchase
film. DIS denies it has any obligation to purchase film from Sterling and
intends to vigorously defend the claim. Sterling claims to be an assignee of a
film contract allegedly entered into between DIS and DuPont. The arbitration
only recently commenced and it is too soon to form an opinion as to the probable
result.
20
<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 21, 1998 By:/s/ Howard G. Berger
-----------------------------------
Howard G. Berger, M.D., President, Chief
Executive Officer and Principal
Financial Officer
21
<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 statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Jul-31-1998
<CASH> 537,793
<SECURITIES> 0
<RECEIVABLES> 17,768,614
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,992,750
<PP&E> 31,779,904
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,886,385
<CURRENT-LIABILITIES> 40,650,214
<BONDS> 0
0
0
<COMMON> 407,572
<OTHER-SE> (31,427,800)
<TOTAL-LIABILITY-AND-EQUITY> 82,886,385
<SALES> 45,933,097
<TOTAL-REVENUES> 45,933,097
<CGS> 0
<TOTAL-COSTS> 45,903,359
<OTHER-EXPENSES> (774,039)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,931,284
<INCOME-PRETAX> (6,384,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,384,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,042,680
<CHANGES> (779,294)
<NET-INCOME> (6,121,374)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
