UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended January 31, 1999 Commission File Number 0-19019
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PRIMEDEX HEALTH SYSTEMS, INC.
-----------------------------
(Exact name of registrant as specified in charter)
New York 13-3326724
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1516 Cotner Avenue
Los Angeles, California 90025
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(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 June 7, 1999 was
38,932,760 [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 January 31, 1999, and the results of its operations and changes
in its cash flows for the three months ended January 31, 1999 and 1998, 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.
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
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January 31, October 31,
1 9 9 9 1 9 9 8
[Unaudited]
Assets:
Current Assets:
Cash and Cash Equivalents $ 95,469 $ 59,495
Accounts Receivable - Net 15,281,469 15,429,057
Unbilled Receivables 110,208 10,675
Other Receivables 37,908 47,870
Due to Related Party 170,000 140,000
Other 881,150 1,940,230
---------- -----------
Total Current Assets 16,576,204 17,627,327
---------- -----------
Property and Equipment - Net 33,038,570 26,970,584
---------- -----------
Other Assets:
Accounts Receivable - Net 3,734,526 3,713,956
Due from Related Parties 136,185 133,260
Goodwill - Net 11,134,100 11,313,907
Other 3,624,024 2,897,380
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Total Other Assets 18,628,835 18,058,503
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Total Assets $68,243,609 $62,656,414
=========== ===========
See Notes to Consolidated Financial Statements.
1
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
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January 31, October 31,
1 9 9 9 1 9 9 9
[Unaudited]
Liabilities and Stockholders' Deficit:
Current Liabilities:
Cash Overdraft $ 1,659,434 $ 1,729,994
Accounts Payable 6,034,201 5,747,988
Accrued Expenses 4,575,064 3,535,840
Accrued Expenses - Professional Fees 1,710,234 1,753,987
Notes and Leases Payable 27,333,090 24,388,427
Deferred Revenue - Covenant Not-to-Compete 200,000 200,000
Other 138,568 462,343
Due to Related Party 45,000 --
----------- -----------
Total Current Liabilities 41,695,591 37,818,579
----------- -----------
Long-Term Liabilities:
Subordinated Debentures Payable 20,037,000 20,718,000
Notes Payable - Related Parties 2,553,854 2,553,854
Notes and Leases Payable 58,754,836 54,143,158
Deferred Revenue - Covenant Not-to-Compete 1,416,667 1,466,666
Accrued Expenses - Professional Fees 396,692 399,872
----------- -----------
Total Long-Term Liabilities 83,159,049 79,281,550
----------- -----------
Commitments and Contingencies -- --
----------- -----------
Minority Interest 674,889 676,114
----------- -----------
Redeemable Stock 160,000 240,000
----------- -----------
Stockholders' Deficit:
Common Stock - $.01 Par Value, 100,000,000
Shares Authorized; 40,757,760 and 40,757,260
Shares Issued; 38,932,760 and 39,132,260 Shares
Outstanding at January 31, 1999 and October 31,
1998, Respectively 407,577 407,572
Paid-In Capital 99,336,645 99,251,650
Stock Subscription - Related Party (30,000) (30,000)
Due from Related Party (917,246) (899,143)
Retained Earnings [Deficit] 155,547,949)(153,474,961)
Totals (56,750,973) (54,744,882)
Less: Treasury Stock - 1,825,000 and 1,625,000
Shares, at cost at January 31, 1999 and
October 31, 1998, Respectively (694,947) (614,947)
----------- -----------
Total Stockholders' Deficit (57,445,920) (55,359,829)
----------- -----------
Total Liabilities and Stockholders' Deficit $68,243,609 $62,656,414
=========== ===========
See Notes to Consolidated Financial Statements.
2
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
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Three months ended
January 31,
1 9 9 9 1 9 9 8
------- -------
Revenue:
Revenue $35,733,706 $30,366,063
Less: Allowances 19,736,283 16,101,127
----------- -----------
Net Revenue 15,997,423 14,264.936
----------- -----------
Operating Expenses:
Operating Expenses 14,144,371 12,169,602
Depreciation and Amortization 1,876,141 2,117,207
Provision for Bad Debts 729,092 485,696
Impairment Loss of Long-Lived Assets 478,646 --
----------- -----------
Total Operating Expenses 17,228,250 14,772,505
----------- -----------
Loss from Operations (1,230,827) (507,569)
----------- -----------
Other [Expenses] and Revenue:
Interest Expense (2,493,530) (2,226,597)
Interest Income 22,453 105,470
Gain on Sale of Subsidiaries and Divisions -- 335,899
Other Income 251,448 132,425
----------- -----------
Total Other Expenses (2,219,629) (1,652,803)
----------- -----------
Loss Before Minority Interest in Income of
Subsidiaries, Extraordinary Item and Cumulative
Effect of Change in Accounting Principle (3,450,456) (2,160,372)
Minority Interest in Income of Subsidiaries 1,225 (87,161)
----------- -----------
Loss Before Extraordinary Item and Cumulative
Effect of Change in Accounting Principle (3,449,231) (2,247,533)
Extraordinary Item - Gain from Early Extinguishment
of Debt [Net of Income Taxes of $-0- for the Three
Months Ended January 31, 1999 and 1998, Respectively] 1,376,243 589,122
----------- -----------
Loss Before Cumulative Effect of Change in
Accounting Principle (2,072,988) (1,658,411)
Cumulative Effect of Change in Accounting Principle -- (779,294)
----------- ------------
Net Loss $(2,072,988)$ (2,437,705)
=========== ============
Loss Per Share:
Loss Before Extraordinary Item and Change in
Accounting Principle $ (.09) $ (.06)
Extraordinary Item .04 .02
Change in Accounting Principle - Write-off of Costs
of Start-up Activities -- (.02)
---------- ------------
Net Loss Per Share $ (.05) $ (.06)
========== ============
Weighted Average Shares Outstanding 39,090,744 38,859,458
========== ============
See Notes to Consolidated Financial Statements.
3
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
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<TABLE>
Total
Common Stock Retained Due from Stock Stockholders'
Number of Par Value Treasury Paid-in Earnings Related Subscription Equity
Shares Amount Stock Capital [Deficit] Party Related Party [Deficit]
------ ------ ----- ------- --------- ----- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - November 1, 1998 40,757,260 $407,572 $(614,947)$ 99,251,650 $(153,474,961) $(899,143) $(30,000) $(55,359,829)
Issuance of Common Stock 500 5 -- 4,995 -- -- -- 5,000
Acquisition of Treasury
Stock -- -- (80,000) 80,000 -- -- -- --
Imputed Interest Income -- -- -- -- -- (18,103) -- (18,103)
Net Loss for the three
months ended
January 31, 1999 -- -- -- -- (2,072,988) -- -- (2,072,988)
---------- -------- -------- ------------ ------------- --------- -------- ------------
Balance - January 31, 1999
[Unaudited] 40,757,760 $407,577 $(694,947)$ 99,336,645 $(155,547,949) $(917,246) $(30,000) $(57,445,920)
========== ======== ========= ============ ============= ========= ======== =============
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
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Three months ended
January 31,
1 9 9 9 1 9 9 8
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Cash Used for Operating Activities $ (814,818) $ (387,578)
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Investing Activities:
Acquisitions - Net of Cash Acquired (122,500) (487,945)
Purchase of Property and Equipment (616,963) (737,339)
Purchase of Other Assets (108,750) --
Proceeds - Sale of Centers or Equipment 995,000 20,000
Loans to Related Parties (55,000) (75,000)
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Net Cash - Investing Activities 91,787 (1,280,284)
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Financing Activities:
Cash Overdraft (70,560) 581,919
Principal Payments on Capital Leases and
Notes Payable (2,082,613) (2,513,024)
Proceeds from Short-Term Borrowings on
Notes Payable 3,259,393 4,949,685
Joint Venture Proceeds -- 75,000
Purchase of Subordinated Bond Debentures (337,215) (1,095,250)
Payment for Treasury Stock (10,000) --
Issuance of Common Stock -- 5,750
---------- -----------
Net Cash - Financing Activities 759,005 2,004,080
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Net Increase in Cash and Cash Equivalents 35,974 336,218
Cash and Cash Equivalents - Beginning of Periods 59,495 129,517
---------- -----------
Cash and Cash Equivalents - End of Periods $ 95,469 $ 465,735
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $2,500,134 $ 2,200,195
Income Taxes $ -- $ --
See Notes to Consolidated Financial Statements.
5
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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 capital leases or financed equipment through notes
payable for approximately $7,115,000 and $1,650,000 for the three months ended
January 31, 1999 and 1998, respectively.
During the three months ended January 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 non-current assets, approximately $865,000 in notes and
capital lease obligations, approximately $160,000 in other current liabilities
and approximately $398,000 in minority interest related to the sale of Scripps
Chula Vista to DHS effective January 1, 1998. As consideration, the Company
received 127,250 shares of DHS common stock valued at $11.25 per share as of the
transaction date.
During the three months ended January 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
$130,000 of accrued expenses and approximately $435,000 in minority interest.
The Company recorded a short-term receivable of approximately $95,000 as part of
the final dissolution.
During the three months ended January 31, 1999, $5,000 face value subordinated
bond debentures were converted into 500 shares of the Company's common stock.
During the three months ended January 31, 1998, the Company issued 300,000
shares of its common stock and recorded $55,000 as due from related parties.
During the three months ended January 31, 1999, a prior employee exercised his
stock put for 200,000 shares of the Company's common stock at $.40 per share. As
part of the transaction,$25,000 in prior loans due from this related party were
utilized as payment and the Company also recorded $45,000 due to related party.
During the three months ended January 31, 1998, the Company received medical
equipment of approximately $352,000 in lieu of cash rebates for Fuji medical
film purchases.
See Notes to Consolidated Financial Statements.
6
<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, 1998 as
filed with the Securities and Exchange Commission.
[2] Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles for complete financial
statements; however, in the opinion of the management of the Company, all
adjustments consisting of normal recurring adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods ended January 31, 1999 and 1998 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, 1998.
[3] Goodwill
The Company's goodwill as of January 31, 1999 is shown net of accumulated
amortization of approximately $3,470,000. Amortization expense for the three
months ended January 31, 1999 and 1998 was approximately $180,000 and $320,000,
respectively. The 1999 decrease in amortization expense was primarily due to the
write-off of goodwill in connection with the sale of Scripps Chula Vista to DHS
effective January 1, 1998 and the year-end recognition of an impairment loss
pursuant to Statement of Financial Accounting Standards ["SFAS"] No. 121 which
included a write-off of net goodwill of $8,631,944.
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 2000 at an 8% interest rate resulting in a discounted value of
$917,246 as of January 31, 1999 and at year-end 1998 was reclassified to
stockholders' equity. For the three months ended January 31, 1999, the Company
recorded interest income on the note of approximately $18,000.
At October 31, 1998, the Company had advanced $115,000 to an officer of the
Company, at no interest, which will be repaid within one year. During the three
months ended January 31, 1999, the Company had advanced an additional $55,000 to
the same officer with the same terms.
During the year ended October 31, 1997, the Company loaned a former officer of
the Company $25,000, with interest at 6%, for the purchase of 200,000 shares of
the Company's common stock at $.125 per share which was repaid in February 1998.
During the year ended October 31, 1998, the Company loaned an additional
$180,000 to the same former officer. Of his loans, $25,000 was utilized this
year as payment for 62,500 shares of his common stock repurchased by the Company
per the execution of his stock put, while the remaining $155,000 is due in five
years, with interest at 6.5% [of which $30,000 was used to purchase company
stock and is classified as "Stock Subscription - Related Party" on the Company's
financial statements]. As of January 31, 1999, approximately $11,000 of interest
has been accrued on these loans.
At January 31, 1999, the $45,000 due to related party is due to a former officer
of the Company for the acquisition of the Company's common stock that was held
by the former officer. The amount is non-interest bearing [See Notes 6 and 8].
7
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2
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[5] Acquisitions, Sales and Divestitures
In February 1998, effective December 31, 1997, the Company dissolved its
partnership between La Habra Imaging Group II and Friendly Hills Healthcare
Network, Inc. ["Friendly Hills"]. Upon the dissolution, the Company wrote-off
approximately $270,000 of Friendly Hills accounts receivable, approximately
$365,000 in net property, approximately $130,000 of accrued expenses and
approximately $435,000 in minority interest. The Company recorded a short-term
receivable of approximately $95,000 as part of the final dissolution. 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 recorded as marketable securities held for
sale. On May 15, 1998, the Company sold the 127,250 shares it received from the
sale of SCV for approximately $1,230,000. Due to the sale, the Company wrote-off
approximately $735,000 of net acquisition goodwill.
During the year ended October 31, 1998, DIS acquired the remaining 25% interest
in Valley Regional Oncology Center for $260,000 in cash, resulting in goodwill
of $260,000, and also acquired the remaining units in TVIC for $196,875 in cash
and a note payable for $157,500, resulting in goodwill of $354,375.
In December 1998, the Company acquired a new capitated contract with
Buenaventura Medical Clinic, Inc. in Ventura County. As part of the transaction,
the Company purchased the equipment of the existing operation for $72,500 and
subleased the operations' four facilities located in Ventura [2 sites], Oxnard
and Camarillo, ["Loma Vista" collectively] for approximately $4,800 per month.
In January 1999, the Company acquired a new capitated contract with Harriman
Jones and subleased the operations' three facilities in Long Beach, La Palma and
Seal Beach ["Redondo Imaging" collectively] for $10,200 per month.
[6] Capital Transactions
During the three months ended January 31, 1999, the Company purchased an
additional 390,100 shares of DIS common stock from various parties for an
aggregate purchase price of $478,646 in cash and notes payable, bringing the
Company's total ownership to approximately 90%.
During the three months ended January 31, 1999, the Company repurchased 681,000
of its subordinated bond debentures for cash of $337,215. These bonds were
retired and resulted in a gain on early extinguishment of debt of approximately
$339,000. On December 18, 1998, $5,000 face value subordinated bond debentures
were converted into 500 shares of the Company's common stock.
During fiscal 1998, a former 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 at $.30 per share as part of his contract buyout and
renegotiation. On January 12, 1998, he exercised all of his remaining options
for 300,000 shares of the Company's common stock at a weighted average price of
$.183 per share. In connection with the transaction, the Company loaned the
officer $30,000, with interest at 6.5%, which is classified as "Stock
Subscription Receivable - Related Party" on the Company's financial statements.
During the three months ended January 31, 1999, a former officer of the Company
exercised his right pursuant to a stock put agreement, to have the Company buy
back 200,000 shares of the Company's common stock at $.40 per share. The Company
paid $10,000, utilized $25,000 to partially offset a prior loan made to the
former officer, and recorded a $45,000 liability to him which is non-interest
bearing [See Notes 4 and 8].
8
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3
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[7] Subsequent Events
In February 1999, the Company acquired new contracts involving the Company's
Northridge facility. To obtain these contracts and increase business in the San
Fernando Valley, the Company opened new offices adjacent to Northridge in the
cities of Tarzana and West Hills. In February 1999, operational as of May 1999,
the Company acquired existing medical space in West Hills and purchased new
equipment or transferred underutilized equipment from other sites. Effective
March 1, 1999, the Company purchased the assets of Diagnostic Radiology and
Ultrasound ["Tarzana"] for $50,000. Both centers will provide mammography,
ultrasound and general diagnostic services.
On June 1, 1999, the Company opened Tower Women's Center consolidating its
mammography operations at one site. The Company entered into a new 15 year lease
agreement for 3,830 square feet adjacent to its Roxsan facility. The lease calls
for monthly payments of $5,000.
[8] Redeemable Stock
In January 1998, the Company entered into a five-year agreement with a former
officer of the Company whereby the Company agreed to purchase from the former
officer 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.
Effective January 12, 1999, the former officer requested that the Company
repurchase 200,000 shares from him per the agreement at $.40 per share, or
$80,000. As of January 31, 1999, $35,000 was paid to the prior employee as
follows: $10,000 in cash and $25,000 in forgiveness of a $25,000 related party
receivable due from the prior employee. The remaining $45,000 was or will be
paid in installments through August 1999 [See Notes 4 and 6].
. . . . . . . . . . .
9
<PAGE>
Item 2:
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Background
Primedex Health Systems, Inc. ["PHS"] was incorporated on October 21, 1985.
On November 1, 1990, the Company acquired a 51% interest in Viromedics, Inc.
["VMI"] for $700,000. On February 18, 1992, Future Medical Products ["FMP"], the
parent corporation of VMI, exercised its right to repurchase one-half of the VMI
stock from PHS at a price of $700,000. The Company owns approximately 19% of
VMI's outstanding capital stock as of January 31, 1999, 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 three months
ended January 31, 1999 and 1998 include the operations and cash transactions of
Radnet.
Effective November 1, 1995, the Company acquired most of the assets of Future
Diagnostics, Inc. by purchasing 100% of its outstanding stock for approximately
$3.2 million consisting of notes and assumed liabilities. 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 Radnet Managed Imaging Services, Inc. ["RMIS"]
which provides utilization review services. The statements of operations and
cash flows for the three months ended January 31, 1999 and 1998 reflect the
overhead costs and cash transactions of RMIS. Effective January 1, 1999, RMIS's
operations were consolidated with Radnet Management, Inc..
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 $3,272,046 and five-year warrants to
purchase 4,129,630 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
primary shareholder in DIS with approximately 59% ownership.
In subsequent purchases through June 11, 1999, the Company acquired an
additional 3,472,137 shares of DIS stock from various related and unrelated
parties for approximately $4,180,000 in cash and notes payable increasing its
ownership in DIS to approximately 90%. The statements of operations and cash
flows for the three months ended January 31, 1999 and 1998 reflect the
operations and cash transactions with DIS.
10
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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
assumptions 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
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 this Quarterly Report on Form 10-Q, the inclusion of
such information should not be regarded as a representation 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 three months ended January 31, 1999 and 1998.
During the three months ended January 31, 1999 and 1998, the Company had losses
from operations of approximately $1,230,000 and $508,000, respectively.
During the three months ended January 31, 1999 and 1998, the Company realized
net revenues of approximately $16,000,000 and $14,265,000, respectively [net of
elimination entries].
During the three months ended January 31, 1999 and 1998, Radnet realized net
revenues of approximately $13,100,000 and $11,795,000, respectively. The primary
reasons for the increase in net revenues was due to the addition of new centers
[Redondo Imaging and Loma Vista] and the addition of new equipment or enhanced
equipment at various sites [including, but not limited to, new MRI's at Tower,
Stockton and Oxnard]. During the three months ended January 31, 1999 and 1998,
DIS realized net revenues of approximately $2,900,000 and $2,400,000,
respectively. Overall net revenues increased for the majority of the active DIS
sites by approximately 18% during the three months ended January 31, 1999.
During the three months ended January 31, 1998, DIS recorded a contractual
adjustment of approximately $225,000 on the historical accounts receivable from
its previously closed or sold sites and sold Scripps Chula Vista which generated
net revenue of approximately $174,000 for the three months ended January 31,
1998. During the three months ended January 31, 1999 and 1998, PHS generated net
billing revenue of $-0- and $70,000, respectively, from DHS. As of August 1998,
PHS no longer supplied billing services to DHS.
During the three months ended January 31, 1999 and 1998, the Company incurred
operating expenses of approximately $17,228,000 and $14,773,000, respectively
[net of elimination entries].
11
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Results of Operations [Continued]
For the three months ended January 31, 1999 and 1998, Radnet's operating
expenses were approximately $13,255,000 and $10,968,000, respectively, DIS's
operating expenses were approximately $3,402,000 and $3,055,000, respectively,
RMIS's operating expenses were approximately $40,000 and $84,000, respectively,
and PHS's operating expenses were approximately $531,000 and $666,000,
respectively. In addition to variable increases in operating expenses due to
higher revenues as well as expenses for new facilities, Radnet also had
increases in expenditures for repairs and maintenance, rent, equipment rental
and outside services during the three months ended January 31, 1999. With the
consolidation of a portion of Tower's operation at its new Wilshire site, the
Company incurred double expenditures for rent and related expenses and
additional personnel while it made the transition and closed its operation at
444 San Vincente. In addition, with the improvements and addition of new
equipment, one-time equipment rent expense was incurred while the old equipment
was removed and new equipment was installed at certain sites. In addition,
certain sites, like Woodward Park, incurred heavier than average repairs and
maintenance expense on its equipment during the three months ended January 31,
1999. The primary reason for DIS's operating expense increase was due to the
write-down of goodwill recorded in the acquisition of additional shares of DIS
stock for approximately $479,000 in December 1998.
During the three months ended January 31, 1999 and 1998, the Company's operating
expenses consisted of approximately $7,088,000 and $6,400,000, respectively, for
salaries and reading fees, approximately $1,568,000 and $1,315,000,
respectively, for building and equipment rentals, approximately $5,488,000 and
$4,455,000, respectively, in general and administrative expenditures,
approximately $1,876,000 and $2,117,000, respectively, in depreciation and
amortization, approximately $729,000 and $486,000, respectively, for provisions
for bad debt, and approximately $479,000 and $-0- attributable to the
recognition of an impairment loss, pursuant to FASB 121, for the writedown of
goodwill.
During the three months ended January 31, 1999 and 1998, interest income was
approximately $22,000 and $105,000, respectively. Interest income for 1999
consisted primarily of imputed interest income on related party note
receivables. Interest income for 1998 consisted primarily of imputed interest
income on notes receivable due from PHM, DHS and related parties.
During the three months ended January 31, 1999 and 1998, interest expense was
approximately $2,494,000 and $2,225,000, respectively.
During the three months ended January 31, 1999 and 1998, the Company recognized
other income of approximately $251,000 and $132,000, respectively. During the
three months ended January 31, 1999, the Company realized gains from the sale or
trade-in of equipment of approximately $222,000 included in net other income.
During the three months ended January 31, 1998, the Company realized a gain from
the sale of SCV to DHS of approximately $248,000 and an additional gain from the
sale of FDI to PHM [final post-closing adjustment] of approximately $88,000.
During the three months ended January 31, 1999, the Company realized
extraordinary gains of approximately $339,000 for the repurchase and retirement
of subordinated bond debentures and approximately $1,037,000 for the discounted
pre-payment of Tower Goodwill. The Company utilized its additional line of
credit agreement with DVI Business Credit to settle the majority of its
obligation from the Tower acquisition ["Tower Goodwill"] for $3,500,000 cash and
an $800,000 note payable to be paid over 48 months beginning February 1, 1999
with interest at 8%. During the three months ended January 31, 1998, the Company
realized an extraordinary gain from early extinguishment of debt of
approximately $590,000 from the repurchase and retirement of subordinated bond
debentures and the settlement of limited partner notes payable at a discount.
12
<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 three months ended January 31, 1998, the Company adopted the
Accounting Standards Executive Committee's ["AcSEC"] S.O.P. 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 three months ended January 31, 1999 and 1998, the Company had net
losses of approximately $2,073,000 and $2,438,000, respectively.
Liquidity and Capital Resources
Cash increased for the three months ended January 31, 1999 and 1998 by
approximately $36,000 and $336,000, respectively.
Cash generated from investing activities for the three months ended January 31,
1999 was approximately $92,000. Cash utilized for investing activities for the
three months ended January 31, 1998 was approximately $1,280,000. For the three
months ended January 31, 1999 and 1998, the Company acquired additional DIS
stock for approximately $50,000 and $488,000, respectively, purchased property
and equipment for approximately $617,000 and $737,000, respectively, received
proceeds from the sale of equipment for $995,000 and $20,000, respectively, and
loaned $55,000 and $75,000, respectively, to related parties. During the three
months ended January 31, 1999, the Company acquired the assets of Buena Ventura
Medical Group, Inc. for $72,500 and purchased other assets for $108,750.
Cash generated from financing activities for the three months ended January 31,
1999 and 1998 was approximately $759,000 and $2,004,000, respectively. During
the three months ended January 31, 1999 and 1998, the Company made principal
payments on capital leases and notes payable of approximately $2,083,000 and
$2,513,000, respectively, received proceeds from borrowing under existing lines
of credit and refinancing arrangements of approximately $3,259,000 and
$4,950,000, respectively, and repurchased subordinated bond debentures for
approximately $337,000 and $1,095,000, respectively. During the three months
ended January 31, 1999, the Company decreased its cash overdraft by
approximately $70,000 and purchased common stock per an exercised stock put for
$10,000. In addition, during the three months ended January 31, 1998, the
Company received $75,000 from its SCV joint venture partner, increased its cash
overdraft by approximately $581,000 and issued common stock for $5,750.
At January 31, 1999, the Company had a working capital deficit of $25,119,387 as
compared to a working capital deficit of $20,191,252 at October 31, 1998, an
increased deficit of $4,928,135. The deficit increase from year-end is primarily
attributable to an increase in notes and capital leases payable due to the
addition of new equipment at Tower and other sites as well as increased
borrowings from the Company's existing lines of credit which are classified as
current liabilities on the Company's financial statements.
The Company's working capital needs are currently provided under two lines of
credit. Under one line, due December 31, 2001, the Company may borrow the lesser
of 75% to 80% of eligible accounts receivable, $20,000,000 or the prior 120 days
cash collections. Borrowings are repayable together with interest at an annual
rate equal to the greater of (a) the bank's prime rate plus 2.5%, or (b) 8%. The
lender holds a first lien on substantially all of Radnet's assets, the President
and C.E.O. of PHS has personally guaranteed $6,000,000 of the loans and the
credit line is collateralized by a $5,000,000 life insurance policy on the
President and C.E.O. of PHS. At January 31, 1999, approximately $9,237,000 was
outstanding under this line.
13
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Liquidity and Capital Resources [Continued]
Under a second line of credit with DVI Business Credit, due October 31, 2000,
the Company may borrow the lesser of 110% of the eligible accounts receivable or
$5,000,000. The credit line is collateralized by approximately 80% of the Tower
division's accounts receivable. Borrowings under this line are repayable
together with interest at an annual rate equal to the bank's prime rate plus
1.0%. At January 31, 1999, approximately $3,081,000 was outstanding under this
line.
The Company entered into an additional line of credit agreement with DVI
Business Credit, due October 31, 2000, where the Company may borrow up to
$3,500,000 to either (a) pay off in full the promissory note dated 10/1/94
issued to Tower Radiology, et. al., or (b) purchase, on the open market, the
subordinated debentures of the Company at a price not to exceed 60% of the face
value of such debentures. Borrowings under this line are repayable monthly, at
the rate of 1.4% of the line balance, including principal and interest, at an
annual rate equal to the bank's prime rate plus 1.0%. This line is also
collateralized by the Tower division's accounts receivable. At January 31, 1999,
approximately $296,000 was outstanding under this line utilized to repurchase
bond debentures at a discount. On February 1, 1999, the Company utilized the
remainder available under this line to settle a portion of its outstanding
obligation with Tower at a discount.
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 $33,800,000, $21,500,000, $15,250,000,
$14,000,000 and $11,950,000, respectively. Interest expense [excluding line of
credit and bond debenture interest] for the next five years, included in the
above payments, will be approximately $6,500,000, $5,250,000, $3,750,000,
$2,425,000 and $1,350,000, respectively. In addition, the Company has
non-cancelable operating leases for use of its facilities and certain medical
equipment which will average approximately $3,650,000 in annual payments over
the next five years.
14
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
SIGNATURES
- ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Primedex Health Systems, Inc. and Affiliates
(Registrant)
June 14, 1999 By: /s/ Howard G. Berger
-------------------------------------
Howard G. Berger, M.D., President, Principal
Executive Officer, Financial Officer and Director
<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> 3-Mos
<FISCAL-YEAR-END> Oct-31-1999
<PERIOD-END> Jan-31-1999
<CASH> 95,469
<SECURITIES> 0
<RECEIVABLES> 15,281,469
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,576,204
<PP&E> 33,038,570
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,243,609
<CURRENT-LIABILITIES> 41,695,591
<BONDS> 0
0
0
<COMMON> 407,577
<OTHER-SE> (57,853,497)
<TOTAL-LIABILITY-AND-EQUITY> (57,445,920)
<SALES> 0
<TOTAL-REVENUES> 15,997,423
<CGS> 0
<TOTAL-COSTS> 17,228,250
<OTHER-EXPENSES> (273,901)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,493,530
<INCOME-PRETAX> (3,449,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,449,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,376,243
<CHANGES> 0
<NET-INCOME> (2,072,988)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
