<PAGE>
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, 2000 Commission File Number 0-19019
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PRIMEDEX HEALTH SYSTEMS, INC.
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(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
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (310) 478-7808
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of shares outstanding of the issuer's common stock as of March 29, 2000
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, 2000, and the results of its operations and changes
in its cash flows for the three months ended January 31, 2000 and 1999, 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.
1
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
- ---------------------------
<CAPTION>
JANUARY 31, OCTOBER 31,
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2000 1999
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(UNAUDITED)
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 37,880 $ 2,638
Accounts receivable, net 17,126,130 16,694,368
Unbilled receivables and other receivables 598,078 441,208
Due from related party 310,795 206,200
Other 3,603,208 1,628,999
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Total current assets 21,676,091 18,973,413
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PROPERTY AND EQUIPMENT, NET 38,996,461 37,666,620
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OTHER ASSETS:
Accounts receivable, net 3,035,151 3,040,416
Due from related parties 89,720 87,795
Goodwill, net 10,414,871 10,594,678
Other 1,723,078 1,883,917
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Total other assets 15,262,820 15,606,806
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$ 75,935,372 $ 72,246,839
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 1,985,790 $ 2,353,667
Accounts payable, accrued expenses and other 15,817,053 15,085,479
Current portion of notes and leases payable 42,477,592 39,341,714
Deferred revenue 200,000 200,000
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Total current liabilities 60,480,435 56,980,860
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LONG-TERM LIABILITIES
Subordinated debentures payable 19,953,000 20,037,000
Notes payable to related party 2,553,854 2,553,854
Notes and leases payable, net of current portion 55,452,089 54,882,513
Accrued expenses 307,941 283,024
Deferred revenue 1,216,667 1,266,666
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Total long-term liabilities 79,483,551 79,023,057
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MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 382,868 440,063
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REDEEMABLE STOCK 160,000 160,000
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STOCKHOLDERS' DEFICIT (64,571,482) (64,357,141)
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$ 75,935,372 $ 72,246,839
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
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PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
THREE MONTHS ENDED
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JANUARY 31,
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2000 1999
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(UNAUDITED) (UNAUDITED)
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REVENUE
Revenue $ 50,578,807 $ 35,733,706
Less: Allowances 30,595,065 19,736,283
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Net revenue 19,983,742 15,997,423
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OPERATING EXPENSES
Operating expenses 14,384,691 14,144,371
Depreciation and amortization 1,992,294 1,876,141
Provision for bad debts 987,524 729,092
Impairment loss on long-lived assets - 478,646
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Total operating expenses 17,364,509 17,228,250
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Income (loss) from operations 2,619,233 (1,230,827)
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OTHER INCOME (EXPENSE)
Interest expense, net (2,960,059) (2,471,077)
Gain on sale of assets 140 64 ,722
Other 134,096 186,726
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Total other income (expense) (2,825,823) (2,219,629)
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LOSS BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEM (206,590) (3,450,456)
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MINORITY INTEREST IN EARNINGS OF SUBSIDIARY (42,805) 1,225
------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (249,395) (3,449,231)
EXTRAORDINARY ITEM-GAIN FROM EXTINGUISHMENT
OF DEBT (NET OF INCOME TAXES OF $-0-) 51,770 1,376,243
------------- -------------
NET LOSS $ (197,625) $ (2,072,988)
============= =============
BASIC EARNINGS PER SHARE
Loss before extraordinary gain (.01) (.09)
Extraordinary gain .00 .04
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BASIC NET LOSS PER SHARE $ (.01) $ (.05)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 38,932,760 39,090,744
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
- ------------------------------------------------
<CAPTION>
Common Stock
authorized $.01 par value Treasury Stock, Due from Stock Total
100,000,000 shares Paid-in at cost Accumulated Related Subscription Stockholders'
Shares Amount Capital Shares Amount Deficit Party Receivable Deficit
------ ------ ------- ------ ------ ------- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -
OCTOBER 31, 1999 40,757,760 $ 407,577 $99,336,645 (1,825,000) $(694,947) $(162,546,182) $(830,234) $(30,000) $(64,357,141)
Discounted note, net - - - - - - (16,716) - (16,716)
Net loss - - - - - (197,625) - - (197,625)
---------- ---------- ----------- ----------- ---------- -------------- ---------- --------- -------------
BALANCE -
JANUARY 31, 2000
(UNAUDITED) 40,757,760 $ 407,577 $99,336,645 (1,825,000) $(694,947) $(162,743,807) $ (846,950) $(30,000) $(64,571,482)
========== ========== =========== =========== ========== ============== =========== ========= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
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<TABLE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
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JANUARY 31,
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2000 1999
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<S> <C> <C>
NET CASH FROM OPERATING ACTIVITIES $ 2,306,199 $ (814,818)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of imaging centers - net of cash acquired - (122,500)
Purchase of property and equipment (2,013,462) (616,963)
Proceeds from sale of divisions, centers, and equipment 950,350 995,000
Loan fees (50,000) (108,750)
Loans to related parties (100,000) (55,000)
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Net cash from investing activities (1,213,112) 91,787
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CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft (367,877) (70,560)
Principal payments on notes and leases payable (3,507,172) (2,082,613)
Proceeds from short-term and long-term borrowings 2,960,884 3,259,393
Purchase of treasury stock - (10,000)
Purchase of subordinated debentures (43,680) (337,215)
Joint venture distribution (100,000) -
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Net cash from financing activities (1,057,845) 759,005
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NET INCREASE IN CASH 35,242 35,974
CASH, beginning of period 2,638 59,495
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CASH, end of period $ 37,880 $ 95,469
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,227,615 $ 2,500,134
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Income Taxes $ - $ -
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
- --------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES - The
Company entered into capital leases or financed equipment through notes payable
for approximately $1,050,000 and $7,115,000 for the three months ended January
31, 2000 and 1999, respectively.
During the three months ended January 31, 2000, as part of the Dalrymple
litigation, $3,000,000 was borrowed from one of the Company's existing lines of
credit and placed into an irrevocable standby letter of credit pending the final
settlement of the lawsuit The letter of credit earns interest at approximately
5.35%.
During the three months ended January 31, 1999, the Company recorded
goodwill and notes payable of approximately $429,000 to acquire shares of a
subsidiary's common stock.
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, 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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE ACCOMPANYING FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JANUARY
31, 2000 AND 1999 AND RELATED FOOTNOTES HAVE BEEN PREPARED WITHOUT AUDIT. IN THE
OPINION OF MANAGEMENT, SUCH FINANCIAL STATEMENTS INCLUDE ALL ADJUSTMENTS AND
DISCLOSURES NECESSARY FOR PRESENTATION IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
NOTE 1 - NATURE OF BUSINESS
Primedex Health Systems, Inc., incorporated on October 21, 1985, provides
diagnostic imaging services in the state of California.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Primedex Health Systems, Inc.; Radnet Management, Inc.;
Diagnostic Imaging Services, Inc. ["DIS"] and Radnet Managed Imaging Services,
Inc. ["RMIS"] (collectively referred to as "the Company"). Radnet Management,
Inc. is combined with Beverly Radiology Medical Group III ["BRMG"] and
consolidated with Radnet Sub, Inc., Woodward Park Imaging Center and Westchester
Imaging Group (a joint venture). Operating activities of subsidiary entities are
included in the accompanying financial statements from the date of acquisition.
All intercompany transactions and balances have been eliminated in consolidation
and combinations.
Medical services and supervision at most of the Company's imaging centers
are provided through BRMG and through other independent physicians and physician
groups. BRMG is consolidated with Pronet Imaging Medical Group, Inc. and Beverly
Radiology Medical Group, both of which are 99% owned by a shareholder and
president of Primedex Health Systems, Inc.. Radnet and DIS provide non-medical
and administrative services to BRMG for which they receive a management fee.
Other 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, 1999 as filed with the Securities and Exchange Commission.
NOTE 3 - BUSINESS COMBINATIONS - ACQUISITIONS, SALES AND DIVESTITURES
In November 1999, the Company opened Los Coyotes Imaging in Long Beach,
California, a start-up facility providing MRI, CT, nuclear medicine and
diagnostic x-ray services.
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%.
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 operation's four facilities located in Ventura (2 sites), Oxnard
and Camarillo, ("Loma Vista" collectively) for approximately $4,800 per month.
During the three months ended January 31, 2000, the Camarillo facility was
closed and consolidated with the Company's other site in the same city. 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.
7
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 4 - INTANGIBLE ASSETS
Intangible Assets consists of goodwill recorded at cost of $14,604,195,
less accumulated amortization of $4,189,324 as of January 31, 2000. Amortization
expense of approximately $180,000 and $180,000 was recognized for the three
months ended January 31, 2000 and 1999, respectively.
During the three months ended January 31, 1999, the Company recorded
goodwill in connection with the acquisition of additional shares of DIS stock of
approximately $478,000 which was written off as impairment losses.
NOTE 5 - SUBORDINATED DEBENTURES
In June of 1993, the Company's registration for a total of $25,875,000 of
10% Series A Convertible subordinated debentures due 2003 was declared effective
by the Securities and Exchange Commission. The net proceeds to the Company were
approximately $23,000,000. Costs of $3,000,000 associated with the original
offering are being amortized over ten years to result in a constant yield. The
unamortized portion is classified as other assets. The debentures are
convertible into shares of common stock at any time before the maturity into
$1,000 principal amounts at a conversion price of $10 per share through June
1999 and $12 per share thereafter. As debentures are being converted or retired,
a pro-rata share of the offering costs are written-off.
Amortization expense of the offering costs for the three months ended
January 31, 2000 and 1999 was approximately $58,000 and $60,000, respectively.
Interest expense for the three months ended January 31, 2000 and 1999 was
approximately $500,000 and $500,000, respectively.
During the three months ended January 31, 2000 and 1999, the Company
repurchased debentures with face amounts of $84,000 and $676,000, respectively,
for $43,680 and $337,215, respectively, resulting in gains on early
extinguishments of $40,320 and $338,785, respectively. In connection with these
transactions, $2,955 and $34,375 of net offering costs were written-off during
the three months ended January 31, 2000 and 1999, respectively.
During the three months ended January 31, 1999, debentures totaling $5,000
were converted into 500 shares of common stock.
NOTE 6 - CAPITAL STRUCTURE AND CAPITAL TRANSACTIONS
CAPITAL TRANSACTIONS
During the three months ended January 31, 1999, debentures totaling $5,000
were converted into 500 shares of common stock.
During the year ended October 31, 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. In January 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 lent the former officer $30,000, with interest at 6.5%, which is
classified as stock subscription receivable on the Company's financial
statements.
8
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 6 - CAPITAL STRUCTURE AND CAPITAL TRANSACTIONS (CONTINUED)
During the three months ended January 31, 1999, the Company repurchased
200,000 shares from the former officer at $.40 per share under a stock
repurchase agreement. 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 was paid during the year ended October 31, 1999.
NOTE 7 - RELATED PARTY TRANSACTIONS
The amount due from related party relates to a $6,000,000 note receivable
issued in connection with the acquisition of Radnet. The outstanding balance of
$1,000,000, classified as stockholders' equity, is discounted at 8% and due
February 2001. The note is secured by the stock of the Company, which was issued
in connection with the Radnet acquisition.
The notes payable related parties of $2,553,854 are due to an officer and
and employee of the Company. The notes bear interest at 6.58% annually and the
outstanding principal is due June 2001. During the three months ended January
31, 2000 and 1999, interest expense was approximately $42,000 each year,
respectively.
At October 31, 1999, the Company had total advances made to one officer of
the Company of $195,000 due within one year. During the three months ended
January 31, 2000, the Company advanced an additional $110,000 to this officer
with the same terms. The advances bear interest at 6.5%
At October 31, 1999, the Company had total loans to a former officer of the
Company of $105,000 due within four years with interest at 6.5% of which $30,000
was used to purchase Company stock and classified as stock subscription
receivable.
9
<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"] [formerly CCC Franchising Corp.] was
incorporated on October 21, 1985.
As of January 31, 1992, the Company's wholly-owned subsidiary, CCC Franchising
Acquisition Corp. I, entered into an asset purchase agreement with Primedex
Corporation ["PC"] for approximately $46,250,000. On July 29, 1993, the Company
announced its plans to restructure its Primedex subsidiary and to wind down its
involvement in the California worker's compensation industry. Accordingly, the
operating results of this subsidiary were reclassified as a discontinued
operation and the appropriate prior period amounts were restated. Effective
August 1, 1995, substantially all of the assets of PC were sold to an unrelated
party for approximately $9,448,000. The sale resulted in a loss of approximately
$3,800,000.
In November of 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 cash, notes and assumed assets and 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 sale resulted in a gain of approximately $10,400,000.
The Company continues to operate RMIS which provides utilization review
services. The Statements of Operations and Cash Flows for the three months ended
January 31, 1999 reflect the overhead costs and cash transactions of RMIS.
Effective January 1, 1999, RMIS's operations and services 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 4,130,000 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 March 29, 2000, the Company acquired an
additional 3,472,137 shares of DIS stock from various related and unrelated
parties for $4,181,841 in cash and notes payable increasing its total ownership
to approximately 90%. The Statements of Operations and Cash Flows for the three
months ended January 31, 2000 and 1999 reflect the operations and cash
transactions of DIS.
In October 1998, the Company purchased from DVI Healthcare Operations, Inc.
["DVI"] all 4,482,000 shares of DIS outstanding preferred stock which carried a
liquidation preference of $4,482,000, plus accrued and unpaid dividends of
$725,900 by issuing a $5,207,900 note payable to DVI due October 31, 2000. In
the transaction, the Company recorded financing costs of $5,207,900 which were
charged to operations during the year ended October 31, 1998.
10
<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
assumptions are based on judgment with respect to, among other things,
information available to the Company, future economic, competitive and market
conditions, future business decisions, and future governmental medical
reimbursement 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.
BASIS OF PRESENTATION
The financial information included in this Form 10-Q has been prepared without
audit. In the opinion of management, financial information includes all
adjustments and disclosures necessary for a fair presentation in accordance with
generally accepted accounting principles.
DISCUSSION OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2000 VS. JANUARY
31, 1999
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 PHS, Radnet,
RMIS and DIS for the three months ended January 31, 2000 and 1999.
During the three months ended January 31, 2000, the Company generated income
from operations of approximately $2,620,000. During the three months ended
January 31, 1999, the Company incurred a loss from operations of approximately
$1,230,000.
During the three months ended January 31, 2000 and 1999, the Company realized
net revenues of approximately $20,000,000 and $16,000,000, respectively [net of
elimination entries].
During the three months ended January 31, 2000 and 1999, Radnet realized net
revenues of approximately $17,000,000 and $13,100,000, respectively, and DIS
realized net revenues of approximately $3,000,000 and $2,900,000, respectively.
11
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ---------------------
RESULTS OF OPERATIONS [CONTINUED]
The primary reasons for the improvement in net revenue was due to the addition
of new equipment increasing throughput and procedural exam volume, the addition
of new capitation contracts including St. Josephs and St. Judes benefiting the
Orange County region, the renegotiation of exisiting capitation and fee for
service contracts improving reimbursement, the addition of a new site in Long
Beach, California, and increased demand for imaging services throughout the
healthcare industry due to an improved economy.
During the three months ended January 31, 2000 and 1999, the Company incurred
operating expenses of approximately $17,365,000 and $17,228,000, respectively
[net of elimination entries].
For the three months ended January 31, 2000 and 1999, Radnet's operating
expenses were approximately $14,355,000 and $13,255,000, respectively, DIS's
operating expenses were approximately $2,445,000 and $3,402,000, respectively,
RMIS's operating expenses were approximately $-0- and $40,000, respectively, and
PHS's operating expenses were approximately $565,000 and $531,000, respectively.
With the increase in net revenue, the Company's variable expenses did not
increase proportionately due to efficiencies created with the consolidation of a
portion of Tower's operation at its new Wilshire site, the addition of new
equipment which reduced repair and maintenance costs, the reduction of legal
expenditures related to the Sterling and Dalrymple cases, and the reduction of
film costs with increased purchase discounts and the introduction of filmless
systems at a number of its busiest facilities. In addition, during the three
months ended January 31, 1999, DIS's operating expenses included approximately
$479,000 for the write-off of additional shares of DIS stock acquired in
December 1998.
During the three months ended January 31, 2000 and 1999, the Company's operating
expenses consisted of approximately $8,331,000 and $7,088,000, respectively, for
salaries and reading fees, approximately $1,439,000 and $1,568,000,
respectively, for building and equipment rentals, approximately $4,615,000 and
$5,488,000, respectively, in general and administrative expenditures,
approximately $1,992,000 and $1,876,000, respectively, in depreciation and
amortization, approximately $988,000 and $729,000, respectively, for provisions
for bad debt, and approximately $-0- and $479,000 attributable to the
recognition of an impairment loss, pursuant to FASB 121, for the write-down of
acquisition stock related to DIS.
During the three months ended January 31, 2000 and 1999, net interest expense
was approximately $2,960,000 and $2,470,000, respectively.
During the three months ended January 31, 2000 and 1999, the Company recognized
other income of approximately $134,000 and $251,000, respectively. During the
three months ended January 31, 1999, the Company realized net gains from the
sale or disposal of equipment of approximately $65,000 included in other income.
During the three months ended January 31, 2000, the Company realized
extraordinary gains of approximately $52,000 for the repurchase of subordinated
bond debentures and the settlement of limited partner notes at a discount.
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%.
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, 2000 and 1999, the Company had net
losses of approximately $198,000 and $2,073,000, respectively
LIQUIDITY AND CAPITAL RESOURCES
Cash increased for the three months ended January 31, 2000 and 1999 by
approximately $35,000 and $36,000, respectively.
Cash utilized for investing activities for the three months ended January 31,
2000 was approximately $1,213,000. Cash generated from investing activities for
the three months ended January 31, 1999 was approximately $92,000. For the three
months ended January 31, 2000 and 1999, the Company paid loan fees of
approximately $50,000 and $109,000, respectively, purchased property and
equipment for approximately $2,013,000 and $617,000, respectively, received
proceeds from the sale or trade-in of equipment for $950,000 and $995,000,
respectively, and loaned $100,000 and $55,000, respectively, to related parties.
In addition, during the three months ended January 31, 1999, the Company
acquired assets and additional DIS stock for approximately $122,000.
Cash utilized for financing activities for the three months ended January 31,
2000 was approximately $1,058,000. Cash generated from financing activities for
the three months ended January 31, 1999 was approximately $759,000. During the
three months ended January 31, 2000 and 1999, the Company made principal
payments on capital leases and notes payable of approximately $3,507,000 and
$2,083,000, respectively, received proceeds from borrowing under existing lines
of credit and refinancing arrangements of approximately $2,961,000 and
$3,259,000, respectively, decreased its cash overdraft by approximately $368,000
and $70,000, respectively, and repurchased subordinated debentures for
approximately $44,000 and $337,000, respectively. In addition, during the three
months ended January 31, 2000, the Company distributed $100,000 to its joint
venture partner, and during the three months ended January 31, 1999, purchased
common stock per an exercised stock put for $10,000.
At January 31, 2000, the Company had a working capital deficit of $38,804,344 as
compared to a working capital deficit of $38,007,447 at October 31, 1999, an
increased deficit of $796,897. Included in current liabilities of the Company at
January 31, 2000 and October 31, 1999 are approximately $24.4 million and $21.6
million, respectively, of revolving lines of credit liabilities.
The Company's future payments for debt and equipment under capital lease for the
next five years, excluding lines of credit, will be approximately $49,425,000,
$21,035,000, $17,140,000, $15,275,000 and $10,860,000, respectively. Interest
expense, excluding interest expense on operating lines of credit, for the
Company for the next five years, included in the above payments, will be
approximately $6,945,000, $4,990,000, $3,490,000, $2,165,000 and $975,000,
respectively. Interest on subordinated bond debentures is excluded. The Company
estimates interest on its bond debentures to be approximately $1,995,000 for
fiscal 2000. In addition, the Company has noncancellable operating leases for
the use of its facilities and certain medical equipment which will average
approximately $4,000,000 in annual payments over the next five years.
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]
The Company's working capital needs are currently provided under three lines of
credit. Under one agreement with Coast Business Credit, 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. In any scenario, the
Company may borrow up to the aggregate collection of receivables in the prior
120-days as long as the collections in any one month do not decrease by more
than 25% from the prior month. 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 2.5%, or (b) 8%. The lender holds a first lien on substantially all of
Radnet's ["Beverly Radiology'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, 2000, approximately $16,530,000 was outstanding under
this line.
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 the bank's prime rate plus 1.0%.
At January 31, 2000, approximately $4,380,000 was outstanding under this line.
The Company entered into an additional line of credit 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. ["Tower Goodwill"], 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, 2000,
approximately $3,485,000 was outstanding under this line.
14
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1:
LEGAL PROCEEDINGS. An action entitled "Sterling Diagnostic Imaging, Inc. v.
Primedex Health Systems, Inc., RadNet Management, Inc. and Diagnostic Imaging
Services, Inc." was filed in New Castle County [Delaware] Superior Court, Case
No. 98C-10-112 [HLA], and a separate action entitled "Diagnostic Imaging
Services, Inc. v. Sterling Diagnostic Imaging, Inc." was filed in Contra Costa
County [California] Superior Court bearing Case No. C98-04298. This matter was
initiated on June 5, 1998, when Sterling filed a demand for Arbitration before
the American Arbitration Association in Philadelphia, seeking to enforce a film
purchase agreement between DIS and E.I. du Pont de Nemours and Company
["DuPont"]. In October 1998, both DIS and Sterling commenced civil actions in
state court. Sterling's action, filed in the Delaware Superior Court, sought to
compel actions in state court. Sterling's action, filed in the Delaware Superior
Court, sought to compel arbitration or, in the alternative, sought damages for
breach of contract against DIS, seeking to recover $5,000,000. DIS was also sued
for civil conspiracy, along with defendants RadNet Management, Inc. and the
Company, who were additionally sued on alternative theories of alter ego [of
DIS] and tortious interference with DIS's alleged contract with Sterling.
Following the filing of a motion to dismiss by DIS, Sterling filed an amended
complaint abandoning its attempt to compel arbitration. DIS and the other
defendants filed motions seeking to either dismiss the action entirely or,
alternatively, to stay the action pending the resolution of the California
action. The Delaware court dismissed the action as to the Company and RadNet
Management, Inc. and stayed the action as to DIS pending the hearing in
California. The DIS action against Sterling sought declaratory relief on claims
that Sterling was not a proper assignee of the DIS contract with DuPont and thus
had no standing. Sterling filed its claims in a cross-complaint in DIS's
California action in April 1999. In March 2000, the parties entered into a
settlement agreement. The settlement requires DIS to pay Sterling $700,000 over
five years on the following terms: an initial payment of $100,000 on May 1,
2000, a payment of $100,000 on May 1, 2001, and the remaining $500,000 paid in
monthly installments of $7,066.95 commencing June 1, 2000, including five
percent interest amortized over seven years, with a balloon payment of
$161,754.52 at the end of five years.
15
<PAGE>
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
March 29, 2000 By: /S/ Howard G. Berger
-----------------------------------------
Howard G. Berger, M.D., President,
Treasurer and Principal Financial Officer
16
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