<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 1-10963
RX MEDICAL SERVICES CORP.
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(Exact name of registrant as specified in its charter)
Nevada 87-0436782
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
888 East Las Olas Boulevard, Suite 210, Fort Lauderdale, Florida 33301
----------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(954) 462-1711
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( ) No (X)
The number of shares outstanding of the registrant's common stock, par value
$.002 per share, at March 31, 1996, was 8,539,117 shares.
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RX MEDICAL SERVICES CORP.
FORM 10-Q
Three Months Ended March 31, 1996
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION................................... 3
Item 1. Financial Statements.................................... 3
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations............................... 9
PART II. OTHER INFORMATION....................................... 12
Item 1. Legal Proceedings....................................... 12
Item 6. a) Exhibits and Reports on Form 8-K................... 12
b) Signatures......................................... 13
</TABLE>
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<PAGE> 3
Part I - Item 1: Consolidated Financial Information
RX MEDICAL SERVICES CORP.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
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<S> <C> <C>
Revenues:
Hospitals and medical clinics $ 1,427 $ -
------- -------
Costs and expenses:
Compensation and benefits 991 303
Supplies 169 -
Fees for services 171 62
Bad debts 201 -
Depreciation and amortization 22 12
Occupancy 142 55
Equipment rental and maintenance 19 18
Other 275 195
------- -------
1,990 645
------- -------
Operating loss (563) (645)
Other (income) expenses:
Interest 60 11
Interest - related party 714 214
Loss on investment in partnership 124 -
Other (income) expense (12) -
------- -------
886 225
------- -------
Loss from continuing operations (1,449) (870)
Loss from discontinued operations - (1,364)
Net loss $(1,449) $(2,234)
======= =======
Net loss per common share:
Loss from continuing operations $ (0.17) $ (0.10)
Loss from discontinued operations - (0.16)
------- -------
Net loss per common share $ (0.17) $ (0.26)
======= =======
Weighted average common shares
outstanding 8,539 8,568
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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RX MEDICAL SERVICES CORP.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
Assets: (Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 47 $ -
Accounts receivable (less allowance for doubtful accounts
of $581 and $380 at 1996 and 1995, respectively) 1,400 1,277
Other 88 79
------- -------
Total current assets 1,535 1,356
------- -------
Property and equipment, at cost
Land and building 792 792
Equipment 226 219
Furniture, fixtures and improvements 95 144
------- -------
1,113 1,155
Less accumulated depreciation and amortization (144) (157)
------- -------
969 998
Investment in partnership - 124
Other assets (less allowance for doubtful accounts of $627
at 1996 and 1995) 47 69
------- -------
$ 2,551 $ 2,547
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
RX MEDICAL SERVICES CORP.
Consolidated Balance Sheets (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
Liabilities and equity: (Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable - related party $ 20,587 $ 18,146
Accounts payable 3,882 3,763
Accrued liabilities 883 946
Accrued compensation, benefits and related taxes 911 740
Current portion of long-term debt 185 202
Current portion of long-term debt - related party 3,062 3,062
-------- --------
Total current liabilities 29,510 26,859
Long-term liabilities:
Long-term debt 717 736
Net liabilities of discontinued operations 231 1,313
-------- --------
Total long-term liabilities 948 2,049
-------- --------
Total liabilities 30,458 28,908
-------- --------
Commitments and contingencies - -
Shareholders' deficit:
Convertible preferred stock, $.001 par value,
authorized shares 20,000,000, issued and outstanding
1,958,775 shares at 1996 and 1995, aggregate
liquidation preference of $3,624 at 1996 and 1995 2 2
Convertible preferred stock, $5.00 par value,
authorized shares 1,091,250, issued and outstanding
600,270 shares at 1996 and 1995 3,001 3,001
Common stock, $.002 par value, authorized
25,000,000 shares, issued and outstanding
8,539,117 shares at 1996 and 1995 15 15
Additional paid-in capital 37,743 37,840
Accumulated deficit (68,668) (67,219)
-------- --------
Total shareholders' deficit (27,907) (26,361)
-------- --------
$ 2,551 $ 2,547
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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RX MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,449) ($2,234)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 22 12
Provision for bad debts 201 -
Loss from sale of furniture and equipment 18 -
Loss on investment in partnership 124 -
Stock options canceled - (46)
Changes in operating assets and
liabilities, net of effects of acquisitions:
Increase in accounts receivable (324) -
Decrease (increase) in other assets 4 (36)
Increase in accounts payable
and accrued expenses 139 243
Change in discontinued operations (1,082) 3
-------- --------
(2,347) (2,058)
Cash flows from investing activities:
Acquisition of property and equipment (11)
-------- --------
(11) -
Cash flows from financing activities:
Issuance of stock for cash - 2
Proceeds from notes payable - related party 2,441 2,060
Proceeds from long-term debt-related party - 34
Payments on long-term debt (36) (7)
-------- --------
2,405 2,089
-------- --------
Net increase (decrease) in cash 47 31
Cash - beginning of period - -
-------- --------
Cash - end of period $ 47 $ 31
======== ========
</TABLE>
For the three months ended March 31, 1996 and 1995, interest paid was $60 and
$11 respectively. No income taxes were paid during these periods.
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the audited annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Annual Report on Form 10-K for the year ended December 31, 1995 of Rx Medical
Services Corp. (the "Company"), as filed with the Securities and Exchange
Commission. The December 31, 1995 balance sheet was derived from audited
consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles.
For the year ended December 31, 1995, the medical services business segment has
been reflected as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30 which provides for the reporting of operating
results of discontinued operations separately from the continuing operations.
The Company has experienced significant losses in each of the past three years,
had a working capital deficit of $28.0 million at March 31, 1996, is in default
with respect to certain indebtedness and there are uncertainties regarding the
Company's compliance with federal and state self-referral regulations while
operating its medical diagnostic services business segment. However, the
accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern because management believes it has an
attainable plan to overcome these matters and provide sufficient capital to
operate for the coming year. The Company's ability to continue as a going
concern is also dependent on the settlement of various lawsuits and the
continued funding of its operations from its primary lender, National Century
Financial Enterprises, Inc. (the "Lender") or an alternative source, without
which funding the Company's ability to continue as a going concern would be
adversely impacted.
While the Company has not yet reached operational profitability, the Company
has several plans in progress to improve profitability, as well as cash flow,
including the continued development of its hospital management and
pharmaceutical products distribution businesses, while also seeking the
acquisition of ancillary related businesses. This expansion will focus on
increased revenues, market share and positive cash flow. Also, expense
reductions are expected to be achieved through the continuing implementation of
aggressive cost cutting and reorganization strategies.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial position and results of
operations. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
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<PAGE> 8
Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - Earnings Per Share
Net loss per common share was computed by dividing net loss by the weighted
average number of shares outstanding. Common share equivalents resulting from
options and warrants have not been included since their effect would be
antidilutive.
NOTE 3 - Notes Payable - Related Party
At March 31, 1996, notes payable included approximately $20.6 million due to
the Lender, through which the Company has obtained financing collateralized by
certain accounts receivable.
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<PAGE> 9
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Revenues from hospitals and medical clinics during the three months ended March
31, 1996 were $1.4 million compared to $0 revenues during the three months
ended March 31, 1995. The Company began operating this business in 1995 and
revenues will include the results of operations from August 1, 1995.
Costs and expenses increased 209% from $0.6 million during the three months
ended March 31, 1995 to $2.0 million during the three months ended March 31,
1996. Of these 1996 expenses, hospital management operations accounted for
$1.6 million and the corporate expenses of the Company were $0.4 million. This
decrease of 32% in corporate expenses is the result of management's continuing
efforts to aggressively control costs.
Interest expense increased 244% from $0.2 million during the three months ended
March 31, 1995 to $0.8 million during the three months ended March 31, 1996.
This increase was due primarily to a higher level of borrowings from the Lender.
No provision for income taxes has been provided on the losses from discontinued
operations since existing net operating loss carryforwards from continuing
operations may be substantially limited.
Financial Condition, Liquidity, and Capital Resources
During the three months ended March 31, 1996, the Company's working capital
deficit increased by approximately $2.5 million to $28.0 million. This
increase was primarily attributable to operating losses. In addition, the
Company is a defendant in various lawsuits. Through March 31, 1996, the
Company's ability to continue as a going concern was dependent on successful
resolution of the issues and the continued funding of its operations by the
Lender. Without this funding, the Company's ability to operate its business
would be adversely impacted. As a result of the elimination by the Company of
its unprofitable operations, the continued dependence on the Lender has been
lessened. However, until the Company's revenues increase so as to exceed the
Company's operating expenses, the Company will continue to utilize funding from
the Lender, or other alternative sources of funding, to the extent available.
To the extent fundings from the Lender are insufficient to pay the Company's
operating expenses, the Company will require alternative sources of funding.
There can be no assurance that any alternative sources of financing will be
available to the Company at such point in time, or if obtainable, on terms that
are commercially feasible.
The Company's continuing operations (i.e. hospital management ("CHC") and
pharmaceutical products distribution ("BHC")) are presently being funded
through accounts receivable
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<PAGE> 10
agreements with the Lender and the various operating facilities. At March 31,
1996, agreements to purchase the eligible accounts receivable existed with
Smith County Hospital and the retail pharmacy used by BHC in California to
facilitate the delivery of the biological products to patients. Approximately
$3.2 million had been funded as of March 31, 1996 by the Lender and its related
affiliates under those agreements.
In April 1994, the Company entered into an agreement-in-principle with the
Lender, pursuant to which the Lender, through one or more of its subsidiaries
or affiliates, would provide up to $20.0 million to be used to purchase the
medical accounts receivable of businesses which may be acquired in the future
by the Company. As a stipulation of this arrangement, the Company employed a
new President and Chief Operating Officer in August 1994.
In October 1993, the Company entered into an agreement with the Lender,
providing the Company with accounts receivable based financing which initially
produced cash to the Company of approximately $2.6 million. That agreement,
which expires in April 1997, provided that the Lender would periodically
purchase certain eligible accounts receivable, up to an aggregate of $25
million. However, due to the bankruptcy of Manatee, the Company is not
generating accounts receivable that could be purchased under the 1993
commitment. The Lender and its related affiliates had funded and invested
approximately $19.7 million in debt and equity in the Company as of March 31,
1996; of that amount, $2.3 million was paid for equity and $17.4 million was
advanced pursuant to the foregoing accounts receivable financing agreement and
additional advances. The Lender had, and continues to have, no contractual
obligation to fund additional advances beyond the terms of the accounts
receivable financing agreement.
While the Company has not yet reached profitability operationally, it has
several plans of action in progress designed to improve profitability as well
as cash flow. The Company has divested its loss operations and will continue
to pursue additional sources of revenues by expanding its hospital operations
and other specialty medical services.
Going Concern
The reports of the independent auditors of the Company on its 1995, 1994 and
1993 consolidated financial statements express substantial doubt about the
Company's ability to continue as a going concern. Factors contributing to this
substantial doubt include recurring operating losses, a working capital
deficiency and delinquencies, defaults on its accounts payable and other
outstanding liabilities, litigation, as well as to the uncertainty of the
Company's compliance with certain Medicare and state statutes and regulations.
As of January 1, 1995, the Company was unable to comply with certain provisions
of the OBRA 1993 amendments to the Stark Act, as well as, certain similar state
statutes. Although the Company has not been the subject of, and is not
currently the subject of, any administrative proceedings concerning violations
of federal or state self-referral statutes or regulations, in the event that
the Company is found to have violated such statutes and regulations, it could
be subject to cumulative fines and penalties and could also be required to make
refunds, which may aggregate up to approximately $50.0 million. The Company
believes, however, that due to the filing of the Chapter 7 bankruptcy petition
for Manatee, the likelihood of such enforcement actions occurring is remote.
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<PAGE> 11
As mentioned in the Financial Condition section, the Company is dependent on
the continued funding currently being received from the Lender to continue
operations. The discontinuance of such funding, and the unavailability of
financing to replace such funding, could result in the Company ceasing its
operations.
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<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In February 1996, an action was commenced against the Company and Manatee by
Eduardo R. Latour, as Trustee for Physicians Reference Lab Short Term Trust
(the "Trust") in the Circuit Court for Pinellas County, Florida (Case No.
96-00683-CI-15). The beneficiary of the Trust is Deborah H. Behar, the wife of
Morris Behar. Mr. Behar is a director of the Company and formerly an executive
vice president and a director of Manatee, and was previously the trustee of the
Trust. The complaint filed in this action alleges a default under a promissory
note from Manatee and seeks damages in the amount of $3,060,000. In addition,
the complaint seeks to foreclose a security interest in certain assets of
Manatee that had been pledged to the Trust by Manatee. The promissory note and
pledge had been delivered to the Trust in connection with the Trust's sale, in
December 1991, to Manatee of the Physician's Reference Laboratory Services
group of clinical laboratories located in Florida. Mr. Behar was not
affiliated with the Company or Manatee at the time of the 1991 acquisition.
The plaintiff recently submitted an amended complaint in this action and the
Company has filed an answer containing a number of defenses to the claims
asserted in the amended complaint, as well as a third party complaint against
Morris Behar alleging fraud and breach of fiduciary duty.
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Sequentially
Numbered Page
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a) Exhibit 11: Computation of primary earnings per share. 14
Exhibit 27: Financial Data Schedule (for SEC use only).
b) Reports on Forms 8-K were filed as follows:
None.
</TABLE>
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<PAGE> 13
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.
Rx MEDICAL SERVICES CORP.
By: /s/ Randolph H. Speer
-----------------
Randolph H. Speer
President and
Principal Accounting Officer
Date: January 3, 1997
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<PAGE> 1
Exhibit 11
RX MEDICAL SERVICES CORP.
Computation of Primary Earnings Per Share
(Unaudited)
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------- -------
<S> <C> <C>
Income:
- -------
Loss from continuing operations $(1,449) $ (870)
Loss from discontinued operations - (1,364)
------- -------
Net loss $(1,449) $(2,234)
======= =======
Common Shares:
- --------------
Average common shares and
common share equivalents 8,539 8,568
======= =======
Loss Per Share:
- ---------------
Loss from continuing operations $ (0.17) $ (0.10)
Loss from discontinued operations - (0.16)
------- -------
Net loss $ (0.17) $ (0.26)
======= =======
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RX MEDICAL
SERVICES CORP. FORM 10-Q, QUARTERLY PERIOD ENDED MARCH 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 1981
<ALLOWANCES> 581
<INVENTORY> 0
<CURRENT-ASSETS> 1,535
<PP&E> 1,113
<DEPRECIATION> 144
<TOTAL-ASSETS> 2,551
<CURRENT-LIABILITIES> 29,510
<BONDS> 717
0
3,003
<COMMON> 15
<OTHER-SE> (30,925)
<TOTAL-LIABILITY-AND-EQUITY> 2,551
<SALES> 0
<TOTAL-REVENUES> 1,427
<CGS> 0
<TOTAL-COSTS> 1,789
<OTHER-EXPENSES> 112
<LOSS-PROVISION> 201
<INTEREST-EXPENSE> 774
<INCOME-PRETAX> (1,449)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,449)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>
