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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, 1997
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
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(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, 1997, was 9,164,117 shares.
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RX MEDICAL SERVICES CORP.
FORM 10-Q
Three Months Ended March 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION 13
Item 6. a) Exhibits 13
b) Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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Part I - Item 1: Consolidated Financial Information
Rx MEDICAL SERVICES CORP.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Ended March 31,
----------------------------
1997 1996
------------ --------------
Revenues:
Hospitals and medical clinics $ 5,314 $ 1,427
Pharmaceutical products 339 --
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5,653 1,427
----------- ----------
Costs and expenses:
Compensation and benefits 2,958 991
Pharmaceutical products 279 --
Supplies 471 169
Fees for services 694 171
Bad debts 527 201
Depreciation and amortization 39 22
Occupancy 164 142
Occupancy - related party 241 --
Equipment rental and maintenance 133 19
Equipment leased - related party 46 --
Other 694 275
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6,246 1,990
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Operating loss (593) (563)
Other (income) expenses:
Interest 3 60
Interest - related party 1,534 714
Loss on investment in partnership -- 124
Gain on settlement of liabilities (2) --
Other (income) expense (22) (12)
----------- ----------
1,513 886
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Loss from continuing operations (2,106) (1,449)
Gain from discontinued operations 27 --
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Net Loss $ (2,079) $ (1,449)
=========== ==========
Net loss per common share:
Loss from continuing operations $ (0.23) $ (0.17)
Gain from discontinued operations -- --
----------- ----------
Net loss per common share $ (0.23) $ (0.17)
=========== ==========
Weighted average common shares
outstanding 9,164 8,539
=========== ==========
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,
1997 1996
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Assets: (Unaudited)
Current Assets:
<S> <C> <C>
Cash $ 636 $ 685
Accounts receivable (less allowance for doubtful accounts
of $4,096 and $3,607 in 1997 and 1996, respectively) 4,676 4,106
Inventories 461 301
Other 166 167
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Total current assets 5,939 5,259
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Assets held for sale 750 750
Property and equipment, at cost
Land and buildings 713 --
Equipment 713 425
Furniture, fixtures and improvements 92 85
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1,518 510
Less: accumulated depreciation and amortization (168) (129)
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1,350 381
Other assets (less allowance for doubtful accounts of $671
in 1997 and 1996) 22 --
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$ 8,061 $ 6,390
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Rx Medical Services Corp.
Consolidated Balance Sheets (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
Liabilities and equity:
Current liabilities:
Notes payable - related party $ 35,110 $ 32,022
Accounts payable 1,786 1,753
Accrued liabilities 2,060 1,767
Accrued liabilities - related party 232 245
Accrued compensation, benefits and related taxes 953 851
Current portion of long-term debt 916 229
Current portion of long-term debt - related party 3,062 3,062
Current portion of capital lease obligations 40 41
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Total current liabilities 44,159 39,970
Long-term liabilities:
Long-term debt 221 592
Net liabilities of discontinued operations 100 100
Obligations under capital leases 116 124
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Total long-term liabilities 437 816
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Total liabilities 44,596 40,786
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Commitments and contingencies -- --
Shareholders' deficit:
Convertible preferred stock, $.001 par value, authorized shares
20,000,000, issued and outstanding 708,775 shares at 1997
and 1996; aggregate liquidation preference of $2,134 at 1997
and 1996 1 1
Convertible preferred stock, $5.00 par value, authorized shares
1,091,250, issued and outstanding 600,270 shares at 1997 and
1996; aggregate liquidation preference of $3,362 at
1997 and 1996 3,001 3,001
Common stock, $.002 par value, authorized
25,000,000 shares, issued and outstanding
9,164,117 shares at 1997 and 1996 18 18
Additional paid-in capital 37,413 37,473
Accumulated deficit (76,967) (74,888)
Treasury stock, 589,450 shares of common stock at par (1) (1
-------- --------
Total shareholders' deficit (36,535) (34,396)
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$ 8,061 $ 6,390
======== ========
</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,
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,079) $ (1,449)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 39 22
Provision for bad debts 527 201
Loss on sale and disposal of property and equipment -- 18
Loss on settlement of liabilities 72 --
Loss on investment in partnership -- 124
Changes in operating assets and
liabilities, net of effects of acquisitions:
Increase in accounts receivable (682) (324)
Increase in inventories (10) --
Decrease (increase) in other assets (21) 4
Increase in accounts payable
and accrued liabilities 241 139
Decrease in accrued liabilities - related party (13) --
Change in discontinued operations -- (1,082)
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(1,926) (2,347)
Cash flows from investing activities:
Acquisition of property and equipment (30) (11)
Purchase of hospital operating assets (1,166) --
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(1,196) (11)
Cash flows from financing activities:
Proceeds from notes payable - related party 3,088 2,441
Payments on long-term debt and obligations under
capital leases (15) (36)
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3,073 2,405
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Net increase (decrease) in cash (49) 47
Cash - beginning of period 685 --
--------- ----------
Cash - end of period $ 636 $ 47
========= ==========
</TABLE>
(Continued)
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Rx MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
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<S> <C> <C>
The following is supplementary information relating to the
consolidated statement of cash flows:
Details of businesses acquired:
Fair value of assets acquired $ 1,542
Liabilties assumed $ 376
---------
Cash paid $ 1,166
=========
</TABLE>
For the three months ended March 31, 1997 and 1996, interest paid, including
interest on the capitalized leases was $3, and $60 respectively. No income taxes
were paid during these periods.
The accompanying notes are an integral part of these financial statements.
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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, 1996 of Rx Medical
Services Corp. (the "Company"), as filed with the Securities and Exchange
Commission. The December 31, 1996 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, 1996, the medical diagnostic 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 $38.2 million at March 31, 1997, 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 "Financing Source") 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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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, 1997, notes payable included approximately $35.1 million due to the
Financing Source, through which the Company has obtained financing
collateralized by certain accounts receivable.
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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, 1997 were $5.3 million compared to $1.4 million revenues during the three
months ended March 31, 1996. The Company began operating its hospital management
division in 1995 and revenues include the results of operations from August 1,
1995. In 1996, the Company began operating two additional hospitals - the
Dickenson County Medical Center located in Clintwood, Virginia ("DCMC") and the
Whitwell Medical Center located in Whitwell, Tennessee ("WMC"). Revenues include
the results of operations of DCMC from April 1, 1996 and WMC from April 1, 1996
to October 31, 1996. In 1997, the Company began operating the Podiatry Hospital
of Pittsburgh located in Pittsburgh, Pennsylvania, and revenues include the
results of operations from that facility from January 1, 1997.
Revenues from the pharmaceutical products distribution division during the three
months ended March 31, 1997 were $0.3 million compared to $0 revenues during the
three months ended March 31, 1996. The Company began operating this business in
1996 and revenues include the results of operations from July 1, 1996.
Costs and expenses increased 314% from $2.0 million during the three months
ended March 31, 1996 to $6.2 million during the three months ended March 31,
1997. Of these 1997 expenses, hospital management operations accounted for $5.5
million, pharmaceutical distribution accounted for $0.4 million, and the
corporate expenses of the Company were $0.3 million. This decrease of 29% in
corporate expenses is the result of management's efforts to aggressively control
costs.
Interest expense increased 99% from $0.8 million during the three months ended
March 31, 1996 to $1.5 million during the three months ended March 31, 1997.
This increase was due primarily to a higher level of borrowings from the
Financing Source. (See "Financial Condition, Liquidity, and Capital Resources").
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, 1997, the Company's working capital
deficit increased by approximately $3.5 million to $38.2 million. This increase
in the working capital deficit was primarily due to a $3.1 million increase in
the level of funding from the Financing Source as well as operating losses. In
addition, the Company is a defendant in various lawsuits. Through March 31,
1997, the Company's ability to continue as a going concern is dependent on
successful resolution of the lawsuits and the continued funding of its
operations by the Financing
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<PAGE> 11
Source. 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 a
portion of its unprofitable operations, the continued dependence on the
Financing Source 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 Financing Source, or other alternative
sources of funding, to the extent available. To the extent fundings from the
Financing Source 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
financing agreements with the Financing Source and the various operating
facilities. Agreements to purchase the eligible accounts receivable exist with
Smith County Hospital, Dickenson County Medical Center, Podiatry Hospital of
Pittsburgh, and the retail pharmacy used by BHC in Florida to facilitate the
delivery of the biological products to patients. At March 31, 1997,
approximately $14.7 million had been funded (net) by the Financing Source and
its related affiliates under these current agreements. Of this amount,
approximately $3.4 million had been funded under agreement with WMC, which was
sold on October 31, 1996.
In April 1994, the Company entered into an agreement-in-principle with the
Financing Source, pursuant to which the Financing Source, 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. See Item
13, "Certain Relationships and Related Transactions".
In October 1993, the Company entered into an agreement with the Financing
Source, providing the Company with accounts receivable based financing which
initially produced cash to the Company of approximately $2.6 million (the "1993
Commitment"). That agreement, scheduled to expire in April 1997, provided that
the Financing Source 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 Financing Source and its related
affiliates, through April 4, 1996, had funded and invested approximately $21.0
million in debt and equity in the Company. Of that amount, $2.3 million was paid
for equity and $18.7 million was advanced pursuant to the 1993 Commitment and
additional advances. The Financing Source had, and continues to have, no
contractual obligation to fund additional advances pursuant to the 1993
Commitment.
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.
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GOING CONCERN
The reports of the independent auditors of the Company on its 1996, 1995 and
1994 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 in April
1996, the likelihood of such enforcement actions occurring is remote.
As mentioned in the Financial Condition section, the Company is dependent on the
continued funding currently being received from the Financing Source 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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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Sequentially
Numbered Page
-------------
a) Exhibit 11: Computation of primary earnings per share. 15
b) Reports on Forms 8-K were filed as follows:
None.
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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: October 16, 1997
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EXHIBIT 11
Rx MEDICAL SERVICES CORP.
Computation of Primary Earnings Per Share
(Unaudited
(Dollars and shares in thousands, except per share amounts)
Three Months Ended March 31,
1997 1996
------------- ------------
INCOME:
Loss from continuing operations $ (2,106) $ (1,449)
Gain from discontinued operations 27 -
------------- ------------
Net loss $ (2,079) $ (1,449)
============= ============
COMMON SHARES:
Average common shares and
common share equivalents 9,164 8,539
============= ============
LOSS PER SHARE:
Loss from continuing operations $ 0.23 $ (0.17)
Loss from discontinued operations - -
------------- ------------
Net loss $ 0.23 $ (0.17)
============= ============
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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, 1997
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 636
<SECURITIES> 0
<RECEIVABLES> 8,772
<ALLOWANCES> 4,096
<INVENTORY> 461
<CURRENT-ASSETS> 5,939
<PP&E> 1,518
<DEPRECIATION> 168
<TOTAL-ASSETS> 8,061
<CURRENT-LIABILITIES> 44,159
<BONDS> 337
0
3,002
<COMMON> 18
<OTHER-SE> (39,555)
<TOTAL-LIABILITY-AND-EQUITY> 8,061
<SALES> 339
<TOTAL-REVENUES> 5,653
<CGS> 279
<TOTAL-COSTS> 5,719
<OTHER-EXPENSES> (24)
<LOSS-PROVISION> 527
<INTEREST-EXPENSE> 1,537
<INCOME-PRETAX> (2,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,106)
<DISCONTINUED> 27
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,079)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
