<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 September 30, 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 September 30, 1996, was 8,539,117 shares.
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RX MEDICAL SERVICES CORP.
FORM 10-Q
Nine Months Ended September 30, 1996
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
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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<PAGE> 3
Rx Medical Services Corp.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Hospitals and medical clinics $ 6,043 $ 906 $ 13,836 $ 906
-------- -------- -------- --------
Costs and expenses:
Compensation and benefits 3,285 814 7,601 1,415
Supplies 701 69 1,533 69
Fees for services 944 117 2,081 264
Bad debts 860 -- 1,898 --
Depreciation and amortization 58 35 119 59
Occupancy 504 106 1,128 212
Equipment rental and maintenance 269 15 502 46
Other 728 313 1,444 735
-------- -------- -------- --------
7,349 1,469 16,306 2,800
-------- -------- -------- --------
Operating loss (1,306) (563) (2,470) (1,894)
Other (income) expenses:
Interest 40 23 142 75
Interest - related party 1,175 257 2,941 721
Loss on investment in partnership -- -- 124 --
Gain on settlement of liabilities (495) -- (518) (26)
Other income (21) -- (94) --
-------- -------- -------- --------
699 280 2,595 770
-------- -------- -------- --------
Loss from continuing operations (2,005) (843) (5,065) (2,664)
Loss from discontinued operations .. -- (7,484) -- (10,871)
-------- -------- -------- --------
Net loss $ (2,005) $ (8,327) $ (5,065) $(13,535)
======== ======== ======== ========
Net loss per common share:
Loss from continuing operations . $ (0.23) $ (0.10) $ (0.59) $ (0.31)
Loss from discontinued operations -- (0.87) -- (1.27)
-------- -------- -------- --------
Net loss per common share $ (0.23) $ (0.97) $ (0.59) $ (1.58)
======== ======== ======== ========
Weighted average common shares
outstanding 8,539 8,562 8,539 8,562
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
Rx Medical Services Corp.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash $ 819 $ --
Accounts receivable (less allowance for doubtful accounts
of $1,763 and $380 at 1996 and 1995, respectively) 6,279 1,277
Other 295 79
Total current assets 7,393 1,356
Property and equipment, at cost
Land and building 792 792
Equipment 584 219
Furniture, fixtures and improvements 95 144
1,471 1,155
Less: accumulated depreciation and amortization (235) (157)
1,236 998
Investment in partnership -- 124
Other assets (less allowance for doubtful accounts of $671
and $627 at 1996 and 1995, respectively) 27 69
$8,656 $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>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Liabilities and equity:
Current liabilities:
Notes payable - related party $ 30,387 $ 18,146
Accounts payable 3,174 3,763
Accrued liabilities 1,445 946
Accrued compensation, benefits and related taxes 1,050 740
Current portion of long-term debt 131 202
Current portion of long-term debt - related party 3,062 3,062
Current portion of obligations under capital leases 59 --
-------- --------
Total current liabilities 39,308 26,859
Long-term liabilities:
Long-term debt 728 736
Obligations under capital leases 117 --
Net liabilities of discontinued operations 222 1,313
Total long-term liabilities 1,067 2,049
-------- --------
Total liabilities 40,375 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 37,547 37,840
Accumulated deficit (72,284) (67,219)
-------- --------
Total shareholders' deficit (31,719) (26,361)
-------- --------
$ 8,656 $ 2,547
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
Rx Medical Services Corp.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,065) $(13,535)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 119 59
Provision for bad debts 1,898 --
Loss from sale of furniture and equipment 38 --
Gain on settlement of liabilities (518) (26)
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 (3,769) --
Increase in other assets (175) (427)
Increase in accounts payable
and accrued expenses 445 1,097
Change in discontinued operations (1,091) 5,731
-------- --------
(7,994) (7,147)
Cash flows from investing activities:
Acquisition of property and equipment (202) --
Purchase of accounts receivable (3,131) --
Acquisitions, net of cash acquired -- (834)
-------- --------
(3,333) (834)
Cash flows from financing activities:
Issuance of stock for cash -- 2
Purchase of stock for cash -- (41)
Proceeds from notes payable - related party 12,241 8,421
Payments on notes payable-related party -- (148)
Proceeds from long-term debt 26 --
Payments on long-term debt and obligations under
capital leases (121) (253)
-------- --------
12,146 7,981
-------- --------
Net increase in cash 819 --
Cash - beginning of period -- --
-------- --------
Cash - end of period $ 819 $ --
======== ========
</TABLE>
(Continued)
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Rx Medical Services Corp.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
------ --------
<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 $ 2,764
Liabilties assumed $(1,872)
Common stock issued $ --
Minority interest $ --
-------
Cash paid $ 1,000
Less cash acquired $ 166
-------
$ 834
-------
Non cash investing and financing activities:
Equipment purchased under capital leases $ 193 $ --
======= =======
</TABLE>
For the nine months ended September 30, 1996 and 1995, interest paid,
including interest on the capitalized leases was $118, and $75 respectively. No
income taxes were paid during these periods.
The accompanying notes are an integral part of these financial statements.
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<PAGE> 8
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 $31.9 million at September 30,
1996, is in default with respect to certain indebtedness and in consideration
ofthere are uncertainties regarding the Company's uncertainty with regard to
compliance with federal and state self-referral regulations while operating its
medical diagnostic services business, segment. However, tthe accompanying
financial statements have been prepared on the basis that the Company will
continue as a going concern because management believes it has an. This basis of
presentation is predicated upon the Company's belief in an attainable plan to
overcome these matters and to 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, and without which funding this
continued funding the Company's ability to continue as a going concern would be
adversely impacted.
While the Company has not yet reached operational profitability operationally,
the Company has several plans of action in progress to improve profitability, as
well as cash flow, including . The Company has institutedthe 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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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 September 30, 1996, notes payable included approximately $30.4 million due to
the Lender, through which the Company has obtained financing collateralized by
certain accounts receivable.
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<PAGE> 10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months:
Revenues from hospitals and medical clinics during the three months ended
September 30, 1996 were $6.0 million compared to $0.9 million revenues during
the three months ended September 30, 1995. The Company began operating this
business in 1995 and revenues include the results of operations from August 1,
1995.
Costs and expenses increased 400% from $1.5 million during the three months
ended September 30, 1995 to $7.3 million during the three months ended September
30, 1996. Of these 1996 expenses, hospital management operations accounted for
$6.8 million and the corporate expenses of the Company were $0.5 million. This
decrease of 29% in corporate expenses is the result of management's continuing
efforts to aggressively control costs.
Interest expense increased 334% from $0.3 million during the three months ended
September 30, 1995 to $1.2 million during the three months ended September 30,
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.
Nine Months:
Revenues from hospitals and medical clinics during the nine months ended
September 30, 1996 were $13.8 million compared to $0.9 million revenues during
the nine months ended September 30, 1995. The Company began operating this
business in 1995 and revenues include the results of operations from August 1,
1995.
Costs and expenses increased 482% from $2.8 million during the nine months ended
September 30, 1995 to $16.3 million during the nine months ended September 30,
1996. Of these 1996 expenses, hospital management operations accounted for $14.9
million and the corporate expenses of the Company were $1.4 million. This
decrease of 31% in corporate expenses is the result of management's continuing
efforts to aggressively control costs.
Interest expense increased 287% from $0.8 million during the nine months ended
September 30, 1995 to $3.1 million during the nine months ended September 30,
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.
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<PAGE> 11
Financial Condition, Liquidity, and Capital Resources
During the nine months ended September 30, 1996, the Company's working capital
deficit increased by approximately $6.4 million to $31.9 million. This increase
was primarily attributable to operating losses. In addition, the Company is a
defendant in various lawsuits. Through September 30, 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
clinical laboratory 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 agreements with the Lender and the various operating
facilities. Agreements to purchase the eligible accounts receivable exist with
Smith County Hospital, Whitwell Medical Center, Dickenson County Medical Center,
and the retail pharmacy used by BHC in California to facilitate the delivery of
the biological products to patients. Approximately $11.4 million had been funded
as of September 30, 1996 by the Lender and its related affiliates under those
current 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 $21.3 million in debt and equity in the Company as of September
30, 1996; of that amount, $2.3 million was paid for equity and $19.0 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.
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<PAGE> 12
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.
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> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Sequentially
Numbered Page
-------------
<S> <C>
a) Exhibit 11: Computation of primary earnings per share 15
b) Exhibit 27: Financial Data Schedule (For SEC only)
c) Reports on Forms 8-K were filed as follows:
None.
</TABLE>
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<PAGE> 14
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: February 28, 1997
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<PAGE> 1
Exhibit 11
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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 September 30, Nine Months Ended September 30,
1996 1995 1996 1995
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Results of operations:
Loss from continuing operations $ (2,005) $ (843) $ (5,065) $ (2,664)
Loss from discontinued operations (7,484) (10,871)
-------- -------- -------- --------
Net loss $ (2,005) $ (8,327) $ (5,065) $(13,535)
======== ======== ======== ========
Common Shares:
Average common shares and
common share equivalents 8,539 8,562 8,539 8,562
======== ======== ======== ========
Per Share:
Loss from continuing operations $ (0.23) $ (0.10) $ (0.59) $ (0.31)
Loss from discontinued operations (0.87) (1.27)
-------- -------- -------- --------
Net loss $ (0.23) $ (0.97) $ (0.59) $ (1.58)
======== ======== ======== ========
</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 SEPTEMBER 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 819
<SECURITIES> 0
<RECEIVABLES> 8,042
<ALLOWANCES> 1,763
<INVENTORY> 0
<CURRENT-ASSETS> 7,393
<PP&E> 1,471
<DEPRECIATION> 235
<TOTAL-ASSETS> 8,656
<CURRENT-LIABILITIES> 39,308
<BONDS> 845
0
3,003
<COMMON> 15
<OTHER-SE> (34,737)
<TOTAL-LIABILITY-AND-EQUITY> 8,656
<SALES> 0
<TOTAL-REVENUES> 13,836
<CGS> 0
<TOTAL-COSTS> 14,408
<OTHER-EXPENSES> (488)
<LOSS-PROVISION> 1,898
<INTEREST-EXPENSE> 3,083
<INCOME-PRETAX> (5,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,065)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> 0
</TABLE>
