<PAGE> 1
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 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
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Commission file number 0-27456
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EQUIMED, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 25-1668112
- ---------------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3754 LaVista Rd.
Tucker, Georgia 30084-5637
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(404) 320-6211
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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 periods 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date. Common Stock, $.0001 par value
per share, 28,589,717 shares outstanding as of August 15, 1996.
<PAGE> 2
EQUIMED, INC.
FORM 10-Q
For the Quarter Ended June 30, 1996
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
December 31, 1995 and June 30, 1996 2
Condensed Consolidated Income Statements
for the Three Months Ended
June 30, 1995 and 1996 3
Condensed Consolidated Income Statements
for the Six Months Ended June 30, 1995 and
1996 4
Condensed Consolidated Statement of
Stockholders' Equity for the Six Months
Ended June 30, 1996 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1995 and 1996 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
</TABLE>
1
<PAGE> 3
EquiMed, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 824 $ 3,464
Accounts receivable, net 4,988 15,927
Receivable from affiliates - 569
Prepaid expenses and other current assets 547 2,506
Deferred income taxes 658 680
--------------------------
Total current assets 7,017 23,146
Property and equipment, net 11,337 19,220
Goodwill 1,589 37,674
Services agreements - 36,638
Non-compete agreements 263 1,651
Patient records - 1,793
Other assets 100 1,175
Deferred income taxes 273 273
--------------------------
$ 20,579 $121,570
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties $ 725 $ -
Accounts payable 1,377 1,713
Payable to affiliates 506
Accrued salaries and professional fees 3,123 4,053
Other accrued expenses 1,997 4,710
Income taxes payable 7,236 5,675
Current Portion of long-term debt 2,048 14,598
Current portion of obligations under capital lease
Related parties 596 313
Other 1,596 1,076
--------------------------
Total current liabilities 19,204 32,138
Long-term debt, net of current portion 3,188 10,994
Obligations under capital leases, net of current portion:
Related parties 4,518 1,588
Other 2,643 1,526
Deferred income taxes - 2,210
Minority interests 1,171 1,534
Stockholders' equity:
Preferred stock, 1,000,000 authorized shares, none issued - -
Common stock, $ .0001 par value, authorized 100,000,000 shares,
issued and outstanding 20,783,633 in 1995 and 28,589,717 in 1996 2 82,178
Additional paid-in capital 1,760 1,760
Accumulated deficit (11,907) (12,358)
--------------------------
(10,145) 71,580
--------------------------
$ 20,579 $121,570
==========================
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 4
EquiMed, Inc.
Condensed Consolidated Income Statements
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1995 1996
---------------------
<S> <C> <C>
Net revenues $15,188 $29,410
Costs and Expenses:
Professional fees and expenses 3,570 7,974
Treatment and support services 4,492 10,823
General and administrative expenses 1,966 3,374
Depreciation and amortization 710 1,551
Amortization of EquiVision, Inc. acquisition - 237
Interest expense:
Related parties 214 72
Other 257 644
Loss on sale of receivables 137 152
Other income, net (42) (143)
---------------------
Total costs and expenses 11,304 24,684
Income before minority interest,
extraordinary item and income taxes 3,884 4,726
Minority interest 279 168
---------------------
Income before income taxes 3,605 4,558
Provision for income taxes 562 1,847
---------------------
Net income $ 3,043 $ 2,711
=====================
Supplemental unaudited pro forma information:
Net income, as above 3,043
Pro forma adjustment to income tax expense 986
-------
Pro forma net income $ 2,057
=======
Net income per share $ 0.10
==============
Pro forma net income per share (Note 1) $ 0.10
=======
Weighted average common shares and
equivalents 20,784 28,408
=====================
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 5
EquiMed, Inc.
Condensed Consolidated Income Statements
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
---------------------
<S> <C> <C>
Net revenues $30,202 $50,142
Costs and Expenses:
Professional fees and expenses 7,717 13,261
Treatment and support services 8,754 18,579
General and administrative expenses 3,609 5,875
Depreciation and amortization 1,376 2,672
Amortization of EquiVision, Inc. acquisition - 396
Interest expense:
Related parties 445 306
Other 524 1,050
Loss on sale of receivables 137 361
Other income, net (76) (280)
---------------------
Total costs and expenses 22,486 42,220
Income before minority interest,
extraordinary item and income taxes 7,716 7,922
Minority interest 585 281
---------------------
Income before income taxes
and extraordinary item 7,131 7,641
Provision for income taxes:
Income tax expense 1,111 3,145
Cumulative adjustment to establish
deferred income taxes for change in tax status - 1,277
---------------------
1,111 4,422
---------------------
Income before extraordinary item 6,020 3,219
Extraordinary charge from refinancing
of debt, net of income taxes - (127)
---------------------
Net income $ 6,020 $ 3,092
=====================
Supplemental unaudited pro forma information:
Net income, as above 6,020
Pro forma adjustment to income tax expense 1,847
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Pro forma net income $ 4,173
=======
Net income per share before extraordinary item $ 0.12
Extraordinary item -
--------------
Net income per share $ 0.12
==============
Pro forma net income per share (Note 1) $ 0.20
=======
Weighted average common shares and
equivalents 20,784 26,867
=====================
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 6
EquiMed, Inc.
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1996
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995,
Note 1 20,783,633 $ 2 $1,760 $(11,907) $(10,145)
Cumulative effect of
pooling-of-interests, Note 1 402,685 17 - - 17
------------------------------------------------------------
Balance, December 31, 1995
As restated 21,186,318 19 1,760 (11,907) (10,128)
Cash and deemed distributions
to Dr. Colkitt and affiliates - - - (3,543) (3,543)
Acquisition of EquiVision, Inc. 4,338,831 45,581 - - 45,581
Issuance of Common Stock
in connection with public
offering, net of issuance cost 2,000,000 24,200 - - 24,200
Issuance of Common Stock
in connection with acquisitions 1,061,393 12,356 - - 12,356
Issuance of Common Stock 3,175 22 - - 22
Net income - - - 3,092 3,092
------------------------------------------------------------
Balance, June 30, 1996 28,589,717 $82,178 $1,760 $(12,358) $ 71,580
============================================================
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 7
EquiMed, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,020 $ 3,092
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,376 3,069
Deferred income taxes (124) 1,277
Minority interest 585 276
Changes in operating assets and liabilities,
net of acquired business:
Accounts receivable 4,067 (3,848)
Receivables from/payable to affiliates 1,175 (2,082)
Prepaid expenses and other current assets 102 682
Accounts payable (363) (1,428)
Accrued salaries and professional fees (990) (966)
Other accrued expenses (324) (512)
Income taxes payable 1,206 (1,561)
------------------------
Net cash provided (used) by operating activities 12,730 (2,001)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for practices acquired, net of cash acquired - (3,033)
Purchase of property and equipment (262) (988)
Decrease in other assets (32) (83)
------------------------
Net cash used by investing activities (294) (4,104)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings - 13,361
Repayment of long-term debt (313) (20,051)
Proceeds from issuance of common stock - 24,222
Repayment of obligations under capital leases:
Related parties (274) (3,213)
Other (653) (2,006)
Capital contributions by primary owner 230 -
Distributions:
Primary owner (9,214) (3,543)
Minority owners (320) (25)
------------------------
Net cash provided (used) by financial activities (10,544) 8,745
------------------------
Net increase in cash 1,892 2,640
Cash at beginning of period 2,565 824
------------------------
Cash at end of period $ 4,457 $ 3,464
========================
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE> 8
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
On February 2, 1996, Colkitt Oncology Group, Inc. (the "Oncology Group") merged
with and into EquiVision, Inc. ("EquiVision") and, immediately thereafter,
EquiVision effected an immediate reincorporation in Delaware and a 1-for-2
reverse stock split through a merger (the "Reincorporation Merger") with and
into EquiMed, Inc. ("EquiMed" or the "Company") a newly-formed Delaware
subsidiary of EquiVision, formed for the purpose of effecting the
Reincorporation Merger and reverse stock split. The merger between the
Oncology Group and EquiVision and the Reincorporation Merger are referred to
collectively herein as the "Merger". The Oncology Group was formed prior to
consummation of the Merger to acquire all of the stock or assets of various
corporations, partnerships and joint ventures which owned or controlled 30
radiation oncology centers. All share and per share amounts in this report
reflect the 1-for-2 reverse stock split that was effected upon consummation of
the Reincorporation Merger.
The stockholders of the Oncology Group received 20,783,633 shares of the common
stock of EquiVision as consideration for the Merger. The business combination
was accounted for as a reverse purchase. As a result, the Oncology Group is
considered the acquirer.
The purchase price of EquiVision was $45,600,000 and has been allocated to the
assets purchased and the liabilities assumed based upon fair market value at the
date of acquisition. The excess of purchase price over the fair market value of
the net assets was $38,000,000 and has been recorded as goodwill.
Upon completion of the Merger, certain of the entities which comprised the
Oncology Group ceased to qualify as S Corporations and became subject to
corporate income taxes. As a result, the Company recorded a cumulative
adjustment of $1,277,000 to establish deferred income taxes for the change in
tax status. These deferred taxes represented the cumulative temporary
differences between financial reporting and tax reporting.
7
<PAGE> 9
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In order to effect the Merger and in connection therewith, the stockholders'
approved an increase of the shares of common stock of the Company from
20,000,000 shares to 100,000,000 shares.
On March 18, 1996, the Company acquired Wallace Eye Surgery, Ltd. and The Laser
& Surgery Center, Inc. ("Wallace") for approximately 403,000 shares of the
Company's common stock valued at approximately $5,000,000. The business
combination has been accounted for by the pooling of interests method. Because
this acquisition was not material, the Company's financial statements, share and
per share amounts have not been restated to include the accounts and operations
for all periods prior to January 1, 1996.
A reconciliation of consolidated net revenues and net income to amounts
applicable to the separate pooled companies prior to the dates of combination is
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1996
-----------------------------
<S> <C> <C>
Net revenues:
EquiMed $29,410 $49,862
Wallace - 280
-----------------------------
$29,410 $50,142
=============================
Net Income:
EquiMed $ 2,711 $ 3,092
Wallace - -
-----------------------------
$ 2,711 $ 3,092
=============================
</TABLE>
Professional fees and expenses for Wallace have been adjusted to reflect net
income of zero for the periods indicated prior to the dates of acquisition.
8
<PAGE> 10
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Historical net income per share amounts for 1995 have not been presented because
they are not meaningful. Net income for the three and six month periods ending
June 30, 1995 do not include pro forma adjustments to income tax expense of
$986,000 and $1,847,000, respectively. The weighted average number of shares
used to calculate the 1995 pro forma net income per share amounts represent the
number of shares of EquiVision common stock that the Oncology Group received as
part of the Merger.
2. OTHER BUSINESS ACQUISITIONS
On March 1, 1996, the Company acquired the primary operating assets of three
medical practices for $4,601,000, consisting of $3,027,000 in cash (including
acquisition costs), notes payable in the amount of $1,250,000 and $324,000 in
common stock. Effective April 1, 1996, the Company acquired the primary
operating assets of three medical practices for the aggregate consideration of
$12,352,000, consisting of $1,503,000 in cash (including acquisition costs),
$9,115,000 in common stock, a note payable issued and debt assumed in the amount
of $1,475,000 and assumption of liabilities of $259,000. Effective June 1,
1996, the Company acquired the primary operating assets of a medical practice
for $2,976,000, consisting of $2,917,000 in common stock and assumption of
liabilities of $59,000. All of the above mentioned acquisitions have been
accounted for as purchases.
9
<PAGE> 11
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
2. OTHER BUSINESS ACQUISITIONS (CONTINUED)
A summary of assets acquired in the business combinations accounted for as
purchases, during the six months ended June 30, 1996 is (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents $ 1,631
Accounts recievable 6,902
Prepaid expense and other current assets 2,663
Property & Equipment 8,257
Goodwill 38,075
Services agreements 35,276
Non-compete agreements 1,935
Patient records 1,884
Other 742
-------
$97,365
=======
</TABLE>
The pro forma unaudited results of operations for the three and six month
periods ended June 30, 1995 and 1996, assuming consummation of the EquiVision
purchase described in Note 1, as of January 1, 1995, are (in thousands,
except share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
-------------------- ------------------
<S> <C> <C> <C> <C>
Net revenues $25,372 $29,410 $49,062 $53,645
Income before extraordinary item 2,201 2,711 4,359 2,998
Net income 2,201 2,711 4,193 2,871
Net income per share before
extraordinary item .09 .10 .18 .11
Net income per share .09 .10 .17 .10
</TABLE>
10
<PAGE> 12
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
3. AMENDMENT OF REVOLVING CREDIT AGREEMENT
On May 14, 1996, the Company entered into an amendment of its $20,000,000
Revolving Credit Agreement ("Credit Agreement") with a bank. The amendment
limits future borrowings under the Credit Agreement to $15,000,000 and limits
future acquisitions during the remaining term of the Credit Agreement which
matures November 30, 1996, to an aggregate of $50,000,000. Future borrowings
under the Credit Agreement are limited to the funding of ongoing working
capital and can not be used for acquisitions. The amendment permits the
issuance of common stock and notes payable, as defined by certain restrictive
covenants, to consummate future acquisitions.
Borrowings under the Credit Agreement at June 30, 1996 were approximately
$13,279,000 and have been classified by the Company in the current portion of
long-term debt.
4. PUBLIC OFFERING OF COMMON STOCK
On February 14, 1996, the Company consummated the sale of 2,000,000 shares of
common stock in connection with a public offering at $14 per share. Net
proceeds from the offering were approximately $24,200,000.
5. COMMITMENTS AND CONTINGENCIES
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Should these claims-made policies not be renewed or replaced
with equivalent insurance, claims based on occurrences during the term of the
respective policies, but asserted subsequently, would be uninsured.
At June 30, 1996, the Company has several malpractice claims outstanding which
have arisen in the normal course of business. In addition, it is possible that
certain incidents may have occurred which have not been reported as of this
date. The Company has policies and procedures in place to track and monitor
incidents of significance.
11
<PAGE> 13
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Note 13 to the Oncology Group's combined financial statements included in
EquiMed's 1995 annual financial statements provides a detailed description of
certain litigation involving Dr. Colkitt, the Company's chairman and majority
stockholder, and several related entities and the former holders of minority
interests in certain of the Company's centers. The Company believes this
litigation will ultimately be settled through Dr. Colkitt's purchase of the
minority interests in these entities (collectively the "Joint Venture
Entities"). Although mergers approved on August 30, 1995 effected the transfer
of the minority interests in the Joint Venture Entities to Dr. Colkitt, the
purchase price to be paid for such interests has not yet been determined. At
August 30, 1995, the carrying value of the minority interests of the Joint
Venture Entities in the amount of $375,000 was reported as a capital
contribution by Dr. Colkitt. At the date the purchase price is determined, the
Company expects to record the difference between the carrying value of the
minority interests in the Joint Venture Entities and the purchase price as a
capital contribution.
Based on management's knowledge of the facts to date and consultation with its
legal advisors, management believes the ultimate disposition of these matters
will not have an adverse effect on the Company's financial position or the
results of its operations.
6. RELATED PARTY TRANSACTIONS
The Company entered into a receivables purchase agreement on April 27, 1995.
Under the terms of the agreement, receivables are transferred to Oncology
Funding Corporation (a company that is wholly-owned by Dr. Colkitt) which then
factors the receivables with an unrelated financing company, John Alden Asset
Management Company ("Alden"). The factored receivables may be denied by Alden
for various reasons including nonpayment by the payor. The transfer of
receivables to Alden is recognized as a sale and the difference between the
sales price (adjusted for the accrual of probable adjustments) and the net
receivables is recognized as a gain or loss on the sale of receivables. Under
the receivables purchase agreement, the balance of receivables transferred that
remained uncollected at any date is limited to $6,000,000. Proceeds to the
Company from receivables sold under this agreement were approximately $8,251,000
and $16,529,000 for the three and six month periods ended June 30, 1996,
respectively. At June 30, 1996, the balance of receivables transferred that
remain uncollected was approximately $4,161,000.
12
<PAGE> 14
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has contracted with National Medical Financial Services Corporation
("NMFS"), a public company in which Dr. Colkitt is the Chairman and
controlling shareholder, to perform billing services for the Company. Effective
January 1, 1995, the contract with NMFS was renegotiated and the fee for billing
services was reduced to 3% of collected revenue. In addition, NMFS agreed to
begin performing accounting services for the Company for a fee of 1% of
collected revenues. As a result, a portion of the group's accounting personnel
were transferred to a company controlled by Dr. Colkitt and a subcontractor of
NMFS. During the three months ended June 30, 1995 and 1996, the Company expensed
$643,000 and $595,000, respectively, for services provided by NMFS. During the
six month periods ended June 30, 1995 and 1996, the Company expensed $1,278,000
and $1,180,000, respectively, for services provided by NMFS. The Company
estimates that the cost to provide these services internally, prior to the
contract with NMFS, was approximately 3% of net revenues.
Effective June 1, 1996, two wholly owned subsidiaries of the Company have
contracted to perform accounting, billing, collections, human resources and
related services to Anesthesia Solutions, Inc., a company in which Dr. Colkitt
is the primary and controlling shareholder. During the three and six month
periods ended June 30, 1996, the Company recognized $396,000 in revenue net of
expenses for these services.
In addition, the Company has operating and capital leases with related parties
as described in Note 8 to the Oncology Group's 1995 combined financial
statements included in EquiMed's Annual Report on Form 10-K for the year ended
December 31, 1995.
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
Results Of Operations
At June 30, 1996, the Company owned or operated 35 oncology centers, 21
ophthalmology centers, ten ambulatory surgery centers ("ASCs"). At June 30,
1995, the Company owned or operated 30 oncology centers and managed four
additional oncology centers. The increase in centers owned or controlled was
attributable to acquisitions during the six months ended June 30, 1996.
Net revenues for the three and six month periods ended June 30, 1996 increased
$14,222,000 and $19,940,000, respectively, when compared to the same periods in
1995. The increased net revenues were entirely attributable to acquisitions.
Professional fees and expenses are incurred at center locations and consist of
physician compensation and liability insurance. Physicians are primarily
compensated on either the profitability of an individual center or a percentage
of professional fees generated. Professional fees and expenses during the three
month period ended June 30, 1996 increased to $7,974,000 from $3,570,000 for the
same period in 1995, or an increase of 123.3%. Professional fees and expenses
during the six month period ended June 30, 1996 increased to $13,261,000 from
$7,717,000 for the same period in 1995, or an increase of 71.8%. These
increased expenses resulted from acquisitions. As a percentage of net revenues,
professional fees and expenses increased during the three month period ended
June 30, 1996 to 27.1% from 23.5% in 1995 and to 26.4% during the six month
period from 25.6% in 1995. These increases were due to a change in the mix of
compensation methods.
Treatment and support services consist of center-related, non-physician payroll
costs, medical, treatment, and optical costs, marketing and other center-related
costs. Treatment and support services during the three month period ended June
30, 1996 increased to $10,823,000 from $4,492,000 for the same period in 1995,
or an increase of 140.9%. Treatment and support services during the six month
period ended June 30, 1996 increased to $18,579,000 from $8,754,000 for the same
period in 1995, or an increase of 112.2% These increased expenses resulted from
acquisitions. As a percentage of net revenues, treatment and support services
increased during the three month period ended June 30, 1996 to 36.8% from 29.6%
in 1995 and to 37.1% during the six month period from 29.0% in 1995. These
increases were primarily attributable to the increase in net revenues
attributable to ophthalmology centers and related ASCs relative to those of
oncology centers. Ophthalmology centers and ASCs have higher levels of costs
associated with their operation, as compared to oncology centers.
14
<PAGE> 16
Results Of Operations (continued)
General and administrative expenses consist of billing, accounting, development,
legal and corporate administrative expenses. General and administrative expenses
during the three months ended June 30, 1996 increased to $3,374,000 from
$1,966,000 for the same period in 1995, or an increase of 71.6%. General and
administrtive expenses during the six month period ended June 30, 1996 increased
to $5,875,000 from $3,609,000 for the same period in 1995, or an increase of
62.8%. As a percentage of net revenues, general and administrative expenses
decreased during the three month period ending June 30, 1996 to 11.5% from 12.9%
in 1995, and to 11.7% during the six month period from 11.9% in 1995. These
increased expenses resulted from (i) an increase in the number of centers in
operation, (ii) an increase in development efforts and (iii) the continued
establishment of an administrative base to support ongoing expansion.
Depreciation consists of depreciation of property and equipment. Amortization
consists primarily of the amortization of excess costs of acquired businesses
over fair value of the net indentifiable assets acquired in connection with
acquisitions, service agreements and non-compete agreements. Depreciation and
amortization increased to $1,788,000, or 6.1% of net revenues, for the three
month period ended June 30, 1996 from $710,000 or 4.7%, for the same period in
1995. Depreciation and amortization increased to $3,068,000 or 6.1% of net
revenues, for the six month period ended June 30, 1996 from $1,376,000 or 4.6%,
for the same period in 1995. These increases were primarily a result of
acquisitions.
Interest expense increased to $868,000, or 3.0% of net revenues, for the three
month period ended June 30, 1996 from $608,000 or 4.0% of the net revenues for
the same period in 1995. Interest expense increased to $1,717,000, or 3.4% of
net revenues, for the six month period ended June 30, 1996 from $1,106,000, or
3.7% of net revenues, for the same period in 1995. These increases were
primarily the result of increased borrowings in conjuction with acquisitions
and borrowings under the Company's factoring arrangement.
Minority interest primarily represents ownership in individual cancer centers
held by entities other than EquiMed. Such entities have included hospitals or
other such health care providers which affiliate with the Company. Minority
interest in the earnings of such centers decreased to $168,000, or 0.6% of net
revenues for the three month period ended June 30, 1996 from $279,000, or 1.8%
of net revenues for the same period in 1995. Minority interest decreased to
$281,000, or 6% of net revenues, for the six month period ended June 30, 1996
from $585,000 or 1.9% of net revenues for the same period in 1995. These
decreases were primarily the result of the Company acquiring increased ownership
in several such centers.
During the three and six month periods ended June 30, 1996, income tax expense
was $1,847,000 and $3,145,000, respectively. During the six month period ended
June 30, 1996, the Company recorded a cumulative adjustment of $1,277,000 to
establish deferred income taxes. Upon completion of the business combination
between the Oncology Group and EquiVision and subsequent merger with and into
EquiMed, certain of the entities which comprised the Oncology Group ceased to
qualify as S Corporations and became subject to corporate income taxes. The
15
<PAGE> 17
Results of Operations (continued)
change from S Corporation to C Corporation resulted in the Company recording the
cumulative effect of deferred taxes due to this change in tax status. During
the three and six month periods ended June 30, 1995, the Company recorded income
tax expense of $562,000 and $1,111,000, respectively.
Liquidity And Capital Resources
At June 30, 1996, the Company had cash and cash equivalents of $3,464,000.
During the six month period ended June 30, 1996, the Company used cash in
operating and investing activities of $2,001,000 and $4,104,000, respectively,
and generated cash of $8,745,000 in financing activities.
Cash flows from operating activities during the six month period ended June 30,
1996 included significant adjustments for cash provided by depreciation and
amortization of $3,069,000 and deferred income taxes of $1,277,000. Cash was
used for the accumulation of accounts receivable and reductions in payables to
affiliates, accounts payable and professional expenses and income taxes payable
of $3,848,000, $2,082,000, $1,428,000 and $1,561,000, respectively. The
accumulation of accounts receivable during the period was attributable to the
lag related to revenue collections associated with acquisitions.
Significant investing activities during the six month period ended June 30,
1996 included cash payments in connection with acquisitions of $3,033,000.
Significant financing activities during the six month period ended June 30,
1996, included $24,222,000 in proceeds from the sale of common stock, repayment
of $25,270,000 in long-term debt and capital lease obligations and $13,361,000
in proceeds from an institutional lender.
On December 4, 1995, the Company received a committment letter from its existing
lender (the "Commitment Letter"), which would increase its existing $20,000,000
credit agreement (the "Credit Agreement"). The Commitment Letter expired by its
terms on February 29, 1996. After continuing to discuss the terms of an
increase in the Credit Agreement, on May 14, 1996, the Company entered into an
amendment to Credit Agreement which limits future borrowings under this facility
to $15,000,000, and limits future acquisitions during the remaining term of the
Credit Agreement which matures on November 30, 1996, to an aggregate of
$50,000,000. Future borrowings under the Credit Agreement are limited to the
funding of working capital and may not be used for acquisitions. The amendment
permits the issuance of common stock and notes payable, as defined by certain
restrictive covenants, to consummate future acquisitions. The Company is
currently pursuing a new credit facility with other commercial lenders to
replace the Credit Agreement prior to its expiration on November 30, 1996.
16
<PAGE> 18
Liquidity and Capital Resources (continued)
During 1995, the Company entered into a factoring arrangement with a major life
insurance company to provide capital. While this facility can provide up to
$6,000,000 in financing, under the terms of the revised Credit Agreement
borrowing may not exceed $5,000,000.
The Company's principal sources of liquidity for working capital and current
operations will be its Credit Agreement, as amended, its factoring arrangement
and operating cash flows. The Company has been considering other capital
alternatives to finance its acquisition strategy. These alternatives include,
among others, an underwritten public or private offering of debt securities.
While the Company believes it will be able to secure adequate funds which, when
combined with the issuance of common stock and promissory notes, will enable it
to consummate its planned acquisitions, there can be no assurance that it will
be able to do so.
17
<PAGE> 19
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
The Company's Chairman and principal stockholder and certain related
entities (collectively, the "Entities") are parties to litigation
brought in September 1989 in the Court of Common Pleas of Allegheny
County, Pennsylvania, by Union National Bank (the "Bank") against the
Entities and the former holders of the minority interests (the
"Minority Holders") in the non-professional component of several
radiation oncology centers, eight of which became part of the Oncology
Group and were acquired by the Company pursuant to the Merger (the
"Centers"). This litigation is based upon alleged defaults on three
lines of credit totaling approximately $8,000,000. While the Company
is not a party to this litigation, such litigation relates to disputes
between the Minority Holders and the Entities with respect to the
Centers. The Bank alleges that the Entities and the Minority Holders
are jointly and severally liable under the lines of credit. On March
27, 1996, a jury verdict was returned finding that, with respect to a
$1,000,000 line of credit, one of the Entities, Oncology Services,
Inc.("OSI"), was neither jointly or severally liable. With respect to a
$5,000,000 line of credit, the jury determined that OSI was jointly and
severally liable with an entity controlled by the Minority Holders. No
judgment has been entered on either finding pending the resolution of
certain issues and no such judgment is expected until the end of 1996.
In addition, on June 26, 1996, a forebearance agreement was entered
into by and among the successor to the Bank and one of the Minority
Holders and its shareholders providing that the Bank would forebear
from executing against the assets of OSI in consideration of the
agreement of one of the Minority Holders and its shareholders to pay
directly to the Bank any proceeds of the Delaware appraisal action
involving the Company, the Entities and the Minority Holders, to the
extent of the lines of credit. Based upon this forebearance agreement,
on July 5, 1996, the court entered an order staying all of the parties
from further execution. Because EquiMed is not a party to this
litigation, the Company believes that no judgment may be directly
entered against the individual centers, or their successor entities.
Item 2: Changes in Securities (No response required)
Item 3: Defaults upon Senior Securities (No response required)
18
<PAGE> 20
Item 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on June 17, 1996.
At such meeting the following matters were voted upon by the
stockholders.
(1) Election of three persons to the Company's Board of Directors as
Class I Directors to serve until the 1998 Annual Meeting of
Stockholders and until their successors are elected and have been
qualified.
Larry W. Pearson
----------------
22,723,052 Affirmative
144,703 Withheld
Brian C. Smith
--------------
22,677,380 Affirmative
190,375 Withheld
Jerome Derdel
-------------
17,655,605 Affirmative
5,212,150 Withheld
Richard C. Holdren
------------------
5,019,900 Affirmative
17,847,855 Withheld
Messrs. Pearson, Smith and Derdel were elected as Class I Directors
(2) Approval of an amendment of the Company's Stock Option Plan to
(a) increase the number of shares authorized for grant and (b) provide
for the automatic grant of stock options to non-employee directors.
For: 21,918,307
Against: 524,005
Abstain: 18,143
Broker non-votes: 404,300
Item 5: Other Information (no response required)
19
<PAGE> 21
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statements re: computation of earnings per share
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Form 8-K filed April 2, 1996.
Form 8-K filed April 18, 1996.
Form 8-K/A filed June 3, 1996.
Form 8-K/A filed June 17, 1996.
20
<PAGE> 22
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.
EQUIMED, INC.
-------------------------------------
(Registrant)
/s/ Larry W. Pearson
-------------------------------------
Larry W. Pearson
President and Chief Executive Officer
August 15, 1996 /s/ William E. Pritts II
-------------------------------------
William E. Pritts II
Chief Financial Officer
21
<PAGE> 23
EQUIMED, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
<S> <C>
11 Statement Regarding Computation of Earnings Per Share 23
27 Financial Data Schedule (for SEC use only) 24
</TABLE>
22
<PAGE> 1
EQUIMED, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1996 1995 1996
---------------------------------------------
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares outstanding 20,784 28,377 20,784 26,711
Net effect of dilutive stock options and warrants-
based on the treasury stock method using
average market price - 31 - 156
------- ------- ------- -------
Weighted average common share and
equivalents outstanding 20,784 28,408 20,784 26,867
======= ======= ======= =======
Net income $ 3,043 $ 2,711 $ 6,020 $ 3,092
======= ======= ======= =======
Net income per share $ 0.10 $ 0.12
======= =======
Pro forma net income $ 2,057 $ 4,173
======= =======
Pro forma net income per share $ 0.10 $ 0.20
======= =======
Fully Diluted:
Weighted average common shares outstanding 20,784 28,377 20,784 26,711
Net effect of dilutive stock options and warrants-
based on the treasury stock method using the
June 30 price, if higher that average market price - 22 - 139
------- ------- ------- -------
Weighted average common share and
equivalents outstanding 20,784 28,399 20,784 26,850
======= ======= ======= =======
Net income $ 3,043 $ 2,711 $ 6,020 $ 3,092
======= ======= ======= =======
Net income per share $ 0.10 $ 0.12
======= =======
Pro forma net income $ 2,057 $ 4,173
======= =======
Pro forma net income per share $ 0.10 $ 0.20
======= =======
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUIMED, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,464
<SECURITIES> 0
<RECEIVABLES> 15,927
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,146
<PP&E> 19,220
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,570
<CURRENT-LIABILITIES> 32,138
<BONDS> 14,108
0
0
<COMMON> 82,178
<OTHER-SE> (10,598)
<TOTAL-LIABILITY-AND-EQUITY> 121,570
<SALES> 0
<TOTAL-REVENUES> 50,142
<CGS> 0
<TOTAL-COSTS> 40,783
<OTHER-EXPENSES> (280)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,717
<INCOME-PRETAX> 7,641
<INCOME-TAX> 3,145
<INCOME-CONTINUING> 3,219
<DISCONTINUED> 0
<EXTRAORDINARY> (127)
<CHANGES> 0
<NET-INCOME> 3,092
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
