<PAGE>
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 March 31, 1997
--------------
OF
[] 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 0-27456
EQUIMED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 25-1668112
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(State or other jurisdiction (I.R.S.Employer
of incorporation) Identification No.)
2171 Sandy Drive
State College, Pennsylvania 16801
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(Address of principal executive offices) (Zip Code)
(814) 238-0375
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(Registrant's telephone number, including area code)
N/A
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(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, 27,358,862 shares outstanding as of May 31, 1997.
<PAGE>
EquiMed, Inc.
FORM 10-Q
For the Quarter Ended March 31, 1997
PART 1 - FINANCIAL INFORMATION
Page
------
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1997 2
Condensed Consolidated Income Statements
for the Three Months ended March 31, 1996 and
1997 3
Condensed Consolidated Statement of
Stockholders' Equity for the Three Months
ended March 31, 1997 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1996 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
<PAGE>
EquiMed, Inc
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
December 31 March 31
1996 1997
------------ ---------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 27,010 $ 12,841
Accounts receivable, net 6,307 7,830
Receivables from affiliates 9,718 16,586
Prepaid expenses and other current
assets 1,607 2,345
Deferred income taxes 3,171 3,529
------- -------
Total current assets 47,813 43,131
Property and equipment, net 12,379 23,361
Management agreements, net of accumulated
amortization 5,490 14,480
Advances to principal stockholder 5,025 2,286
Other assets 884 930
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71,591 84,188
------- -------
Liabilities and stockholders' equity
Current liabilities
Accounts payable 1,312 2,334
Payable to affiliates 7,815 6,933
Accrued salaries and professional fees 3,243 3,407
Other accrued expenses 6,006 6,295
Income taxes payable 7,921 9,273
Current portion of long-term debt 686 2,342
Current portion of obligations under
capital leases:
Related parties 354 317
Other 717 2,680
------- -------
Total current liabilities 28,054 33,581
Long-term debt, net of current portion 2,431 7,609
Obligations under capital leases, net of
current portion:
Related parties 1,545 1,397
Other 1,853 5,484
Deferred income taxes 771 771
Minority interest 1,473 1,765
Commitments and contingencies 0 0
Stockholders' equity:
Preferred stock, 1,000,000 authorized 0 0
shares, none issued
Common stock, $.0001 par value,
authorized 100,000,000 shares,
issued and outstanding 28,591,474 as of
December 31, 1996 and issued 28,591,474
and outstanding 27,600,302 as of
March 31, 1997 3 3
Less Treasury stock, 991,172 shares, at cost
as of March 31, 1997 0 (3,611)
Additional paid-in capital 81,600 81,600
Partner's Capital 657 657
Retained deficit (46,796) (45,068)
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35,464 33,581
------- -------
71,591 84,188
------- -------
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
EquiMed, Inc.
Condensed Consolidated Income Statements
(in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
1996 1997
------- -------
Net revenues $20,732 $17,707
Costs and expenses:
Professional fees and expenses 5,287 3,621
Treatment and support services 7,756 6,274
General and administrative expenses 2,501 1,632
Depreciation and amortization 1,121 1,122
Amortization of EquiVision, Inc.
acquisition 159 0
Interest expense:
Related parties 234 161
Other 406 412
Loss on sale of receivables 209 127
Other income, net (137) (89)
------- -------
Total costs and expenses 17,536 13,260
Income (loss) before minority interest,
extraordinary items and income taxes 3,196 4,447
Minority interest 113 292
------- -------
Income before income taxes 3,083 4,155
Provision for income taxes 1,298 1,352
Cumulative adjustment to establish
deferred income taxes 1,277 0
------- -------
Total provision for income taxes 2,575 1,352
Net income before extraordinary charge 508 2,802
Extraordinary charge from refinancing of
debt, net of income taxes 127 0
------- -------
Net income 381 2,802
------- -------
Net income per share before extraordinary
charge $ 0.02 $ 0.10
Extraordinary charge -- --
------- -------
Pro forma net income per share $ 0.02 $ 0.10
------- -------
Weighted average common shares and
equivalents 25,327 28,035
------- -------
See notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
EquiMed, Inc.
Condensed Consolidated Statement of
Stockholders' Equity
Three Months Ended March 31, 1997
(Unaudited)
(in thousands, except share amounts)
Common Stock Additional
- - Treasury Stock Paid-in Partner's Retained
Shares Amount Shares Cost Capital Capital Deficit Total
-------------- ------- -------- -------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 28,591,474 $3 0 0 $81,600 $657 ($46,796) $35,464
Dividend (1,074) (1,074)
Repurchase of common stock
using Treasury method 991,173 (3,611) (3,611)
Net Income 2,802 2,802
-------------- ------- -------- -------- ---------- ---------- -------- -------
Balance, March 31, 1997 28,591,474 $3 991,173 (3,611) $81,600 $657 ($45,068) $33,581
============== ======= ======== ======== ========== ========== ======== =======
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
EquiMed, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three months ended
March 31
1996 1997
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Cash flows from operating activities
Net income (loss) $ 381 $2,802
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,281 1,122
Deferred income taxes 1,277 0
Minority interest 113 292
Changes in operating assets and
liabilities, net of acquired businesses
Accounts receivable (1,464) (1,523)
Receivables from/payable to affiliates (424) (7,750)
Prepaid expenses and other current assets (471) (738)
Accounts payable (586) 1,022
Accrued salaries and benefits (516) 164
Other accrued expense 208 289
Income taxes payable (1,051) 1,352
---------- -------
Net cash (used in) by operating activities (1,252) (2,967)
Cash flows from investing activities
Payments for practices acquired, net of
cash acquired (1,530) (5,933)
Purchase of property and equipment (218) (604)
Decrease in other assets 148 (46)
---------- -------
Net cash used in investing activities (1,600) (6,583)
Cash flows from financing activities
Proceeds from long-term borrowings 8,425 591
Repayment of long-term debt (19,448) (160)
Proceeds from issuance of common stock 24,221 0
Repurchase of common stock 0 (3,611)
Repayment of obligations under capital
leases:
Related parties (2,976) (185)
Other (1,715) (180)
Distributions:
Primary owner (3,543) (1,074)
Minority owners (8) 0
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Net cash provided by (used in) financing 4,956 (4,619)
activities
---------- -------
Net increase/(decrease) in cash 2,104 (14,169)
Cash at beginning of period 824 27,010
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Cash at end of period 2,928 12,841
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See notes to condensed consolidated financial statements
5
<PAGE>
EquiMed, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1997
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
EquiMed, Inc., a Delaware corporation ("EquiMed" or the "Company") is
the legal successor to EquiVision, Inc., a Pennsylvania corporation
("EquiVision"), which was incorporated in October 1991 and commenced
operations as an ophthalmology-related and physician practice management
business, effective January 1, 1992. EquiVision completed its initial
public offering in November 1993 and has been a reporting company under the
Securities Exchange Act of 1934 (the "Exchange Act") since that time.
EquiMed is the result of the merger between EquiVision and Colkitt
Oncology Group, Inc., a Delaware corporation (the "Oncology Group"), and
the subsequent reincorporation merger of EquiVision with and into its
wholly owned Delaware subsidiary, EquiMed. These two mergers are referred
to collectively herein as the "Merger." The business combination of the
Oncology Group and EquiVision was accounted for as a reverse purchase. As a
result, the Oncology Group was considered for financial reporting purposes
as the acquiror. The Merger was consummated on February 2, 1996, and a
follow-up public offering was completed on February 15, 1996 consisting of
shares sold by the Company and a selling stockholder. The Oncology Group
was formed in order to facilitate the acquisition by EquiVision, of Equimed
Common Stock and the subsequent acquisition by EquiMed, of the stock and
assets of various corporations, partnerships and joint ventures owning or
controlling 30 radiation oncology centers comprising the Oncology Group.
Pursuant to the merger agreement the stockholders of the Oncology Group
received approximately 21 million shares of the Company's common stock
(the "Common Stock"). Douglas R. Colkitt, M.D., the principal stockholder
of the Oncology Group, is currently the Chairman, Chief Executive Officer
and also the principal stockholder of the Company. Dr. Colkitt became the
Chief Executive Officer of EquiMed on January 1, 1997. Pursuant to the
Merger, EquiMed succeeded to all of the assets, liabilities and contractual
obligations of EquiVision and of the Oncology Group.
In addition to the acquisition of the radiation oncology centers, the
Oncology Group had entered into management agreements (the "Management
Agreements") with the professional corporations affiliated with such
radiation oncology centers and owned by Dr. Colkitt. These professional
corporations employ physicians that maintain medical practices and provide
medical care to patients receiving treatment at the radiation oncology
centers.
In general, the Management Agreements provide that EquiMed, as the
surviving corporation of the Merger, must supply the professional
corporations with offices and facilities, non-professional personnel,
inventory, supplies and management and administrative services. Under the
terms of the Management Agreements, EquiMed is responsible for billing and
collecting the receivables of the professional corporations. Although each
professional corporation has legal title to its receivables and net
revenues from patient care, EquiMed is an agent of each of the professional
corporations for purposes of billing and collection activities.
The Company currently owns, operates or manages 35 radiation oncology
centers (the "Oncology Centers") and operates or manages the professional
corporations affiliated with such Oncology Centers. In addition, the
Company currently manages five complementary subspecialty medical practices
in medical oncology, urology, and internal medicine. The professional
corporations and the subspecialty medical practices are hereinafter
collectively referred to as the "Affiliated Medical Practices."
EquiMed is a transnational holding company for a group of companies
focused primarily on the provision of physician practice management
services, information technology and outsourcing services primarily to the
health care industry. The Company provides medical practice management
services to the Oncology Centers and Affiliated Medical Practices. In
addition, through its management services organization division (the "MSO
Division") the Company provides data processing, billing, accounting,
collections and other administrative and outsourcing services to the health
care industry and other businesses. The Oncology Centers and Affiliated
Medical Practices provide medical services in selected U.S. geographic
markets. Through wholly and majority owned subsidiaries, the Company also
engages in real estate leasing, provides medical and legal transcription
services, established and operates a cosmetic laser treatment center and is
involved, through a captive insurance company, in the reinsurance of
professional liability for the Oncology Centers and the Affiliated Medical
Pratices and workers' compensation insurance.
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 presentation
have been included. Operating results for the three month period ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information,
refer to the financial statements and footnotes thereto in the Company's
annual report on Form 10-K for the year ended December 31, 1996.
6
<PAGE>
EQUIMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. OTHER BUSINESS ACQUISITIONS
On January 1, 1997, the Company acquired several support companies from Douglas
R. Colkitt, M.D. for $2,738,755 in cash (including acquisition costs). These
business combinations have been accounted for as purchases. Purchase price in
excess of book value of these related entities wholly owned by Dr. Colkitt have
been reflected as dividends paid.
On January 3, 1997, the Company acquired the assets of Prophecy Health
Management, Inc. for $500,000, consisting of $450,000 in cash (including
acquisition costs) and notes payable in the amount of $50,000. The business
combination was accounted for as a purchase.
On January 8, 1997, the Company acquired the assets of three court reporting
companies known as Doyle Court Reporting for $4,473,471, consisting of
$2,473,471 in cash (including acquisition costs), and notes payable in the
amount of $2,000,000 plus an additional earn-out of $300,000 in cash. The
business combination was accounted for as a purchase.
On February 5, 1997, the Company acquired the assets of Riverdale Home
Therapies, Inc. for $2,271,000 in cash (including acquisition costs). The
business combination was accounted for as a purchase.
On February 11, 1997, the Company acquired the assets of Oaklane Cancer &
Hematology Clinic for $2,291,000, consisting of $1,191,000 in cash (including
acquisition costs) and notes payable in the amount of $1,100,000. The business
combination was accounted for as a purchase.
A summary of assets acquired in the business combinations accounted for as
purchases, during the three months ended March 31, 1997 is (in thousands):
Cash 319
Accounts receivable 346
Prepaid expense and other current assets 643
Property & equipment 11,457
Management services agreements 8,913
---------
$ 21,566
---------
The pro forma unaudited results of operations for the three months ended March
31, 1996 and 1997, assuming consummation of the purchases described above, as of
January 1, 1996, are (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1997
- -------------------------------------------------------
<S> <C> <C>
Net Revenues $23,879 $17,961
Income before extraordinary items 1,080 2,894
Net Income 953 2,894
Net income per share before
extraordinary item .04 .10
Net income per share .03 .10
</TABLE>
7
<PAGE>
EQUIMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. BUSINESS DISPOSITIONS
Effective on November 1, 1996, the Company sold its opthalmology centers (the
"Ophthalmology Division") to Physician Resource Group and its wholly owned
subsidiary, PRG Georgia, Inc. (collectively, "PRG"). The consideration received
by the Company for the sale to PRG was approximately $55,077,000 in cash and the
assumption by PRG of approximately $16,611,000 of liabilities. In addition, the
Company agreed to assist PRG in its acquisition of additional ophthalmology
practices from November 1996 to April 1997 in consideration for negotiated fees
and expenses based on the number of additional ophthalmology practice
acquisitions accomplished in such period.
The operating results of the Ophthalmology Division included in the Company's
1996 results of operations for the period from February 1, 1996 through March
31, 1996 are as follows (amounts in thousands):
Net revenues 7,875
Cost and expenses
Professional expenses 2,078
Center operating expenses 3,701
General and administrative expenses 1,193
Depreciation and amortization 504
Interest expense 157
Other income, net 0
-----
Total costs and expenses 7,633
Net income before taxes 242
Provision for income taxes 92
-----
Net income 150
4. COMMITMENTS AND CONTINGENCIES
In connection with the Merger, Dr. Colkitt has indemnified the Company
from any income tax liabilities, if any, not reflected in the financial
statements of the Oncology Group related to any period or periods prior
to the Merger (the "General Indemnification Agreement").
On March 21, 1996, the Company entered an appearance as a plaintiff to a
declaratory judgment action commenced August 30, 1995, in the Delaware
Court of Chancery. The litigation seeks a declaration that the merger of
the non-professional component of eight oncology centers into the Oncology
Group prior to the Merger was effected in accordance with applicable
Delaware law and that the merger consideration was fair to the interests
held by minority shareholders (the "Minority Holders") in connection with
the purchase of their shares. The Minority Holders have filed answers and
counterclaims in the Delaware action against the Company and other
counterclaim defendants for breach of fiduciary duty, breach of contract,
fraud and other violations of Delaware statutory law. The counterclaims
seek rescision of the August 1995 mergers of the eight corporations and
compensatory and / or rescissory damages. The Minority Holders allege that
the value of their holdings that were cancelled pursuant to these mergers
exceeded $50,000,000.
While Dr. Colkitt and the entities that were merged into the Company
pursuant to the Merger believe they have meritorious defenses to the
allegations of the Minority Holders, Dr. Colkitt has entered into an
agreement with the Company to fully indemnify the Company against any
damage, loss, expense or liability, including attorneys' fees and
expenses, incurred by the Company resulting from the litigation with the
Minority Holders (the "MH Indemnification Agreement").
As a part of the General and MH Indemnification Agreements, Dr. Colkitt is
required to place shares of the Company's stock held by him with the
Company. Dr. Colkitt has placed shares of the Company's stock with the
Company based upon the Company's estimate of any potential damage, loss,
expense or liability, including attorneys' fees and expenses, which may be
incurred by the Company resulting from the litigation with the Minority
Holders and from any income tax liabilities not reflected in the financial
statements of the Oncology Group related to any period or periods prior to
the Merger.
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 operations.
On May 15, 1997, the Company filed Demand for Arbitration before the American
Arbitration Association in Philadelphia, Pennsylvania to enforce certain terms
of the Asset Purchase Agreement dated October 7, 1996 between the Company and
PRG (the "Agreement") and to recover damages for breach of the Agreement by PRG.
Under the Agreement, the Company sold substantially all of the assets of its
Ophthalmology Division to PRG and also agreed, during the period beginning
November 1996 and ending April 1997, to assist PRG in the acquisition of
additional ophthalmology practices. In return for such additional services, the
Company is entitled to receive from PRG certain fees and expenses based upon the
status of such additional acquisitions as of May 15, 1997. PRG failed to make
the May 15, 1997 payment to the Company and has advised the Company that it does
not intend to make such payment. Under the Demand for Arbitration, the Company
is also seeking damages in connection with PRG's refusal to provide the
Company's representatives with access to financial records of the Ophthalmology
Division, which refusal had delayed the Company's ability to complete its annual
audit and filings required under the Securities Exchange Act of 1934, as
amended. There can be no assurance that PRG will not assert a material
counterclaim against the Company.
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.
The Company has been named in two actions relating to professional
liability claims at one of its ophthalmology centers. The claims pertain
to a period when the Company was partially self insured for that center.
The Company intends to defend these claims vigorously and believes it has
meritorious defenses. Management believes the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial position or the results of operations.
The Company and its subsidiaries are not parties nor is the Company's property
subject to any other material litigations or proceedings, other than the
litigation described above and other litigation incidental to business.
8
<PAGE>
EQUIDMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. 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. During
1996 and through March 31, 1997, the Company failed to comply with certain
covenants of the receivable purchase agreement. Remedies available to Alden due
to these events of noncompliance include termination of the receivable purchase
agreement. Proceeds to the Company from receivables sold under this agreement
were approximately $8,278,000 for the three months ended March 31, 1997. At
March 31, 1997, the balance of receivables transferred that remain uncollected
was approximately $4,984,000.
The Company has contracted with National Medical Financial Services ("NMFS"), a
company in which Dr. Colkitt is the Chairman and a principal 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 Company's accounting personnel were transferred to a
company controlled by Dr. Colkitt and a subcontractor of NMFS. During the three
months ended March 31, 1996 and 1997, the Company expensed $585,000 and
$545,000, 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.
6. SUBSEQUENT EVENTS
Effective April 1, 1997, the Company also acquired from Dr. Colkitt all of the
capital stock of a group of management services companies including Russell Data
Services, Inc., Billing Services Inc., Trident International Accounting, Inc.,
Tiger Communications International, Ltd and an 80% interest in Nittany Decision
Services Private Limited (collectively, the "Management Services Companies").
The total consideration paid for the Management Services Companies was
$6,000,000 plus a potential earn-out of up to $9,300,000 payable in Common Stock
in the event the Management Services Companies achieve aggregate combined pre-
tax earnings of 3,500,000 in 1997.
7. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard no. 128 "Earnings per Share" ("SFAS 128"), which
will change the current method of computing earnings per share. The new standard
requires presentation of "basic earnings per share" and "diluted earnings per
share" amounts, as defined. SFAS 128 will be effective for the Company's quarter
and year ending December 31, 1997, and upon adoption, all prior-period earnings
and per share data presented will be restated to conform with the provisions of
the new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The Company does not believe the application
of the new standard will materially impact the financial statements.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results Of Operations
At March 31, 1997, the Company owned, operated or managed 35 radiation
oncology centers, operated or managed the Affiliated Medical Practices
associated with such oncology centers and five complementary subspecialty
medical practices. In addition, the Company owned three equipment or real estate
leasing companies, two transcription companies and had established billing,
collections and other outsourcing subsidiaries and a captive insurance company.
At March 31, 1996, the Company owned, operated or managed 34 oncology centers
and 20 ophthalmology centers. The decrease in centers owned, operated or managed
was attributable to the sale of the Ophthalmology Division offset by
acquisitions of four complementary medical practices, one oncology center, three
leasing companies and two transcription companies during the twelve month period
ended March 31, 1997.
Net revenues for the three months ended March 31, 1997 decreased 14.6% to
$17,707,000 from $20,732,000 for the same period in 1996. The decrease in net
revenues was attributable to the sale of ophthalmology centers (which generated
net revenues of $7,875,000 in the three months ended March 31, 1996)
offset by the net revenues of 4,676,000 generated by the newly acquired
businesses in the three month period ended March 31, 1997.
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 March 31, 1997 decreased 31.5% to $3,621,000 from $5,287,000
for the same period in 1996. These decreased expenses resulted from the sale of
Ophthalmology Division. As a percentage of net revenues, professional fees and
expenses decreased to 20.5% in the three month period ended March 31, 1997 from
25.5% in the same period in 1996. This decrease was due to a change in the mix
of the businesses included with the Company.
Treatment and support services consist of center-related, non-physician
payroll costs, medical, treatment, and optical cost, marketing and other center-
related cost. Treatment and support services during the three month period ended
March 31, 1997 decreased 18.5% to $6,274,000 from $7,756,000 for the same period
in 1996. These decreased expenses resulted from the sale of ophthalmology offset
by subsequent acquisitions. As a percentage of net revenues, treatment and
support services decreased to 35.4% in 1997 from 37.4% in 1996. This decrease
was due to a change in the mix of businesses included with the Company.
General and administrative expenses consist of billing, accounting,
development, legal and corporate administrative expense. General and
administrative expenses during the three months ended March 31, 1997 decreased
34.7% to $1,632,000 from $2,501,000 for the same period in 1996. As a percentage
of net revenues, general and administrative expenses decreased to 9.2% in 1997
from 12.1% in 1996. These decreased expenses resulted from the sale of the
Ophthalmology Division.
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 identifiable assets acquired in connection with
acquisitions. Depreciation and amortization decreased to $1,122,000, or 6.3% of
net revenues, for the three month period ended March 31, 1997 from $1,121,000,
or 5.4% of net revenues for the same period in 1996. There was no material
change due to the mix of the businesses included with the Company, as a result
of acquisitions.
Interest expense decreased to $700,000, or 4.0% of net revenues, for the three
month period ended March 31, 1997 from $849,000, or 4.1% of the net revenues for
the same period in 1996, primarily as a result of decreased borrowings and
the repayment of debt.
Minority interest primarily represents interest in individual cancer centers
held by entities other than the Company. Such entities have included hospitals
or other such health care providers which enter into affiliation arrangements
with the Company. Minority interest in the earnings of such centers increased to
$292,000, or 1.6% of net revenue for the three month period ended March 31, 1997
from $113,000, or .6% of net revenues for the same period in 1996. This increase
was primarily the result of improved profitability of those centers with
minority interest holdings.
During the three month period ended March 31, 1997, the Company recorded
income tax expense of $1,352,000. During the three month period ended March 31,
1996, the Company recorded income tax expense of $1,298,000.
10
<PAGE>
Liquidity And Capital Resources
At March 31, 1997, the Company had cash and cash equivalents of $12,841,000.
During the three month period ended March 31, 1997, the Company used cash in
operating activities of $2,967,000 and used cash in investing and financing
activities of $6,583,000 and $4,619,000, respectively.
Cash flows from operating activities during the three month period ended March
31, 1997 included net income of $2,802,000 and a subsequent adjustments for
cash provided by depreciation and amortization of $1,122,000. Cash was provided
by increases in accounts payable, accrued salaries, accrued expenses and income
taxes payable of $1,022,000, $164,000, $289,000 and $1,352,000, respectively,
offset by accumulation of accounts receivable and related party receivables
of $1,523,000 and $7,750,000, respectively. The accumulation of accounts
receivable was attributable to a reduction in the level of accounts receivable
sold under the Company's factoring arrangement.
The Company's principal sources of liquidity for working capital and current
operations will be its factoring arrangement and cash flows from operations. The
Company has been considering other capital alternatives to finance its
acquisitions strategy. 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.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
On May 15, 1997, the Company filed Demand for Arbitration before the American
Arbitration Association in Philadelphia, Pennsylvania to enforce certain terms
of the Asset Purchase Agreement dated October 7, 1996 between the Company and
PRG (the "Agreement") and to recover damages for breach of the Agreement by PRG.
Under the Agreement, the Company sold substantially all of the assets of its
Ophthalmology Division to PRG and also agreed, during the period beginning
November 1996 and ending April 1997, to assist PRG in the acquisition of
additional ophthalmology practices. In return for such additional services, the
Company is entitled to receive from PRG certain fees and expenses based upon the
status of such additional acquisitions as of May 15, 1997. PRG failed to make
the May 15, 1997 payment to the Company and has advised the Company that it does
not intend to make such payment. Under the Demand for Arbitration, the Company
is also seeking damages in connection with PRG's refusal to provide the
Company's representatives with access to financial records of the Ophthalmology
Division, which refusal had delayed the Company's ability to complete its annual
audit and filings required under the Securities Exchange Act of 1934, as
amended. There can be no assurance that PRG will not assert a material
counterclaim against the Company.
Item 5: Other Information [No response required]
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re: computation of earnings per
share
(27) Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed January 28, 1997 reporting an
acquisition under Item 5.
12
<PAGE>
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.
/s/ Douglas R. Colkitt
-----------------------
Douglas R. Colkitt
Chairman and Chief Executive Officer
/s/ Daniel Beckett
------------------------
Daniel Beckett
Chief Financial Officer
June __, 1997
13
<PAGE>
<TABLE> EXHIBIT 11
<CAPTION>
EQUIMED, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three months
ended
March 31,
1996 1997
----------------
<S> <C> <C>
Primary:
Weighted average common 25,045 28,035
shares outstanding
Net effect of dillutive stock
options and warrants-
based on the treasury
stock method using
average market price 282 --
--------- --------
Weighted average common share
and equivalent outstanding 25,327 28,035
--------- --------
Net Income (loss) 381 2,802
--------- --------
Net income per share 0.02 0.10
--------- --------
Fully Diluted:
Weighted average common
shares outstanding 25,045 28,035
Net effect of dillutive stock
options and warrants-
based on the treasury
stock method using
average market price 282 --
--------- --------
Weighted average common share
and equivalent outstanding 25,327 28,035
--------- --------
Net Income (loss) 381 2,802
--------- --------
Net income per share 0.02 0.10
--------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUIMED, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,841
<SECURITIES> 0
<RECEIVABLES> 7,830
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,131
<PP&E> 23,361
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,188
<CURRENT-LIABILITIES> 33,581
<BONDS> 19,829
0
0
<COMMON> 77,989
<OTHER-SE> (45,068)
<TOTAL-LIABILITY-AND-EQUITY> 84,188
<SALES> 0
<TOTAL-REVENUES> 17,707
<CGS> 0
<TOTAL-COSTS> 12,649
<OTHER-EXPENSES> (89)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 700
<INCOME-PRETAX> 4,155
<INCOME-TAX> 1,352
<INCOME-CONTINUING> 2,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,802
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
