-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vf6Gb9xedfKQoWkggY4vkPrA+bFSC8/0aRppTp7iRPz9zjVMYbyIs2WWAXnbUfrh A18v3SSuUvPXWdU/BsLi1A== 0000913906-99-000104.txt : 19991027 0000913906-99-000104.hdr.sgml : 19991027 ACCESSION NUMBER: 0000913906-99-000104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19991026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIMEDEX HEALTH SYSTEMS INC CENTRAL INDEX KEY: 0000790526 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 133326724 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19019 FILM NUMBER: 99733992 BUSINESS ADDRESS: STREET 1: 1516 COTNER AVE CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 2014919494 MAIL ADDRESS: STREET 1: PRIMEDEX HEALTH SYSTEMS INC STREET 2: 1516 COTNER AVE CITY: LOS ANGELES STATE: CA ZIP: 90025 FORMER COMPANY: FORMER CONFORMED NAME: CCC FRANCHISING CORP DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended July 31, 1999 Commission File Number 0-19019 PRIMEDEX HEALTH SYSTEMS, INC. ----------------------------- (Exact name of registrant as specified in charter) New York 13-3326724 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1516 Cotner Avenue Los Angeles, California 90025 ----------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 478-7808 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities and 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 X No Number of shares outstanding of the issuer's common stock as of October 12, 1999 was 38,932,760 [excluding treasury shares]. PRIMEDEX HEALTH SYSTEMS, INC. PART I - FINANCIAL INFORMATION The condensed consolidated financial statements included herein have been prepared by the Registrant without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Registrant's latest Annual Report on Form 10-K. In the opinion of the Registrant, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Registrant as of July 31, 1999, and the results of its operations and changes in its cash flows for the nine months ended July 31, 1999 and 1998, have been made. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the entire year. 1 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------ July 31, October 31, 1 9 9 9 1 9 9 8 [Unaudited] Assets: Current Assets: Cash and Cash Equivalents $ 35,955 $ 59,495 Accounts Receivable - Net 15,584,012 15,429,057 Unbilled Receivables 214,348 10,675 Other Receivables 93,381 47,870 Due from Related Party 170,000 140,000 Other 872,631 1,940,230 ------------ ------------ Total Current Assets 16,970,327 17,627,327 ------------ ------------ Property and Equipment - Net 33,996,239 26,970,584 ------------ ------------ Other Assets: Accounts Receivable - Net 3,836,993 3,713,956 Due from Related Parties 129,875 133,260 Goodwill - Net 10,774,485 11,313,907 Other 2,197,388 2,897,380 ------------ ------------ Total Other Assets 16,938,741 18,058,503 ------------ ------------ Total Assets $ 67,905,307 $ 62,656,414 ============ ============ See Notes to Consolidated Financial Statements. 2 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------ July 31, October 31, 1 9 9 9 1 9 9 8 [Unaudited] Liabilities and Stockholders' Deficit: Current Liabilities: Cash Overdraft $ 2,218,106 $ 1,729,994 Accounts Payable 6,663,005 5,747,988 Accrued Expenses 5,127,089 3,535,840 Accrued Expenses - Professional Fees 1,515,587 1,753,987 Notes and Leases Payable 32,523,036 24,388,427 Accrued Litigation Settlement 1,755,995 --- Deferred Revenue - Covenant Not-to-Compete 200,000 200,000 Other 85,918 462,343 Due to Related Party 5,000 --- ------------ ------------ Total Current Liabilities 50,093,736 37,818,579 ------------ ------------ Long-Term Liabilities: Subordinated Debentures Payable 20,037,000 20,718,000 Notes Payable - Related Parties 2,553,854 2,553,854 Notes and Leases Payable 56,027,281 54,143,158 Deferred Revenue - Covenant Not-to-Compete 1,316,667 1,466,666 Accrued Expenses - Professional Fees 370,645 399,872 ------------ ------------ Total Long-Term Liabilities 80,305,447 79,281,550 ------------ ------------ Commitments and Contingencies --- --- ------------ ------------ Minority Interest 582,542 676,114 ------------ ------------ Redeemable Stock 160,000 240,000 ------------ ------------ Stockholders' Deficit: Common Stock - $.01 Par Value, 100,000,000 Shares Authorized; 40,757,760 and 40,757,260 Shares Issued; 38,932,760 and 39,132,260 Shares Outstanding at July 31, 1999 and October 31, 1998, respectively 407,577 407,572 Paid-In Capital 99,336,645 99,251,650 Stock Subscription - Related Party (30,000) (30,000) Due from Related Party (954,553) (899,143) Retained Earnings [Deficit] (161,301,140) (153,474,961) ------------- ------------- Totals (62,541,471) (54,744,882) Less: Treasury Stock - 1,825,000 and 1,625,000 Shares, at cost at July 31, 1999 and October 31, 1998, respectively (694,947) (614,947) ------------- ------------- Total Stockholders' Deficit (63,236,418) (55,359,829) ------------- ------------- Total Liabilities and Stockholders' Deficit $ 67,905,307 $ 62,656,414 ============ ============ See Notes to Consolidated Financial Statements. 3 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED] - ------------------------------------------------------------------------------ Three months ended Nine months ended July 31, July 31, -------- -------- 1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8 ------- ------- ------- ------- Revenue: Revenue $ 44,422,477 $34,365,793 $123,621,592 $97,915,332 Less: Allowances 25,539,821 18,392,208 70,008,331 51,982,235 ------------ ----------- ------------ ----------- Net Revenue 18,882,656 15,973,585 53,613,261 45,933.097 ------------ ----------- ------------ ----------- Operating Expenses: Operating Expenses 14,890,494 12,877,801 44,530,329 37,894,776 Depreciation and Amortization 1,925,820 2,162,650 5,756,139 6,436,960 Provision for Bad Debts 957,334 557,904 2,608,893 1,571,623 Impairment Loss of Long-Lived Assets --- --- 478,646 --- ------- ----------- ------------ ----------- Total Operating Expenses 17,773,648 15,598,355 53,374,007 45,903,359 ------------ ----------- ------------ ----------- Income from Operations 1,109,008 375,230 239,254 29,738 ------------ ----------- ------------ ----------- Other [Expenses] and Revenue: Interest Expense (2,705,130) (2,389,833) (7,899,104) (6,931,284) Interest Income 19,522 22,600 67,962 190,268 [Loss] Gain on Sale of Assets 80,969 873,942 (95,540) 1,214,652 Loss from Litigation Settlement --- --- (1,755,995) --- Other Income [Expense] 143,062 (592,849) 239,428 (630,881) ------------ ------------------------ ------------ Total Other [Expenses] (2,461,577) (2,086,140) (9,443,249) (6,157,245) -------------------------------------- ------------ [Loss] Before Minority Interest in Income of Subsidiaries, Extraordinary Item and Cumulative Effect of Change in Accounting Principle (1,352,569)(1,710,910) (9,203,995) (6,127,507) Minority Interest in [Income] Loss of Subsidiaries 3,949 (69,375) (6,428) (257,253) ------------ ------------------------- ------------ [Loss] Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle (1,348,620) (1,780,285) (9,210,423) (6,384,760) Extraordinary Item-Gain from Early Extinguishment of Debt [Net of Income Taxes of $-0- for the six months ended April 30, 1999 and 1998, respectively] --- 80,795 1,384,244 1,042,680 ----- ----------- ------------ ----------- [Loss] Before Cumulative Effect of Change in Accounting Principle - Forward $ (1,348,620)$(1,699,490)$ (7,826,179) $(5,342,080)
See Notes to Consolidated Financial Statements. 4 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED] - ------------------------------------------------------------------------------ Three months ended Nine months ended July 31, July 31, -------- -------- 1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8 ------- ------- ------- ------- [Loss] Before Cumulative Effect of Change in Accounting Principle - Forwarded $(1,348,620) $(1,699,490)$ (7,826,179) $ (5,342,080) Cumulative Effect of Change in Accounting Principle --- --- --- (779,294) ----------- ----------- ------------ ------------- Net [Loss] $(1,348,620) $(1,699,490)$ (7,826,179) $ (6,121,374) ============ ========================= ============= Basic EPS: [Loss] Before Extraordinary Item and Change in Accounting Principle $ (.03) $ (.04)$ (.22) $ (.16) Extraordinary Item .00 --- .03 .03 Change in Accounting Principle-- Write-off of Costs of Start-up Activities --- --- --- (.02) ----------- ----------- ------------ ------------- Net [Loss] $ (.03) $ (.04)$ (.19) $ (.15) ============ ========================= ============= [Loss] Available to Common Shareholders and Assumed Conversions $(1,348,620) $(1,699,490)$ (7,826,179) $ (6,121,374) ============ ========================= ============= Diluted EPS: [Loss] Before Extraordinary Item and Change in Accounting Principle $ (.03) $ (.04)$ (.22) $ (.16) Extraordinary Item .00 --- .03 .03 Change in Accounting Principle-- Write-off of Costs of Start-up Activities --- --- --- (.02) ----------- ----------- ------------ ------------- Net [Loss] $ (.03) $ (.04)$ (.19) $ (.15) ============ ========================= =============
See Notes to Consolidated Financial Statements. 5 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - ------------------------------------------------------------------------------ Common Stock Retained Due from Stock Total Number Par Value Treasury Paid-in Earnings Related Subscription Stockholders' of Shares Amount Stock Capital [Deficit] Party Related Party [Deficit] --------- ------ ----- ------- --------- ----- ------------- ---------- Balance - November 1, 1998 40,757,260 $407,572 $(614,947) $99,251,650 $(153,474,961) $ (899,143) $ (30,000) $(55,359,829) Issuance of Common Stock 500 5 --- 4,995 --- --- --- 5,000 Acquisition of Treasury Stock --- --- (80,000) 80,000 --- --- --- --- Imputed Interest Income --- --- --- --- --- (55,410) --- (55,410) Net Loss for the nine months ended July 31, 1999 --- --- --- --- (7,826,179) --- --- (7,826,179) --------- -------- --------- ----------- -------------- ----------- --------- ------------- Balance - July 31, 1999 [Unaudited] 40,757,760 $407,577 $(694,947) $99,336,645 $(161,301,140) $ (954,553) $ (30,000) $(63,236,418) ========== ======== ========== =========== ============== ============ ========== =============
See Notes to Consolidated Financial Statements. 6 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] - ------------------------------------------------------------------------------ Nine months ended July 31, 1 9 9 9 1 9 9 8 ------- ------- Cash Provided by [Used for] Operating Activities $ 1,127,720 $ (3,001,550) ------------ ------------- Investing Activities: Acquisitions - Net of Cash Acquired (100,000) (1,718,120) Purchase of Property and Equipment (4,785,209) (1,648,267) Purchase of Other Assets (108,750) --- Proceeds - Sale of Centers and Equipment 977,000 685,038 Proceeds - Note Receivable --- 2,059,179 Proceeds - Sale of Marketable Security --- 3,082,627 Proceeds - Partnership Dissolution --- 94,515 Loans to Related Parties (55,000) (125,000) ------------- ------------- Net Cash - Investing Activities (4,071,959) 2,429,972 ------------- ------------ Financing Activities: Cash Overdraft 488,112 1,777,036 Principal Payments on Capital Leases and Notes Payable (10,952,930) (7,760,497) Proceeds from Borrowings on Notes Payable 13,872,732 8,342,508 Joint Venture Distributions (100,000) --- Joint Venture Proceeds --- 75,000 Repurchase of Bond Debentures (337,215) (1,484,943) Payment for Treasury Stock (50,000) --- Proceeds from Issuance of Common Stock --- 30,750 ------------ ------------ Net Cash - Financing Activities 2,920,699 979,854 ------------ ------------ Net [Decrease] Increase in Cash and Cash Equivalents (23,540) 408,276 Cash and Cash Equivalents - Beginning of Periods 59,495 129,517 ------------ ------------ Cash and Cash Equivalents - End of Periods $ 35,955 $ 537,793 ============ ============ Supplemental Disclosures of Cash Flow Information: Cash paid during the years for: Interest $ 7,841,416 $ 6,993,063 Income Taxes $ --- $ --- See Notes to Consolidated Financial Statements. 7 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] - ------------------------------------------------------------------------------ Supplemental Schedule of Non-Cash Investing and Financing Activities: The Company entered into capital leases or financed equipment through notes payable for approximately $7,400,000 and $3,655,000 for the nine months ended July 31, 1999 and 1998, respectively. During the nine months ended July 31, 1999 and 1998, the Company converted approximately $690,000 and $665,000, respectively, of accounts payable and accrued expenses into promissory notes payable. During the nine months ended July 31, 1999, the Company acquired the assets of Buena Ventura Medical Group ["Loma Vista"] for $72,500 and recorded the liability as accrued expenses. During the nine months ended July 31, 1998, the Company wrote-off approximately $1,565,000 in net property and equipment, approximately $285,000 in net accounts receivable, approximately $735,000 in net goodwill, approximately $19,000 in non current assets, approximately $865,000 in notes and capital lease obligations, approximately $160,000 in other current liabilities and approximately $398,000 in minority interest related to the sale of Scripps Chula Vista ["SCV"] to Diagnostic Health Services, Inc. ["DHS"] effective January 1, 1998. As consideration, the Company received 127,250 shares of DHS common stock which was sold on May 15, 1998 resulting in a gain of approximately $53,000 on the sale. During the nine months ended July 31, 1998, the Company dissolved its partnership between La Habra Imaging Group II and Friendly Hills Healthcare Network, Inc. ["Friendly Hills"] effective December 31, 1997. Upon the dissolution, the Company wrote-off approximately $270,000 of Friendly Hills accounts receivable, approximately $365,000 in net property, approximately $155,000 of accrued expenses and approximately $435,000 in minority interest. During the nine months ended July 31, 1999, $5,000 face value subordinated bond debentures were converted into 500 shares of the Company's common stock. During the nine months ended July 31, 1998, the Company issued 300,000 shares of its common stock and recorded $30,000 as due from related parties. During the nine months ended July 31, 1999, a prior employee exercised his stock put for 200,000 shares of the Company's common stock at $.40 per share. As part of the transaction, $25,000 in prior loans due from this related party were utilized as payment and the Company also recorded $5,000 due to related party. During the nine months ended July 31, 1998, the Company received medical equipment of approximately $730,000 in lieu of cash rebates for Fuji medical film purchases. During the nine months ended July 31, 1999 and 1998, the Company recognized purchase discount income related to film purchases [offset against operating expenses] of approximately $380,000 and $710,000, respectively. During the nine months ended July 31, 1999 and 1998, the Company issued notes payable of approximately $429,000 and $325,000, respectively, to acquire shares of DIS common stock. See Notes to Consolidated Financial Statements. 8 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] - ------------------------------------------------------------------------------ (1) Summary of Significant Accounting Policies Significant accounting policies of Primedex Health Systems, Inc. and affiliates are set forth in the Company's Form 10-K for the year ended October 31, 1998 as filed with the Securities and Exchange Commission. (2) Basis of Presentation The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles for complete financial statements; however, in the opinion of the management of the Company, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods ended July 31, 1999 and 1998 have been made. The results of operations for any interim period are not necessarily indicative of the results for the full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Registrant's annual report on Form 10-K for the fiscal year ended October 31, 1998. (3) Goodwill The Company's goodwill as of July 31, 1999 is shown net of accumulated amortization of approximately $3,830,000. Goodwill amortization expense for the nine months ended July 31, 1999 and 1998 was approximately $540,000 and $1,085,000, respectively. The 1999 decrease in amortization expense is primarily due to the write-off of goodwill in connection with the sale of Scripps Chula Vista ["SCV"] to Diagnostic Health Services, Inc. ["DHS"] effective January 1, 1998 and the fiscal 1998 year-end recognition of an impairment loss pursuant to Statement of Financial Accounting Standards ["SFAS"] No. 121 which included a write-off of net goodwill of $8,631,944. The Company amortizes goodwill over the lesser of 20 years or the estimated useful life of the assets. (4) Due to/from Related Party The Company has a $1,000,000 loan receivable due from its President and C.E.O. in February 2000 at an 8% interest rate resulting in a discounted value of $954,553 as of July 31, 1999. For the nine months ended July 31, 1999, the Company recorded interest income on the note of approximately $55,400. As of October 31, 1998, the Company advanced $115,000 to an officer of the Company, at no interest, which will be repaid within one year. During the nine months ended July 31, 1999, the Company advanced an additional $55,000 to the officer with the same terms. During the year ended October 31, 1997, the Company loaned a former officer of the Company $25,000, with interest at 6%, for the purchase of 200,000 shares of the Company's common stock at $.125 per share which was repaid in February 1998. During the year ended October 31, 1998, the Company loaned an additional $180,000 to the same former officer. Of his loans, $25,000 was utilized this year as payment for 62,500 shares of his common stock repurchased by the Company per the execution of his stock put, while the remaining $155,000 is due in five years, with interest at 6.5% [of which $30,000 was used to purchase company stock and is classified as "Stock Subscription - Related Party" on the Company's financial statements]. As of July 31, 1999, approximately $5,000 of interest remains accrued on these loans. 9 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2 - ------------------------------------------------------------------------------ (4) Due To/From Related Party [Continued] At July 31, 1999, the $5,000 due to related party is due to a former officer of the Company for the acquisition of the Company's common stock that was held by the former officer. The notes payable related parties of $2,553,854 are due to an employee, officer of the Company in the amount of $2,448,862 and an employee of the Company of $104,992. The notes were incurred during the August 1996 acquisition of DIS common stock, as these individuals were stockholders of DIS. The notes bear interest at 6.58% paid annually. The principal is due June 2001. (5) Litigation An action entitled Gerald E. Dalrymple, M.D. and Gerald E. Dalrymple, M.D., Inc. v. Primedex Health Systems, Inc., Howard Berger, M.D., Diagnostic Imaging Services, Inc., a Delaware corporation, and Diagnostic Imaging Services, Inc., a California corporation and Diagnostic Health Services, Inc., was filed in the Los Angeles Superior Court, Case No. SC 047526 on June 3, 1997. The Complaint alleged that Diagnostic Imaging Services, Inc. ["DIS"] failed to properly pay plaintiffs fees for performing professional services to which they were entitled as well as damages for violation of the implied covenant of good faith and fair dealing, fraud, conversion, breach of fiduciary duty, interference with existing and prospective business advantage, negligent and intentional inflection of emotional distress and defamation, and sought damages for an unspecified amount in excess of $25,000. The Complaint also alleged that by virtue of the investment by the Company in DIS and the sale of four of the DIS imaging centers and its ultrasound business to Diagnostic Health Services, Inc., that DIS had thereby effected either a reorganization, consolidation, merger or transfer of all or substantially all of its assets to another entity thereby permitting plaintiffs to convert a warrant for 319,488 shares of DIS's common stock, issued in connection with the acquisition of Parkside Radiology, to either $1,000,000 cash or stock with a market value of $1,000,000 in the Company, at the election of the Company. A partial settlement was reached in August 1997. Pursuant to the settlement, Dr. Dalrymple assumed ownership of Parkside Radiology and assumed responsibility for expenses of the facility in the future. Additionally, DIS sold certain of its equipment and leasehold improvements to Dr. Dalrymple for approximately $400,000. Plaintiffs' remaining claims, as well as the DIS cross-claims against Dr. Dalrymple alleging, among other things, that Dr. Dalrymple pursued a plan to depress Parkside's business, and therefore its value, thus enabling him to acquire the facility he previously sold to DIS at a depressed price, remained in dispute pending the trial which concluded on August 20, 1999, with a jury verdict finding that the Company owes damages for breach of the radiology services agreement with Dr. Dalrymple; breach of its fiduciary duty to Dr. Dalrymple; conversion of professional fees belonging to Dr. Dalrymple; breach of the implied covenant of good faith and fair dealing in connection with the radiology services agreement; breach of the implied covenant of good faith and fair dealing in connection with plaintiff's claim on the warrant; and negligent infliction of emotional distress in the aggregate amount of $1,935,995. Additionally, the jury verdict found that Dr. Dalrymple had breached his agreement whereby he sold Parkside Radiology to DIS and that DIS should receive damages of $180,000 (an aggregate recovery against the Company of $1,755,995). The plaintiffs have advised the Company that they intend to seek fees, costs and additional damages aggregating as much as an additional $1,500,000. The Company believes that it has reasonable grounds to expect that the damages against the Company will be reduced prior to the entry of a final judgment. The Company will consider an appeal pending the court's action on motions which both the plaintiff and the Company intend to make in connection with the jury's decision. 10 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3 - ------------------------------------------------------------------------------ (6) Acquisitions, Sales and Divestitures In February 1998, effective December 31, 1997, the Company dissolved its partnership between La Habra Imaging Group II and Friendly Hills Healthcare Network, Inc. ["Friendly Hills"]. Upon the dissolution, the Company wrote-off approximately $270,000 of Friendly Hills accounts receivable, approximately $365,000 in net property, approximately $155,000 of accrued expenses and approximately $435,000 in minority interest. The Company received approximately $95,000 from Friendly Hills as part of the final dissolution. As part of the dissolution, Friendly Hills acquired the modular building utilized by the center. The Company entered into a five-year lease with Friendly Hills with an initial base rent of $3,034 per month. In March 1998, effective January 1, 1998, the Company's DIS subsidiary sold its share of Scripps Chula Vista MRI L.P. ["SCV"] to Diagnostic Health Services, Inc. ["DHS"] for 127,250 shares of DHS stock. As of the transaction date, the shares were valued at $1,431,563 and recorded as marketable securities held for sale. On May 15, 1998, the Company sold the 127,250 shares it received from the sale of SCV for approximately $1,230,000. Due to the sale, the Company wrote-off approximately $735,000 of net acquisition goodwill. During the year ended October 31, 1998, DIS acquired the remaining 25% interest in Valley Regional Oncology Center for $260,000 in cash, resulting in goodwill of $260,000, and also acquired the remaining units in TVIC for $196,875 in cash and notes payable for $157,500, resulting in goodwill of $354,375. In December 1998, the Company acquired a new capitated contract with Buenaventura Medical Clinic, Inc. in Ventura County. As part of the transaction, the Company purchased the equipment of the existing operation for $72,500 and subleased the operations' four facilities located in Ventura [2 sites], Oxnard and Camarillo, ["Loma Vista" collectively] for approximately $4,800 per month. At three of the Company's Tower locations [120 East, 444 San Vicente and 1W/Womens], the Company was unable to extend the respective leases which expire at various times beginning in January 1999. Due to this, the Company entered into a new lease agreement for space in Beverly Hills ["Wilshire"] and began consolidating the assets and business of these three Tower locations to the new Wilshire facility in January 1999. In January 1999, the Company acquired a new capitated contract with Harriman Jones and subleased the operations' three facilities in Long Beach, La Palma and Seal Beach ["Redondo" collectively] for $10,200 per month. Effective March 1, 1999, the Company purchased the assets of Diagnostic Radiology and Ultrasound ["Tarzana"] for $50,000. Due to contractual changes and other business reasons, Tarzana was closed in July 1999 and its business was consolidated with Northridge. In April 1999, the Company acquired existing medical space in West Hills, California ["West Hills"]. On June 1, 1999, the Company opened Tower Women's Center ["Womens"] consolidating its mammography operations to one site. In addition, this center will provide ultrasound and bone densitometry services. The Company entered into a new 15 year lease agreement for 3,830 square feet adjacent to its Roxsan facility. The lease calls for monthly payments of $5,000. At the end of July 1999, the Company's DIS subsidiary closed its Parkside Womens facility and consolidated its operations with the new Tower Women's Center. 11 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #4 - ------------------------------------------------------------------------------ (7) Capital Transactions During the nine months ended July 31, 1999, the Company purchased an additional 390,100 shares of DIS common stock from various parties for an aggregate purchase price of $478,646 in cash and notes payable, bringing the Company's total ownership to approximately 90%. During the nine months ended July 31, 1999, the Company repurchased 681,000 of its subordinated bond debentures for cash of $337,215. These bonds were retired and resulted in a gain on early extinguishment of debt of approximately $339,000. On December 18, 1998, $5,000 face value subordinated bond debentures were converted into 500 shares of the Company's common stock. During fiscal 1998, a former officer of the Company, who had existing options for 200,000 shares of the Company's common stock, was granted options for an additional 100,000 shares at $.30 per share as part of his contract buyout and renegotiation. On January 12, 1998, he exercised all of his remaining options for 300,000 shares of the Company's common stock at a weighted average price of $.183 per share. In connection with the transaction, the Company loaned the officer $30,000, with interest at 6.5%, which is classified as "Stock Subscription Receivable - Related Party" on the Company's financial statements. During the nine months ended July 31, 1999, a former officer of the Company exercised his right pursuant to a stock put agreement, to have the Company buy back 200,000 shares of the Company's common stock at $.40 per share. The Company paid $50,000, utilized $25,000 to partially offset a prior loan made to the former officer, and recorded a $5,000 liability to him which is non-interest bearing [See Notes 4 and 9]. (8) Subsequent Events Due to contractual changes and other business reasons, the Company closed its newly opened West Hills facility in August 1999 and its business was consolidated with Northridge. On September 3, 1999, the Company closed its Corona facility and consolidated its operations with its Riverside ["HCIC"] center. In the fourth quarter, the Company entered into a 63-month lease for 3,062 sq. ft. of space at $5,052 per month in Long Beach, California with plans to open a new imaging center, Los Coyotes Imaging Center Medical Group ["Long Beach'], on November 1, 1999. The center will offer MRI, CT, nuclear medicine and radiology services. (9) Redeemable Stock In January 1998, the Company entered into a five-year agreement with a former officer of the Company whereby the Company agreed to purchase from the former officer up to 600,000 shares of the Company's common stock owned by him at a price of $.40 per share, in minimum increments of 100,000 shares, upon his election anytime subsequent to December 31, 1998 and prior to February 28, 2003. Effective January 12, 1999, the former officer requested that the Company repurchase 200,000 shares from him per the agreement at $.40 per share, or $80,000. As of July 31, 1999, $75,000 was paid to the prior employee as follows: $50,000 in cash and $25,000 in forgiveness of a $25,000 related party receivable due from the prior employee. The remaining $5,000 was paid in August 1999 [See Notes 4 and 7]. . . . . . . . . 12 Item 2: PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Background Primedex Health Systems, Inc. ["PHS"] was incorporated on October 21, 1985. On November 1, 1990, the Company acquired a 51% interest in Viromedics, Inc. ["VMI"] for $700,000. On February 18, 1992, Future Medical Products ["FMP"], the parent corporation of VMI, exercised its right to repurchase one-half of the VMI stock from PHS at a price of $700,000. The Company owns approximately 19% of VMI's outstanding capital stock as of July 31, 1999, which is accounted for using the cost method at $-0-. On April 30, 1992, the Company entered into a purchase agreement with Radnet Management, Inc. and certain related companies ["Radnet"] for approximately $66,000,000. The statement of operations and cash flows for the nine months ended July 31, 1999 and 1998 include the operations and cash transactions of Radnet. Effective November 1, 1995, the Company acquired most of the assets of Future Diagnostics, Inc. by purchasing 100% of its outstanding stock for approximately $3.2 million consisting of notes and assumed liabilities. Effective September 3, 1997, 100% of the outstanding capital stock of FDI was sold to Preferred Health Management, Inc. ["PHM"] for $13,500,000 in cash, notes and assumed liabilities. The Company continues to operate Radnet Managed Imaging Services, Inc. ["RMIS"] which provides utilization review services. The statements of operations and cash flows for the nine months ended July 31, 1999 and 1998 reflect the overhead costs and cash transactions of RMIS. Effective January 1, 1999, RMIS's operations were consolidated with Radnet Management, Inc.. On March 25, 1996, the Company purchased 3,478,261 shares, or approximately 31%, of Diagnostic Imaging Services, Inc. ["DIS"] for $4,000,000 and acquired a five-year warrant to purchase an additional 1,521,739 shares of DIS stock at $1.60 per share. The $4 million was borrowed by the Company from a primary lending source. During the four-month period ended July 31, 1996, the investment yielded a loss to the Company of $313,649. Effective August 1, 1996, the Company issued a five-year promissory note for $3,272,046 and five-year warrants to purchase 4,129,630 shares of PHS common stock at $.60 per share, to acquire an additional 3,228,046 shares of DIS common stock. The purchase made PHS the primary shareholder in DIS with approximately 59% ownership. In subsequent purchases through October 12, 1999, the Company acquired an additional 3,472,137 shares of DIS stock from various related and unrelated parties for approximately $4,180,000 in cash and notes payable increasing its ownership in DIS to approximately 90% [excluding treasury shares]. The statements of operations and cash flows for the nine months ended July 31, 1999 and 1998 reflect the operations and cash transactions with DIS. 13 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Forward-Looking Information The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will have adequate financial resources to fund the development and operation of its business, and there will be no material adverse change in the Company's operations or business. The foregoing assumptions are based on judgment with respect to, among other things, information available to the Company, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control. Accordingly, although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in forward-looking statements will be realized. There are number of other risks presented by the Company's business and operations which could cause the Company's financial performance to vary markedly from prior results or results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause the Company to alter its capital investment and other expenditures, which may also adversely affect the Company's results of operations. In light of significant uncertainties inherent in forward-looking information included in this Quarterly Report on Form 10-Q, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company's objectives or plans will be achieved. The following discussion relates to the continuing activities of Primedex Health Systems, Inc. Results of Operations The discussion of the results of continuing operations includes Radnet, PHS, RMIS and DIS for the nine months ended July 31, 1999 and 1998. During the nine months ended July 31, 1999 and 1998, the Company had income from operations of approximately $240,000 and $30,000, respectively. During the nine months ended July 31, 1999 and 1998, the Company realized net revenues of approximately $53,600,000 and $46,000,000, respectively [net of elimination entries]. During the nine months ended July 31, 1999 and 1998, Radnet realized net revenues of approximately $44,600,000 and $37,950,000, respectively. During the nine months ended July 31, 1999, the Company opened or acquired five new centers [Loma Vista, Redondo, Tarzana, West Hills and Womens] which generated approximately $2,400,000 in net revenue. In addition, during the nine months ended July 31, 1999, the Company experienced significant increases in net revenue at certain sites including approximately $1,500,000 of additional net revenue at Tower and approximately $2,800,000 of additional net revenue at the sites of VROC, La Habra, Stockton, Orange, Oxnard and Northridge primarily due to new contracts and the addition of MRI services at Stockton and Oxnard. During the nine months ended July 31, 1999 and 1998, DIS realized net revenues of approximately $9,000,000 and $7,835,000, respectively. During the nine months ended July 31, 1998, PHS generated net billing revenue from Diagnostic Health Services, Inc. ["DHS"] of approximately $215,000. Effective August 1, 1998, DHS terminated its billing service contract with PHS and moved the operation in house. 14 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Results of Operations [Continued] During the nine months ended July 31, 1999 and 1998, the Company incurred operating expenses of approximately $53,375,000 and $45,900,000, respectively [net of elimination entries]. For the nine months ended July 31, 1999 and 1998, Radnet's operating expenses were approximately $42,325,000 and $34,915,000, respectively, DIS's operating expenses were approximately $9,420,000 and $8,850,000, respectively, RMIS's operating expenses were approximately $40,000 and $260,000, respectively, and PHS's operating expenses were approximately $1,590,000 and $1,875,000, respectively. In addition to variable cost increases with the increase in net revenue, during the nine months ended July 31, 1999, Radnet incurred additional start-up costs associated with setting up five new facilities and one-time transitional costs due to the consolidation of three of its Tower facilities to Wilshire. During the nine months ended July 31, 1999 and 1998, the Company's operating expenses consisted of approximately $23,105,000 and $19,435,000, respectively, for salaries and reading fees, approximately $4,510,000 and $4,000,000, respectively, for building and equipment rentals, approximately $16,915,000 and $14,460,000, respectively, in general and administrative expenditures, approximately $5,755,000 and $6,435,000, respectively, in depreciation and amortization, approximately $2,610,000 and $1,570,000, respectively, for provisions for bad debt, and approximately $480,000 and $-0- attributable to the recognition of an impairment loss, pursuant to FASB 121, for the writedown of goodwill related to the acquisition of DIS common stock. During the nine months ended July 31, 1999 and 1998, interest income was approximately $68,000 and $190,000, respectively. Interest income for 1999 consisted primarily of imputed interest income on related party note receivables. Interest income for 1998 consisted primarily of imputed interest income on notes receivable due from PHM, DHS and related parties. During the nine months ended July 31, 1999 and 1998, interest expense was approximately $7,900,000 and $6,930,000, respectively. The interest expense increase was primarily due to additional borrowings under existing lines of credit, notes payable and capital lease obligations. At July 31, 1999 and 1998, the Company had total outstanding obligations for notes payable, capital leases and subordinated debentures payable of approximately $111 million and $96 million, respectively. During the nine months ended July 31, 1999, the Company recognized losses from the sale and abandonment of assets of approximately $95,000. During the nine months ended July 31, 1998, the Company recognized gains from the sales of subsidiaries or divisions of approximately $1,215,000. The gains consisted of approximately $595,000 for the Company's agreement to an IRS Section 338 (h)(10) Election as part of the FDI sale transaction, a final FDI sale reconciling adjustment gain of approximately $70,000, a gain on the conversion of DHS's note receivable into common stock [and subsequent sale] of approximately $495,000, and a gain from the sale of SCV of approximately $55,000. During the nine months ended July 31, 1999, the Company recognized a loss from a legal case for $1,755,995 [see Note 5]. During the nine months ended July 31, 1999, the Company generated other income of approximately $240,000. During the nine months ended July 31, 1998, the Company incurred other expenses of approximately $630,000. Other expenses consisted primarily of debt restructuring costs [net of other income] associated with the refinancing of the majority of the Company's outstanding notes and capital lease obligations reducing future interest rates and extending payment terms to six years. 15 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Results of Operations [Continued] During the nine months ended July 31, 1999 and 1998, the Company realized extraordinary gains from the early extinguishment of debt of approximately $1,385,000 and $1,040,000, respectively. The gains were primarily from the repurchase and retirement of subordinated bond debentures, the settlement of limited partner notes payable at a discount and the settlement of notes payable at a discount. During the nine months ended April 30, 1998, the Company adopted the Statement of Position ["SOP"] No. 98-5 regarding the "Reporting on the Costs of Start-up Activities" and the expenditure of these costs as they are incurred. As a result of this decision, the Company wrote-off approximately $780,000 of historical net organizational costs and capitalized fees in January 1998. During the nine months ended July 31, 1999 and 1998, the Company had net losses of approximately $7,825,000 and $6,120,000, respectively Liquidity and Capital Resources Cash decreased for the nine months ended July 31, 1999 by approximately $25,000. Cash increased for the nine months ended July 31, 1998 by approximately $410,000. Cash used for investing activities for the nine months ended July 31, 1999, was approximately $4,070,000. Cash provided by investing activities for the nine months ended July 31, 1998 was approximately $2,425,000. During the nine months ended July 31, 1999 and 1998, the Company acquired DIS stock for approximately $50,000 and $1,720,000, respectively, and acquired the assets and liabilities of Tarzana for $50,000 and $-0-, respectively. During the nine months ended July 31, 1999 and 1998, the Company purchased property and equipment of approximately $4,785,000 and $1,650,000, respectively, received proceeds from the sale of equipment of approximately $980,000 and $20,000, respectively, and made loans to related parties of $55,000 and $125,000, respectively. During the nine months ended July 31, 1999, the Company paid loan fees of approximately $110,000. During the nine months ended July 31, 1998, the Company collected approximately $2,060,000 from the acceleration of PHM's post-closing sale note receivable, received additional proceeds from the sale of FDI of approximately $665,000, received proceeds from the sale of stock received in the SCV sale transaction for approximately $1,230,000, received proceeds from the dissolution of a partnership of approximately $95,000 and received approximately $1,850,000 from the sale of stock received in the conversion of DHS's post-closing note receivable into common stock. Cash provided from financing activities for the nine months ended July 31, 1999 and 1998 was approximately $2,920,000 and $980,000, respectively. During the nine months ended July 31, 1999 and 1998, the Company increased its cash overdraft by approximately $490,000 and $1,780,000, respectively, made principal payments on capital leases and notes payable of approximately $10,950,000 and $7,760,000, respectively, received proceeds from borrowing under existing lines of credit and refinancing arrangements of approximately $13,870,000 and $8,340,000, respectively, and repurchased subordinated bond debentures for approximately $340,000 and $1,485,000, respectively. During the nine months ended July 31, 1999, the Company distributed $100,000 to its joint venture partner in Westchester and paid $50,000 to a former officer of the Company for treasury stock [see Notes 4, 7 and 9]. During the nine months ended July 31, 1998, the Company received $75,000 from its SCV joint venture partner and received proceeds of approximately $30,000 for the issuance of common stock. 16 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Liquidity and Capital Resources [Continued] At July 31, 1999, the Company had a working capital deficit of $33,123,409 as compared to a working capital deficit of $20,191,252 at October 31, 1998, an increased deficit of $12,932,157. The deficit increase is primarily attributable to increased borrowings from the Company's existing lines of credit, additional notes payable and capital lease obligations, the recognition of a legal loss and increases in accounts payable and accrued expenses. At July 31, 1999, the Company had approximately $20,600,000 of outstanding lines of credit borrowings classified as current liabilities on the Company's financial statements. The Company's working capital needs are currently provided under two lines of credit. Under one line, due December 31, 2001, the Company may borrow the lesser of 75% to 80% of eligible accounts receivable, $20,000,000 or the prior 120-days' cash collections. Borrowings under this line are repayable together with interest at an annual rate equal to the greater of (a) the bank's prime rate plus 2.5%, or (b) 8%. The lender holds a first lien on substantially all of Radnet's [Beverly Radiology's] assets, the President and C.E.O. of PHS has personally guaranteed $6,000,000 of the loans and the credit line is collateralized by a $5,000,000 life insurance policy on the President and C.E.O. of PHS. At July 31, 1999, approximately $14,350,000 was outstanding under this line. On September 30, 1999, the Company amended this line of credit where the Company may now borrow up to the aggregate collection of receivables in the prior 120-days as long as the collections in any one month do not decrease by more than 25% from the prior month. Under a second line of credit with DVI Business Credit, due October 31, 2000, the Company may borrow the lesser of 110% of the eligible accounts receivable or $5,000,000. The credit line is collateralized by approximately 80% of the Tower division's accounts receivable. Borrowings under this line are repayable together with interest at an annual rate of the bank's prime rate plus 1.0%. At July 31, 1999, approximately $2,890,000 was outstanding under this line. The Company entered into an additional line of credit agreement with DVI Business Credit, due October 31, 2000, where the Company may borrow up to $3,500,000 to either (a) pay off the promissory note dated 10/1/94 issued to Tower Radiology, et. al., or (b) purchase, on the open market, the subordinated debentures of the Company at a price not to exceed 60% of the face value of such debentures. Borrowings under this line are repayable monthly, at the rate of 1.4% of the line balance, including principal and interest, at an annual rate equal to the bank's prime rate plus 1.0%. This line is also collateralized by the Tower division's accounts receivable. At July 31, 1999, approximately $3,360,000 was outstanding under this line which was utilized to repurchase bond debentures and pay off the majority of the Tower Radiology promissory note. The Company's future payments for debt and equipment under capital lease for the next five years, assuming lines of credit are paid in the first year and not renewed, will be approximately $38,735,000, $21,860,000, $18,150,000, $14,085,000 and $11,200,000, respectively. Interest expense [excluding lines of credit and bond debenture interest] for the next five years, included in the above payments, will be approximately $6,215,000, $4,950,000, $3,365,000, $2,015,000 and $945,000, respectively. In addition, the Company has non-cancelable operating leases for the use of its facilities and certain medical equipment which will average approximately $3,900,000 in annual payments over the next five years. 17 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES PART II - OTHER INFORMATION - ------------------------------------------------------------------------------ Item 2: Changes in Securities and Use of Proceeds The following securities were issued: [a] May 21, 1999 an option to purchase 500,000 shares of the Company's common stock was issued. [b] The option was issued to John V. Crues, III, M.D., medical director of the Company. [c] The consideration was the continuing employment of the issuee by the Company and termination of existing options to purchase 268,197 shares of the Company's common stock, exercisable at a higher price than those issued hereby. [d] The option is exempt from registration as a private offering pursuant to Section 4(1) of the Securities Act of 1933, as amended. [e] The option is exercisable at a price of $.15 per share at any time during the five years ending May 20, 2004 or upon termination of the issuee's employment with the Company, whichever shall first occur. [f] Inapplicable. 18 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES 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. Primedex Health Systems, Inc. and Affiliates (Registrant) October 12, 1999 By:/s/ Howard G. Berger ------------------------------------------ Howard G. Berger, M.D., President, Principal Executive Officer and Financial Officer and Director 19 EX-27 2 FDS --
5 This schedule contains summary financial information extracted from the consolidated balance sheet and the consolidated statement of operations and is qualified in its entirety by reference to such statements. 9-mos Oct-31-1999 Jul-31-1999 35,955 0 15,584,012 0 0 16,970,327 33,996,239 0 67,905,307 50,093,736 0 0 0 407,577 (63,643,995) 67,905,307 0 53,613,261 0 53,374,007 1,544,145 0 7,899,104 (9,210,423) 0 (9,210,423) 0 1,384,244 0 (7,826,179) (0.19) (0.19)
-----END PRIVACY-ENHANCED MESSAGE-----