-----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, QZk/Dj+FTnBUuT2wXYQ7Gs8lSEABLH5AA+VfR4recn14jpw/uxFoQPaZWQL4vhtj 8Xh+A591SjRytAwStuGGjA== 0000866970-01-500022.txt : 20010816 0000866970-01-500022.hdr.sgml : 20010816 ACCESSION NUMBER: 0000866970-01-500022 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX GROUP CORP CENTRAL INDEX KEY: 0000866970 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 232596710 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20354 FILM NUMBER: 1715264 BUSINESS ADDRESS: STREET 1: 4514 TRAVIS STREET STREET 2: SUITE 330 CITY: DALLAS STATE: TX ZIP: 75205 BUSINESS PHONE: 2145999777 MAIL ADDRESS: STREET 1: 4514 TRAVIS STREET STREET 2: SUITE 330 CITY: DALLAS STATE: TX ZIP: 75205 FORMER COMPANY: FORMER CONFORMED NAME: GRACECARE HEALTH SYSTEMS INC DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: IATROS HEALTH NETWORK INC DATE OF NAME CHANGE: 19941221 FORMER COMPANY: FORMER CONFORMED NAME: PHOENIX HEATHCARE CORP DATE OF NAME CHANGE: 19990519 10QSB 1 p10q063001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q SB [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-20354 The Phoenix Group Corporation (Exact name of small business issuer as specified in its charter) Delaware 23-2596710 (State or other jurisdiction of I.R.S. Employer Identification No. incorporation of organization) 801 E. Campbell Rd., Richardson, TX 75081 (Address of principal executive offices) (Zip Code) 214-382-3630 (Issuer's telephone number, including area code) Former name, former address and former fiscal year, if changed since last report 4514 Travis Street, Suite 330, Dallas, Texas 75205 Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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. __X__YES ____ NO As of July 31, 2001, there were 80,563,131 shares of Common Stock issued or issuable and outstanding, 533,333 shares of Series A Senior Convertible Preferred Stock issued and outstanding, and 100,000 shares of Series B Preferred Stock issued and outstanding. Transitional Small Business Disclosure Format ____ YES __X__ NO THE PHOENIX GROUP CORPORATION FORM 10-Q SB TABLE OF CONTENTS Part I. FINANCIAL INFORMATION 1 Item 1. Financial Statements 1 Consolidated Balance Sheets June 30, 2001 and December 31, 2000 1 Consolidated Statements of Operations for the periods ended June 30, 2001 and 2000 2 Consolidated Statements of Cash Flows for the three months ended June 30, 2001 and 2000 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Information About Market Risk 10 Part II. OTHER INFORMATION 10 Item 1. Legal Proceedings 10 Item 2. Changes in Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits 10 Signatures Part I. Financial Information Item 1: Financial Statements THE PHOENIX GROUP CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (unaudited) June 30, December 31, ASSETS 2001 2000 CURRENT ASSETS Cash and cash equivalents $ 204,901 $ 1,627 Accounts Receivable - Net................. 845,012 0 Inventory 32,741 0 Deposits and other 175,705 32,542 Total current assets 1,258,359 34,169 PROPERTY AND EQUIPMENT, net 82,14 275,808 GOODWILL - Net of Amortization.............. 1,761,719 0 OTHER ASSETS 78,729 14,198 TOTAL ASSETS $3,180,949 $124,175 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Notes payable - related party and other $ 4,676,006 $2,699,887 Accounts payable 1,487,476 684,669 Accrued expenses and other current liabilities 961,634 387,101 Deferred Revenue..................... 189,095 0 Net current liabilities of discontinued operations 6,740,000 6,575,000 Total current liabilities 14,054,211 10,346,657 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) Preferred Stock, $.001 par value, 5,000,000 shares authorized: Series A, 533,333 shares issued and outstanding 533 533 Series B, 100,000 shares issued and outstanding 100 100 Common Stock, $.001 par value, 250,000,000 shares authorized; 80,563,131 and 58,203,567 issued or issuable and outstanding in 2001 and 2000, respectively 80,563 58,204 Additional Paid-In Capital 46,814,424 45,669,761 Accumulated Deficit (57,768,882) (55,951,080) (10,873,262)(10,222,482) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $3,180,949 $124,175 The accompanying notes are an integral part of these consolidated financial statements. PHOENIX HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) Three Months Six Months Ended Ended June 30, June 30, 2001 2000 2001 2000 Revenue $ $ $ $ 395,391 0 395,391 0 Operating Expenses General and $ $ $ $ administrative............ 831,057 576,600 1,677,4 1,696,13 09 2 Loss from continuing operations before other income (435,66 (576,60 (1,282, (1,696,2 (expense) .................... 6) 0) 018) 32) Other income (expense) Other income (expense) ............ 197,125 30,309 197,125 72,898 Interest expense ................. (109,75 (90,349 (227,65 (143,808 4) ) 7) ) Depreciation and amortization ........... (61,869 (29,344 (72,731 (58,412) ) ) ) 25,502 (89,384 (103,26 (129,322 ) 3) ) Loss from continuing operations Before discontinued operations .......... (410,16 (665,98 (1,385, (1,825,5 4) 4) 281) 54) Discontinued Operations Net gain (loss) on settlement of discontinued (388,50 403,508 (411,95 548,766 accounts 2) 2) Net loss from operations .............. 0 (109,10 (20,569 (109,100 0) ) ) Gain (loss) from discontinued operations....... (388,50 294,408 (432,52 439,666 2) 1) Net Loss .................... $ $ $ $ (798,66 (371,57 (1,817, (1,385,8 6) 6) 802) 88) Basic and Diluted Loss per Share Continuing Operations $ $ $ $ (.01) (.02) (.02) (.05) Discontinued Operations (.01) - .01 .01 Loss per Common Share $ $ $ $ (.01) (.01) (.03) (.04) THE PHOENIX GROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (unaudited) Six Months Ended June 30, June 30, 2001 2000 OPERATING ACTIVITIES Net loss $(1,798,356) $(1,385,788) Adjustments to reconcile net loss to net cash provided (utilized) by operating activities: Depreciation and amortization 73,285 58,412 Provision for doubtful accounts receivable - - Common stock issued for services rendered 666,048 685,475 Changes in Accounts receivable (845,012) - Inventory (32,741) - - Prepaid expenses and other (123,163) (22,740) Notes payable - related party and other.......... 2,141,119 - Accounts payable and accrued expenses 1,377,340 173,086 Deferred Revenue 189,095 - - Goodwill..................... (1,832,054) - - Net current liabilities of discontinued operations 229,874 (206,460) Net cash provided (utilized) by operating activities 45,435 (698,015) INVESTING ACTIVITIES Purchase of property and equipment (28,730) (20,001) Changes in other assets (64,531) (69,676) Net cash provided (utilized) by investing activities (93,261) (89,677) FINANCING ACTIVITIES Short-term borrowings, net - 796,765 Private Placement of securities 251,100 - Net cash provided (utilized) by financing activities 251,100 796,765 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 203,274 9,073 Cash and cash equivalents, beginning of period 1,627 15,802 Cash and cash equivalents, end of period $204,901 $ 24,875 The accompanying notes are an integral part of these consolidated financial statements. THE PHOENIX GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED JUNE 30, 2001 AND 2000 NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES During interim periods, The Phoenix Group Corporation ("The Company") follows the accounting policies set forth in its Annual Report on Form 10-K SB filed with the Securities and Exchange Commission. Users of financial information produced in interim periods are encouraged to refer to the footnotes contained in the Annual Report when reviewing interim financial results. In management's opinion, the accompanying interim financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, the results of operations, and the statements of cash flows of the Company for the interim periods. A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements is as follows: Business The Phoenix Group Corporation (the "Company" or "Phoenix") is a Delaware Corporation organized in June 1988. Phoenix has predominately been engaged in providing healthcare management and ancillary services to the long-term care industry. During 1999 and 2000, the Company discontinued all operations associated with its historic businesses. New management of the Company has undertaken an initiative to implement a strategic business plan to reposition Phoenix through new growth initiatives involving targeted business acquisitions in the home health care industry. Principles of consolidation The consolidated financial statements include the accounts of The Phoenix Group Corporation and its wholly-owned subsidiaries. All inter-company transactions and accounts have been eliminated. Cash and cash equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains cash accounts, which at times may exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. Management believes that the Company does not have significant credit risk related to its cash accounts. Property and Equipment Property and equipment is stated at cost. The cost of property and equipment is depreciated over the estimated useful lives of the respective assets using primarily the straight-line method. Normal maintenance and repair costs are charged against income. Major expenditures for renewals and betterments, which extend useful lives, are capitalized. When property and equipment is sold or otherwise disposed of, the asset gain or loss is included in operations. Property and equipment is principally comprised of office furniture, fixtures and equipment having useful lives ranging from three to seven years for purposes of computing depreciation. Income taxes The Company employs the asset and liability method in accounting for income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and net operating loss carryforwards, and are measured using enacted tax rates and laws that are expected to be in effect when the differences are reversed. PHOENIX GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED JUNE 30, 2001 AND 2000 NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings per share The Company adopted Statement of Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128") in 1997. Basic earnings per share are based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is based upon the weighted average number of common shares outstanding during the period plus the number of incremental shares of common stock contingently issuable upon exercise of stock options and warrants. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Reclassifications Certain reclassifications, particularly related to the presentation of discontinued operations, have been made to 2000 amounts to conform to the 2001 presentation. NOTE 2: GOING CONCERN For the six months ended June 30, 2001, the Company reported a net loss from continuing operations of $1,817,802. This is largely attributable to the costs of sustaining a corporate infrastructure and the related overhead deemed necessary to support management's strategic growth initiatives. Recent operating losses reported by the Company from discontinued operations have exhausted the Company's capital resources and had a material adverse effect on short-term liquidity and the Company's ability to satisfy its residual corporate obligations. At June 30, 2001, the Company reports a working capital deficit of $10,873,262. The Company requires an infusion of new capital, a newly established business base and a related level of profitability to meet its short-term obligations. In light of the Company's current financial position, its inability to independently meet its short-term corporate obligations, its need to further capitalize existing operations and its dependency on revenue growth to support continuing operations, its viability as a going concern is uncertain. While the Company has experienced an infusion of limited new working capital, there can be no assurance that management's efforts to re-direct and re-capitalize the Company will be successful. On May 4, 2001, the Company consummated a transaction pursuant to which it acquired all of the common stock of Lifeline Home Health, Inc. (Lifeline), including its wholly owned subsidiary, Lifeline Managed Care, Inc., representing all of the issued and outstanding shares of the company. The purchase price paid for Lifeline was the assumption of the balance sheet liabilities to the extent that it exceeded assets. The acquisition was accounted for under the purchase method of accounting with assets acquired of $1,161,297 and liabilities assumed of 2,973,352. Lifeline's results have been included in our consolidated financial statements effective June 1, 2001. Lifeline, based in Dallas, Texas, is the second largest home health company serving the THE PHOENIX GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED JUNE 30, 2001 AND 2000 NOTE 3: SIGNIFICANT TRANSACTIONS (Continued) greater metropolitan Dallas / Fort Worth market area. Lifeline reports annualized operating revenues approximating $7 million and currently services over twenty local area counties In April 2000, the company entered into a credit agreement with Level 3 Management to provide the Company a line of credit not to exceed $1,000,000. A stockholder of the Company is an owner of Level 3 Management. At June 30, 2001, $662,696 is outstanding under the Line. Proceeds of the line were used for working capital purposes and no additional amounts will be borrowed under the line. Warrants for 1,315,789 shares of the Common Stock were issued under the agreement at an exercise price of $.76 per share. NOTE 4: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION During the quarter ended June 30, 2001, the Company issued an aggregate of 11,407,281 shares of common stock having a market value of $565,233. This included 2,816,132 shares of common stock valued at $123,856 to satisfy accrued salaries and other compensation to executive officers as well as administrative personnel of the Company; 1,907,656 shares of common stock valued at $107,019 for consulting and professional services rendered to the Company; and 5,018,333 shares of common stock valued at $251,100 for working capital realized during 2000. During the quarter ended June 30, 2001, the Company issued stock relating to discontinued operations through the issuance of 1,665,160 shares of the Company's common stock valued at $83,258. NOTE 5: DISCONTINUED OPERATIONS Net current accounts of discontinued operations at June 30, 2001 totaled $6,740,000 and were comprised principally of judgment creditor obligations of $1,450,000 from prior corporate and ancillary operations; $3,150,000 from nursing operations; $1,015,000 from Trinity; and $1,125,000 from Southland. Net current accounts of discontinued operations at December 31, 2000 totaled $6,575,000 and were comprised principally of judgment creditor obligations of $1,450,000 from prior corporate and ancillary operations; $3,150,000 from nursing operations; $850,000 from Trinity; and $1,125,000 from Southland. NOTE 6: COMMITMENTS AND CONTINGENCIES The Company is a defendant in certain lawsuits involving third- party creditors whose claims arise from transactions, which largely occurred under prior management and are related to discontinued operations. Management believes that it has sufficiently reserved for these claims in its financial statements at June 30, 2001. NOTE 7: RELATED PARTY TRANSACTIONS The Company is obligated under the terms of a line of credit agreement to Match, Inc. in the amounts of $1,745,664 and $1,610,624 at June 30, 2001 and December 31, 2000, respectively. Ronald E. Lusk, Chairman and Chief Executive Officer of the Company controls Match, Inc. as its sole stockholder and President. The line of credit agreement with Match, Inc. is available up to a limit of $2 million; bears interest at approximately 10%; is due on demand and is secured by pledges of substantially all assets of the Company. This note obligation includes accrued interest of approximately $310,000 and $232,000 at June 30, 2001 and December 31, 2000, respectively. To date, there have been no interest payments made to Match, Inc. Match, Inc. is the sole holder of all of the issued and outstanding Series A Preferred Stock of the Company. NOTE 8: SUBSEQUENT EVENTS Effective on July 1, 2001, the Company terminated its occupancy at 4514 Travis St., Suite 330, Dallas, TX 75205. Included on the balance sheet are certain leasehold improvements associated with this lease, with an amortized value of approximately $21,000. The removal of this asset in July of 2001 will result in a loss of $21,000. Item 2: Management's Discussion And Analysis Of Financial Condition And Results Of Operations Forward Looking Statements This form 10-QSB includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of the Company. When used herein, the words "anticipate," "believe," "estimate" and "expect" and similar expressions, as they relate to the Company's management, are intended to identify forward-looking statements. Such statements reflect significant assumptions, risks and subjective judgments by the Company's management concerning anticipated results. These assumptions and judgments may or may not prove to be correct. Moreover such forward- looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated in such forward-looking statements. Forward- looking statements speak only as to the date hereof. Business and Business Strategy The Company evaluated a wide range of industry sectors where unique business opportunities exist for targeted growth initiatives. As a result, the Company identified the health care industry where it embarked upon an aggressive rollup strategy in this undercapitalized and fragmented business sector. The Company's business and growth strategy includes standardizing technology, implementing a centralized billing system and eliminating real estate and related administrative overhead through market consolidation. The ability of the Company to complete targeted business acquisitions will transform the Phoenix Group Corporation into one of the more progressive and premier operators in the health care industry. The Company has completed its first of a series of such acquisitions and has received positive indications from sources of capital needed to fund its continued growth initiatives. The Company intends to capitalize on the pursuit of several undervalued opportunities that have been identified and are currently under various stages of due diligence. The Company's decision to re-enter the health care industry was based upon its evaluation of diminished uncertainties relating to Medicare; implementation of the associated Prospective Payment System (PPS); prospects to capitalize on the Company's management and related health care expertise; prevailing trends promoting reorganizations and advanced technology capabilities; and the prevalent opportunities existing within this business sector. Results of Operations During 2000 through January 2001, new management of the Company completed a strategic initiative to exit its under-performing and historic business activities. Having divested of all previous business segments, the Company believes it is more effectively positioned to pursue growth and development opportunities contemplated by new management's business plan. This involves the Company emerging, principally through growth by business acquisitions targeted in the home health care industry. A critical component of successfully implementing the new business plan will be the Company's ability to secure sufficient capital to sustain its continuing operating needs and corporate obligations. The Company's consolidated financial statements reflect a loss from continuing operations of $798,666 for the quarter ended June 30, 2001, compared with a net loss from continuing operations of $371,576 for the prior year quarter ended June 30, 2000. Revenues totaling $395,391 for the quarter ending June 30, 2001 are attributable to the May 4, 2001 acquisition of Lifeline. No revenues were recorded in the quarter ending June 30, 2000. Other income for the quarter ended June 30, 2001 totaled $197,125, and represented a one-time collection of revenues relating to the settlement of previously written off accounts receivable due from Medicare to Lifeline. Other income for the quarter ended June 30, 2001 of $30,309 represented collections of previously written off accounts receivable of discontinued operations. Depreciation and amortization for the quarter ended June 30, 2001 totaled $61,869, of which $50,335 represents amortization of intangibles associated with the acquisition of Lifeline. Depreciation and amortization for the quarter ended June 30, 2000 totaled $29,344, with $20,000 representing amortization of intangibles. 2: Management's Discussion And Analysis Of Financial Condition And Results Of Operations (Continued) Interest expense for the quarter ended June 30, 2001 was $109,754 compared to $90,349 for the quarter ended June 30, 2000. The increase is due primarily to interest on the Level 3 Line of Credit. In the quarter ended June 30, 2001, the company incurred a loss related to settlement of discontinued operations of ($388,502). In the quarter ended June 30, 2000, the company incurred gains on settlement of discontinued operations of $403,508. Significant components of general and administrative expenses for the quarter ended June 30, 2001 include $62,942 in executive compensation satisfied principally through the issuance of the Company's common stock; general payroll and related benefits of both the corporate and the nursing staff totaling $435,483; professional fees totaling $115,746; insurance expense totaling $56,030; rent expense totaling $36,250; travel and other related expenses of $28,417; and other corporate administrative and office expenses totaling $96,189. Significant components of general and administrative expenses for the quarter ended June 30, 2000 include accrued executive compensation of $180,000, a non-cash charge for executive compensation related to a stock grant for an executive officer of the company of $34,275, professional fees of $267,000, salaries and wages of Converged Media of $81,500 and other expenses of $122,925. Other income for the quarter ended June 30, 2000 totaled $42,589, the majority of which represented collections of previously written off accounts receivable of discontinued operations. The Company's consolidated financial statements reflect a loss from continuing operations of $1,817,802 for the six months ended June 30, 2001, compared with a net loss from continuing operations of $1,385,788 for the prior year six months ended June 30, 2000. Significant expenses for the six months ending June 30, 2001 include $512,842 in executive compensation, satisfied primarily through the issuance of common stock, general payroll and benefits of the nursing and corporate staff of $591,981, professional fees totaling $247,454 and other corporate and administrative office expenses totaling $325,132. The expenses for the six months ending June 30, 2000 include non cash charges of $685,475 related to stock grants to officers of the Company, salaries of $438,750, professional fees of approximately $399,825, expenses relating to Converged Media of $109,100, and other expenses of $172,082. Depreciation and amortization expense for the six months ended June 30, 2001 was $73,285, compared to $58,412 for the same period in 2000. The increase is principally due to amortization of the intangibles associated with the purchase of Lifeline. Interest expense for the six months ended June 30, 2001 and 2000 was $227,657 and $143,808 respectively. The increase is principally attributable to interest on notes associated with increased borrowings related to the Level 3 line of credit. Liquidity and Capital Resources During 2000 through January 2001, the Company completed discontinuing all prior business segments that have historically generated significant operating losses. At June 30, 2001 and December 31, 2000, the Company reports a negative working capital deficit of $10,873,262 and $10,312,488, respectively, and, as discussed in Note 2 to the financial statements, requires an infusion of new capital in order to meet its short-term obligations. Management of the Company continues to work with creditors to secure non-cash settlement of obligations or otherwise secure forbearance arrangements with creditors while continuing to implement its growth strategy and capitalization plan for the Company. In light of the Company's current financial position, its inability to independently meet its short-term corporate obligations, its need to further capitalize continuing operations and its dependency on new revenue growth, its viability as a going concern is uncertain. There can be no assurance that new management will be successful in its efforts to improve the Company's financial position and operating performance. At June 30, 2001 and December 31, 2000, the Company reports virtually no liquid assets with which to sustain its working capital requirements of continuing operations. The primary source of immediate cash for the Company is from the line of credit agreement it has established with Match, Inc. This line of credit facility is for an amount of up to $2 million and is reported outstanding at June 30, 2001 and December 31, 2000 in the amounts of $1,745,664 and $1,610,624, respectively. This loan agreement is a demand note payable and accrues interest at approximately 10%. There can be no assurance that additional funding under this credit agreement will be available or extended. Item 2: Management's Discussion And Analysis Of Financial Condition And Results Of Operations (Continued) Notes payable - related party and other at June 30, 2001, totaled $4,676,006 representing working capital financing from Match, Inc. ($1,745,664); bank and third party notes ($862,698); and notes payable to officers of the Company ($290,951). Comparable amounts are reported at December 31, 2000. Notes payable assumed in the Lifeline acquisition include notes payable to banks and third parties of ($1,245,546) and notes payable to the former owners of Lifeline of ($531,147). Accounts payable at June 30, 2001, totaled $1,487,476 compared to $684,669 at December 31, 2000. Such amounts reflect accrued legal, professional and other corporate expenses associated with the periods, along with accounts payable assumed in the Lifeline acquisition of $622,786. Accrued expenses and other current liabilities at June 30, 2001 totaled $981,634 compared with $387,101 at December 31, 2000. Components reported at June 30, 2001 include accrued interest on all corporate obligations ($518,213); accrued salaries and wages and related accounts ($259,138); and other accrued corporate expenses ($204,283). Amounts reported at December 31, 2000 primarily related to accrued interest on all corporate obligations. Item 3: Quantitative and Qualitative Information About Market Risk The Company does not engage in trading market risk sensitive instruments. Neither does the Company purchase as investments, hedges or for purposes "other than trading" instruments that are likely to expose the Company to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. The Company has issued no debt instruments, entered into no forward or futures contracts, purchased no options and entered into no swaps. The Company's primary market risk exposure is that of interest rate risk. Part II. Other Information Item 1: Legal Proceedings Nothing to report. Item 2: Changes In Securities and Use of Proceeds During the quarter ended June 30, 2001, the Company issued an aggregate of 11,407,281 shares of common stock having a market value of $565,233. This included 2,336,132 shares of common stock valued at $123,856 to satisfy accrued salaries and other compensation to executive officers as well as administrative personnel of the Company; 1,907,656 shares of common stock valued at $107,019 for consulting and professional services rendered to the Company; 5,018,333 shares of common stock valued at $251,100 for working capital realized during 2000; and 1,665,160 shares of common stock valued at $83,258 related to settlement of debts from discontinued operations. During the quarter ended June 30, 2000, the Company issued 790,339 shares of its common stock to executives of the company; 250,000 shares of its common stock in connection with a settlement of litigation; and 750,000 shares of common stock associated with acquiring rights, titles, properties and intellectual property related to Converged Media. Item 3: Defaults Upon Senior Securities None Item 4: Submission Of Matters To A Vote Of Security Holders None Item 5: Other Information None Item 6: Exhibits And Reports On Form 8-K None 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. THE PHOENIX GROUP CORPORATION August 13, 2001 By: Ronald E. Lusk Chairman of the Board, President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----