-----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, Ke5GGSMnjJuvVu0ee8oSD/ihb3+nZj8RnKQwYCYa3Xk3oCKiFdhnZgnE1q74ASTg 3cz01s2Ute+O2GWT5Ic3+w== 0000866970-01-500026.txt : 20020411 0000866970-01-500026.hdr.sgml : 20020411 ACCESSION NUMBER: 0000866970-01-500026 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011115 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: 1793145 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 p10q093001.txt - - 1 - 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 September 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) 810 E. Campbell Rd., Suite 345, Richardson, Texas 75081 (Address of principal executive offices) (Zip Code) 214-382-3630 (Issuer's telephone number, including area code) Formerly: Phoenix Healthcare Corporation 4514 Travis Street, Suite 330, Dallas, TX 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 November 13, 2001, there were 82,584,916 shares of Common Stock issued 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 3 Item 1. Financial Statements 3 Consolidated Balance Sheets September 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Information About Market Risk 11 Part II. OTHER INFORMATION 11 Item 1. Legal Proceedings 11 Item 2. Changes in Securities and Use of Proceeds 11 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits 12 Signatures Part I. Financial Information Item 1: Financial Statements THE PHOENIX GROUP CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (UNAUDITED)(UNAUDITED) September 30,December 3 1, ASSETS 2001 2000 CURRENT ASSETS Cash and cash equivalents $ 3,553 $ 1,627 Accounts Receivable 951,614 - Inventory 47,491 - Prepaid expenses and other 101,884 32,542 Total current assets 1,104,542 34,169 PROPERTY AND EQUIPMENT, net 69,197 75,808 OTHER ASSETS Security Deposits 17,216 14,198 Intangible assets, net 1,707,714 - TOTAL ASSETS $2,898,669 $124,175 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Notes payable $4,808,506 $ 2,699,887 Accounts payable 1,504,211 684,669 Accrued expenses and other current liabilities 1,218,608 387,101 Deferred Revenue 136,156 Net current liabilities of discontinued operations 6,740,000 6,575,000 Total current liabilities 14,407,481 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; 82,584,916 and 53,550,852 issued and outstanding in 2001 and 2000, respectively 82,585 58,204 Additional Paid-In Capital 46,429,856 45,669, 761 Accumulated Deficit (58,021,886) (55,951 ,080) (11,508,812)(10,222,4 82) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $2,898,669 $124,175 The accompanying notes are an integral part of these consolidated financial statements. THE PHOENIX GROUP CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) Three Months Nine Months Ended Ended September 30, September 30, 2001 2000 2001 2000 Revenues..................... $ $ $ $ 1,159,8 27,213 1,555,2 27,213 29 20 Cost of Revenues................. 522,995 111,760 784,000 111,760 Gross Margin.................... 636,834 (84,547 771,220 (84,547 ) ) Operating Expenses Selling 39,028 48,659 General and Administrative ............. 1,285,5 734,083 2,701,9 2,535,8 49 53 63 1,285,5 773,111 2,701,9 2,584,5 49 53 22 Loss from continuing operations before other income (648,71 (857,65 (1,930, (2,669, (expense) 5) 8) 733) 069) ..................... Other income (expense) Other income (expense) ............. 12,326 197,125 91,402 Interest expense ................. (111,53 (71,140 (339,19 (214,94 3) ) 0) 8) Depreciation and amortization ......... (15,128 (30,944 (87,859 (89,356 ) ) ) ) (126,66 (89,758 (229,92 (212,90 1) ) 4) 1) Loss from continuing operations Before discontinued (2,881, operations .......... (775,37 (947,41 (2,160, 970) 6) 6) 657) Discontinued Operations Net gain (loss) on settlement of discontinued 523,123 231,599 139,721 780,365 accounts Net loss from operations .............. 0 (49,119 0 ) Gain (loss) from discontinued operations....... 523,123 231,599 90,602 780,365 Extraordinary Item Net Gain on Extinguishment of Debt Obligation 0 0 0 0 Net Income (Loss) $ $ $(2,070 $ ............... (252,25 (715,81 ,055) (2,101, 3) 7) 605) Basic and Diluted Loss per Share Continuing Operations $ $ $ $ (.01) (.02) (.03) (.05) Discontinued Operations - - - .02 Extraordinary Item - - - - Loss per Common Share $ $ $ $ (.01) (.02) (.03) (.03) The accompanying notes are an integral part of these consolidated financial statements. THE PHOENIX GROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 (UNAUDITED) Nine Months Ended September 30,September 30, 2001 2000 OPERATING ACTIVITIES Net loss $(2,070,055)$(2,101, 605) Adjustments to reconcile net loss to net cash provided (utilized) by operating activities: Depreciation and amortization 87,859 89,356 Common stock issued for services rendered 893,464 685,475 Net gain on extinguishments of debt obligations, disposition of property and interest - - - Income from discontinued operations Changes in Accounts receivable (951,614) - Inventory (47,491) - Prepaid expenses and other (66,161) (35,210) Goodwill (1,797,549) - Notes and loans payable 2,108,619 - Accounts payable and accrued expenses 1, 651,048 688,879 Deferred Revenue 136,156 - Net current liabilities of discontinued operations (303,750) (481,104) Net cash provided (utilized) by operating activities (359,474) (1,154,209) INVESTING ACTIVITIES Purchase of property and equipment 6,611 (37,648) Changes in other assets (3,018) (74,793) Net cash utilized by investing activities 3,593 (112,441) FINANCING ACTIVITIES Short-term borrowings, net - 1,037,041 Payments of long-term debt and notes payable, net - - - - Issuance of Stock 357,808 180,000 Exercise of Stock Options - - 43,400 Net cash provided (utilized) by financing activities 357,808 1,260,441 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,927 (6,209) Cash and cash equivalents, beginning of period 1,627 15,802 Cash and cash equivalents, end of period $ 3,554 $ 9,593 The accompanying notes are an integral part of these consolidated financial statements. THE PHOENIX GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIODS ENDED SEPTEMBER 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 health care industry. Principles of Consolidation The consolidated financial statements include the accounts of the Company, and its wholly-owned or majority-owned subsidiaries. All inter-company transactions and accounts have been eliminated. Cash and Cash Equivalents The Company maintains cash accounts, which at times could exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. Property and Equipment Property and equipment is stated at cost. The cost of property 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 No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and net operating loss carry forwards, and are measured using enacted tax rates and laws that are expected to be in effect when the differences are reversed. 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 are 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, unless their effect is anti-dilutive. 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 reported periods. Actual results could differ from these estimates. Reclassifications Certain reclassifications, particularly related to the presentation of discontinued operations, have been made to 2000 in amounts to conform to the 2001 presentation. NOTE 2: GOING CONCERN For the nine months ended September 30, 2001, the Company reported a net loss from continuing operations of $2,070,055. 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 September 30, 2001, the Company reports a working capital deficit of $13,302,939. 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. NOTE 3: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION During the quarter ended September 31, 2001, the Company paid certain consulting fees through the issuance of 2,178,846 shares of Common Stock. During the quarter ended September 30, 2000, the Company issued 2,165,131 shares of common stock, par value $.001, of the Company ("Common Stock") through private placements for cash of $180,000. As described in Note 6, 713,833 of such shares were placed with the Company's Chairman, Chief Executive Officer and President for $80,000. In July 2000, the Company paid certain consulting fees through the issuance of 500,000 shares of Common Stock. In September 2000, the Company retained the services of an investor relations firm. Under the terms of the agreement, the firm is being compensated in shares of Common Stock in the amount of $10,000 per month. The firm also received an additional 250,000 shares of Common Stock as part of the compensation arrangements. NOTE 4: DISCONTINUED OPERATIONS Net current accounts of discontinued operations at September 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 5: 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 September 30, 2001. NOTE 6: RELATED PARTY TRANSACTIONS The Company is obligated under the terms of a line of credit agreement to Match, Inc. in the amount of $1,753,164 and $1,610,624 at September 30, 2001 and December 31, 2000, respectively. Ronald E. Lusk, Chairman, Chief Executive Officer and President 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 $2,000,000, bears interest at approximately 8%, is due on demand and is secured by stock and assets of subsidiary companies. 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 at September 30, 2001. In September 2000, the Chairman, Chief Executive Officer and President purchased 713,833 shares of Common Stock in a private placement for $80,000. In August, the same individual exercised options to purchase 140,000 shares of Common Stock at a price of $.31 per share. During the quarter ended September 30, 2000, the Company converted $83,833 of accrued compensation of Mr. Lusk into 271,089 shares of Common Stock. At June 30, 2000, the Company was obligated to the Chairman, Chief Executive Officer and President as well as two stockholders in the amount of $67,355 related to a payment made on an obligation of a discontinued business segment. During the quarter ended September 30, 2000, the Company converted the debt by issuing 253,595 shares of Common Stock. The Company is obligated to its Chief Operating Officer under an arrangement whereby the officer is deferring a portion of his salary as a loan to the Company. NOTE 7: SIGNIFICANT TRANSACTIONS 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 acquisition was accounted for under the purchase method of accounting with assets acquired of $1,161,297 and liabilities 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 third largest home health company serving the greater metropolitan Dallas/Fort Worth market area. In August 2000, the Company borrowed $200,000 from a Bank. The note bears interest at 9.5% and is due January 1, 2001. The note is guaranteed by certain executive officers of the Company. NOTE 8: SUBSEQUENT EVENTS None to report. Item 2: Management's Discussion And Analysis Of Financial Condition And Results Of Operations Forward Looking Statements This Quarterly Report on 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 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 branch offices 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 $252,253 for the quarter ended September 30, 2001, compared with a net loss from continuing operations of $947,416 for the prior year quarter ended September 30, 2000. Revenues totaling $1,159,829 for the quarter ending September 30, 2001 are attributable to the May 4, 2001 acquisition of Lifeline. Revenues of $27,213 were recorded in the quarter ending September 30, 2000. Other income for the quarter ended September 30, 2000 of $12,326 represented collections of previously written off accounts receivable of discontinued operations. Depreciation and amortization for the quarter ended September 30, 2001 totaled $15,128, primarily related to depreciation of fixed assets. Depreciation and amortization for the quarter ended September 30, 2000 totaled $30,944, with $20,000 representing amortization of intangibles. Interest expense for the quarter ended September 30, 2001 was $111,533 compared to $71,140 for the quarter ended September 30, 2000. The increase is due primarily to interest on the Level 3 and Match Lines of Credit. In the quarter ended September 30, 2001, the company incurred a gain related to settlement of discontinued operations of $523,123. In the quarter ended September 30, 2000, the company incurred gains on settlement of discontinued operations of $231,599. Significant components of operating and general and administrative expenses for the quarter ended September 30, 2001 include $1,345,233 in general payroll, executive compensation, and related benefits of both the corporate and the nursing staff; professional fees totaling $246,854; rent expense totaling $90,424; travel and other related expenses of $62,034; and other corporate administrative and office expenses totaling $63,999. The Company's consolidated financial statements reflect a loss from continuing operations of $2,070,055 for the nine months ended September 30, 2001, compared with a net loss from continuing operations of $2,101,605 for the prior year nine months ended September 30, 2000. Significant expenses for the nine months ending September 30, 2001 include $2,403,157 in executive compensation, general payroll and benefits of the nursing and corporate staff, professional fees totaling $494,308 and other corporate and administrative office expenses totaling $588,488. The expenses for the nine months ended September 30, 2000 include non cash charges of $685,475 related to stock grants to officers of the Company, compensation and related costs of approximately $700,000, professional fees of approximately $678,000 and other expenses of approximately $277,525. The nine-month results also reflect expenses of Converged Media described above as well as initial costs incurred during Converged Media's first quarter of operations, which began April 2000 of an additional $243,500. Those costs were comprised of salaries and related costs of approximately $175,300, professional fees of approximately $30,000, initial production costs of $5,200 and advertising, marketing, other promotional and operating expenses of approximately $33,000. Other income represents principally collections of previously written off account receivables associated with discontinued operations. Depreciation and amortization expense for the nine months ended September 30, 2001 was $87,856 compared to $89,356 for the same period in 2000. Interest expense for the nine months ended September 30, 2001 and 2000 was $339,190 and $214,948 respectively. The increase is principally attributable to interest on notes associated with increased borrowings related to the Level 3 and Match, Inc. lines of credit. Liquidity and Capital Resources As discussed in Note 2 to the Financial Statements, in light of the Company's current financial position, its viability as a going concern is uncertain. For the nine months ended September 30, 2001, the Company reported a net loss of $2,070,055 from continuing operations. Recent operating losses reported by the Company through September 30, 2001 as well as prior year operating losses and the resultant loss on disposal associated with 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 obligations. At September 30, 2001, the Company reports a working capital deficit of $13,302,939 compared with a working capital deficit of $10,312,488 at December 31, 2000. The working capital deficit position results largely from the recording of net liabilities and related reserves associated with the discontinuance of the healthcare service business segments in December 1999. The Company requires an infusion of new capital, an increased business base and a higher level of profitability to meet its short-term obligations. Notes payable at September 30, 2001, totaled $4,808,506 representing principally working capital financing compared to $2,512,898 at December 31, 2000. The increase is due primarily to the debt of the Lifeline companies. Accounts payable at September 30, 2001, totaled $1,504,211 compared to $691,859 at December 31, 2000. The increase is due primarily to the Accounts Payable of the Lifeline companies. Accrued expenses and other current liabilities at September 30, 2001 totaled $1,218,608 compared with $298,026 at December 31, 2000. The increase is due primarily to accrued interest relating to the Match, Inc. Line of Credit. Net current liabilities of discontinued operations at September 30, 2001 were $6,740,000 compared to $6,575,000 at December 31, 2000. The increase was principally attributed to issuance of Common Stock in exchange for conversion of certain notes. 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 In the quarter ended September 30, 2001, the Company issued 886,285 shares of Common Stock as executive compensation. In July and August of 2001, the Company issued 2,178,846 shares of Common Stock for certain consulting services. No shares of Common Stock have been issued by the Company in October and November, 2001. In July 2000, the Company issued 500,000 shares of Common Stock as compensation for certain consulting services. In July 2000, the Company converted $62,500 of accrued compensation of the Company's Chairman, Chief Executive Officer and President into 197,002 shares of Common Stock. In July and August 2000, the Company converted $67,355 of obligations associated with a payment related to a discontinued business segment made by the Company's Chairman and two other stockholders into 253,595 shares of Common Stock. In August 2000, the Company issued 140,000 shares of Common Stock associated with the exercise of stock options to the Company's Chairman. In August 2000, the Company converted $20,833 of accrued compensation of the Company's Chairman, Chief Executive Officer and President into 74,087 shares of Common Stock. In September 2000, the Company issued 286,278 shares of Common Stock in payment of consulting fees to an investor relations firm. In September 2000, the Company issued 1,234,179 shares of Common Stock through private placements for cash of $180,000. 713,833 of such shares were placed with the Company's Chairman, Chief Executive Officer and President. In October and November 2000, the Company converted $83,333 of accrued compensation of the Chairman into 348,843 shares of Common Stock. In November, the Company issued converted $20,000 of accrued consulting service fees into 102,515 shares of Common Stock. On November 13, 2000, the Company closed a private placement with an individual for 3,416,667 shares of Common Stock for $410,000. The proceeds were advanced to the Company at different times during October. The issuances of these securities were deemed to be exempt from registration under the Securities Act of 1933, as amended, because they were either sold to a limited group of persons, each of whom was believed to have been a sophisticated investor or to have had a pre-existing business or personal relationship with the Company and to have been purchasing for investment without a view to further distribution. 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 November 15, 2001 By: Ronald Lusk Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----