-----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, BgpVJ7GVczQO9ck9y+KeJxEa6CjCk+iaixseYxoyJk87Kw6whTB/V34izYP1EAwy ePGZ6+MjX75DeaPFBF3slw== /in/edgar/work/20000614/0001019687-00-000811/0001019687-00-000811.txt : 20000919 0001019687-00-000811.hdr.sgml : 20000919 ACCESSION NUMBER: 0001019687-00-000811 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIMEDEX HEALTH SYSTEMS INC CENTRAL INDEX KEY: 0000790526 STANDARD INDUSTRIAL CLASSIFICATION: [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: 654774 BUSINESS ADDRESS: STREET 1: 1516 COTNER AVE CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3104787808 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 0001.txt PRIMEDIX HEALTH SYSTEMS, INC. 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 April 30, 2000 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 June 2, 2000 was 38,932,760 [excluding treasury shares]. INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Shareholders Primedex Health Systems, Inc. We have reviewed the condensed consolidated balance sheet of Primedex Health Systems, Inc. and Affiliates as of April 30, 2000 and the related condensed consolidated statements of operations and cash flows for the three and six months then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of the interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Primedex Health Systems, Inc. and Affiliates as of October 31, 1999, and the related consolidated statements of operations, stockholders' deficit and cash flows for the year then ended not presented herein; and in our report dated January 28, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of October 31, 1999, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/ MOSS ADAMS LLP Los Angeles, California June 6, 2000 1 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------
APRIL 30, OCTOBER 31, --------- ----------- 2000 1999 ------------- ------------- (UNAUDITED) ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 43,254 $ 2,638 Accounts receivable, net 18,359,735 16,694,368 Unbilled receivables and other receivables 447,651 441,208 Due from related party 316,148 206,200 Other 3,643,818 1,628,999 ------------- ------------- Total current assets 22,810,606 18,973,413 ------------- ------------- PROPERTY AND EQUIPMENT, NET 38,891,080 37,666,620 ------------- ------------- OTHER ASSETS: Accounts receivable, net 3,328,146 3,040,416 Due from related parties 91,676 87,795 Goodwill, net 10,235,063 10,594,678 Other 1,565,647 1,883,917 ------------- ------------- Total other assets 15,220,532 15,606,806 ------------- ------------- $ 76,922,218 $ 72,246,839 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Cash overdraft $ 2,798,521 $ 2,353,667 Accounts payable, accrued expenses and other 15,394,071 15,085,479 Current portion of notes and leases payable 44,429,791 39,341,714 Deferred revenue 200,000 200,000 ------------- ------------- Total current liabilities 62,822,383 56,980,860 ------------- ------------- LONG-TERM LIABILITIES: Subordinated debentures payable 19,953,000 20,037,000 Notes payable to related party 2,553,854 2,553,854 Notes and leases payable, net of current portion 53,370,232 54,882,513 Accrued expenses 334,713 283,024 Deferred revenue 1,166,667 1,266,666 ------------- ------------- Total long-term liabilities 77,378,466 79,023,057 ------------- ------------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 445,871 440,063 ------------- ------------- REDEEMABLE STOCK 160,000 160,000 ------------- ------------- STOCKHOLDERS' DEFICIT (63,884,502) (64,357,141) ------------- ------------- $ 76,922,218 $ 72,246,839 ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 2 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- APRIL 30, APRIL 30, --------- --------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- REVENUE Revenue $ 57,080,230 $ 43,465,409 $ 107,659,037 $ 79,199,115 Less: Allowances 35,179,103 24,732,227 65,774,168 44,468,510 -------------- -------------- -------------- -------------- Net revenue 21,901,127 18,733,182 41,884,869 34,730,605 -------------- -------------- -------------- -------------- OPERATING EXPENSES Operating expenses 15,144,615 15,495,464 29,529,306 29,639,835 Depreciation and amortization 2,043,055 1,954,178 4,035,349 3,830,319 Provision for bad debts 1,135,485 922,467 2,123,009 1,651,559 Impairment loss on long-lived assets - - - 478,646 -------------- -------------- -------------- -------------- Total operating expenses 18,323,155 18,372,109 35,687,664 35,600,359 -------------- -------------- -------------- -------------- Income (loss) from operations 3,577,972 361,073 6,197,205 (869,754) -------------- -------------- -------------- -------------- OTHER INCOME (EXPENSE) Interest expense, net (3,060,857) (2,674,457) (6,020,916) (5,145,534) Gain (loss) on sale of assets 4,847 (176,509) 4,987 (176,509) Other 241,737 (1,911,077) 375,833 (1,659,629) -------------- -------------- -------------- -------------- Total other expense (2,814,273) (4,762,043) (5,640,096) (6,981,672) -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 763,699 (4,400,970) 557,109 (7,851,426) -------------- -------------- -------------- -------------- MINORITY INTEREST IN EARNINGS OF SUBSIDIARY (63,004) (11,602) (105,809) (10,377) -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 700,695 (4,412,572) 451,300 (7,861,803) EXTRAORDINARY ITEM-GAIN FROM EXTINGUISHMENT OF DEBT (NET OF INCOME TAXES OF $-0-) 3,337 8,001 55,107 1,384,244 -------------- -------------- -------------- -------------- NET INCOME (LOSS) $ 704,032 $ (4,404,571) $ 506,407 $ (6,477,559) ============== ============== ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 3 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- APRIL 30, APRIL 30, --------- --------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- BASIC AND DILUTED EARNINGS PER SHARE: Income (loss) before extraordinary gain .02 (.11) .01 (.20) Extraordinary gain .00 .00 .00 .03 -------------- -------------- -------------- -------------- BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ .02 $ (.11) $ .01 $ (.17) ============== ============== ============== ============== WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 38,932,760 38,932,760 38,932,760 39,012,629 ============== ============== ============== ============== DILUTED 39,625,096 38,932,760 39,278,928 39,012,629 ============== ============== ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 4 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT - --------------------------------------------------------------------------------------------------------
Common Stock $.01 par value --------------------------- 100,000,000 shares authorized Treasury Stock, at cost ----------------------------- Paid-in ---------------------------- Shares Amount Capital Shares Amount ------------- ------------- ------------- ------------- ------------- BALANCE - OCTOBER 31, 1999 40,757,760 $ 407,577 $ 99,336,645 (1,825,000) $ (694,947) Discounted note, net - - - - - Net income - - - - - ------------- ------------- ------------- ------------- ------------- BALANCE - APRIL 30, 2000 (UNAUDITED) 40,757,760 $ 407,577 $ 99,336,645 (1,825,000) $ (694,947) ============= ============= ============= ============= ============= (CONTINUED BELOW) Stock Total Accumulated Due from Subscription Stockholders' Deficit Related Party Receivable Deficit -------------- ------------- ------------- ------------- BALANCE - OCTOBER 31, 1999 $(162,546,182) $ (830,234) $ (30,000) $(64,357,141) Discounted note, net - (33,768) - (33,768) Net income 506,407 - - 506,407 -------------- ------------- ------------- ------------- BALANCE - APRIL 30, 2000 (UNAUDITED) $(162,039,775) $ (864,002) $ (30,000) $(63,884,502) ============== ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 5 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - -------------------------------------------------------------------------------------------
SIX MONTHS ENDED ---------------- APRIL 30, --------- 2000 1999 -------------- -------------- NET CASH FROM OPERATING ACTIVITIES $ 3,487,917 $ 885,803 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of imaging centers - net of cash acquired - (100,000) Purchase of property and equipment (2,547,547) (3,752,039) Proceeds from sale of divisions, centers, and equipment 950,000 954,120 Loan fees (50,000) (108,750) Loans to related parties (100,000) (55,000) -------------- -------------- Net cash from investing activities (1,747,547) (3,061,669) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash overdraft 444,855 289,155 Principal payments on notes and leases payable (8,564,783) (8,039,575) Proceeds from short-term and long-term borrowings 6,563,854 10,413,403 Purchase of treasury stock - (35,000) Purchase of subordinated debentures (43,680) (337,215) Joint venture distribution (100,000) (100,000) -------------- -------------- Net cash from financing activities (1,699,754) 2,190,768 -------------- -------------- NET INCREASE IN CASH 40,616 14,902 CASH, beginning of period 2,638 59,495 -------------- -------------- CASH, end of period $ 43,254 $ 74,397 ============== ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 6,176,993 $ 5,369,155 -------------- -------------- Income taxes $ - $ - -------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 6 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED APRIL 30, 2000 AND 1999 - -------------------------------------------------------------------------------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES - The Company entered into capital leases or financed equipment through notes payable for approximately $2,200,000 and $7,115,000 for the six months ended April 30, 2000 and 1999, respectively. During the six months ended April 30, 2000, as part of a judgment in a litigation matter, $3,000,000 was borrowed from one of the Company's existing lines of credit and placed into an irrevocable standby letter of credit pending the final settlement of the lawsuit The letter of credit earns interest at approximately 5.35%. During the six months ended April 30, 1999, the Company acquired the assets of Buena Ventura Medical Group ["Loma Vista"] for $72,500 and recorded the liability as an accrued expense. During the six months ended April 30, 1999, the Company recorded goodwill and notes payable of approximately $429,000 to acquire DIS common stock. During the six months ended April 30, 1999, $5,000 face value subordinated bond debentures were converted into 500 shares of the Company's common stock. During the six months ended April 30, 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 $20,000 due to related party. During the six months ended April 30, 1999, the Company recognized purchase discount income related to film purchases [offset against operating expenses] of approximately $380,000. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 7 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENATATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They have been reviewed by the Company's independent auditors in accordance with the professional standards and procedures as set forth in Statement of Auditing Standards No. 71 (SAS 71). SAS 71 procedures for conducting a review of interim financial information generally are limited to inquiries and analytical procedures concerning significant accounting matters relating to the financial information to be reported. They do not include all information and footnotes necessary for a fair presentation of financial position and results of operations and cash flows in conformity with generally accepted accounting principles. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended October 31, 1999. In the opinion of Management, all adjustments considered necessary for a fair presentation have been included in the interim period. Operating results for the three and six months ended April 30, 2000 are not necessarily indicative of the results that may be expected for the year ended October 31, 2000. NOTE 2 - NATURE OF BUSINESS Primedex Health Systems, Inc., incorporated on October 21, 1985, provides diagnostic imaging services in the state of California. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Primedex Health Systems, Inc.; Radnet Management, Inc.; Diagnostic Imaging Services, Inc. ["DIS"] and Radnet Managed Imaging Services, Inc. ["RMIS"] (collectively referred to as "the Company"). Radnet Management, Inc. is combined with Beverly Radiology Medical Group ["BRMG"] and consolidated with Radnet Sub, Inc., Tower Imaging Heartcheck, Woodward Park Imaging Center and Westchester Imaging Group (a joint venture). Operating activities of subsidiary entities are included in the accompanying financial statements from the date of acquisition. All intercompany transactions and balances have been eliminated in consolidation and combinations. Medical services and supervision at most of the Company's imaging centers are provided through BRMG and through other independent physicians and physician groups. BRMG is consolidated with Pronet Imaging Medical Group, Inc. and Beverly Radiology Medical Group, both of which are 99% owned by a shareholder and president of Primedex Health Systems, Inc. Radnet and DIS provide non-medical and administrative services to BRMG for which they receive a management fee. Other 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, 1999 as filed with the Securities and Exchange Commission. NOTE 4 - BUSINESS COMBINATIONS - ACQUISITIONS, SALES AND DIVESTITURES In November 1999, the Company opened Los Coyotes Imaging in Long Beach, California, a start-up facility providing MRI, CT, nuclear medicine and diagnostic x-ray services. 8 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4 - BUSINESS COMBINATIONS - ACQUISITIONS, SALES AND DIVESTITURES (CONTINUED) In April 2000, the Company entered into a management service arrangement with Heartcheck America and opened Tower Imaging Heartcheck in a suite adjacent to its Roxsan facility. The center performs coronary artery screenings for calcification on an Electron Beam Cat Scan ["EBCT"] for early detection of heart disease. During the six months ended April 30, 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%. 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 operation's four facilities located in Ventura (2 sites), Oxnard and Camarillo ("Loma Vista" collectively) for approximately $4,800 per month. During the six months ended April 30, 2000, the Camarillo facility was closed and consolidated with the Company's other site in the same city. 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 Imaging" collectively) for $10,200 per month. NOTE 5 - INTANGIBLE ASSETS Intangible Assets consists of goodwill recorded at cost of $14,604,195, less accumulated amortization of $4,369,132 as of April 30, 2000. Amortization expense of approximately $360,000 was recognized for the six months ended April 30, 2000 and 1999. During the six months ended April 30, 1999, the Company recorded goodwill in connection with the acquisition of additional shares of DIS stock of approximately $478,000 which was written off as impairment losses. NOTE 6 - SUBORDINATED DEBENTURES In June of 1993, the Company's registration for a total of $25,875,000 of 10% Series A Convertible subordinated debentures due 2003 was declared effective by the Securities and Exchange Commission. The net proceeds to the Company were approximately $23,000,000. Costs of $3,000,000 associated with the original offering are being amortized over ten years to result in a constant yield. The unamortized portion is classified as other assets. The debentures are convertible into shares of common stock at any time before the maturity into $1,000 principal amounts at a conversion price of $10 per share through June 1999 and $12 per share thereafter. As debentures are being converted or retired, a pro-rata share of the offering costs are written-off. Amortization expense of the offering costs for the six months ended April 30, 2000 and 1999 was approximately $115,000 and $118,000, respectively. Interest expense for the six months ended April 30, 2000 and 1999 was approximately $1,000,000 for each period. 9 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 6 - SUBORDINATED DEBENTURES (CONTINUED) During the six months ended April 30, 2000 and 1999, the Company repurchased debentures with face amounts of $84,000 and $676,000 for $43,680 and $337,215 resulting in gains on early extinguishments of $40,320 and $338,785, respectively. In connection with these transactions, $2,955 and $34,375 of net offering costs were written-off during the six months ended April 30, 2000 and 1999, respectively. NOTE 7 - CAPITAL TRANSACTIONS During the six months ended April 30, 1999, debentures totaling $5,000 were converted into 500 shares of common stock. During the year ended October 31, 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. In January 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 lent the former officer $30,000, with interest at 6.5%, which is classified as stock subscription receivable on the Company's financial statements. During the six months ended April 30, 1999, the Company repurchased 200,000 shares from the former officer at $.40 per share under a stock repurchase agreement. The Company paid $35,000, utilized $25,000 to partially offset a prior loan made to the former officer, and recorded a $20,000 liability to him which was paid during the year ended October 31, 1999. NOTE 8 - RELATED PARTY TRANSACTIONS The amount due from related party relates to a $6,000,000 note receivable issued in connection with the acquisition of Radnet. The outstanding balance of $1,000,000, classified as stockholders' equity, is discounted at 8% and due February 2001. The note is secured by the stock of the Company, which was issued in connection with the Radnet acquisition. The notes payable related parties of $2,553,854 are due to an officer and and employee of the Company. The notes bear interest at 6.58% annually and the outstanding principal is due June 2001. During the six months ended April 30, 2000 and 1999, interest expense was approximately $84,000 for each period. At October 31, 1999, the Company had total advances made to one officer of the Company of $195,000 due within one year. During the six months ended April 30, 2000, the Company advanced an additional $100,000 to this officer with the same terms. The advances bear interest at 6.5% At October 31, 1999, the Company had total loans to a former officer of the Company of $105,000 due within four years with interest at 6.5% of which $30,000 was used to purchase Company stock and classified as stock subscription receivable. NOTE 9 - SUBSEQUENT EVENTS On June 6, 2000, the Company's wholly-owned subsidiary acquired three medical resonance imaging (MRI) centers located in Tarzana, Chino and San Gabriel Valley, California from Diagnostic Health Services, Inc. ["DHS"], a company presently in a bankruptcy reorganization proceeding, for $11,925,000, plus the assumption of the equipment lease having an approximate $2.2 million liability. The three MRI centers were previously owned and operated by the Company and sold (with one other MRI center) to DHS in 1997 for approximately $16,000,000 plus assumed liabilities. The Company's wholly-owned subsidiary borrowed the $11,925,000 from a primary lending source. 10 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 9 - SUBSEQUENT EVENTS (CONTINUED) At the Company's North County facility ["San Diego"], the current building lease expires October 31, 2000 and the Company was unable to obtain an option to extend its term. Due to this, the Company acquired space in nearby Oceanside, California and entered into a building lease for approximately $3,702 per month until November 2005. The site will be operational in October 2000. NOTE 10 - GOING CONCERN The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern and realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has a deficiency in equity of $63,885,000 and a working capital deficiency of $40,012,000, which raise substantial doubt about its ability to continue as a going concern. Over the past several years, management has been addressing the issues that have lead to these deficiencies. Results of management's plans and efforts have been positive, as indicated by the recent improvement in operating income; however, continued effort is planned in the future to allow the Company to continue to operate and ultimately return the Company to sustained profitability. Such actions and plans include: Increase revenue by selectively opening imaging centers in areas currently not served by the Company. In November 1999, the Company opened a new center in Long Beach, California which has experienced favorable performance in its initial months of operations. Increase revenue by negotiating new and existing managed care contracts for additional services and more favorable terms. In the three months ended January 31, 2000, the Company entered into 2 new capitation contracts that will significantly increase business in at least four Southern California facilities. Increase revenue through new fee for service arrangements where opportunities exist. In the three months ended January 31, 2000, the Company was successful in negotiating new fee for service arrangements that will increase patient volume in four Southern California facilities. Consolidate underperforming facilities to reduce operating cost duplication. Continue to evaluate all facilities' operations and trim excess operating costs as well as general and administrative costs where it is feasible to do so. Continue to selectively acquire new medical equipment and replace old and obsolete equipment in order to increase service volume and throughput at many facilities. In 1999, this was done in many of the facilities, resulting in increased revenue. Selectively seek opportunities to hire physicians who have the requisite skills and knowledge to deliver new and additional services where deficiencies have been identified in underperforming facilities. Continue to work with lessors and lenders to extend terms of leases and financing to accommodate cash flow requirements for ongoing agreements and upon the expiration of leases and notes. The Company has demonstrated success doing so in the past, and in December 1999, successfully refinanced a portion of existing notes and obtained additional working capital. 11 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- ITEM 2: BACKGROUND Primedex Health Systems, Inc. ["PHS"] [formerly CCC Franchising Corp.] was incorporated on October 21, 1985. As of January 31, 1992, the Company's wholly-owned subsidiary, CCC Franchising Acquisition Corp. I, entered into an asset purchase agreement with Primedex Corporation ["PC"] for approximately $46,250,000. On July 29, 1993, the Company announced its plans to restructure its Primedex subsidiary and to wind down its involvement in the California worker's compensation industry. Accordingly, the operating results of this subsidiary were reclassified as a discontinued operation and the appropriate prior period amounts were restated. Effective August 1, 1995, substantially all of the assets of PC were sold to an unrelated party for approximately $9,448,000. The sale resulted in a loss of approximately $3,800,000. In November of 1995, the Company formed Radnet Managed Imaging Services, Inc. ["RMIS"] which acquired most of the assets of Future Diagnostics, Inc. ["FDI"] by purchasing 100% of its outstanding stock for approximately $3.2 million consisting of cash, notes and assumed assets and 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 sale resulted in a gain of approximately $10,400,000. The Company continues to operate RMIS which provides utilization review services. The Statements of Operations and Cash Flows for the three months ended January 31, 1999 reflect the overhead costs and cash transactions of RMIS. Effective January 1, 1999, RMIS's operations and services 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 4,130,000 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 majority shareholder in DIS with approximately 59% ownership. In subsequent purchases through June 2, 2000, the Company acquired an additional 3,472,137 shares of DIS stock from various related and unrelated parties for $4,181,841 in cash and notes payable increasing its total ownership to approximately 90%. The Statements of Operations and Cash Flows for the six months ended April 30, 2000 and 1999 reflect the operations and cash transactions of DIS. In October 1998, the Company purchased from DVI Healthcare Operations, Inc. ["DVI"] all 4,482,000 shares of DIS outstanding preferred stock which carried a liquidation preference of $4,482,000, plus accrued and unpaid dividends of $725,900 by issuing a $5,207,900 note payable to DVI due October 31, 2000. In the transaction, the Company recorded financing costs of $5,207,900 which were charged to operations during the year ended October 31, 1998. 12 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, future business decisions, and future governmental medical reimbursement 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. DISCUSSION OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2000 VS. APRIL 30, 1999 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 PHS, Radnet, RMIS and DIS for the six months ended April 30, 2000 and 1999. During the six months ended April 30, 2000, the Company generated income from operations of approximately $6,200,000. During the six months ended April 30, 1999, the Company incurred a loss from operations of approximately $870,000. During the six months ended April 30, 2000 and 1999, the Company realized net revenues of approximately $41,885,000 and $34,730,000, respectively. During the six months ended April 30, 2000 and 1999, Radnet realized net revenues of approximately $35,635,000 and $28,735,000, respectively, and DIS realized net revenues of approximately $6,250,000 and $5,995,000, respectively. The primary reasons for the improvement in net revenue was due to the addition of new equipment increasing throughput and procedural exam volume, the addition of new capitation contracts including St. Josephs and St. Judes benefiting the Orange County region, the renegotiation of exisiting capitation and fee for service contracts improving reimbursement, the addition of a new site in Long Beach, California, and increased demand for imaging services throughout the healthcare industry due to an improved economy. During the six months ended April 30, 2000 and 1999, the Company incurred operating expenses of approximately $35,685,000 and $35,600,000, respectively. 13 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS [CONTINUED] For the six months ended April 30, 2000 and 1999, Radnet's operating expenses were approximately $29,730,000 and $28,010,000, respectively, DIS's operating expenses were approximately $4,800,000 and $6,575,000, respectively, RMIS's operating expenses were approximately $-0- and $40,000, respectively, and PHS's operating expenses were approximately $1,155,000 and $975,000, respectively. With the increase in net revenue, the Company's variable expenses did not increase proportionately due to efficiencies created with the consolidation of a portion of Tower's operation at its new Wilshire site, the addition of new equipment which reduced repair and maintenance costs, the reduction of legal expenditures related to litigation matters (coupled with reimbursement of legal expenditures from the Company's insurance policies), and the reduction of film costs with increased purchase discounts and the introduction of filmless systems at a number of the Company's busiest facilities. In addition, during the six months ended April 30, 1999, DIS's operating expenses included approximately $479,000 for the write-off of additional shares of DIS stock acquired in December 1998. During the six months ended April 30, 2000 and 1999, the Company's operating expenses consisted of approximately $16,950,000 and $15,085,000, respectively, for salaries and reading fees, approximately $3,005,000 and $3,090,000, respectively, for building and equipment rentals, approximately $9,570,000 and $11,465,000, respectively, in general and administrative expenditures, approximately $4,035,000 and $3,830,000, respectively, in depreciation and amortization, approximately $2,125,000 and $1,650,000, respectively, for provisions for bad debt, and approximately $-0- and $480,000 attributable to the recognition of an impairment loss, pursuant to FASB 121, for the write-down of acquisition stock related to DIS. During the six months ended April 30, 2000 and 1999, net interest expense was approximately $6,020,000 and $5,145,000, respectively. During the six months ended April 30, 2000, the Company recognized other income of approximately $375,000. During the six months ended April 30, 1999, the Company recognized other expense [net of other income] of approximately $1,660,000 which included $1,755,995 of settlement costs related to litigation matters. During the six months ended April 30, 2000, the Company realized net gains from the sale or disposal of equipment of approximately $5,000. During the six months ended April 30, 1999, the Company realized net losses from the disposal or sale of equipment of approximately $175,000. During the six months ended April 30, 2000, the Company realized extraordinary gains of approximately $55,000 for the repurchase of subordinated bond debentures and the settlement of limited partner notes at a discount. During the six months ended April 30, 1999, the Company realized extraordinary gains of approximately $1,385,000 which included gains of approximately $339,000 for the repurchase and retirement of subordinated bond debentures and approximately $1,037,000 for the discounted pre-payment of Tower Goodwill. The Company utilized its additional line of credit agreement with DVI Business Credit to settle the majority of its obligation from the Tower acquisition ["Tower Goodwill"] for $3,500,000 cash and an $800,000 note payable to be paid over 48 months beginning February 1, 1999 with interest at 8%. During the six months ended April 30, 2000, the Company recognized net income of approximately $505,000. During the six months ended April 30, 1999, the Company had net losses of approximately $6,475,000. 14 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Cash increased for the six months ended April 30, 2000 and 1999 by approximately $40,000 and $15,000, respectively. Cash utilized for investing activities for the six months ended April 30, 2000 and 1999 was approximately $1,745,000 and $3,060,000, respectively. For the six months ended April 30, 2000 and 1999, the Company paid loan fees of approximately $50,000 and $110,000, respectively, purchased property and equipment for approximately $2,545,000 and $3,750,000, respectively, received proceeds from the sale or trade-in of equipment for $950,000 and $955,000, respectively, and loaned $100,000 and $55,000, respectively, to related parties. In addition, during the six months ended April 30, 1999, the Company acquired assets and additional DIS stock for approximately $100,000. Cash utilized for financing activities for the six months ended April 30, 2000 was approximately $1,700,000. Cash generated from financing activities for the six months ended April 30, 1999 was approximately $2,190,000. During the six months ended April 30, 2000 and 1999, the Company made principal payments on capital leases and notes payable of approximately $8,565,000 and $8,040,000, respectively, received proceeds from borrowing under existing lines of credit and refinancing arrangements of approximately $6,565,000 and $10,415,000, respectively, increased its cash overdraft by approximately $445,000 and $290,000, respectively, distributed $100,000 in each period to its joint venture partner, and repurchased subordinated debentures for approximately $45,000 and $340,000, respectively. In addition, during the six months ended April 30, 1999, the Company purchased common stock per an exercised stock put for $35,000. At April 30, 2000, the Company had a working capital deficit of $40,011,777 as compared to a working capital deficit of $38,007,447 at October 31, 1999, an increased deficit of $2,004,330. Included in current liabilities of the Company at April 30, 2000 and October 31, 1999 are approximately $25.8 million and $21.6 million, respectively, of revolving lines of credit liabilities. The Company's future payments for debt and equipment under capital lease for the next five years, excluding lines of credit, will be approximately $50,525,000, $18,585,000, $17,280,000, $14,900,000 and $9,230,000, respectively. Interest expense, excluding interest expense on operating lines of credit, for the Company for the next five years, included in the above payments, will be approximately $6,095,000, $4,720,000, $3,330,000, $1,955,000 and $795,000, respectively. Interest on subordinated bond debentures is excluded. The Company estimates interest on its bond debentures to be approximately $2,000,000 for the next twelve month period. In addition, the Company has noncancellable 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. Effective March 1, 2000, the Company entered into an agreement with GE Medical Systems until October 2003 for the majority of its medical equipment for a fee based upon a percentage of net revenues with minimum aggregate net revenue requirements. The service fee ranges from 2.82% to 3.67% of net revenue and the aggregate minimum net revenue ranges from $85,000,000 to $95,000,000 during the term of the agreement. As of April 30, 2000, the monthly service fees were approximately $200,000 per month. 15 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES [CONTINUED] The Company's working capital needs are currently provided under three lines of credit. Under one agreement with Coast Business Credit, due December 31, 2001, the Company may borrow the lesser of 75% to 80% of eligible accounts receivable, the prior 120-days' cash collections or $20,000,000. In any scenario, the Company may 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. 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 April 30, 2000, approximately $17,035,000 was outstanding under this line. In December 1999, the Company obtained an additional $2,000,000 loan from Coast Business Credit payable on June 30, 2000. This amount is included in the outstanding balance under the line. 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 equal to the bank's prime rate plus 1.0%. At April 30, 2000, approximately $5,230,000 was outstanding under this line, which was over the borrowing base by approximately $700,000 and over the line availability by approximately $230,000. The Company entered into an additional line of credit with DVI Business Credit, due October 31, 2000, where the Company may borrow up to $3,500,000 to either (a) pay off in full the promissory note dated 10/1/94 issued to Tower Radiology, et. al. ["Tower Goodwill"], 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. Effective January 1, 2000, the line of credit agreement was amended and monthly payments were suspended and interest was accrued on the outstanding principal balance until payments resume on July 1, 2000. At April 30, 2000, approximately $3,570,000 was outstanding under this line. 16 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1: LEGAL PROCEEDINGS. 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, Diagnostic Imaging Services, 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 infliction 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 partial settlement, Dr. Dalrymple assumed ownership of Parkside Radiology and assumed responsibility for expenses of that facility in the future. Additionally, DIS sold certain of its equipment and leasehold improvements at Parkside to Dr. Dalymple for approximately $400,000. Plaintiff's 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, were tried before a jury in Santa Monica, California, from July 28, 1999 through August 20, 1999. Having abandoned their claims for defamation and interference with existing and prospective business advantage prior to trial, plaintiffs went forward with their claim for breach of plaintiff's professional services contract with DIS, their claim for breach of the implied covenant of good faith and fair dealing arising therefrom, their claims arising from the warrant, as well as their claims for fraud, conversion, breach of fiduciary duty, and for negligent and intentional infliction of emotional distress. During the trial, the Court granted verdict in the Company's favor on the latter claim and dismissed all punitive damages allegations. The jury awarded a verdict against the Company in the amount of $1,000,000 on the warrant claim, $259,345 on the claims based upon the professional services contract, $226,650 on the breach of fiduciary duty and conversion claims, $445,000 on the claim for negligent infliction of emotional distress, and interest thereon. On the cross-complaint, DIS was awarded $180,000 for breach of contract on its claim that the plaintiff's failed to deliver a valid and enforceable assignment of the leasehold premises when DIS purchased Parkside Radiology in 1994. The demand of the parties for attorney's fees was rejected and during the pendency of the Company's appeal the parties agreed to settle the case in exchange for payment by the Company of $1,785,000. 17 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS. (a) On March 10, 2000, the Company issued a five year option to acquire 500,000 shares of the Company's Common Stock. (b) The option was issued to John V. Crues, III, M.D., the Company's medical director. (c) The option was issued in consideration of Dr. Crues' continued employment with the Company. (d) The securities were issued as privately placed securities offered to one individual pursuant to the exemption afforded by Section 4(2) of the Securities Act of 1933, as amended. (e) The option is exercisable at a price of $.40 per share, the closing public market price for the Company's common stock on the date the option was issued. (f) On exercise the proceeds will be placed with the working capital of the Company. ITEM 5: OTHER INFORMATION. On June 6, 2000, the Company's wholly-owned subsidiary acquired three medical resonance imaging (MRI) centers located in Tarzana, Chino and San Gabriel Valley, California from Diagnostic Health Services, Inc. ["DHS"], a company presently in a bankruptcy reorganization proceeding, for $11,925,000, plus assumption of the equipment lease having an approximate $2.2 million liability. The three MRI centers were previously owned and operated by the Company and sold (with one other MRI center) to DHS in 1997 for approximately $16,000,000 plus assumed liabilities. The Company's wholly-owned subsidiary borrowed the $11,925,000 from a primary lending source. 18 PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES SIGNATURE - -------------------------------------------------------------------------------- Pursuant to the requirements of Section 13 or 15(d) 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. ------------------------------------------ (Registrant) June 13, 2000 By: /S/ Howard G. Berger --------------------------------------- Howard G. Berger, M.D., President, Treasurer and Principal Financial Officer 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1 6-MOS OCT-31-2000 NOV-01-1999 APR-30-2000 43,254 0 18,359,735 0 0 22,810,606 38,891,080 0 76,922,218 62,822,383 0 0 0 0 0 76,922,218 107,659,037 41,884,869 0 35,687,664 0 0 6,020,916 451,300 0 451,300 0 55,107 0 506,407 .01 .01
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