-----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, C9TqbgGrZ1gV24Vhh2OAhjcqql3rzJD5EJRZ4c76yttMa4ksaWdy1rAtWHlnZjdN FqDbmDT0G0OJXsE/7L0m1g== 0000903594-97-000097.txt : 19971117 0000903594-97-000097.hdr.sgml : 19971117 ACCESSION NUMBER: 0000903594-97-000097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUIMED INC CENTRAL INDEX KEY: 0000892493 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 251668112 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27456 FILM NUMBER: 97722070 BUSINESS ADDRESS: STREET 1: 2171 SANDY DRIVE CITY: STATE COLLEGE STATE: PA ZIP: 16803 BUSINESS PHONE: (814) 238-0375 MAIL ADDRESS: STREET 1: 2171 SANDY DRIVE CITY: STATE COLLEGE STATE: PA ZIP: 16803 FORMER COMPANY: FORMER CONFORMED NAME: EQUIVISION INC DATE OF NAME CHANGE: 19930804 10-Q 1 Securities and Exchange Commission Washington, DC 20549 Form 10-Q (Mark One) [ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30,1997. 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 0-27456 EQUIMED, INC. (Exact name of registrant as specified in its charter) Delaware 25-1668112 (State or other jurisdiction (I.R.S.Employer of incorporation) Identification No.) 2171 Sandy Drive State College, Pennsylvania 16801 (Address of principal executive offices) (Zip Code) (814) 238-0375 (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. Common Stock, $.0001 par value per share, 4,454,443 shares outstanding as of October 31, 1997. EquiMed, Inc. FORM 10Q For the Quarter Ended September 30, 1997 PART 1 - FINANCIAL INFORMATION Page Item 1: Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at December 31, 1996 and September 30, 1997 1 Condensed Consolidated Income Statements for the Nine Months ended September 30, 1996 and 1997 3 Condensed Consolidated Income Statements for the Three Months ended September 30,1996 and 1997 5 Condensed Consolidated Statement of Stockholders' Equity for the Nine Months ended September 30, 1997 6 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1997 7 Notes to Condensed Consolidated Financial Statements 9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 18 EquiMed, Inc. Condensed Consolidated Balance Sheets (in thousands) December 31, September 30, 1996 1997 (Unaudited) Assets Current assets Cash and cash equivalents $ 27,010 $ 2,891 Accounts receivable, net 6,307 13,607 Receivable from affiliates 9,718 23,094 Prepaid expenses and other current assets 1,607 3,703 Deferred income taxes 3,171 3,171 Total current assets 47,813 46,466 Property and equipment, net 12,379 23,524 Management agreements, net of accumulated amortization 5,490 30,360 Advances to/(from) principal shareholder 5,025 (2,592) Other assets 884 888 Total Assets 71,591 98,646 Liabilities and stockholders' equity Current liabilities Accounts payable 1,312 5,445 Payable to affiliates 7,815 10,681 Accrued salaries and professional fees 3,243 7,936 Other accrued expenses 6,006 10,591 Income taxes payable 7,921 4,235 Current portion of long-term debt 686 8,251 Current portion of obligations under capital leases: Related parties 354 546 Other 717 1,721 Total current liabilities 28,054 49,406 Long-term debt, net of current portion 2,431 11,929 Obligations under capital leases, net of current portion: Related parties 1,545 2,197 Other 1,853 4,424 Deferred income taxes 771 5,006 Minority interests 1,473 2,069 Stockholders' equity: Preferred stock, 1,000,000 authorized shares, none issued 0 0 Common stock, $.0001 par value, authorized 16,666,666 shares, issued and outstanding 4,765,246 as of December 31, 1996 and issued 4,765,246 and outstanding 4,454,443 as of September 30, 1997 3 3 Less Treasury stock, 310,803 shares, at cost as of September 30, 1997 0 (5,889) Additional paid-in capital 81,600 81,600 Partner's Capital 657 657 Retained deficit (46,796) (52,756) 35,464 23,615 Total Liabilities & Stockholders Equity 71,591 98,646 See notes to condensed consolidated financial statements EquiMed, Inc. Condensed Consolidated Income Statements (in thousands, except per share amounts) (Unaudited) Nine months ended September 30, 1996 1997 Net revenues $79,188 $59,833 Costs and expenses: Professional fees and expenses 21,194 16,783 Treatment and support services 29,722 16,899 General and administrative expenses 9,242 9,717 Depreciation and amortization 4,137 3,554 Amortization of EquiVision, Inc. acquisition 633 0 Interest expense: Related parties 376 467 Other 1,743 1,293 Loss on sale of receivables 513 847 Other income, net (407) (372) Write-down of Goodwill 24,200 0 Total costs and expenses 91,353 49,188 Income before minority interest, extraordinary items and income taxes (12,165) 10,645 Minority interest 569 596 Income before income taxes (12,734) 10,049 Provision for income taxes 4,443 1,427 Cumulative adjustment to establish deferred income taxes 1,277 0 Total provision for income taxes 5,720 1,427 Net income before extraordinary charge (18,454) 8,622 Extraordinary charge for refinancing of debt, net of income taxes 127 0 Net income (18,581) 8,622 Net income per share before extraordinary charge: $ (4.06) $ 1.89 Extraordinary charge -- -- Net income per share $ (4.06) $ 1.89 Weighted average common shares and equivalents 4,574 4,552 See notes to condensed consolidated financial statements EquiMed, Inc. Condensed Consolidated Income Statements (in thousands, except per share amounts) (Unaudited) Three months ended September 30, 1996 1997 Net revenues $29,046 $23,795 Costs and expenses: Professional fees and expenses 7,933 9,590 Treatment and support services 11,143 3,296 General and administrative expenses 3,367 5,696 Depreciation and amortization 1,465 1,213 Amortization of EquiVision, Inc. acquisition 237 0 Interest expense: Related parties 70 150 Other 693 455 Loss on sale of receivables 152 574 Other income,net (127) ( 67) Write-down of Goodwill 24,200 0 Total costs and expenses 49,133 20,907 Income before minority interest, extraordinary items and income taxes (20,087) 2,888 Minority interest 288 155 Income before income taxes (20,375) 2,733 Provision for income taxes 1,298 (111) Cumulative adjustment to establish deferred income taxes 0 0 Total provision for income taxes 1,298 (111) Net income before extraordinary charge (21,673) 2,844 Extraordinary charge for refinancing of debt, net of income taxes 0 0 Net income (21,673) 2,844 Net income per share before extraordinary charge: $ (4.55) $ 0.64 Extraordinary charge -- -- Net income per share $ (4.55) $ 0.64 Weighted average common shares and equivalents 4,767 4,458 See notes to condensed consolidated financial statements EquiMed, Inc. Condensed Consolidated Statement of Stockholders' Equity Nine Months Ended September 30, 1997 (Unaudited) (in thousands, except share amounts)
Additional Common Stock Treasury Stock Paid-in Partners' Retained Shares Amount Shares Cost Capital Capital Deficit Total Balance, December 31, 1996, 4,765,246 $3 $81,600 $657 $(46,796) $35,464 Dividend (14,582) (14,582) Repurchase of common stock using Treasury method 310,803 (5,889) (5,889) Net Income 8,622 8,622 Balance, September 30, 1997 4,765,246 $3 310,803 (5,889) $81,600 $657 $(52,756) $23,615
See notes to condensed consolidated financial statements EquiMed, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine months ended September 30, 1996 1997 Cash flows from operating activities Net income (18,581) 8,622 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization 4,770 3,554 Write-down of goodwill 24,200 0 Deferred income taxes 1,277 4,235 Minority interest 569 596 Changes in operating assets and liabilities, net of acquired businesses Accounts receivable (3,541) (7,300) Receivables from/payable to affiliates (2,808) (8,902) Prepaid expenses and other current assets (872) (2,096) Accounts payable (1,353) 1,297 Accrued salaries and benefits (1,556) (1,347) Other accrued expense (1,160) (1,756) Income taxes payable (1,124) (3,686) Net cash (used in) operating activities (179) (6,783) Cash flows from investing activities Payments for practice acquired, net of cash acquired (4,543) (8,486) Purchase of property and equipment (1,813) (1,341) Proceeds from sale of intangible asset 750 Decrease in other assets (119) 59 Net cash (used in) investing activities (5,725) (9,768) Cash flows from financing activities Proceeds from long-term borrowings 15,879 3,345 Repayment of long-term debt (20,244) (827) Proceeds from issuance of common stock 24,227 0 Repurchase of common stock (5,889) Repayment of obligations under capital leases: Related parties (3,342) (545) Other (2,225) (551) Distributions: Primary owner (3,543) (3,101) Minority owners (392) 0 Net cash provided by/(used in) financing activities 10,360 (7,568) Net increase/(decrease) in cash 4,456 (24,119) Cash at beginning of period 824 27,010 Cash at end of period 5,280 2,891 See notes to condensed consolidated financial statements EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1997 1. Business, Organization and Basis of Presentation EquiMed, Inc., a Delaware corporation ("EquiMed" or the "Company"), is the legal successor to Equivision, Inc., a Pennsylvania corporation ("Equivision"), which was incorporated in October 1991 and commenced operations as an ophthalmology-related and physician practice management business, effective January 1, 1992. Equivision completed its initial public offering in November 1993 and has been a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act") since that time. EquiMed is the result of the merger between Equivision and Colkitt Oncology Group, Inc., a Delaware corporation (the "Oncology Group"), and the subsequent reincorporation merger of Equivision with and into its wholly owned Delaware subsidiary, EquiMed. These two mergers are referred to collectively herein as the "Merger." The business combination of the Oncology Group and Equivision was accounted for as a reverse purchase. As a result, the Oncology Group was considered for financial reporting purposes as the acquiror. The Merger was consummated on February 2, 1996, and a follow-up public offering was completed on February 15, 1996 consisting of shares sold by the Company and a selling stockholder. The Oncology Group was formed in order to facilitate the acquisition by Equivision, of EquiMed Common Stock and the subsequent acquisition by EquiMed, of the stock and assets of various corporations, partnerships and joint ventures owning or controlling 30 radiation oncology centers comprising the Oncology Group. Pursuant to the merger agreement the stockholders of the Oncology Group received approximately 21 million shares of the Company's common stock (the "Common Stock"). Douglas R. Colkitt, M.D., the principal stockholder of the Oncology Group, is currently the Chairman, Chief Executive Officer and also the principal stockholder of the Company. Dr. Colkitt became the Chief Executive Officer of EquiMed on January 1, 1997. Pursuant to the Merger, EquiMed succeeded to all of the assets, liabilities and contractual obligations of Equivision and of the Oncology Group. In addition to the acquisition of the radiation oncology centers, the Oncology Group had entered into management agreements (the "Management Agreements") with the professional corporations affiliated with such radiation oncology centers and owned by Dr. Colkitt. These professional corporations employ physicians that maintain medical practices and provide medical care to patients receiving treatment at the radiation oncology centers. In general, the Management Agreements provide that EquiMed, as the surviving corporation of the Merger, must supply the professional corporations with offices and facilities, non- professional personnel, inventory, supplies and management and administrative services. Under the terms of the Management Agreements, EquiMed is responsible for billing and collecting the receivables of the professional corporations. Although each professional corporation has legal title to its receivables and net revenues from patient care, EquiMed is an agent of each of the professional corporations for the purposes of billing and collection activities. The Company currently owns, operates or manages 35 radiation oncology centers (the "Oncology Centers") and operates or manages the professional corporations affiliated with such Oncology Centers. Effective July 1, 1997, the Company acquired all of the capital stock of an Anesthesia Services Company, Anesthesia Solutions, Inc. ("ASI"). This acquisition resulted in the Company obtaining contracts to provide anesthesia services to Hospitals. These services include the provision of management services to those hospitals. As of September 30, 1997 the Company had 21 Hospital Based Anesthesia contracts (the "Anesthesia Contracts"). In addition, the Company currently manages six complementary subspecialty medical practices in medical oncology, urology, and internal medicine. The professional corporations and the subspecialty medical practices are hereinafter collectively referred to as the "Affiliated Medical Practices." EquiMed is a transnational holding company for a group of companies focused primarily on the provision of physician practice management services, information technology and outsourcing services primarily to the health care industry. The Company provides medical practice management services to the Oncology Centers, the Anesthesia Contracts and Affiliated Medical Practices. In addition, through its management services organization division (the "MSO Division"), the Company provides data processing, billing, accounting, collections and other administrative and outsourcing services to the health care industry and other businesses. The Oncology Centers and Affiliated Medical Practices provide medical services in selected U.S. geographic markets. Through wholly owned and majority owned subsidiaries, the Company also engages in real estate leasing, provides medical and legal transcription services, established and operates a cosmetic laser treatment center and is involved, through a captive insurance company, in the reinsurance of professional liability for the Oncology Centers and the Affiliated Medical Practices and workers' compensation insurance. In June 1997, the Board of Directors of the Company approved a one-for-six reverse split of Common Stock (the "Reverse Split") which took effect on August 11, 1997. The reverse split resulted in the shares issued decreasing from 28,591,476 to 4,765,246, and the shares outstanding decreasing from 26,726,657 to 4,454,443. All share and per share data have been adjusted to give retroactive effect of the reverse split. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a presentation, have been included. Operating results for the nine month period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the financial statements and footnotes thereto in the Company's annual report on Form 10-K for the year ended December 31, 1996. 2. Other Business Acquisitions On January 1, 1997, the Company acquired several support companies from Douglas R. Colkitt, M.D. for $2,738,755 in cash (including acquisition costs). These business combinations have been accounted for as purchases. Purchase price in excess of book value of these related entities wholly owned by Dr. Colkitt have been reflected as dividends paid. On January 3, 1997, the Company acquired the assets of Prophecy Health Management, Inc. for $500,000, consisting of $450,000 in cash (including acquisition costs) and notes payable in the amount of $50,000. The business combination was accounted for as a purchase. On January 8, 1997, the Company acquired the assets of three court reporting companies known as Doyle Court Reporting for $4,473,471, consisting of $2,473,471 in cash (including acquisition costs), and notes payable in the amount of $2,000,000 plus an additional potential earnout of $300,000 in cash. The business combination was accounted for as a purchase. On February 5, 1997, the Company acquired the assets of Riverdale Home Therapies, Inc. for $2,271,000 in cash (including acquisition costs). The business combination was accounted for as a purchase. On February 11, 1997, the Company acquired the assets of Oaklane Cancer & Hematology Clinic for $2,291,000, consisting of $1,191,000 in cash (including acquisition costs) and notes payable in the amount of $1,100,000. The business combination was accounted for as a purchase. On April 1, 1997, the Company acquired several support companies from Douglas R. Colkitt, M.D. for $6,000,000 in cash (including acquisition costs), plus potential earn-out of up to $9,300,000 payable in Common Stock in the event the Management Services Companies achieve aggregate combined pre-tax earnings of $3,500,000 in 1997. These business combinations have been accounted for as purchases. Purchase price in excess of book value of these related entities wholly owned by Dr. Colkitt have been reflected as dividends paid. Effective July 1, 1997, the Company acquired Anesthesia Solutions, Inc ("ASI") from Douglas R. Colkitt, M.D. As consideration for the capital stock of ASI, the Company shall assume certain debt of ASI and Colkitt shall have the right to receive as stock consideration from EquiMed the number of shares of EquiMed common stock with an aggregate value equal to 5.5 multiplied by the EBITDA ("earnings before income taxes,depreciation and amortization") for the calendar year ended December 31, 1997 less an amount equal to ASI's debt (as defined in the Stock Purchase Agreement) as of June 30, 1997, subject to certain negative adjustments if ASI's working capital deficit (as defined in the Stock Purchase Agreement) as of June 30, 1997 exceeded $10,000,000 or if ASI's debt (as defined in the Stock Purchase Agreement) exceeds $13,000,000. The business combination was accounted for as a purchase. Purchase price in excess of book value of ASI has been reflected as dividends paid. On July 1, 1997, the Company acquired the assets of Mayur Patel, M.D. for $1,243,623, consisting of $565,000 in cash (including acquisition costs) and notes payable in the amount of $678,623. The business combination was accounted for as a purchase. On July 1, 1997, the Company acquired the assets of Woomyung Choe, M.D. for $2,450,000, consisting of $1,987,400 in cash (including acquisition costs) and notes payable in the amount of $462,600. The business combination was accounted for as a purchase. A summary of assets acquired in the business combinations accounted for as purchases, during the nine months ended September 30, 1997 is (in thousands): Cash $ 1,516 Accounts receivable 5,105 Prepaid expense and other current assets 1,278 Property & Equipment 12,353 Management agreements 23,982 $44,234 The pro forma unaudited results of operations for the nine months ended September 30, 1996 and 1997, assuming consummation of the purchases described above, as of January 1, 1996, are (in thousands, except per share amounts). Three months ended Nine months ended September 30, September 30, 1996 1997 1996 1997 Net revenues $ 40,744 $23,795 $114,282 $76,583 Income before extraordinary items (21,348) 2,844 (17,477) 9,799 Net Income (21,348) 2,844 (17,604) 9,799 Net income per share before extraordinary item (4.48) .64 (3.82) 2.15 Net income per share (4.48) .64 (3.85) 2.15 3. Business Dispositions Effective on November 1, 1996, the Company sold its ophthalmology centers (the "Ophthalmology Division") to Physician Resource Group and its wholly owned subsidiary, PRG Georgia, Inc. (collectively, "PRG"). The consideration received by the Company for the sale to PRG was approximately $55,077,000 in cash and the assumption by PRG of approximately $16,611,000 of liabilities. In addition, the Company agreed to assist PRG in its acquisition of additional ophthalmology practices from November 1996 to April 1997 in consideration for negotiated fees and expenses based on the number of additional ophthalmology practice acquisitions accomplished in such period. The operating results of the Ophthalmology Division included in the Company's 1996 results of operations for the period from February 1, 1996 through September 30, 1996 are as follows (amounts in thousands): Net Revenues $37,547 Costs and expenses Professional expenses 10,951 Center operating expenses 17,362 General and administrative expenses 4,909 Depreciation and amortization 2,231 Interest expense 1,101 Other Income, net (18) Write-down of Goodwill 24,200 Total costs and expenses $60,736 Net (Loss) before taxes ($23,189) Minority Interest 45 Provision for income taxes 370 Net (Loss) ($23,604) 4. Commitments and Contingencies In connection with the Merger, Dr. Colkitt has indemnified the Company from any income tax liabilities, if any, not reflected in the financial statements of the Oncology Group related to any period or periods prior to the Merger (the "General Indemnification Agreement"). On March 21, 1996, the Company entered an appearance as a plaintiff to a declaratory judgment action commenced August 30, 1995, in the Delaware Court of Chancery. The litigation seeks a declaration that the merger of the non- professional component of eight oncology centers into the Oncology Group prior to the Merger was effected in accordance with applicable Delaware law and that the merger consideration was fair to the interests held by minority shareholders (the "Minority Holders") in connection with the purchase of their shares. The Minority Holders have filed answers and counterclaims in the Delaware action against the Company and other counterclaim defendants for breach of fiduciary duty, breach of contract, fraud and other violations of Delaware statutory law. The counterclaims seek rescission of the August 1995 mergers of the eight corporations and compensatory and/or rescissory damages. The Minority Holders allege that the value of their holdings that were cancelled pursuant to these mergers exceeded $50,000,000. While Dr. Colkitt and the entities that were merged into the Company pursuant to the Merger believe they have meritorious defenses to the allegations of the Minority Holders, Dr. Colkitt has entered into an agreement with the Company to fully indemnify the Company against any damage, loss, expense or liability, including attorneys' fees and expenses, incurred by the Company resulting from the litigation with the Minority Holders (the "MH Indemnification Agreement"). As a part of the General and MH Indemnification Agreements, Dr. Colkitt is required to place shares of the Company's stock held by him with the Company. Dr. Colkitt has placed shares of the Company's stock with the Company based upon the Company's estimate of any potential damage, loss, expense or liability, including attorneys' fees and expenses, which may be incurred by the Company resulting from the litigation with the Minority Holders and from any income tax liabilities not reflected in the financial statements of the Oncology Group related to any period or periods prior to the Merger. Based upon management's knowledge of the facts to date and consultation with its legal advisors, management believes the ultimate disposition of these matters will not have an adverse effect on the Company's financial position or the results of operations. On May 15, 1997, the Company filed Demand for Arbitration before the American Arbitration Association in Philadelphia, Pennsylvania to enforce certain terms of the Asset Purchase Agreement dated October 7, 1996 between the Company and PRG (the "Agreement") and to recover damages for breach of the Agreement by PRG. Under the Agreement, the Company sold substantially all of the assets of its Ophthalmology Division to PRG and also agreed, during the period beginning November 1996 and ending April 1997, to assist PRG in the acquisition of additional ophthalmology practices. In return for such additional services, the Company is entitled to receive from PRG certain fees and expenses based upon the status of such additional acquisitions as of May 15, 1997. PRG failed to make the May 15, 1997 payment to the Company and has advised the Company that it does not intend to make such payment. Under the Demand for Arbitration, the Company is also seeking damages in connection with PRG's refusal to provide the Company's representatives with access to financial records of the Ophthalmology Division, which refusal had delayed the Company's ability to complete its annual audit and filings required under the Securities Exchange Act of 1934, as amended. PRG has filed a counterclaim against the Company in which they seek damages in connection with PRG's acquisition of the Company's Ophthalmology Division in November 1996. The Company is insured with respect to medical malpractice risks on a claims-made basis. Should these claims-made policies not be renewed or replaced with equivalent insurance, claims based on occurrences during the term of the respective policies, but asserted subsequently would be uninsured. The Company has been named in two actions relating to professional liability claims at one of its ophthalmology centers. The claims pertain to a period when the Company was partially self insured for that center. The Company intends to defend these claims vigorously and believes it has meritorious defenses. Management believes the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or the results of operations. In March 1997, ASI filed a claim for Arbitration under the Asset Purchase Agreement dated June 1, 1996, by and between ASI as Buyer and Allegiant Physicians Services, Inc. (Allegiant) as Seller, seeking reformation of a section of the Asset Purchase Agreement, where ASI maintains a drafting error occurred. As a result of the dispute between the parties, the outcome of the Arbitration will determine the final Purchase Price of the assets acquired by ASI from Allegiant, under the Asset Purchase Agreement. Management believes the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or the results of operations. The Company and its subsidiaries are not parties nor is the Company's property subject to any other material litigations or proceedings, other than the litigation described above and other litigation incidental to business. 5. Related Party Transactions The Company entered into a receivables purchase agreement on April 27, 1995. Under the terms of the agreement, receivables are transferred to Oncology Funding Corporation (a company that is wholly-owned by Dr. Colkitt) which then factors the receivables with an unrelated financing company, John Alden Asset Management Company ("Alden"). The factored receivables may be denied by Alden for various reasons including nonpayment by the payor. The transfer of receivables to Alden is recognized as a sale and the difference between the sales price (adjusted for the accrual of probable adjustments) and the net receivables is recognized as a gain or loss on the sale of receivables. During 1996 and through September 30, 1997, the Company failed to comply with certain covenants of the receivable purchase agreement. Remedies available to Alden due to these events of noncompliance include termination of the receivable purchase agreement. Proceeds to the Company from receivables sold under this agreement were approximately $23,752,682 for the nine months ended September 30, 1997. At September 30, 1997, the balance of receivables transferred that remain uncollected was approximately $4,809,447. The Company has contracted with National Medical Financial Services ("NMFS"), a company in which Dr. Colkitt is the Chairman and a principal shareholder, to perform billing services for the Company. Effective January 1, 1995, the contract with NMFS was renegotiated and the fee for billing services was reduced to 3% of collected revenue. In addition, NMFS agreed to begin performing accounting services for the Company for a fee of 1% of collected revenues. As a result, a portion of the Company's accounting personnel were transferred to a company that is a subcontractor to NMFS and is a wholly owned subsidiary of EquiMed. During the three months ended September 30, 1996 and 1997, the Company expensed $609,000 and $594,000. During the nine months ended September 30, 1996 and 1997, the Group expensed $1,789,000 and $1,770,000, respectively, for services provided by NMFS. The Group estimates that the cost to provide these services internally, prior to the contract with NMFS, was approximately 3% of net revenues. As of September 30, 1997 this contract has expired and there are no plans or negotiations to renew this contract with National Medical Financial Services at this time. 6. Subsequent Events 7. Accounting Pronouncements In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"), which will change the current method of computing earnings per share. The new standard requires presentation of "basic earnings per share" and "diluted earnings per share" amounts, as defined. SFAS 128 will be effective for the Company's quarter and year ending December 31, 1997, and upon adoption, all prior- period earnings and per share data presented will be restated to conform with the provisions of the new pronouncement. Application earlier than the Company's quarter ending December 31, 1997 is not permitted. The Company does not believe the application of the new standard will materially impact the financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results Of Operations At September 30, 1997, the Company owned, operated or managed 35 radiation oncology centers, Anesthesia Services for 21 Hospitals and operated or managed six complementary subspecialty medical practices. In addition, the Company owned three equipment or real estate leasing companies, two transcription companies and had established billing, collections and other outsourcing subsidiaries and a captive insurance company. At September 30, 1996, the Company owned, operated or managed 34 oncology centers and 21 ophthalmology centers. The increase in centers owned, operated, or managed during the nine months ended September 30, 1997 was attributable to the acquisitions of three complementary medical practices, two oncology centers, three leasing companies, two transcription companies, five management services companies, and the 21 Anesthesia Service contracts, offset by the sale of the Ophthalmology Division. Net revenues for the nine months ended September 30, 1997 decreased 24% to $59,833,000 from $79,188,000 for the same period in 1996. The decrease in net revenues was attributable to the sale of ophthalmology centers (which generated net revenues of $37,547,000 in the nine months ended September 30, 1996) offset by the net revenues of $18,192,000 generated by the newly acquired businesses in the nine month period ended September 30, 1997. Professional fees and expenses are incurred at center locations and consist primarily of physician compensation and liability insurance. Physicians are primarily compensated on the profitability of an individual center, a fixed salary or a percentage of professional fees generated. Professional fees and expenses during the nine month period ended September 30, 1997 decreased 20.8% to $16,783,000 from $21,194,000 for the same period in 1996. These decreased expenses resulted from the sale of the Ophthalmology Division. As a percentage of net revenues, professional fees and expenses increased to 28.0% in the nine month period ended September 30, 1997 from 26.76% in the same period in 1996. This increase was due to a change in the mix of the businesses included within the Company, with the most notable increase due to the addition of the Anesthesia Services Company (Anesthesia Solutions, Inc. ("ASI")). Treatment and support services consist of center-related, non-physician payroll costs, medical, treatment, and optical costs, marketing and other center-related cost. Treatment and support services during the nine month period ended September 30, 1997 decreased 43.1% to $16,899,000 from $29,722,000 for the same period in 1996. These decreased expenses resulted from the sale of the Ophthalmology Division offset by subsequent acquisitions. As a percentage of net revenues, treatment and support services decreased to 28.2% from 37.5% in 1996. This decrease was a result of the sale of the Ophthalmology Division and a change in the mix of businesses included within the Company. General and administrative expenses consist of billing, accounting, development, legal and corporate administrative expense. General and administrative expenses during the nine months ended September 30, 1997 increased to $9,717,000 from $9,242,000 for the same period in 1996. As a percentage of net revenues, general and administrative expenses increased to 16.2% in 1997 from 11.7% in 1996. These increased expenses resulted from the acquisition of the Management Services Companies and the additions to those companies in anticipation of future acquisitions. Depreciation consists of depreciation of property and equipment. Amortization consists primarily of the amortization of excess costs of acquired businesses over fair value of the net identifiable assets acquired in connection with acquisitions. Depreciation and amortization decreased to $3,554,000, or 5.9% of net revenues, for the nine month period ended September 30, 1997 from $4,770,000, or 6.0% of net revenues for the same period in 1996. There was no material change due to the mix of the businesses included within the Company. Interest expense decreased slightly to $2,607,000, or 4.3% of net revenues, for the nine month period ended September 30, 1997 from $2,632,000, or 3.3% of net revenues for the same period in 1996. Minority interest primarily represents interest in individual cancer centers held by entities other than the Company. Such entities have included hospitals or other such health care providers which enter into affiliation arrangements with the Company. Minority interest in the earnings of such centers increased to $596,000, or 1.0% of net revenues for the nine month period ended September 30, 1997 from $569,000, or 0.7% of net revenues for the same period in 1996. This increase was primarily the result of improved profitability of those centers with minority interest holdings. During the nine month period ended September 30, 1997, the Company recorded income tax expense of $1,427,000. During the nine month period ended September 30, 1996, the Company recorded income tax expense of $5,720,000. The Company continues to provide an adequate provision for income taxes payable for all of its subsidiaries, both domestic and international, with respect to all applicable laws and rates. Liquidity And Capital Resources At September 30, 1997, the Company had cash and cash equivalents of $2,891,000. During the nine month period ended September 30, 1997, the Company used cash in operating activities of $6,783,000 and used cash in investing and financial activities of $9,768,000 and $7,568,000 respectively. Cash flows from operating activities during the nine month period ended September 30, 1997 included net income of $8,622,000 and a subsequent adjustments for cash provided by depreciation and amortization of $3,554,000. Cash was provided by increases in accounts payable,and the net effect of deferred taxes and income taxes payable of $1,297,000,and $549,000, respectively, offset by accumulation of accounts receivable,related party receivables,prepaid expenses, accrued salaries and benefits,and other accrued expenses of $7,300,000, $8,902,000, $2,096,000,$1,347,000 and $1,756,000 respectively. The accumulation of accounts receivable was attributable to a reduction in the level of accounts receivable sold under the factoring arrangement and the increase of accounts receivable that are not part of a factoring arrangement. The Company's principal sources of liquidity for working capital and current operations will be its factoring arrangement and cash flows from operations. The Company has been considering other capital alternatives to finance its acquisitions strategy. While the Company believes it will be able to secure adequate funds which, when combined with the issuance of common stock and promissory notes, will enable it to consummate its planned acquisitions, there can be no assurance that it will be able to do so. PART II - OTHER INFORMATION Item 1: Legal Proceedings (No response required) Item 5: Other Information .(no response required) Item 6: Exhibits and Reports on Form 8-K (a) Exhibits (3.1) Certificate of Incorporation of the Company* (3.2) Bylaws of the Company* (11) Statement re: computation of earnings per share (27) Financial Data Schedule (b) Reports on Form 8-K Form 8-K/A filed July 11, 1997 Form 8-K/A filed July 30, 1997 Form 8-K filed August 14, 1997 ____________________ * Incorporated herein by reference to the exhibit to the Company's Registration Statement on Form SB-2 (No. 33-98058). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EQUIMED, INC. (Registrant) By /s/Douglas R. Colkitt Douglas R. Colkitt, Chairman and Chief Executive Officer By /s/ Daniel Beckett Daniel Beckett, Chief Financial Officer November 14, 1997 EXHIBIT INDEX Exhibit (3.1) Certificate of Incorporation of the Company* (3.2) Bylaws of the Company* (11) Statement re: computation of earnings per share (27) Financial Data Schedule ____________________ * Incorporated herein by reference to the exhibit to the Company's Registration Statement on Form SB-2 (No. 33-98058). EX-11 2 EquiMed, Inc. EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 1996 1997 1996 1997 Primary: Weighted average common shares outstanding 4,765 4,458 4,556 4,552 Net effect of dilutive stock options and warrants-based on the treasury stock method using average market price 2 -- 18 -- Weighted average common share and equivalents outstanding 4,767 4,458 4,574 4,552 Net Income (Loss) (21,673) 2,844 (18,581) 8,622 Net Loss per share .64 1.89 Pro forma net income (21,348) (17,604) Pro forma net income per share (4.48) (3.85) Fully Diluted: Weighted average common shares outstanding 4,765 4,458 4,556 4,552 Net effect of dilutive stock options and warrants-based on the treasury stock method using the June 30 price, if higher than average market price 2 -- 16 -- Weighted average common share and equivalents outstanding 4,767 4,458 4,572 4,552 Net Income (Loss) (21,673) 2,844 (18,581) 8,622 Net loss per share (4.55) (4.06) Pro forma net income (21,348) (17,604) Pro forma net income per share (4.48) (3.85) EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EQUIMED, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 SEP-30-1997 2,891 0 13,607 0 0 46,466 23,524 0 98,646 49,406 18,550 0 0 75,714 (52,756) 98,646 0 59,833 0 46,953 (372) 0 2,607 10,049 1,427 8,622 0 0 0 8,622 1.89 1.89
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