-----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, FwAOmTay4xKkNBvUNKyZVBG0Hx0WvZD/YmSDHjt89di5KyVI7xxqbSASgTFWJnrH I8Pu+04CzwAkrYfDRWssVQ== 0000950109-96-007768.txt : 19961125 0000950109-96-007768.hdr.sgml : 19961125 ACCESSION NUMBER: 0000950109-96-007768 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961119 DATE AS OF CHANGE: 19961122 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUIMED INC CENTRAL INDEX KEY: 0000892493 STANDARD INDUSTRIAL CLASSIFICATION: 8093 IRS NUMBER: 251668112 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12578 FILM NUMBER: 96669417 BUSINESS ADDRESS: STREET 1: 3754 LAVISTA RD CITY: TUCKER STATE: GA ZIP: 30084 BUSINESS PHONE: 4043206211 FORMER COMPANY: FORMER CONFORMED NAME: EQUIVISION INC DATE OF NAME CHANGE: 19930804 10-Q 1 FORM 10-Q 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, 1996 ------------------ 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.) 3754 LaVista Rd. Tucker, Georgia 30084 - 5637 - - ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) (404) 320-6211 - - -------------------------------------------------------------------------------- (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 X No ---- ---- 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, 28,603,829 shares outstanding as of November 19, 1996. EQUIMED, INC. FORM 10-Q For the Quarter Ended September 30, 1996 PART 1 - FINANCIAL INFORMATION Page ---- Item 1: Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at December 31, 1995 and September 30, 1996 2 Condensed Consolidated Income Statements for the Three Months Ended September 30, 1995 and 1996 3 Condensed Consolidated Income Statements for the Nine Months Ended September 30, 1995 and 1996 4 Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 1996 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 14 1 EquiMed, Inc. Condensed Consolidated Balance Sheets (in thousands)
December 31, September 30 1995 1996 -------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 824 $ 5,280 Accounts receivable, net 4,988 15,688 Receivable from affiliates - 1,366 Inventories - 939 Prepaid expenses and other current assets 658 3,473 Deferred income taxes 547 680 -------------------------------------- Total current assets 7,017 27,426 Property and equipment, net 11,337 20,119 Goodwill 1,589 13,026 Services agreements - 36,374 Non-compete agreements 263 1,698 Patient records - 1,705 Other assets 100 859 Deferred income taxes 273 273 -------------------------------------- $ 20,579 $ 101,480 ====================================== Liabilities and stockholders' equity Current liabilities: Notes payable to related parties $ 725 $ - Accounts payable 1,377 1,832 Payable to affiliates 506 - Accrued salaries and professional fees 3,123 3,463 Other accrued expenses 1,997 4,077 Income taxes payable 7,236 6,112 Current portion of long-term debt 2,048 16,567 Current portion of obligations under capital leases: Related parties 596 313 Other 1,596 1,014 -------------------------------------- Total current liabilities 19,204 33,378 Long-term debt, net of current portion 3,188 10,711 Obligations under capital leases, net of current portion: Related parties 4,518 1,459 Other 2,643 2,145 Deferred income taxes - 2,405 Minority interests 1,171 1,470 Stockholders' equity: Preferred stock, 1,000,000 authorized shares, none issued - - Common stock, $.0001 par value, authorized 100,000,000 shares, issued and outstanding 20,783,633 in 1995 and 28,591,474 in 1996 2 82,183 Additional paid-in capital 1,760 1,760 Accumulated deficit (11,907) (34,031) -------------------------------------- (10,145) 49,912 -------------------------------------- $ 20,579 $ 101,480 ======================================
See notes to condensed consolidated financial statements 2 EquiMed, Inc. Condensed Consolidated Income Statements (Unaudited) (in thousands, except per share amounts)
Three months ended September 30, 1995 1996 ----------------------------- Net revenues $ 13,963 $ 29,046 Costs and expenses: Professional fees and expenses 3,073 7,933 Treatment and support services 3,975 11,143 General and administrative expenses 2,057 3,367 Depreciation and amortization 684 1,465 Amortization of EquiVision, Inc. acquisition - 237 Interest expense: Related parties 201 70 Other 184 693 Loss on sale of receivables 124 152 Other income, net 14 (127) Write-down of goodwill (Note 4) - 24,200 ----------------------------- Total costs and expenses 10,312 49,133 Income (loss) before minority interest, extraordinary item and income taxes 3,651 (20,087) Minority interest 56 288 ----------------------------- Income (loss) before income taxes 3,595 (20,375) Provision for income taxes 964 1,298 ----------------------------- Net income (loss) $ 2,631 $ (21,673) ============================= Supplemental unaudited pro forma information: Net income, as above 2,631 Pro forma adjustment to income tax expense 800 ------------ Pro forma net income $ 1,831 ============ Net loss per share $(0.76) =============== Pro forma net income per share (Note 1) $0.09 ============ Weighted average common shares and equivalents 20,784 28,604 ============================
See notes to condensed consolidated financial statements 3 EquiMed, Inc. Condensed Consolidated Income Statements (Unaudited) (in thousands, except per share amounts)
Nine months ended September 30, 1995 1996 ------------------------------------ Net revenues $ 44,165 $ 79,188 Costs and expenses: Professional fees and expenses 10,790 21,194 Treatment and support services 12,729 29,722 General and administrative expenses 5,666 9,242 Depreciation and amortization 2,060 4,137 Amortization of EquiVision, Inc. acquisition - 633 Interest expense: Related parties 646 376 Other 708 1,743 Loss on sale of receivables 261 513 Other income, net (62) (407) Write-down of goodwill (Note 4) - 24,200 ------------------------------------ Total costs and expenses 32,798 91,353 Income (loss) before minority interest, extraordinary item and income taxes 11,367 (12,165) Minority interest 641 569 ------------------------------------ Income before income taxes and extraordinary item 10,726 (12,734) Provision for income taxes: Income tax expense 2,075 4,443 Cumulative adjustment to establish deferred income taxes for change in tax status - 1,277 ------------------------------------ 2,075 5,720 ------------------------------------ Income (loss) before extraordinary item $ 8,651 (18,454) Extraordinary charge from refinancing of debt, net of income taxes - (127) ------------------------------------ Net income (loss) $ 8,651 $(18,581) ==================================== Supplemental unaudited pro forma information: Net income, as above 8,651 Pro forma adjustment to income tax expense 2,647 ------------------ Pro forma net income $ 6,004 ================== Net loss per share before extraordinary item $(0.68) Extraordinary item - -------------- Net loss per share $(0.68) ============== Pro forma net income per share (Note 1) $0.29 ================== Weighted average common shares and equivalents 20,784 27,446 ====================================
See notes to condensed consolidated financial statements 4 EquiMed, Inc. Condensed Consolidated Statement of Stockholders' Equity Nine Months Ended September 30, 1996 (Unaudited) (in thousands, except share amounts)
Common Stock Additional Total --------------------------- Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Equity ------ ------ ------- ------- ------ Balance, December 31, 1995, Note 1 20,783,633 $ 2 $1,760 $(11,907) $(10,145) Cumulative effect of pooling-of-interests, Note 1 402,685 17 - - 17 ------------------------------------------------------------------------------ Balance, December 31, 1995 As restated 21,186,318 19 1,760 (11,907) (10,128) Cash and deemed distributions to Dr. Colkitt and affiliates - - - (3,543) (3,543) Acquisition of EquiVision, Inc. 4,338,831 45,581 - - 45,581 Issuance of Common Stock in connection with public offering, net of issuance cost 2,000,000 24,200 - - 24,200 Issuance of Common Stock in connection with acquisitions 1,061,393 12,356 - - 12,356 Issuance of Common Stock 4,932 27 - - 27 Net loss - - - (18,581) (18,581) ------------------------------------------------------------------------------ Balance, September 30, 1996 28,591,474 $82,183 $1,760 $(34,031) $ 49,912 ==============================================================================
See notes to condensed consolidated financial statements 5 EquiMed, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Nine months ended September 30, 1995 1996 --------------------------------- Cash flows from operating activities Net income (loss) $ 8,651 $ (18,581) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 2,060 4,770 Write-down of goodwill - 24,200 Deferred income taxes (162) 1,277 Minority interest 641 569 Changes in operating assets and liabilities, net of acquired business: Accounts receivable 2,402 (3,541) Receivables from/payable to affiliates 340 (2,808) Prepaid expenses and other current assets 161 (872) Accounts payable 376 (1,353) Accrued salaries and benefits 239 (1,556) Accrued contractual fees payable (725) - Other accrued expenses (198) (1,160) Income taxes payable 2,208 (1,124) --------------------------------- Net cash provided (used) by operating activities 15,993 (179) Cash flows from investing activities Payments for practices acquired, net of cash acquired - (4,543) Purchase of property and equipment (262) (1,813) Proceeds from sale of intangible asset - 750 Decrease in other assets (36) (119) --------------------------------- Net cash used by investing activities (298) (5,725) Cash flows from financing activities Proceeds from long-term borrowings - 15,879 Repayment of long-term debt (453) (20,244) Proceeds from issuance of common stock - 24,227 Repayment of obligations under capital leases: Related parties (406) (3,342) Other (1,115) (2,225) Capital contributions by primary owner 230 - Distributions: Primary owner (12,272) (3,543) Minority owners (320) (392) --------------------------------- Net cash provided (used) by financial activities (14,336) 10,360 --------------------------------- Net increase in cash 1,359 4,456 Cash at beginning of period 2,565 824 --------------------------------- Cash at end of period $ 3,924 $ 5,280 =================================
See notes to condensed consolidated financial statements 6 EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1996 1. Business, Organization and Basis of Presentation On February 2, 1996, Colkitt Oncology Group, Inc. (the "Oncology Group") merged with and into EquiVision, Inc. ("EquiVision") and, immediately thereafter, EquiVision effected an immediate reincorporation in Delaware and a 1-for-2 reverse stock split through a merger (the "Reincorporation Merger") with and into EquiMed, Inc. ("EquiMed" or the "Company"), a newly-formed Delaware subsidiary of EquiVision, formed for the purpose of effecting the Reincorporation Merger and reverse stock split. The merger between the Oncology Group and EquiVision and the Reincorporation Merger are referred to collectively herein as the "Merger". The Oncology Group was formed prior to consummation of the Merger to acquire all of the stock or assets of various corporations, partnerships and joint ventures which owned or controlled 30 radiation oncology centers. All share and per share amounts in this report reflect the 1-for-2 reverse stock split that was effected upon consummation of the Reincorporation Merger. The stockholders of the Oncology Group received 20,783,633 shares of the common stock of EquiVision as consideration for the Merger. The business combination was accounted for as a reverse purchase. As a result, the Oncology Group is considered the acquiror. The purchase price of EquiVision was $45,600,000 and has been allocated to the assets purchased and the liabilities assumed based upon fair market value at the date of acquisition. The excess of purchase price over the fair market value of the net assets was $38,000,000 and has been recorded as goodwill. Upon completion of the Merger, certain of the entities which comprised the Oncology Group ceased to qualify as S corporations and became subject to corporate income taxes. As a result, the Company recorded a cumulative adjustment of $1,277,000 to establish deferred income taxes for the change in tax status. These deferred taxes represented the cumulative temporary differences between financial reporting and tax reporting. In order to effect the Merger and in connection therewith, the stockholders' approved an increase of the shares of common stock of the Company from 20,000,000 shares to 100,000,000 shares. On March 18, 1996, the Company acquired Wallace Eye Surgery, Ltd. and The Laser & Surgery Center, Inc. ("Wallace") for approximately 403,000 shares of the Company's common stock valued at approximately $5,000,000. The business combination has been accounted for as a pooling of interests. Because this acquisition was not material, the Company's financial statements, share and per share amounts have not been restated to include the accounts and operations for all periods prior to January 1, 1996. 7 EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 1. Business, Organization and Basis of Presentation (continued) A reconciliation of consolidated net revenues and net income to amounts applicable to the separate pooled companies prior to the dates of combination is (in thousands):
Three Months Nine Months Ended Ended September 30, 1996 September 30, 1996 ------------------------------------------ Net revenues: EquiMed $ 29,046 $ 78,908 Wallace - 280 ---------------------------------------- $ 29,046 $ 79,188 ======================================== Net Loss: EquiMed $ (21,673) $ (18,581) Wallace - - ---------------------------------------- $ (21,673) $ (18,581) ========================================
Professional fees and expenses for Wallace have been adjusted to reflect net income of zero for the periods indicated prior to the dates of acquisition. 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 fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Historical net income per share amounts for 1995 have not been presented because they are not meaningful. Net income for the three and nine month periods ending September 30, 1995 do not include pro forma adjustments to income tax expense of $800,000 and $2,647,000, respectively. The weighted average number of shares used to calculate the 1995 pro forma net income per share amounts represent the number of shares of EquiVision common stock that the Oncology Group received as part of the Merger. 8 2. Other Business Acquisitions On March 1, 1996, the Company acquired the primary operating assets of three medical practices for $4,601,000, consisting of $3,027,000 in cash (including acquisition costs), notes payable in the amount of $1,250,000 and $324,000 in common stock. Effective April 1, 1996, the Company acquired the primary operating assets of three medical practices for the aggregate consideration of $12,512,000, consisting of $1,663,000 in cash (including acquisition costs), $9,115,000 in common stock, a note payable issued and debt assumed in the amount of $1,475,000 and assumption of liabilities of $259,000. Effective June 1, 1996, the Company acquired the primary operating assets of a medical practice for $2,977,000, consisting of $2,917,000 in common stock and assumption of liabilities of $60,000. Effective September 1, 1996, the Company acquired the primary operating assets of two medical practices for $1,751,000, consisting of $1,563,000 in cash (including transaction costs) and an issued note payable in the amount of $188,000. All of the above mentioned acquisitions have been accounted for as purchases. A summary of assets acquired in the business combinations accounted for as purchases, during the nine months ended September 30, 1996 is (in thousands):
Cash and cash equivalents $ 1,631 Accounts recievable 6,902 Prepaid expense and other current assets 2,740 Property & Equipment 9,364 Goodwill 37,713 Services agreements 36,291 Non-compete agreements 2,010 Patient records 1,884 Other 742 ------- $99,277 =======
The pro forma unaudited results of operations for the three and nine month periods ended September 30, 1995 and 1996, assuming consummation of the EquiVision purchase described in Note 1, as of January 1, 1995, are (in thousands, except share amounts):
Three months ended Nine months ended September 30, September 30, 1995 1996 1995 1996 -------------------------------------------------------------- Net revenues $24,462 $ 29,046 $ 73,523 $ 82,691 Income (loss) before extraordinary item 3,517 (21,673) 7,480 5,525 Net income (loss) 3,517 (21,673) 7,314 5,398 Net income (loss) per share before extraordinary item .14 (.76) .30 .19 Net income (loss) per share .14 (.76) .29 .19
9 EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 3. Business Dispositions Effective July 1, 1996, the Company sold the assets of a medical practice for its carrying value of $325,000. The consideration consisted of a note receivable of $275,000 and elimination of $50,000 in long-term debt. On September 13, 1996, the Company sold the contractual rights associated with a services agreement to manage an ambulatory surgery center for its carrying value of $325,000. The consideration consisted of cash. 4. Goodwill Impairment During the three months ended September 30, 1996, the Company recorded a goodwill impairment charge of $24,200,000, with no associated tax benefit, related to the sale of its ophthalmology practice management and ambulatory surgery center business on November 5, 1996 (Note 9). The Company determined the impairment charge by computing the excess carrying value of the assets being sold over the consideration that will be received, currently estimated at $69,683,000, less incremental direct costs to transact the sale of approximately $1,430,000. 5. Amendment of Revolving Credit Agreement On May 14, 1996, the Company entered into an amendment of its $20,000,000 Revolving Credit Agreement ("Credit Agreement") with a bank. The amendment shortened the remaining term of the Credit Agreement to November 30, 1996 and limited (i) future borrowings under the facility to $15,000,000 and (ii) acquisitions to an aggregate of $50,000,000. Borrowings under the Credit Agreement at September 30, 1996 were approximately $14,779,000 and have been classified by the Company in the current portion of long-term debt. In connection with the sale of the ophthalmology physician practice management and ambulatory surgery center business on November 5, 1996, the Company used a portion of the proceeds from this transaction to repay and terminate the Credit Agreement. 6. Public Offering of Common Stock On February 14, 1996, the Company consummated the sale of 2,000,000 shares of common stock in connection with a public offering at $14 per share. Net proceeds from the offering were approximately $24,200,000. 10 EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 7. Commitments and Contingencies 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. At September 30, 1996, the Company has several malpractice claims outstanding which have arisen in the normal course of business. In addition, it is possible that certain incidents may have occurred which have not been reported as of this date. The Company has policies and procedures in place to track and monitor incidents of significance. Note 13 to the Oncology Group's combined financial statements included in EquiMed's 1995 annual financial statements provides a detailed description of certain litigation involving Dr. Colkitt, the Company's Chairman and majority stockholder, and several related entities and the former holders of minority interests in certain of the Company's centers. The Company believes this litigation will ultimately be settled through Dr. Colkitt's purchase of the minority interests in these entities (collectively the "Joint Venture Entities"). Although mergers approved on August 30, 1995 effected the transfer of the minority interests in the Joint Venture Entities to Dr. Colkitt, the purchase price to be paid for such interests has not yet been determined. At August 30, 1995, the carrying value of the minority interests of the Joint Venture Entities in the amount of $375,000 was reported as a capital contribution by Dr. Colkitt. At the date the purchase price is determined, the Company expects to record the difference between the carrying value of the minority interests in the Joint Venture Entities and the purchase price as a capital contribution. Based on 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 its operations. 8. 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. Under the receivables purchase agreement, the balance of receivables transferred that remained uncollected at any date is limited to $6,000,000. Proceeds to the Company from receivables sold under this agreement were approximately $9,407,000 and $25,936,000 for the three and nine month periods ended September 30, 1996, respectively. At 11 EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 8. Related Party Transactions (continued) September 30, 1996, the balance of receivables transferred that remain uncollected was approximately $4,946,000. The Company has contracted with National Medical Financial Services Corporation ("NMFS"), a public company in which Dr. Colkitt is the Chairman and controlling 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 group's accounting personnel were transferred to a company controlled by Dr. Colkitt and a subcontractor of NMFS. During the three months ended September 30, 1995 and 1996, the Company expensed $684,000 and $527,000, respectively, for services provided by NMFS. During the nine month periods ended September 30, 1995 and 1996, the Company expensed $1,962,000 and $1,707,000 respectively, for services provided by NMFS. The Company estimates that the cost to provide these services internally, prior to the contract with NMFS, was approximately 3% of net revenues. Effective June 1, 1996, two wholly owned subsidiaries of the Company have contracted to perform accounting, billing, collections, human resources and related services to Anesthesia Solutions, Inc., a company in which Dr. Colkitt is the primary and controlling shareholder. During the three and nine month periods ended September 30, 1996, the Company recognized revenues of $932,000 and $1,366,000, respectively, and net income of $772,000 and $1,081,000, respectively, related to these services. At September 30, 1996, no amounts have been paid pursuant to this contract, and accordingly, the Company has a receivable from affiliate of $1,366,000 related to the services. This receivable averages approximately 60 days old. In addition, the Company has operating and capital leases with related parties as described in Note 8 to the Oncology Group's 1995 combined financial statements included in EquiMed's Annual Report on Form 10-K for the year ended December 31, 1995. 9. Subsequent Events On November 5, 1996, EquiMed consummated the sale of the ophthalmology physician practice management and ambulatory center business of the Company (the "Ophthalmology Business") effective as of October 31, 1996. The consideration consisted of $54,563,000 in cash and the elimination of an estimated $15,300,000 of liabilities related to the Ophthalmology Business and a further contingent cash amount ("Contingent Consideration") based upon the future acquisition of additional medical practices related to the Ophthalmology Business, as defined, which satisfy certain conditions and are consummated by April 30, 1997. If the Company were to receive the minimum consideration of $54,563,000 in cash and elimination of an estimated $15,300,000 in liabilities, then an after-tax loss of approximately $34,400,000 would be incurred. Of this estimated loss, $24,200,000 has been recorded as a goodwill impairment charge during the 12 EquiMed, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (continued) 9. Subsequent Events (continued) three months ended September 30, 1996 (Note 4). The Provision from income taxes while undetermined at this time, is anticipated to be in the range of $4.0-$10.0 million, and will be recorded during the three months ending December 31, 1996. The Company will provide for income taxes because of a permanent difference in the carrying amount of assets sold for tax and financial reporting purposes. Any additional Contingent Consideration received by the consummation of additional acquisitions will reduce the loss on sale of the Ophthalmology Business. The Company will recognize any such Contingent Consideration when realized. In connection with the sale of the ophthalmology physician practice management and ambulatory surgery center business on November 5, 1996, the Company used a portion of the proceeds from this transaction to payoff and terminate the Credit Agreement. On October 1, 1996, the Company acquired the operating assets of a medical practice for $502,000, consisting of $442,000 in cash (including transaction costs) and $60,000 in common stock. This business combination will be accounted for as a purchase. On October 15, 1996, the Security and Exchange Commission declared effective the Company's registration statement on Form S-4 ("Shelf Registration Statement") under which 10,000,000 shares of its common stock, par value $.0001 per share, may be issued from time to time in connection with business acquisitions. To date, no shares of common stock have been issued pursuant to the Shelf Registration Statement. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS Results Of Operations At September 30, 1996, the Company owned or operated 36 oncology centers, 21 ophthalmology centers and ten ambulatory surgery centers ("ASCs"). At September 30, 1995, the Company owned or operated 32 oncology centers. The increase in centers owned or controlled was attributable to acquisitions during the nine months ended September 30, 1996. Net revenues for the three and nine month periods ended September 30, 1996 increased $15,083,000, or 108.0%, and $35,023,000, or 79.3% ,respectively, when compared to the same periods in 1995. The increased net revenues were entirely attributable to acquisitions. Professional fees and expenses are incurred at center locations and consist of physician compensation and liability insurance. Physicians are primarily compensated on the profitability of an individual center, a percentage of professional fees generated, or on a fixed salary. Professional fees and expenses during the three month period ended September 30, 1996 increased to $7,933,000 from $3,073,000 for the same period in 1995, or an increase of 158.2%. Professional fees and expenses during the nine month period ended September 30, 1996 increased to $21,194,000 from $10,790,000 for the same period in 1995, or an increase of 96.4%. These increased expenses resulted from acquisitions. As a percentage of net revenues, professional fees and expenses increased during the three month period ended September 30, 1996 to 27.3% from 22.0% in 1995 and to 26.8% during the nine month period from 24.4% in 1995. These increases were due to a change in the mix of compensation methods. Treatment and support services consist of center-related, non-physician payroll costs, medical, treatment, and optical costs, marketing and other center-related costs. Treatment and support services during the three month period ended September 30, 1996 increased to $11,143,000 from $3,975,000 for the same period in 1995, or an increase of 180.3%. Treatment and support services during the nine month period ended September 30, 1996 increased to $29,722,000 from $12,729,000 for the same period in 1995, or an increase of 133.5%. These increased expenses resulted from acquisitions. As a percentage of net revenues, treatment and support services increased to 38.4% during the three month period ended September 30, 1996 from 28.5% in 1995 and to 37.5% during the nine month period from 28.8% in 1995. These increases were primarily due to the increase in net revenues attributable to ophthalmology centers and related ASCs relative to those of oncology centers. Ophthalmology centers and ASCs have higher levels of costs associated with their operation, compared to oncology centers. 14 Results Of Operations (continued) General and administrative expenses consist of billing, accounting, development, legal and corporate administrative expenses. General and administrative expenses during the three months ended September 30, 1996 increased to $3,367,000 from $2,057,000 for the same period in 1995, an increase of 63.7%. General and administrative expenses during the nine month period ended September 30, 1996 increased to $9,242,000 from $5,666,000 for the same period in 1995, an increase of 63.1%. These increased expenses resulted from (i) an increase in the number of centers in operation, (ii) an increase in development efforts and (iii) the continued establishment of an administrative base to support ongoing expansion. As a percentage of net revenues, general and administrative expenses decreased during the three month period ending September 30, 1996 to 11.6% from 14.7% in 1995, and to 11.7% during the nine month period from 12.8% in 1995. 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, service agreements and non-compete agreements. Depreciation and amortization increased to $1,465,000, or 5.0% of net revenues, for the three month period ended September 30, 1996 from $684,000, or 4.9%, for the same period in 1995. Depreciation and amortization increased to $4,137,000 or 5.2% of net revenues, for the nine month period ended September 30, 1996 from $2,060,000, or 4.7%, for the same period in 1995. These increases were primarily a result of acquisitions. Interest expense increased to $915,000, or 3.2% of net revenues, for the three month period ended September 30, 1996 from $509,000 or 3.7% of the net revenues for the same period in 1995. Interest expense increased to $2,632,000, or 3.3% of net revenues, for the nine month period ended September 30, 1996 from $1,615,000, or 3.7% of net revenues for the same period in 1995. These increases were primarily the result of increased borrowings in connection with acquisitions and borrowings under the Company's factoring arrangement. Minority interest primarily represents ownership in individual cancer centers held by entities other than EquiMed. Such entities have included hospitals or other such health care providers that affiliate with the Company. Minority interest in the earnings of such centers increased to $288,000, or 1.0% of net revenues for the three month period ended September 30, 1996 from $56,000, or 0.4% of net revenues for the same period in 1995. Minority interest decreased to $569,000, or 0.7% of net revenues, for the nine month period ended September 30, 1996 from $641,000, or 1.5% of net revenues, for the same period in 1995. The three month increase and nine month decease were primarily due to the direct results of operations of such centers. During the three and nine month periods ended September 30, 1996, income tax expense was $1,298,000 and $4,443,000 respectively. During the nine month period ended September 30, 1996, the Company recorded a cumulative adjustment of $1,277,000 to establish deferred income taxes. Upon completion of the business combination between the Oncology Group and EquiVision and subsequent merger with and into EquiMed, certain of the entities which comprised the Oncology Group ceased to qualify as Subchapter S corporations and became subject to 15 Results of Operations (continued) corporate income taxes. The change from S corporation to C corporation resulted in the Company recording the cumulative effect of deferred taxes due to this change in tax status. During the three and nine month periods ended September 30, 1995, the Company recorded income tax expense of $964,000 and $2,075,000, respectively. Liquidity And Capital Resources At September 30, 1996, the Company had cash and cash equivalents of $5,280,000. During the nine month period ended September 30, 1996, the Company used cash in operating and investing activities of $179,000 and $5,725,000, respectively, and generated cash of $10,360,000 in financing activities. Cash flows from operating activities during the nine month period ended September 30, 1996 included significant adjustments for cash provided by depreciation and amortization of $4,770,000, deferred income taxes of $1,277,000 and write down of goodwill of $24,200,000. Cash was used for the accumulation of accounts receivable and reductions in payables to affiliates, accounts payable and professional expenses and income taxes payable of $3,541,000, $2,808,000, $1,353,000 and $1,124,000, respectively. The accumulation of accounts receivable during the period was attributable to the delay related to revenue collections associated with acquisitions. Significant investing activities during the nine month period ended September 30, 1996 included cash payments in connection with acquisitions of $4,543,000. Significant financing activities during the nine month period ended September 30, 1996, included $24,227,000 in net proceeds from the sale of common stock, repayment of $25,811,000 in long-term debt and capital lease obligations and $15,879,000 in proceeds from an institutional lender. On December 4, 1995, the Company received a commitment letter from its existing lender (the "Commitment Letter"), which would increase its existing $20,000,000 credit agreement (the "Credit Agreement"). The Commitment Letter expired on its terms by February 29, 1996. After continuing to discuss the terms of an increase in the Credit Agreement, on May 14, 1996, the Company entered into an amendment to Credit Agreement which limits future borrowings under this facility to $15,000,000, and limits future acquisitions during the remaining term of the Credit Agreement which matures on November 30, 1996, to an aggregate of $50,000,000. Future borrowings under the Credit Agreement are limited to the funding of working capital and may not be used for acquisitions. The amendment permits the issuance of common stock and notes payable, as defined by certain restrictive covenants, to consummate future acquisitions. The Company is currently pursuing a new credit facility with other commercial lenders to replace the Credit Agreement prior to its expiration on November 30, 1996. There can be no assurance that the Company will be able to enter into a new credit agreement. 16 Liquidity and Capital Resources (continued) During 1995, the Company entered into a factoring arrangement with a major life insurance company to provide capital. While this facility provides for up to $6,000,000 in financing, under the terms of the revised Credit Agreement, borrowing may not exceed $5,000,000. The Company's principal sources of liquidity for working capital and current operations will be its Credit Agreement, as amended, its factoring arrangement and operating cash flows. The Company has been considering other capital alternatives to finance its acquisition strategy. These alternatives include, among others, an underwritten public or private offering of debt securities. 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. 17 PART II - OTHER INFORMATION Item 1: Legal Proceedings (No response required) Item 2: Changes in Securities (No response required) Item 3: Defaults upon Senior Securities (No response required) Item 4: Submission of Matters to a Vote of Security Holders (No response required) Item 5: Other Information (No response required) 18 Item 6: Exhibits and Reports on Form 8-K (a) Exhibits (11) Statements re: computation of earnings per share (27) Financial Data Schedule (b) Reports on Form 8-K Form 8-K filed September 24, 1996. 19 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) /s/ Larry W. Pearson --------------------------------------- Larry W. Pearson President and Chief Executive Officer November 19, 1996 /s/ Daniel Beckett --------------------------------------- Daniel Beckett Chief Financial Officer 20 EQUIMED, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 EXHIBIT INDEX Exhibit Page 11 Statement Regarding Computation of Earnings Per Share 23 27 Financial Data Schedule 24 21 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EQUIMED, INC. EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
Three months Nine Months ended September 30, ended September 30, 1995 1996 1995 1996 ---------------------------------------------------- Primary: Weighted average common shares outstanding 20,784 28,590 20,784 27,337 Net effect of dilutive stock options and warrants- based on the treasury stock method using average market price - 14 - 109 --------- --------- -------- --------- Weighted average common share and equivalents outstanding 20,784 28,604 20,784 27,446 ========= ========= ======== ========= Net income (loss) $ 2,631 $(21,673) $ 8,651 $(18,581) ========= ========= ======== ========= Net loss per share $ (.076) $ (0.68) ========= ========= Pro forma net income $ 1,831 $ 6,004 ========= ======== Pro forma net income per share $ 0.09 $ 0.29 ========= ======== Fully Diluted: Weighted average common shares outstanding 20,784 28,590 20,784 27,338 Net effect of dilutive stock options and warrants- based on the treasury stock method using the June 30 price, if higher that average market price - 10 - 95 --------- --------- -------- --------- Weighted average common share and equivalents outstanding 20,784 28,600 20,784 27,433 ========= ========= ======== ========= Net income (loss) $ 2,631 $(21,673) $ 8,651 $(18,581) ========= ========= ======== ========= Net loss per share $ (0.76) $ (0.68) ========= ======== Pro forma net income $ 1,831 $ 6,004 ========= ======== Pro forma net income per share $ 0.09 $ 0.29 ========= ========
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EQUIMED, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 5,280 0 15,688 0 0 27,426 20,119 0 101,480 33,378 14,315 0 0 82,183 (32,271) 101,480 0 79,188 0 64,928 23,793 0 2,632 (12,734) 4,443 (18,454) 0 (127) 0 (18,581) (0.68) (0.68)
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